Surely business methods are prohibited in Canada? Ramifications of the Amazon appeal decision on doing business (methods) in Canada

8 minute read
05 December 2011


A typical business method patent contains claims to innovative, computer-implemented technology related to the practice, administration, or management of an enterprise, usually involving the processing of data specific to enterprise operations. Industries potentially subject to business methods can include e-commerce, advertising, loyalty and reward programs, insurance and banking and other financial services. In some countries, business method patents are recognised as important assets for small, medium and large corporations.

On November 24, 2011, the Canadian Federal Court of Appeal quashed the Commissioner of Patents’ stated “tradition” of excluding business methods from patentability. In the appeal of Commissioner of Patents v. Inc., the Court kept the door open to the patentability of business method patents in Canada, but refrained from ruling on whether the “one-click” patent at issue was patentable. The Court sent the matter back to the Commissioner to expedite further examination of Amazon’s patent application based on the Court’s reasoning.

As a result of the Court's decision, it is clear that business method patents have won a beachhead in the Canadian patent landscape that can be used for their further advancement. The Court's decision will clearly impact the business practices of the financial and insurance industries in Canada, evidenced by the involvement as Interveners in the appeal of the Canadian Life and Health Insurance Association Inc. and the Canadian Bankers Association. Through the Court, the mindset of the Canadian patent system towards computer-related technology has been formally introduced to the 21st century and business methods have been acknowledged as having their rightful place at the patent table alongside more traditional technologies.

Impact of the Court's decision on the Commissioner of Patents

The examination and issuance of patents in Canada is overseen by the Commissioner of Patents, whose historical policy was to prohibit business method patents. However, this policy was deemed by the Court as "incorrect in law". The Court reasoned that the Commissioner of Patents should not have permitted its stance on business method patents to cloud its judgment during examination of the Amazon patent application, in particular when used as justification to exclude consideration of the claimed invention against the correct statutory provisions of novelty and inventiveness over state of the art teachings. In other words, examination of the Amazon patent application was remanded back to the Commissioner of Patents with the reasoning that continued examination "should be taken anew with a mind open to the possibility that a novel business method may be an essential element of a valid patent claim", [emphasis added].

The Amazon patent application’s 13 year examination is to continue without the Commissioner of Patents simplistic reliance on business method patent prohibition. In broader terms, business method patent applications will now enjoy due consideration using the same patent examination processes and applicable statutory provisions as any other innovative technology that is useful to industry. As a consequence, businesses in Canada must now consider the impact of future issuances of Canadian business method patents on their company operations.

Business method patent holiday for business in Canada is at an end

A patent monopoly can be thought of as a backyard fence constructed around the patented technology. This fence controls company access to the technology, which can be either of company benefit or company detriment depending on which side of the fence the company is on. Many companies doing business in Canada have been comfortably avoiding taking any proactive decision-making on Canadian business method patents, in particular over the last 5-10 years, due to the business method patent prohibition enforced by the Commissioner of Patents. However, it is a fact that companies in the U.S., our major trading partner to the south, have been dealing with business method patents in their own backyard since they were formally recognized by the U.S. patent system in the 20th century by the United States Court of Appeals for the Federal Circuit decision in State Street Bank vs. Signature Financial Group (1998).

Therefore, U.S. based companies enjoy a 13 year head start on considering or otherwise perfecting how business method patents can be used to the before-mentioned benefit/detriment, including their obvious use as a litigation tool. It suffices to say that companies in Canada now have over a decade of catching up to do.

Extended timeline for patent enforcement of a Canadian business method patent

The lifespan of a patent is measured as 20 years from its filing date, but a patent cannot be enforced until it is issued. For example, if/when the Amazon patent issues, say 14 years after its filing, Amazon would then only have 6 years remaining to enforce the issued patent against online retailers in Canada (i.e. exact license terms and/or stop infringing uses of the patented one-click technology). Amazon would also be entitled to "reasonable compensation" from online retailers for any infringing uses of the patented oneclick technology that has already occurred, going back up to 6 years before issuance of the patent. For example, a 14 year pendency for the patent application could still translate into a 12 year window for enforcement of the issued patent despite the 6 years of remaining patent term.

The potential risk to Canadian business of liability for infringement of a business method patent is a sleeping giant that has been nudged by the Amazon decision. However, Amazon is not the only company that has been filing Canadian business method patent applications. Due to Canadian patent examination delays, for a variety of reasons, there is currently a glut of predominantly U.S. based business method patent applications pending (i.e. unexamined) in the Canadian Intellectual Property Office, the examination of which should be affected by the Court's decision. In addition, given the Court's decision, one can assume that filings by domestic and foreign companies of Canadian business method patent applications will be on the rise. Accordingly, companies doing business in Canada need to take stock of the current landscape of Canadian business method patent applications as they relate to their company operations, both future and historical.

Impact of Business Method Patents in the Canadian economy

Business method patents can provide or otherwise strengthen a competitive advantage in the marketplace. For example, Amazon could theoretically hold the keys to the one-click technology via their issued patent, however, what that actually means in the eyes of the Canadian online consumer remains to be seen. Taken to the extreme, does it mean in the face of an issued Amazon patent that the Page 3 Canadian online retailing industry would suffer as a whole? I believe not, as one must consider that the Amazon patent has already issued in the U.S., Australia and New Zealand, where the online retail business remains healthy. For online retailers in those countries sitting outside of an issued and enforced one-click fence, one could surmise that "alternative" online purchasing technologies are in use. However, for those online consumers that demand the one-click technology as part of their online retail experience, the online retailer(s) sitting inside of the one-click fence would enjoy a competitive advantage.

In view of the Court's decision to remove the Canadian business method patent prohibition, Amazon now has the just-deserved opportunity to obtain a patent monopoly for their innovation in Canada. A stated advantage of the one-click technology, via browser cookies, is to limit the number of times that transmission of personal information is required over the Internet between online consumers and retailers. In this age of online information security concerns, this advantage must be acknowledged and given its proper consideration before the Commissioner of Patents.

There is a rich culture of innovation in this country and it behoves companies having valued Canadian operations to start considering how business method patents will affect their businesses in the 21st century and beyond. 

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