“Business As Usual?” How Patents For Business Methods May Needlessly Stifle The Market

Geoff Goodson is a JD candidate at Osgoode Hall Law School and is enrolled in Professor Mgbeoji’s Patents class in Fall 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

Amazon.com Inc. v. Canada (Attorney General) brings the Canadian legal debate over the patentability of business models to the forefront (and seems to settle the law), however, does this decision adequately address the concerns of Canadian businesses?

The Federal Court of Appeal held, here, that there is no Canadian business-exception exclusion and further, critiqued the commissioner for her policy-driven decision to reject a patent on these grounds.  Policy, it seems, is never an appropriate consideration in the granting of patents.  Phelan J’s reasoning zeroes in on the Shell Oil and Schlumberger decisions that, together, essentially hold that an abstract idea is not per se patentable, but will be patentable if it has a necessarily integrated method of practical application.  Phelan maintains accordingly that if a business method is implemented as “the practical embodiment of the new knowledge,” it may be patentable (just as any other qualified subject-matter.)  However, in addition to formal legal propriety, the Commissioner’s policy concerns remain important, as does the inexplicable reluctance of the court to examine them, or even to mention their substance.  For, prima facie, there may be even more obvious policy reasons to re-think the business model exception.

It is important to consider whether the patentability of business models is at odds with the underlying rationale for the patent system itself, even despite Federal Court’s insistence on the integration component.  Gleik describes this rationale, for instance, as a Faustian bargain where “inventors give up their secrets, publishing them for all to see and absorb, and in exchange, they get a 20-year government-sanctioned monopoly on their technology.”  And indeed, in the absence of a patent system, technological innovations might instead be withheld longer in order to facilitate inventors’ meticulous plans to corner markets by other means (which, of course, is to the detriment of inventors without access to vast resources).  The point is, unlike many technological innovations, most effective business models would be put into effect irregardless of their patentability because their disclosure already has an implicit economic incentive: the product (rather than the innovative method) already likely exists in the open market.  This fact necessitates an expedient disclosure of effective methods because sales are based on the efficacy of that interaction or method and the less time the method is in effect, the less sales are generated.  Thus, clearly, to orient business methods within a general patent rationale is an important starting point to understanding the propriety of such patents and crucially so, as the internet’s information economy becomes an omni-pervasive business forum and thrusts this shift of patent protection broadly into the 21st century.

In particular and especially in the midst of a global recession, to limit that expanding market by granting monopolies over business methods may prove detrimental. Counter to the underlying patent rationale, to protect business models actually limits innovation by limiting the distribution of more effective transactions in wider markets by confining that business model to only one competitor.  Moreover, a patentable business model may threaten to limit that innovation to only the particular product, rather than subjecting its model to the scrutiny of diverse market needs in other products.  Moreover, even regardless of those who are stopped from utilizing business model for other products, licenses are expensive and smaller business owners may be prejudiced in the expanding online economy.  As one might predict, particularly given that so many internet businesses have started out extremely small and now dominate online, particularly because of the potential of such massive online exposure (such as was with Facebook and Google), more hurdles may have a considerable effect on the great potential smaller, but smarter businesses.  Thus, protection for innovative methods of distribution and organization of businesses, prima facie, may be at the expense of the online market as a whole.  While the Federal Court has given short shrift to policy arguments, there is an explicit need to orient the Canadian approach to business methods within the larger rationale of the patent system.  For, in such precarious economic times, this is not business as usual.