On October 14, 2010, the Federal Court released its much anticipated decision (2010 FC 1011) in the appeal of a decision by the Commissioner of Patents to deny a patent to Amazon.com for a "business method", having found that it was not patentable subject matter under s. 2 of the Patent Act. The decision of the Court, delivered by the Honourable Mr. Justice Phelan, considered whether a "business method" is patentable under Canadian law and will have potential significance for many who navigate Canada's patent system. Canadian patent applicants, both domestic and foreign, will be impacted by this decision.

By way of a Canadian application filed in 1998, Amazon.com sought a patent for a "Method And System For Placing A Purchase Order Via A Communication Network". The claimed invention has uses in internet shopping, where it enables a customer to purchase an item with a "single click". In 2004, a Canadian patent Examiner rejected the patent on the basis of both obviousness and nonpatentable subject matter. Amazon.com subsequently appealed the Examiner's rejection. The Commissioner of Patents ultimately accepted the findings of a Patent Review Panel, and overturned the Examiner's rejection on the basis of obviousness, but rejected the claims of the application for non-compliance with section 2 of the Patent Act and as non-patentable subject matter.

Early in its appeal decision, the Federal Court states that the Commissioner is bound by the Canadian patent regime and its interpretation by the Courts. International jurisprudence and the policies advocated therein are not determinative. The decision of the Honourable Mr. Justice Phelan noted that the Commissioner had made errors which stemmed from her adoption of a policy role and the importation of policies not concordant with Canadian law.

The Commissioner's analysis of "form and substance" and "what has been discovered" was additionally found to represent a departure from the clear direction of the Supreme Court of Canada (in Free World Trust v. Électro Santé Inc., [2000] 2 S.C.R. 1024 and in Whirlpool Corp. v. Camco Inc., [2000] 2 S.C.R. 1067) that an invention is universally defined by its claims as construed and interpreted in a "purposive manner". In this regard, the Court found it problematic to suggest that "what has been discovered" could stand apart from the claims as a whole. It expected that some elements of an invention will not be new, and found it contrary to settled law to fail to look at the invention as a whole when looking at "what has been invented" and "substance". The Federal Court found that the Commissioner had made an error of law outside her jurisdiction, by adopting a novel legal test to assess patentable subject-matter not supported by recent Canadian jurisprudence or the Patent Act.

The Honourable Mr. Justice Phelan additionally concluded that there was no basis for the Commissioner's assumption that there is a "tradition" of excluding business methods from patentability in Canada. We note that section 12.04.04 of Canada's Manual of Patent Office Practice had previously – i.e., prior to revisions made in 2009 following the Commissioner's Amazon.com decision – indicated that business methods "are not automatically excluded from patentability, since there is no authority in the Patent Act or Rules or in the jurisprudence to sanction or preclude patentability based on their inclusion in this category." The Federal Court's decision represents a return to this approach in Canada and allows business methods to be assessed pursuant to the general categories in s. 2 of the Patent Act.

The Court found that the Commissioner's articulation of the test for "art" was too restrictive in requiring associated knowledge to be scientific or technological in nature. The technical or technological requirement for patentability was also found to have been newly and unnecessarily introduced by the Commissioner into the Canadian patent regime. No reference to such a test was found in the Canadian jurisprudence, or none was advanced in the Federal Court, and the Court held it was not within the Commissioner's jurisdiction to introduce one. Technology was stated to be in such a state of flux that to attempt to define it would serve to defeat the flexibility which is so crucial to the Act. The current assessment of subject matter, without reference to such concepts, was held to be preferable.

After holding that the Commissioner had fundamentally erred in the legal principles used to determine patentability, the Federal Court went on to examine the claims de novo in order to determine whether they are patentable subject matter.

The Court found that a purposive construction of Amazon.com's "system claims" clearly disclosed, as an essential element, a machine in the form of a computer used to implement their one-click online ordering process. Such claims went beyond being directed to a mere "mathematical formula" which could be carried out without a machine or simply a computer program. Since a machine is patentable under s. 2 of the Patent Act, the Court found the system claims to relate to patentable subject matter.

Regarding Amazon.com's process claims, the Court held that the Commissioner had erred by "parsing" the claims into their novel and obvious elements in order to assess patentability. When viewed as a whole, the Court found the claimed invention was clearly a process to enable customers to order items over the Internet by 'clicking on them'. The Court found that a system to facilitate online ordering adds to the state of knowledge, and that this new knowledge was a practical application of the "one-click" concept, put into action through the use of cookies, computers, the Internet and the customer's own action. Tangibility was not found to be an issue. The "physical effect", transformation or change of character was found to reside in the customer manipulating their computer and creating an order. In the Federal Court's determination, it does not matter that the ordered "goods" are not physically changed. Accordingly, the Court also found the process claims to be a patentable as an art and process.

In Canadian jurisprudence, there is no exclusion for "business methods" which are otherwise patentable. And, even if there was some technological requirement in Canadian jurisprudence (though the Court expressly said there was no such requirement), the claims of Amazon.com's patent application when viewed as a whole were found disclose a technological invention.

For the reasons given, the Court concluded that a "business method" can be patented in Canada in appropriate circumstances. The Honourable Mr. Justice Phelan also stated that the:

absolute lack of authority in Canada for a "business method exclusion" and the questionable interpretation of legal authorities in support of the Commissioner's approach to assessing subject matters underline the policy driven nature of her decision. It appears as if this was a "test case" by which to assess this policy, rather than an application of the law to the patent at issue.

The Federal Court ended by saying that the misapprehension of the Commissioner and the Examiner as to the patentability of the subject-matter in these claims was a fundamental error of law, one which may have tainted the entire analysis. The Court allowed the appeal with respect to the Commissioner's findings on statutory subject-matter. The Commissioner's decision was quashed and Amazon.com's application was to be sent back for expedited re-examination with the direction that the claims constitute patentable subject matter.

Conclusion

Now, in view of this Federal Court decision, innovators may wish to reconsider their strategy for protecting their valuable business methods. This decision and the recent decision of the United States Supreme Court in Bilski v. Kappos, 561 U. S. ____ (2010), make it clear that business method patents can be obtained in a few key jurisdictions. One potential patent strategy may involve (i) first filing a Canadian patent application directed to a business method, along with a request for advanced examination, such as may be routinely granted in Canadian patent practice, and then (ii) invoking the Patent Prosecution Highway to expedite examination of a corresponding patent application in the U.S. or another jurisdiction, following successful prosecution of the application in Canada. It may be expected that this Canadian strategy will be utilized with increasing frequency, in the future, as a viable way to speed up the process of obtaining valuable business method patents in key jurisdictions worldwide.