In a thinly reasoned decision, the FCA has decided the Amazon.com appeal without deciding whether business methods are patentable subject matter in Canada. The central question, “Can a business method ever be patentable subject matter?” was dealt with in five paragraphs, in which the FCA applied its own prior decision on computer implemented inventions, Schlumberger Canada Ltd v Comm’r of Patents, [1982] 1 FC 845, 56 CPR (2d) 204 (CA), and held that the result turns on whether “the only inventive aspect of the claimed invention is the algorithm,” in which case it would be unpatentable, or whether the one-click shopping method at issue is “one of a number of essential elements in a novel combination” [63]. The FCA held that this was a matter of claims construction, and remanded the patent to the Commissioner for reexamination in accordance with the FCA’s reasons.
While the FCA disapproved certain aspects of the test applied by the Patent Office, the decision is a victory for the Commissioner, at least in the short term. Schlumberger was also thinly reasoned – it was two pages long and cited no case law whatever – and the practical result was to allow the Patent Office to deal with software patents as it saw fit. While the claims at issue in Schlumberger were refused, the Patent Office soon changed its mind, and ultimately interpreted Schlumberger so as to grant patents for inventions which were functionally indistinguishable: see eg Mobil Oil’s Application (1985), 24 CPR (3d) 571. The FCA’s reasons in Amazon.com are similarly ambiguous. Consequently, while the Patent Office will have to revise the complex test which it applied in Amazon.com’s Application, it will be able to follow its own policy with respect to business method patents. At present the Patent Office is firmly set against such patents, and it is a foregone conclusion that this particular patent will be refused on reexamination, but since claim construction is a matter of law to be reviewed without deference, Amazon.com will have a real possibility of having the Commissioner’s decision overturned, if it is prepared for more litigation. In the short term, then, business method patents will not be granted in Canada; in the longer term, unless the FCA decision is appealed to the SCC, we can expect a protracted period of uncertainty as the Federal Court judges struggle with the interpretation of the FCA decision in Amazon.com.
The root of the difficulty, as I have argued in my article on The Structure of the Law of Patentable Subject Matter, (2011) 23(2) IPJ 169 (draft version here), is that the law of patentable subject matter has conflated two distinct doctrines: the rule against abstract claims, which prohibits abstract claims in any field of endeavour, and field-specific exclusions, which prohibit patents in a particular field of endeavour, regardless of whether the claim is abstract or applied. The decision of the FCA in Amazon.com continues the trend of conflating these concepts, and consequently perpetuates the confusion.
The rule against abstract claims, which is embodied in s 27(8) of the Patent Act, prohibits patents for “any mere scientific principle or abstract theorem.” The law on this point is captured by the key holding in Shell Oil [1982] 2 SCR 536, 554: “A disembodied idea is not per se patentable. But it will be patentable if it has a method of practical application.” This is a prohibition on patenting abstract ideas; as this quotation makes clear, the inventive concept necessary to support a patent may lie in an idea, so long as that idea is claimed in a method of practical application. I have discussed this rule at length in The Rule Against Abstract Claims: History and Principles, (2011) 26(2) CIPR 205 (draft version here). But the fact that an invention has a method of practical application does not in itself mean that it is patentable, as it must also satisfy the other requirements of the Act. It must be new, non-obvious and useful, and it must be subject matter that falls within the definition of “invention” in section 2 of the Act. The leading example of a new, inventive, useful invention with a method of practical application, that is nonetheless unpatentable under section 2 is the oncogenic mouse at issue in Harvard Mouse 2002 SCC 76. Though these doctrines are entirely distinct, both are often referred to as “subject matter” exclusions. To avoid confusion, I refer to them as “the rule against abstract claims” and “field-specific exclusions,” respectively.
The rule against abstract claims is very well established, and it is accordingly clear that a business method will be unpatentable if it is claimed as an abstract idea. The question at issue in Amazon.com was whether a business method is patentable under section 2 of the Act: [PAB 111]; [FC 1]. The PAB held business methods are excluded [195]. Phelan J, reversing this decision, held that there is no exclusion beyond the Shell Oil requirement of “practical application” [FC 53]. On appeal, the specific points at issue were “whether the words ‘art’ and ‘process’ in [the definition of invention in s 2] can include (a) something that is not scientific or technological in nature; (b) something that is merely a business method, or (c) something that causes no change to the character or condition of a physical thing” [49]. To begin, the FCA held, rightly in my view, that the “technological” nature question is unhelpful [56]-[58].
