The law relating to the patentability of business method patents has always been a problematic area for North American practitioners and judges.
What is clear, however, is that Canadian law and practice has never approached the excesses seen in the United States, where it’s been open season on BMPs since the U.S. Federal Court of Appeals’ (the nation’s top patent court) landmark 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group Inc. (State Street) upheld patents for a software-implemented invention and method of doing business, namely a data processing system for mutual funds.
The following year, the same court reinforced State Street with its ruling in AT&T Corp. v. Excel Communication Inc.
“Since State Street and AT&T, the floodgates of business methods patenting opened from a combination of the U.S. Patent [and Trademark] Office’s willingness to issue these patents and their eventual enforcement by U.S. courts,” says Brian Gray of Ogilvy Renault LLP’s Toronto office.
“There had been no considered debate by legislators and policymakers and no legislation by the U.S. Congress that it would be appropriate to extend patent rights to these methods.”
According to Gray and many other observers, the extensive protection for BMPs produced confusion, litigation, and an extension of patent protection to cover unconventional areas such as giving legal and investment advice, drafting legal documents, methods for storing and transmitting information, and other intangible processes lacking a tangible structure or a physical result.
Patents even became available for methods of meditation, dating, and physical sports movements.
“There are some very absurd examples of such patents, including patents issued for exercising a cat or swinging on a swing,” Gray says.
In Canada, however, no court has defined or specifically upheld a business method patent. This, however, hasn’t stopped the Canadian Intellectual Property Office - guided by various “negative” criteria derived from the general body of patent jurisprudence found in CIPO’s Manual of Patent Office Practice - from issuing patents for software and software-related business method inventions.
“But the Canadian approach has always been a little more conservative than the U.S. approach,” says Neil Henderson of Borden Ladner Gervais LLP’s Toronto office.
The gap, however, has contracted considerably with the October 2008 decision of the U.S. Federal Court of Appeals in re Bilski, which narrowed the types of business methods that can be patented.
“The court ruled that a process is eligible for patent protection only if it is tied to a particular machine or apparatus or if it transforms a particular article into a different state or thing,” says Steven Henry of Boston-based Wolf Greenfield & Sacks P.C., who represented Signature, the successful party in State Street.
“However, the court rejected Bernard Bilski’s patent claim for a process for hedging risk in commodities because it didn’t meet either standard.”
Henry says that while Bilski means there will be fewer successful BMP applications, there won’t necessarily be a major reduction after the dust settles and after some initial upheaval.
“The vast majority of business-method patent claims are computer implemented or perform some transformation of data inside a computer, and the data represents a real world physical quantity such as money or numbers of articles in inventory,” he says.
“Under a reasonable reading of Bilski, most such claims should continue to be patentable, although those of a more abstract nature - like transactions between two or more parties that don’t require IT support or involve anything tangible - will not.”
Still, Bilski will not eliminate the controversy over BMPs, as the court left open many questions.
“Will the recitation of a general purpose computer with a programmed process be deemed sufficient to tie a process to a particular machine or apparatus, and what types of transformation will be considered to have transformed a particular article into a different state or thing, are just two of the open questions,” Henry says.
“We won’t get the answers until we see how the Federal Circuit court applies Bilski in subsequent cases.
“Initially, however, the U.S. Patent and Trademark Office is treating the decision as giving it a broad basis to answer these questions in a way that allows it to reject method claims and even apparatus claims, something the chief judge who authored the opinion has said was not intended.
Until the Federal Circuit has a chance to issue clarifying decisions, patent applicants and patent owners will therefore have new challenges.”
At the very least, Bilski’s more conservative approach to patentability should ease some of the headaches created by the surge of BMP applications in the last decade.
The huge increase in the number of filings in the U.S. stretched the Patent Office’s resources and concerns arose about the quality of examinations. Critics also complained that BMP protection had not produced any evidence of a boost in innovation.
“Huge windfalls accrued to those who rushed to patent known BMPs for which there was no adequately documented prior art because of the lack of any formal system for keeping track of such art,” Gray says.
In Canada, BMPs have also been making headway, albeit more slowly.
“We’ve seen a gradual progression where the Patent Appeal Board has demonstrated a much greater acceptance of patenting business methods,” says Chris Van Barr of Gowling Lafleur Henderson LLP.
Currently, CIPO is re-evaluating its BMP guidance.
“There’s no question that the excesses that preceded Bilski in the U.S., and the retrenchment that the case represents, will have some effect on CIPO’s thinking,” Gray says. “Just how closely CIPO will follow the reasoning in Bilski is hard to say because CIPO’s interpretation must conform to existing Canadian law - of which there isn’t much.”
The wording of Canada’s Patent Act regarding what is patentable, however, is similar to the wording found in U.S. legislation.
“It boils down to whether you take an expansive approach or a strict constructionist approach,” Gray says. “Bilski will be interesting to Canadians because it takes a similar conservative bent to patentability as did the Supreme Court of Canada in Harvard Mouse.”
In Harvard Mouse, the high court noted that Parliament chose not to include plant breeding - well established when the Patent Act was passed - in the definition of “invention.” Because Parliament had not included it expressly, the court concluded that the Patent Act did not embrace it.
“Just as patenting higher life forms would involve a radical departure from the traditional patent regime, the patenting of business methods would also involve a radical departure and a highly contentious matter that raises a number of extremely complex issues,” Gray says.
“Based on this, the Supreme Court directed that there must be a clear and unequivocal direction from Parliament to create new patentable subject matter where such new subject matter is a radical departure from the traditional patent regime.”
Meanwhile, Canada’s financial services industry, which has recently been
subjected to U.S.-style BMP litigation in the DataTreasury case, is pleased with Bilski.
“Most industry participants see the decision as a good first step to reining in BMPs,” says Chris Donnelly, counsel, Canadian law, at Manulife Financial.
Still, Bilski is not yet etched in stone. In late January, Bilski sought leave to appeal from the U.S. Supreme Court.
However that may be, there’s no denying a definite trend to convergence between U.S. and Canadian law regarding the patentability of BMPs.
“What is certain is that Canada, the U.S., and even the European Union are gradually narrowing the differences that exist in their approaches to the patentability of BMPs,” Henderson says.
In any event, the final word is not yet in. The case has been appealed to the Federal Court of Appeal and scheduled for hearing on April 21.