Commissioner’s Decision # 1355

The Commissioner of Patents upheld the rejection of Canadian Patent Application No. 2,493,971 (the ‘971 Application), finding that each of the 58 claims lack statutory subject matter for being merely an abstract set of rules. [72] The ‘971 Application relates to methods and systems for conducting a computerized auction system. [4]

The computerized auction system described in the ‘971 Application is an “open outcry” auction system that brings together buyers and sellers in a market and facilitates the sale of an item to a highest bidder. [4] The system includes what it calls a “second look state” that provides an opportunity for an auction participant to refuse or modify a pending transaction, even after initially accepting the transaction, if other auction participants introduced other trade commands that impacted the volume of the initial participant’s pending transaction. [6, 10]

The Commissioner ultimately found that the essential elements of the invention include the rules for the auction and the second look state mechanism, [53] but do not include any aspect of computerization, [54] indicating that the claims are merely to an abstract set of rules. [72]

Claim Construction

The Commissioner took a purposive approach to claim construction to determine that the computer-related components are not essential to the invention. [54] The Commissioner used claim 1 as a representative claim for much of its analysis:

1. A method implemented by a programmed computer system for trading a volume of an item between participants, comprising:

a) providing a bid/offer system state to enable participants to enter into the system bids and offers at select prices and volumes for the item;

b) presenting the bids and offers to the participants;

c) receiving a first hit or lift trade command from a first participant, responding to presented bids and offers, to transact a trade of a desired volume of the item at a desired price;

d) in response to the first trade command, transitioning from the bid/offer system state to a trading system state to transact a trade of the item at a defined price corresponding to the desired price, and to transact in response to an additional trade command a trade of an additional volume of the item at the defined price; and

e) if a bid or offer hit or lifted by the first trade command has not aged, transitioning to a second look system state to enable the first participant to refuse to trade at least a portion of the volume of the item associated with the unaged bid or offer. [7]

The Commissioner found that the person skilled in the art would have a background in financial trading processes and practices and computerized financial data processing systems. [19] This person would have common general knowledge that includes the use of computers and networks in financial trading systems including open outcry systems. [20-25]

In determining the practical problem that the patent application addresses, the Commissioner noted that there is a problem where a fast paced open outcry auction could involve simultaneous or rapid position changes that result in a trader taking much more trade volume than planned. [29, 32] However, the Commissioner found this to be a problem with the auction system itself, and not necessarily arising from the computerization of the process. [30, 31]

The Commissioner found the solution proposed by the application to be the protocols or rules for an auction trading process, which includes a second-look state. [39] Contrary to the applicant’s submissions, the Commissioner found that the solution does not include “controlling logic” for any specifically configured hardware, but that this logic merely relates to the various rules or protocols for the auction. [38]

In determining the essential elements of the invention, the Commissioner noted that a second look state could be implemented to auctions outside of computer systems, in the form of a mental or verbal auction. [50] Even though such a process would be slower and less convenient, an essential element of the actual invention would not be lost. [51, 52] Rather, the essential elements of the independent claims involve the auction process, as described in steps a) to e) of claim 1, including the added steps to enforce a second look rule. The limitation of being “implemented by a programmed computer system”, as claim 1 states, is not essential to the invention. [53]

Lack of Statutory Subject Matter

Citing Canada (Attorney General) v Amazon.com, Inc, 2011 FCA 328, the Commissioner reiterated that a patent claim must be to something with physical existence or which manifests a discernable effect or change, and that the physicality requirement cannot be met merely by the fact the claim is limited to a practical application such as by the presence of a computer. [56]

The applicant argued that the invention does manifest a discernable effect or change by either modifying electromagnetic patterns by storing data, or since the process results in trading items which may be physical. [68] However, since the physical elements of the computer were found to be not essential to the invention, any stored data or signal patterns are outside of the solution are similarly not essential to the invention. [69] With respect to trading physical items, the Commissioner considered the outcome of the trades to be financial transactions, rejecting the argument that physicality is ascertained even if the auction may result in a physical item being traded. [70]

Commentary

This case is another example of the difficulties associated with patenting an invention that relates to a computer program. After determining that the invention could be carried out without the aid of a computer system, what was left of the claims was an abstract process, which is not patentable. The Commissioner took the view that unless the computer-related components are essential to the invention, no patent should be granted.