On November 24, 2011, the Federal Court of Appeal released its decision in Canada (AG) v. Amazon.com, Inc., directing that the Commissioner of Patents resume the examination of Amazon.com’s patent application in accordance with the Court’s reasons. In so doing, the ultimate patentability of Amazon.com’s claims in the application remains to be determined, subject to the Commissioner’s particular application of the Court’s reasons.The Court’s decision is also still subject to appeal to the Supreme Court of Canada.

The Commissioner had originally rejected the Amazon.com application, relating to its "one-click" online product ordering system. The application claimed a method and system for allowing a customer to purchase an item online with a single click of a mouse. Following a lengthy examination, the Commissioner had held that the subject matter of the application did not qualify as patent-eligible under the Patent Act. In rejecting the application, the Commissioner drew in part on foreign jurisprudence, particularly that of the U.K.

On an earlier appeal of the Commissioner’s decision to the Federal Court, Justice Phelan overturned the Commissioner’s finding and held instead that the Commissioner applied wrong legal tests in assessing the application. Justice Phelan instead articulated a three-part test, holding that the subject matter of a claim that is directed to a patentable "art": (a) must not be a disembodied idea, but have a method of practical application; (b) must be a new and inventive method of applying skill and knowledge; and (c) must have a commercially useful result. This test was based on a previous decision of the Supreme Court of Canada in Shell Oil Co. v. Commissioner of Patents. Justice Phelan had also rejected the Commissioner’s "form and substance" approach to the interpretation of patent claims, reverting to the well-established principle of "purposive construction" instead. (See our previous e-Alert, With "One-Click," Business Methods Are Patentable in Canada). Although Justice Phelan remanded the application to the Commissioner for reconsideration with the direction that the claims constituted patentable subject matter, the Commissioner did not grant the patent and appealed the Federal Court decision, resulting in the present ruling by the Federal Court of Appeal.

Speaking through Justice Sharlow, the Federal Court of Appeal concurred with Justice Phelan to hold that the doctrine of purposive construction remains a central tenet of Canadian patent law. Any assessment of subject matter patentability must therefore be grounded in a purposive construction of the patent claims.

The Court next opined on the various tests that had been used by the Commissioner to reject Amazon.com’s application, namely that patent-eligible subject matter (1) must be technological in nature; (2) must not be a business method; and (3) must cause a change in the character or condition of a physical object. The Federal Court of Appeal held that the Commissioner should be wary of devising or relying on such tests, and that the focus should instead be on principles to be derived from the jurisprudence. However, the Court cautioned that "one must take care not to apply a jurisprudential principle in a way that forecloses the possibility that new knowledge has rendered conventional ideas obsolete."

Consistent with Justice Phelan, the Federal Court of Appeal explicitly rejected the technological nature test as a stand-alone basis for determining patentable subject matter. As for the Commissioner’s blanket exclusion of business methods, the Court found there to be no Canadian jurisprudence to determine conclusively that a business method should not be patentable subject matter. This was again in agreement with Justice Phelan. However, to the extent Justice Phelan may have stated as a broad rule that a business method becomes patentable subject matter when it has a "practical embodiment" or a "practical application," the Court did not agree that this was a distinguishing test. In this regard, the only assistance provided by the Court was to state that if the sole inventive aspect of a claimed invention is an algorithm (namely a mathematical formula) that is programmed into a computer, this would not be sufficient to ground an application on eligible subject matter. In this sense, the Court made reference to its earlier decision in Schlumberger Canada Ltd. v. Commissioner of Patents. Lastly, as to the test that there be a change in the character or condition of a physical object, the Court here agreed with Justice Phelan’s requirement that patentable subject matter must be something with physical existence, or something that manifests a discernible effect or change. However, the Court explicitly rejected any suggestion by Justice Phelan that a mere "practical application" is sufficient to give the claimed invention the required "physicality" to render the subject matter patentable.

The Federal Court of Appeal ordered that the Commissioner revisit the application with the cited guidance in mind on an expedited basis consistent with its reasons. The Federal Court of Appeal clearly disagreed with Justice Phelan on the issue of whether the Court should itself be undertaking a purposive construction of the claims only on the basis of the available record before it. While the Commissioner may have the benefit of receiving submissions from the Applicant, as well as the assistance of technically experienced staff, the Court observed that judges will generally require the expert evidence of persons skilled in the art in order to properly construe patent claims.

The parties have 60 days to apply for leave to appeal to the Supreme Court of Canada.

McCarthy Tétrault Notes

Although specifically related to Amazon.com's successful "one-click" online ordering technology, this decision impacts the patentability of various computer-based innovations, including those in the financial sector and in the knowledge economy at large.

Since the Federal Court of Appeal has directed the Commissioner of Patents to revisit Amazon.com’s application, the practical effect of this decision remains to be seen. While computer-implemented innovations and novel and inventive business methods may play an increasingly important role in the comparative competitiveness of Canadian businesses, the dividing line between patentable and non-patentable innovations continues to be ill-defined.

In the meantime, patent applicants should ensure that the descriptions and at least some of the claims in their patent applications recite a physically discernible effect, directed towards meeting the "physicality requirement," as articulated by the Federal Court of Appeal following the general guidance of Schlumberger. Similarly, applicants should ensure that at least some of their claims ideally do not, on a purposive construction, only reveal a single inventive aspect that is merely a business method, or more generally, an algorithm. Future decisions of the Courts and the Commissioner, particularly with respect to Amazon.com’s application under consideration, will hopefully give further clarity as to what is sufficient to meet these requirements.

Overall, this important decision is generally supportive of an increasing acceptance of patents directed to computer-implemented inventions and business methods in Canada.