Patent Office’s Misleading Messages May Discourage Investment in Innovative Software Businesses
April 1, 2019
By Cameron Gale
The Government of Canada’s Intellectual Property (IP) Strategy involves extensive efforts to educate Canadians about how IP tools, such as patents, can be used to protect their business assets. As the IP strategy explains, IP can be used by businesses to extract value from their ideas, create new revenue streams and raise capital. However, some of the Canadian Intellectual Property Office (CIPO)’s messaging about patents may make it harder for software-based businesses to attract investors.
CIPO has developed a series of resources and factsheets intended to teach Canadians about “the different IP rights that can turn an idea into a successful business”. CIPO is also attending trade shows and seminars, and providing informational sessions to inform Canadians about IP. Unfortunately, CIPO has been incorrectly telling Canadian innovators and investors that software-based inventions are not patentable.
CIPO’s patent factsheet states that “[s]oftware is considered a literary work and cannot generally be protected with a patent”. Similar messages about the patentability of software are included in CIPO’s online guide to patents and have been shared by CIPO representatives attending symposiums with entrepreneurs. However, this does not reflect the state of the law in Canada. Although the code underlying software may be considered a literary work, numerous software innovations are clearly patentable in Canada and other countries.
There are not many Canadian court decisions considering the patentability of software inventions. However, in 2011, the Federal Court of Appeal considered the patentability of a patent application directed to Amazon’s one-click online ordering in Canada (Attorney General) v Amazon.com Inc (Amazon). In Amazon, the FCA held that “patentable subject matter must be something with physical existence, or something that manifests a discernible effect or change”. Many software innovations—such as many artificial intelligence applications or software applications integrated into physical devices like smartphones—can satisfy these requirements. In fact, CIPO issued Amazon’s patent following the FCA decision.
Giving Canadian inventors and businesses the wrong impression about the patentability of software may discourage them from using patents to protect and possibly monetize valuable inventions. Furthermore, investors often consider the availability of patent protection when selecting which industries to invest in. Giving investors the impression that software is not patentable may actually discourage investment in software-based businesses.
This type of impact has already been seen in the United States. In the 2014 case of Alice v CLS Bank, the United States Supreme Court (USSC) held that claims of a patent related to reducing settlement risk in financial transactions were ineligible for patent protection because they were directed to an abstract idea. Following the USSC decision in Alice, a rash of decisions invalidated patents (many software related) for being directed to abstract ideas. The uncertainty around the patentability of software in the United States, and publicity surrounding the Alice decision, had a direct impact on investor decisions.
A recent survey of venture capital and private equity investors found that 74% of those polled considered patent eligibility an important factor in deciding whether to invest in a company. Additionally, investors who were aware of USSC decisions on patent eligibility such as Alice indicated that they had shifted investments away from affected industries, including away from software and internet related industries.
Since Alice, the case law on patent eligibility in the United States has continued to evolve. In light of the more recent case law, the Unites States Patent and Trademark Office enacted revised guidelines in January 2019 changing how patent examiners will determine whether the claims of a patent application are eligible to be patented. These changes should result in fewer subject matter objections being issued and increase the availability of patents for software-related innovations.
In Canada, the Amazon decision remains the leading case on the treatment of software patents. However, CIPO’s approach to software patents does not appear to follow the guidance from Amazon or earlier guidance from the Supreme Court of Canada (SCC) about how patent claims should be evaluated. Rather, CIPO has taken the position that principles of purposive claim construction laid out by the SCC do not apply to the examination of patent applications by CIPO. CIPO’s approach is particularly striking given that the Amazon decision dealt directly with the rejection of claims during examination and explained that the patent office’s determination of patent subject matter must be based on a purposive construction of the patent claims.
CIPO’s messages to the Canadian public appear to be informed by the same antagonistic approach towards software patents. This approach in both educational outreach and examination is inconsistent with Canadian law on patent eligibility.
While the Government of Canada is making laudable efforts to educate Canadians about using IP as a business tool, it is important that these efforts accurately reflect the state of the law in Canada. Otherwise, CIPO risks confusing innovators and investors about the patentability of software inventions and may discourage investment in innovative Canadian software businesses.
A version of this article was first published in The Lawyer's Daily, © 2019 LexisNexis Canada.
 Canada (Attorney General) v. Amazon.com, Inc., 2011 FCA 328, [Amazon].
 Amazon at para. 66.
 Alice Corp. v. CLS Bank International, 573 U.S. 208, 134 S. Ct. 2347 (2014).
 Taylor, David O., Patent Eligibility and Investment (February 24, 2019). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3340937.
 See Free World Trust v. Électro Santé Inc.,  2 S.C.R. 1024; Whirlpool Corp. v. Camco Inc.,  2 S.C.R. 1067.
 Amazon at paragraph 47.
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