On October 14, 2010, the Federal Court released the much anticipated decision of Amazon.com v. The Commissioner of Patents, [2010] FC 1011, relating to the patentability of software and business method patents in Canada. The decision, authored by Justice Phelan, concludes that there is no exclusion for business method patents in Canada, nor is there a technological requirement test in determining patentable subject matter. The Court decided that a “business method” can be patented in appropriate circumstances.

On September 11, 1998, Amazon.com applied for a patent for an invention entitled “Method and System For Placing A Purchase Order Via A Communications Network.” The invention, now infamously referred to as the “One-Click Patent,” claimed a method and system whereby a customer could visit a website, enter his user and payment information and then be given an identifier that would be stored in a cookie on his computer. A server would then able to recognize the customer’s computer with the identifying cookie, retrieve the user and payment information, and thus, the customer could purchase an item with a single click.

Following the rejection of the claims by the Examiner on the grounds of obviousness and non-patentable subject matter, Amazon appealed to the Commissioner, and appeared before the Patent Appeal Board. The Commissioner adopted the decision of the Patent Appeal Board that found the invention to be non-obvious, but ultimately rejected the application for failing to claim patentable subject matter.

The Commissioner identified a four-step approach for determining patentable subject matter. Specifically, the Commissioner decided that (i) the claims must define patentable subject matter in both “form and substance”; (ii) the claims must fit into one of the categories listed under the definition of “invention” in the Patent Act; (iii) the claims could not be directed to subject matter that has explicitly been excluded by the Patent Act or by the jurisprudence; and, (iv) the invention must be “technological” in nature.

Justice Phelan categorically rejected the form and substance approach applied by the Commissioner and noted that this approach was contradictory to the Supreme Court’s decisions in Free World Trust v. Electro Sante Inc., [2000] 2 S.C.R. 1024 and in Whirlpool Corp. v. Camco Inc., [2000] 2 S.C.R. 1067. Justice Phelan concluded that “a return to ‘form and substance’ language, no matter what the context, is confusing and unnecessary. Further, it represents a departure from the clear direction of the Supreme Court to apply purposive construction universally.”

It was also decided the Commissioner’s test for what constituted an “art” under the definition of “invention” in the Patent Act was overly restrictive and was not consistent with the Supreme Court’s decision in Shell Oil Co. of Canada v. Commissioner of Patents, [1982] 2 S.C.R. 536. Justice Phelan concluded that the Commissioner’s interpretation of “practical application does not take into account a wider definition of physical, change in character or condition or the concrete embodiment of an idea.”

Next, Justice Phelan considered the Commissioner’s determination that there is a categorical exclusion of business method patents in Canadian jurisprudence. It was determined that “there is not, nor has there ever been, a statutory exclusion for business methods in Canada.” The only exclusion found in the jurisprudence was said to be for mere schemes or disembodied ideas. Justice Phelan concluded that this was not the case for the business method claimed by Amazon. Justice Phelan further rejected the Commissioner’s parsing of the claims into their novel and obvious elements in order to assess patentability and emphasized that the claims must be viewed as a whole, and not separately in “form and substance.”

Finally, the requirement that an invention be technological in nature was considered. Justice Phelan dismisses outright this test stating “it is difficult to see how introducing this sort of technological test into the Canadian patent system would do anything but render it overly restrictive and confusing. It would be highly subjective and provide little predictability. Technology is 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.”

Having rejected the test put forth by the Commissioner, Justice Phelan considered the claims de novo to determine whether they were patentable subject matter, and ultimately concluded that “the new learning or knowledge is not simply a scheme, plan or disembodied idea; it is 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 is not an issue.” It was further noted that the invention had a commercially applicable result and was concerned with trade, industry and commerce, and accordingly does relate to patentable subject matter.

Of note, Justice Phelan considered the importance of this decision and stated that in making her decision, the Commissioner “not only raises significant questions of law and interpretation, but extends into policy-making which stands to fundamentally affect the Canadian patent regime … It also revisits the powers given – and not given – to the Commissioner under the Patent Act and the limitations which the statutory regime and jurisprudence impose on her.” Later, Justice Phelan concluded that “the Commissioner is thus bound by Canadian patent regime and its interpretation by the Courts. On this she has no discretion … As becomes evident, many of the Commissioner’s errors stem from her adoption of a policy role and the importation of policies not concordant with Canadian law.”

Following this decision, it appears that a broad and open view of patentable subject matter exists in Canada. Furthermore, a flexible approach towards determining patentable subject matter is to be taken. There are few exclusions to patentable subject matter in Canada. A mere scientific principle or abstract theorem is not patentable, but a practical application of a scientific principle or theorem is patentable if it is new, useful and not obvious. In the absence of other specific exclusions, any invention that involves a practical application and produces a commercially useful result in relation with trade, industry or commerce is patentable subject matter. With this decision, an area of uncertainty in Canadian patent law has been clarified, and there is no outright exclusion to business method patents in Canada.