Law Times

www.lawtimesnews.com Page 12 February 11/18, 2008 / Law Times Business-method patents raises ire and red flags C anada's Patent Office risks following the United States into a morass of uncertainty created by a "broken system," one of the nation's larg- est insurance companies claims in a submission to the competition policy review panel on innovation and business-method patents. Waterloo-based Manulife Fi- nancial made the submission Jan. 11 to raise concerns over changes made in 2005 which allow abstract ideas to be issued a patent. The U.S. changed its rules in 1998. The net result, say critics, is a proliferation of business and soft- ware patents that has opened the door for predatory practices by so-called "trolls" (companies that have no other purpose other than to acquire patents, claim infringe- ments, and demand licensing fees under the threat of court action). "It is little wonder that there is a growing consensus that the U.S. patent system is broken and that the patent reform act is being con- sidered by the U.S. Senate after passing in the House of Represen- tatives," says the submission. "The bill will make numerous changes to address the damage caused by the proliferation of business- method and software patents. We believe that the expansion of patentability to include business processes and software will limit competition and increase costs to Canadian-based firms without any improvement to productivity or innovation." The controversy around the changes that opened the door for abstract ideas to be patented is that common practices are being locked up merely because they've been merged with some form of technology, however incidental, says Brian Gray of Ogilvy Renault LLP in Toronto, a member of the joint copyright committee of the Canadian Bar Association, and of the Intellectual Property Institute of Canada, and of the institute's litigation committee. "Previously, to patent some- thing it had to be real enough for you to hammer on it," he says. In Canada, he said, there are a couple of cases pending that will set the trend, notably Data- Treasury Corp., which is bat- tling with Symcor, the Canadian cheque processing company, and Canada's "Big Six" banks (Gray represents the Bank of Nova Sco- tia). In that case DataTreasury is pressing its claim on its patent for an automated cheque scanning, processing, and clearing system. The banks currently clear about five million cheques a day. Do- ing it manually costs up to $2 a cheque; an automated system would cut that cost to pennies a each. DataTreasury has already taken on about 50 banks in the U.S. — including electronic pro- cessor RDM of Waterloo, Ont. — and won settlements. In Can- ada banks launched a pre-emptive strike before the Texas-based com- pany countersued. The matter is still in early-stage skirmishes but is raising red flags in Canada, especially in the finan- cial services sector. The Canadian patent is wait- ing with interest to see what hap- pens with Belzberg Technologies Inc., a major player in Bay Street and on the global finance stage, which holds several patents re- lated to electronic trading, says Barry Sookman of McCarthy Té- trault LLP. Two years ago it engaged Don Stout — co-founder of NTP, which squeezed more than US$600 million from Waterloo's Research In Motion, claiming their BlackBerry device infringed on their patents — with a view to enforcing its claim on patents. Belzberg has been battling for several years to assert its claims on systems and processes used by most of the world's financial secu- rities traders. "Canada is generally behind the U.S. a couple of years, so we're still catching up," says Sookman. "We have a some very viable financial institutions open to some of these patent claims. What the Canadian courts do in DataTreasury will be a litmus test. I think it's generally acknowledged that U.S. patents are out of control, and creating a business disincentive to innova- tion is not in the best interests of the country." Even mighty Microsoft, stung by a trend to open-source software like Linux, an operating system in the public domain, is complain- ing the market acceptance is cut- ting into its sales. Last May it also claimed the open-source variants violated 235 of its patents. Micro- soft made public statements about suing unless licensing royalties were paid. Shortly after that, however, a U.S. court refusal of a patent ap- plication seems to indicate the tide is turning, says Gray. In that case a lawyer Stephen Comiskey sought to patent a wording in documents such as wills that would require the parties to enter into binding arbitration in the event of a dis- pute. Manulife's concerns, says in- house council Chris Donnelly, are based on the legal minefield that could result in companies unwit- tingly infringing on a plethora of patents and then being stung with a lawsuit. With the U.S. courts pulling back from their 1998 State Street Bank & Trust Company v. Signa- ture Financial Group Inc. decision, says Donnelly, Canada would be remiss if it didn't take the oppor- tunity to seriously review patent policy. "One quote from the 1998 U.S. Federal Court is that, 'Ev- erything made by man under the sun is patentable,'" says Donnelly, but the resulting confusion about what is truly novel, innovative, and deserving of patent protec- tion, and what is simply a rework- ing and codification of an existing idea — along with some dubious software packaging — has the po- tential to create enormous harm. In their submission, Manu- life says: "Business processes and software are fundamental to most businesses and include: methods of structuring, valuing or selling financial products, methods of valuation, accounting, and many others. If we were unable to use certain business methods, we would not have been able intro- duced many of our innovative and award-winning products." Furthermore, Manulife Finan- cial claims, the impact on the Cana- dian economy is likely to be more negative than the U.S. experience, since 90% of Canadian patents are issued to non-Canadians, meaning most of those royalty revenues flow out of the country. FOCUS 'Previously, to patent some- thing it had to be real enough for you to hammer on it,' says Brian Gray. BY IAN HARVEY Law Times LT *Pages 1-16.indd 12 7/18/08 12:45:38 PM

• Cover