None of Your Business!

Most people think of patents in terms of legal protection for new technological inventions. There is another form of patent, however. A business method patent is one awarded for a special technique for doing business, such as improvements to a company's accounting or sales department.

Business method patents have proven very controversial in the United States, which has been home to dozens of lawsuits over their validity. By contrast, Canada has tried to craft a balance that neither embraces nor completely rejects them. That policy may be changing, however, as the Canadian Patent Appeal Board (CPAB) recently denied an appeal by Amazon.com over a "one-click" ordering system patent with strong language that challenged the notion that business methods are patentable under Canadian law.

Business method patents took off in the U.S. in 1998, when the U.S. Court of Appeals for the Federal Circuit (one notch below the U.S. Supreme Court) ruled that patents could be awarded for business methods in a case called State Street Bank v. Signature Financial Corp.

In the aftermath of the State Street Bank decision, companies rushed to file patent claims for a wide range of business practices. Amazon.com became the most visible business method patentee with its one-click patent for a service that allows repeat visitors to move directly to the virtual checkout with one click (completing payment and shipping information in the process).

One-click litigation?

The patent system is designed to encourage invention and innovation by providing developers with legal protection for a limited time to enable them to fully exploit the value of their work. To be deserving of patent protection, a series of criteria must be met, including a requirement that the source of the patent be novel and non-obvious. Critics argue that rather than encourage innovation, business method patents such as the one-click encourage litigation and curtail innovation by limiting competition.

The Canadian experience with the Amazon.com one-click business method patent has been much different. The Canadian Patent Office rejected the application in 2004 based on obviousness and non-statutory subject matter. Amazon.com appealed to the Canadian Patent Appeal Board.

At first blush, the CPAB could have relied on the Manual of Patent Office Practice to support Amazon.com's claim for a business method patent. The 2005 Manual provides 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."

Yet the panel delivered very strong language rejecting the mere possibility of business method patents under Canadian law. The panel noted that "since patenting business methods would involve a radical departure from the traditional patent regime, and since the patentability of such methods is a highly contentious matter, clear and unequivocal legislation is required for business methods to be patentable."

A resounding no

In applying that analysis to the Amazon.com one-click patent, the panel concluded that "concepts or rules for the more efficient conduct of online ordering, are methods of doing business. Even if these concepts or rules are novel, ingenious and useful, they are still unpatentable because they are business methods."

The CPAB decision is not necessarily the end of the road for the one-click patent since Amazon.com has the option of appealing to the Federal Court. However, the decision provides a strong signal that the business method patents face a rough ride under current Canadian law.

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