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Business method patents in Canada: new developments

by Adrian Kaplan

Originally published May 2007 by Thomson Carswell on IPSource. Used with permission.

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Despite the buzz created by the decision of July 23, 1998 of the United States Court of Appeals for the Federal Circuit in State Street Bank & Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), business methods have not been considered to constitute patentable subject matter in Canada. However, two recent decisions by the Patent Appeal Board have effectively held the computer implemented systems directed to financial applications do indeed constitute patentable subject matter. In the wake of these decisions, it appears that a fundamental shift in the application of Canadian patent law by the Courts may soon play out.

Section 2 of the Canadian Patent Act defines an invention as meaning "... any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter." Pure business methods have historically not been considered to form patentable subject matter in Canada. This rationale was reflected in an early U.K. decision In Re Coopers Application (1901), 19 RPC 53, where the Court stated that:

[Y]ou cannot have a Patent for a mere scheme or plan - a plan for becoming rich; a plan for the better government of a State; a plan for the efficient conduct of business.

This philosophy was also adopted by the respected commentator Dr. Harold G. Fox who cited In Re Coopers Application to support the proposition that:

Business systems are not within the meaning of the term 'invention'... A patent can only protect a mechanical or chemical process and not a process that is merely an exercise of brain power carried out by ordinary manual means. To be patentable there must be the production of a new and different article or a new commercial result by such mechanical or chemical process, the difference being not merely literary or artistic.

There is no exhaustive definition for a business method. The definition accepted by the Canadian Patent Office is set out in s.12.04.04 of the Manual of Patent Office Practice (MOPOP) as follows:

The expression "business methods" refers to a broad category of subject matter which often relates to financial, marketing and other commercial activities. These 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. Patentability is established from criteria provided by the Patent Act and Rules and from jurisprudence as for other inventions.

In order for a method such as a business method to be considered to constitute patentable subject matter, it must be able to meet the definition of an "art" under section 2 of the Canadian Patent Act. A number of Canadian court decisions have considered this issue.

In the case of Lawson v. Canada (Commissioner of Patents) (1970), 62 C.P.R. 101, 1970 CarswellNat 361 (Can. Ex. Ct.), the Court commented as follows regarding what constitutes an art:

An art or operation is an act or series of acts performed by some physical agent upon some physical object and producing in such object some change either of character or of condition. It is abstract in that, it is capable of contemplation of the mind. It is concrete in that it consists in the application of physical agents to physical objects and is then apparent to the senses in connection with some tangible object or instrument.

Lawson remains the primary impediment to patenting business methods in Canada. However, its usefulness as an authority for the proposition that business methods are not patentable subject matter is doubtful. In fact, the Supreme Court of Canada in Shell Oil Co. v. Canada (Patent Commissioner) (1982), 142 D.L.R. (3d) 117, 44 N.R. 541, 1982 CarswellNat 487, 1982 CarswellNat 487F, [1982] 2 S.C.R. 536, 67 C.P.R. (2d) 1 (S.C.C.) determined that Lawson's application was rejected not because the subject matter of the application was not an "art" within the definition in the Patent Act, but because it related to professional skill rather than to industry, trade or commerce.

In the Shell Oil case, the Court defined the word "art" very broadly as follows:

... a word of very wide connotation... not to be confined to new processes or products or manufacturing techniques but extended as well to new and innovative methods of applying skill or knowledge provided they produce effects or results commercially useful to the public.

The Federal Court in its decision in Progressive Games Inc. v. Canada (Commissioner of Patents) (1999), 1999 CarswellNat 2186, (sub nom. Progressive Games Inc. v. Commissioner of Patents) 177 F.T.R. 241, (sub nom. Progressive Games, Inc. Patent Application No. 596,848 (Re)) 3 C.P.R. (4th) 517 (Fed. T.D.) summarized that an art is:

A process that:

i) is not a disembodied idea but has a method of practical application;

ii) is a new and innovative method of applying skill or knowledge; and

iii) has a result or effect that is commercially useful.