The core of the FCA decision is in the discussion of point (b) “Can a business method ever be patentable subject matter?” [59]-[63]. The FCA began by accepting Phelan J’s holding that “the patent claims in issue describe a business method that has a practical application” [59]. However, the FCA then said that “it does not necessarily follow, as Justice Phelan seemed to suggest, that a business method that is not itself patentable subject matter because it is an abstract idea becomes patentable subject matter merely because it has a practical embodiment or a practical application” [61]. These holdings, in themselves, are entirely consistent with the view that business methods are unpatentable as being a field-specific exclusion under section 2: in my Structure article I argued that Phelan J was wrong to dismiss the possibility of field-specific exclusions under section 2 (though I also argued he was right to conclude on the evidence before him that business methods are not excluded on that basis). However, the FCA did not go on to consider whether business methods fall within the definition of “art” or “process.” Instead, the FCA applied its own previous decision in Schlumberger on software patents, and addressed the issue in terms of the rule against abstract claims – despite having already acknowledged that the patent in question has a method of practical application.
The invention at issue in Schlumberger was for a method of analyzing oil-well logging data by means of a computer. As the FCA in Amazon.com recognized at [62], the claimed invention in Schlumberger was the practical application of knowledge: “That use of the computer was a practical application, and the resulting information was useful.” The FCA in Schlumberger nonetheless held it to be unpatentable, on the basis (at 206) that:
In order to determine whether the application discloses a patentable invention, it is first
necessary to determine what, according to the application, has been discovered. . . . What
is new here is the discovery of the various calculations to be made and of the
mathematical formulae to be used in making those calculations. . . . A mathematical
formula must be assimilated to a “mere scientific principle or abstract theorem” for which
subsection 28(3) [now 27(8)] of the Act prescribes that “no patent shall issue.” . . . What
the appellant claims as an invention here is merely the discovery that by making certain
calculations according to certain formulae, useful information could be extracted from
certain measurements.
On its face this says that if the only inventive aspect of the claimed invention is a mathematical formula, the claim will be invalid. I have argued that the reasoning in Schlumberger is inconsistent with Shell Oil because subsection 28(7) does not say that a “theorem” is unpatentable; is says that an “abstract theorem” is unpatentable. These are not the same. Shell Oil establishes that an abstract idea is unpatentable, but an idea is patentable, in the sense that an idea can supply the sole inventive concept in an invention, if the invention claims a practical application of that idea. As the FCA itself has held:
invention may lie in the idea, and it may lie in the way in which it is carried out, and it
may lie in the combination of the two; but if there is invention in the idea plus the way of
carrying it out, then it is good subject-matter for Letters Patent.
No doubt you cannot patent an idea, which you have simply conceived, and have
suggested no way of carrying out, but the invention consists in thinking of or conceiving
something and suggesting a way of doing it ...
Hickton’s Patent (1909), 26 RPC 339 (CA), cited with approval in Shell Oil,
quoted with approval in Tye-Sil Corp Ltd v Diversified Products Corp, 35 CPR
(3d) 350, 364 (FCA), emphasis added in Tye-Sil.
See my article on The Rule Against Abstract Claims: A Critical Perspective on US Jurisprudence, (2011) 27(1) C.I.P.R. 3 at 28ff (draft version here), for my critique of Schlumberger in light of Shell Oil.
This is not merely a problem of theoretical coherence. The conflation of two distinct concepts in Schlumberger resulted in ambiguity in practice. As noted at the outset of this post, after Schlumberger upheld its refusal to grant the claims at issue, the Patent Office nonetheless began routinely granting similar claims. The Patent Office was able to do this because the FCA decision held a latent ambiguity in the phrase “what is new.” On the most straightforward reading, this refers to the inventive concept; if the inventive aspect of the claimed invention is an algorithm, then the claim is invalid. That means that an algorithm is unpatentable even if claimed as a practical application. But the FCA also said that “What the appellant claims as an invention here is merely the discovery” of the algorithm. This implies that if the claimed invention taken as a whole is more than “merely” algorithm, then it is patentable even if the inventive aspect lies only in the algorithm. In other words, an algorithm is patentable, so long as it is claimed as a practical application. It is this latter interpretation that the Patent Office ultimately adopted, as is illustrated by the following passage from Mobil Oil’s Application, 575-76 (my emphasis):
We see that mathematical calculations may be part of the applicant's system in that the
seismic reflections are stored as an array of samples in a digital computer, and that
Fourier transforms convert the array into amplitude and a function of frequency and wave
number. We observe however, that the steps of the method work on the seismograms
whereby the multiple reflections are suppressed. It is our opinion these steps bring
another dimension to the kind of invention that the applicant has presented. We regard
the invention as pertaining to a useful system of filtering multiple reflections from
seismograms, and as such we believe that more than calculations are involved. We are
satisfied the nature of the applicant's invention removes it from any of the categories
identified in s. 28(3), and hence from being solely algorithmic.
This discussion of Schlumberger became almost formulaic, and as a result software patents have been routinely granted.
