Thank you for inviting me to appear today. The first point I'd like to address in my remarks is the subject of business method patents and patentable subject matter more broadly.
Business method patents have been controversial since the 1998 U.S. decision opened the door, or floodgates as some would call it, to patent a new business method. Many academics have argued that such patents are bad for innovation in business, and for that reason the courts should hold that business methods are not patentable.
I'd like to make two points in this respect. First, this is a matter for the legislature and not the courts, and certainly not the patent office, to decide whether business methods should be patentable. The entire area of patentable subject matter needs clarification to ensure that innovation will be promoted in crucial areas such as personalized medicine. Second, the implications of this decision go far beyond business methods, to important emerging areas such as personalized medicine.
The patentability of business methods has recently been at issue in Canadian litigation over Amazon.com's application for a patent for one-click shopping. The application was refused by the patent office, which said business methods are not patentable in Canada. Amazon.com appealed to the Federal Court, which said business methods are patentable. The patent office appealed to the Court of Appeal, which said, "It depends."
I won't try to explain what it depends on, not because this is a technical area of law, but because I don't understand what they said. My view is that their decision is incoherent and internally inconsistent.
The Court of Appeal sent the application back to the patent office, which granted the patent. The patent office does not make the law; it merely applies the law set out in the legislation and case law. The result of all this is that even though the Amazon.com patent was litigated to the Court of Appeal and then granted, we still don't know if it's valid.
In an article I've written on the subject, I've argued that the best view of current law in Canada is that business methods are patentable. That is, I believe that if someone litigated this to the Supreme Court, the court would hold the patent to be valid, but I might be wrong. The bottom line is a tremendous uncertainty.
I also want to emphasize that there's a difference between whether business methods are patentable under current Canadian law and whether they should be patentable. While I believe that business methods are patentable under current law, I do not necessarily believe that this is a good thing. Whether these patents are good for business innovation is an empirical question, and it's a very difficult question. There's tremendous uncertainty in the empirical evidence.
What we do know is that patents are very important to the innovation process in pharmaceutical and chemical industries. We also know that the importance of patents varies tremendously between industries. For all industries, besides pharmaceuticals and chemicals, the evidence as to the importance of patents is quite ambiguous. The best generalization seems to be that patents are important in so-called discrete product industries, in which a single innovation provides most of the value of a single product. In complex product industries, in which a large number of innovations contribute a small amount to the value of a particular product, patents tend to be less important.
Business methods appear to have the hallmarks of a complex product industry, suggesting that they are relatively less important in that area. But to say “less important” doesn't mean unimportant. The best I can do here is to quote Professor Bronwyn Hall, one of the leading empirical researchers in this field, who said, "The only conclusion that is certain is that allowing business method patents will cause an increase in the patenting of business methods."
Because of the way in which the issue has been handled by the Court of Appeal, the issue has implications that go far beyond business method patents. In a draft practice notice responding to the Amazon.com decision, the patent office indicated that it believes inventions related to personalized medicine are unpatentable. To my mind, this is an extremely troubling position, as personalized medicine bears many of the hallmarks of a discrete product industry in which patents are important to innovation. Certainly the patentability of personalized medicine is not something that should be decided by the patent office.
In summary, there is tremendous uncertainty as to both law and policy. Whether business method patents are good for innovation depends on complex questions that the courts are not equipped to handle. This entire area needs clarification to ensure that innovation will be promoted in crucial areas, from business method patents to personalized medicine.
I'll now turn briefly to two other topics. One is pharmaceutical patents. As I mentioned, there is a consensus that patents are very important to innovation in the pharmaceutical industry as a whole. In broad terms the system works well, but because the patent system is so important, the details vary greatly.
We've heard already some discussion of some high profile issues, such as patent-term extension, data protection, terminal disclaimers, and the drug approval linkage aspect.
I'd point out that detailed points of law are also important. Some points of doctrine recently developed by the courts have had the effect of making Canadian law less friendly to pharmaceutical patents than the law in the U.S. and Europe, at least on these particular points. This isn't to say that our system as a whole is necessarily unfriendly, but at least on these points, they could have important implications for specific patents.
I'm not sure whether this needs to be addressed by the legislature, as the courts may work it out, but it's certainly something for this committee to keep in mind.
Finally, I'd like to say a brief word about patent trolls. To my knowledge, patent trolls have not yet been active in Canada. Further, the courts have some tools to deal with patent terms, at least in the short to medium term. Arguably, there is not presently a pressing need for government action to deal with this problem. However, I think it's important that the government not take any steps that would make the problem worse.