Nevertheless, the Canadian Patent Office continues to interpret the meaning of "art" to exclude methods that are pure business methods. The position of the Canadian Patent Office is put forth in section 12.02.01a as follows:

To be considered as any one of an "art", "process", or manner of "manufacture" under section 2 of the Patent Act, a method must produce an essentially economic result in relation to trade, commerce, or industry, in the meaning given those words by the Courts; no other methods are statutory subject matter. This means that, to be considered statutory subject matter, a method must be at least one of the following:

1. a method for producing, making, constructing, or building a vendible product;

2. a method of using or operating an inventive "thing", or a known "thing" for an inventive new use; or

3. a method of diagnosing a physical disease or physical medical condition in a human being.

The Canadian Patent Office gives a narrow interpretation of the Shell Oil decision as reflected by the commentary in section 12.02.10a:

Given the subject matter in Shell and subsequent court cases that referred to "new and innovative methods of applying skill or knowledge", this expression is considered to apply to methods of using or operating known things for non-analogous (or inventive) new uses. This interpretation is reinforced by the need for a "new and innovative method of applying skill or knowledge" to contribute to the cumulative wisdom on a patentable subject. By extension, methods of operating or using inventive things would also qualify as statutory subject matter; this corresponds with the Patent Office's traditional practice of allowing claims to methods of operating inventive machines.

Between Shell Oil and Progressive Games it can be fairly said that any method which applies skill or knowledge to produce effects or results that are commercially useful to the public (or essentially economic results relating to trade, commerce, or industry) is patentable subject matter. Beyond that, the question of patentability comes down to whether the invention is novel, unobvious and has utility. In fact, the invention in Progressive Games failed on the 'novelty' portion of the second part of the test, not because it was not patentable subject matter.

The Patent Appeal Board has recently issued two separate rulings holding that computer implemented systems are patentable. These decisions support a broader interpretation of what constitutes patentable subject matter in Canada.

The first case related to Canadian Application No. 2,298,467. The Board held on December 11, 2006, that a system entitled "Data Processing System for Facilitating Transactions in Diamonds" is patentable subject matter. The independent claim held to be directed to patentable subject matter is as follows:

1. A host computer processor to facilitate transactions involving diamonds from remote computer terminals in data communications with said host processor, each terminal including display, said host processor comprising

(a) a data structure for each of at least one stone offered for sale, each data structure including date of stone weight, offer price, seller identification data and at least one other diamond characteristic, the data structures being arranged into array weight with stones with like characteristics in each array category arranged into array sub-categories and wherein data for each category is arranged according to price;

(b) means for receiving data from said remote terminals to permit a seller to input said stone data as a data structure, and for assigning said data structure to said array;

(c) means for controlling said terminal displays to display said stone data array and at least data for the stone of each category occupying the primary display position;

(d) means for receiving data signals from said remote terminals to call up said stone data for any stone in the array; and

(e) means for receiving data signals of a bid buyer on any selected stone in the array and (i) if the bid matches the price data of the selected stone, issuing signals to the seller and buyer indicative of a sale; (ii) if said bid does not match said price data, storing said bid data in said array with the diamond data for the stone for which the bid was made; and (iii) controlling the terminal displays to display the bid.

The Board held that the claims of this application are directed to an apparatus and therefore meet the definition of "machine" under Section 2 of the Patent Act. The Board noted that it is not aware of any restrictions on the patentability of machines.

The other recent Patent Appeal Board decision ruling is the case of Canadian Application No. 2,119,921. Here, the Board held on January 25, 2007, that a system entitled "Computerized Stock Exchange Trading System" is patentable subject matter. The independent claim held to be directed to patentable subject matter is as follows:

1. In a computerized stock exchange trading system having display means and having means to communicate orders to an order entry system of a stock exchange computer, the improvement comprising:

- means to receive data from a central computer of a stock exchange on a spreadsheet;

- a control system comprising means to read selected groups of said data from said spreadsheet;

- means to format said data in a format acceptable to the stock exchange computer or entry system;

- means to launch said orders to the stock exchange computer order entry system.

These two recent Patent Appeal Board decisions reflect a departure from the approach that has traditionally been taken by the Canadian Patent Office in examining patent applications directed to business methods. It appears that a fundamental shift in the application of Canadian law to the patentability of business methods is in the offing. The Canadian patent bar will be watching with interest to see whether the Federal Court follows the approach taken by the Patent Appeal Board in future decisions.

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