The FCA decision in Amazon.com relies directly on Schlumberger, and consequently it contains exactly the same ambiguity. This is the central passage from Amazon.com:
[63] It is arguable that the patent claims in issue in this case could fail on the same
reasoning, depending upon whether a purposive construction of the claims in issue leads
to the conclusion that Schlumberger cannot be distinguished
because the only inventive
aspect of the claimed invention is the algorithm – a mathematical
formula – that is
programmed into the computer to cause it to take the necessary steps to
accomplish a one-click online purchase. On the other hand, it is also
arguable that a purposive construction
of the claims may lead to the conclusion that Schlumberger is distinguishable because a
new one-click method of completing an online purchase is not the whole invention but
only one of a number of essential elements in a novel combination. In my view, the task
of purposive construction of the claims in this case should be undertaken anew by the
Commissioner, with a mind open to the possibility that a novel business method may be
an essential element of a valid patent claim.
So, in the first alternative, if the only inventive aspect of the claimed invention is “the algorithm. . .that is programmed into the computer” then it is unpatentable, as a matter of subsection 27(8). An initial problem is that it is not entirely clear what is meant by “the algorithm.” The PAB found that the inventive aspect which made the invention non-obvious was “single-action ordering without checkout steps and without having to re-enter purchaser-specific account information in a separate page for additional orders” [PAB 72, 94-98]. This would normally be described as an idea or business idea, not an algorithm, though this idea was claimed as what might be described as a high-level algorithm (see claim 1 at [10]). In my view the best interpretation of this passage is that the claimed invention will be invalid if the only inventive aspect was the business idea as embodied in that high-level algorithm. Note that the PAB’s finding that this business idea was itself inventive was not appealed, so this implies that a claim will be invalid if the only inventive aspect is a business idea, even if that business idea is claimed as a practical application.
In my view this reasoning is wrong for the same reason that the reasoning in Schlumberger was wrong. Even if “the only inventive aspect of the claimed invention is the algorithm,” an algorithm, a mathematical formula, or an idea is patentable if it has a method of practical application. By this criticism of Amazon.com, I do not mean to argue that business methods are necessarily patentable. My point here is that the key reasoning in Amazon.com misapplies the rule against abstract claims, and therefore entirely fails to address the question of whether business methods are an excluded field under section 2.
Further, the reasoning in Amazon.com is ambiguous for the same reason that the reasoning in Schlumberger was ambiguous. The first alternative says that a patent will be invalid if the only inventive aspect is a business idea. The second alternative expressed in [63] is that the patent will be valid if “a new one-click method of completing an online purchase is not the whole invention but only one of a number of essential elements in a novel combination.” In other words, if the claimed invention as a whole is more than merely a business idea, then the patent will be valid. Further, this sentence admits that the business idea may be an “essential element” of the claimed invention, which implies that a business idea may supply the sole inventive aspect, so long as it is not “the whole invention.” To cast this into language from the PAB Mobil Oil decision, “We regard the invention as pertaining to a useful system of placing an order over the Internet, and as such we believe that more than a mere algorithm is involved.”
The same ambiguity was also apparent in Sharlow JA criticism of Phelan J’s analysis, when she explained that the reason that practical application “cannot be a distinguishing test,” is because “it is axiomatic that a business method always has or is intended to have a practical application” [61]. This is not at all persuasive. The fact that an inventive concept has or is intended to have a practical application says nothing as to whether it is actually claimed as a practical application. Newton’s laws of motion certainly have many practical applications, and it is at least plausible that Newton intended them to be practically applied. Nonetheless, “F=ma” is abstract, and is therefore not patentable if claimed as such. Indeed, in the very next sentence Sharlow JA characterized “the particular business method [in this case]” as being “itself an abstract idea,” thus apparently contradicting her assertion that a business method necessarily has a method of practical application. It is possible that Sharlow JA meant that the business method at issue was abstract, but was nonetheless intended to have a practical application. There are two problems with this. First, as an interpretation of what Sharlow JA intended, it is inconsistent with her apparent acceptance at [59] that the business method at issue was claimed as a method of practical application. Secondly, if it is nonetheless a correct interpretation of what was intended, then it is not persuasive as a critique of Phelan J’s reasoning, as Shell Oil established that the distinction between a method that has a practical application, and one that is merely intended to have a practical application, is the crucial point on which patentability turns.
In summary, the FCA decision in Amazon.com is doctrinally confused, and the result is practical legal uncertainty. If the Patent Office wishes to refuse a patent in which the inventive step lies in a business idea, it will focus on the first aspect of [63], and say that “the only inventive aspect of the claimed invention is the [business idea]” which is to be assimilated to a mathematical formula, and is therefore unpatentable. On the other hand, if the Patent Office wishes to grant the patent, it will focus on the second aspect of [63] and says that on a purposive construction the business idea is “only one of a number of essential elements in a novel combination,” just as software patents were granted on the basis that the invention pertains “to a useful system” and “more than calculations are involved.” The same choice, or dilemma, will face the Federal Court on any appeal.
Too bad the case didn't make it to the SCC. The remedy here was, in this way, as unsatisfactory as the reasoning, in the sense that it gave the patentee all they could get out of the case while leaving the law not much better off.
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