Tax Strategy Patents after the America Invents Act: The Need for Judicial Action
Closson, Nichelle, Journal of Corporation Law
Imagine an accounting firm trying to give advice to its clients about the most effective ways to minimize their tax liability. Associates at the firm may point out the available credits and deductions, and discuss other techniques and strategies the client may be able to use to their advantage. But wait, there is a snag. After conducting some research, an associate discovers that one of the methods recommended to the client has recently been patented. A commonly used strategy employed by tax professionals and average taxpayers alike is now only available to those willing to pay the patent owner royalties for its use. The associate will now have to explain to her client that they may have to pay more in taxes this year because this money-saving strategy is protected by a patent. This is only one example of the threats posed by tax strategy patents, the ability to patent a tax-saving technique and derive income from others who are only seeking to save as much money as possible.
With the passage of the Leahy-Smith America Invents Act (the Act) in September of 2011, tax strategy patents became one of only three types of business methods that Congress has prohibited the Patent and Trademark Office from issuing-"the other two are medical procedures (because doctors should be able to use any technique [to save a patient's life]) and nuclear technology (for the obvious reasons)."1 The passage of the Act finally ended years of debate and controversy surrounding the patentability of tax strategies. This Note examines that controversy, gives a general history of U.S. patent law, and also gives a more specific legislative timeline leading up to the Act. This Note then analyzes what will happen to the remaining tax strategy patents that the Act did not revoke, and it ultimately argues that courts should be the ones to decide this issue, and they should choose to invalidate the patents.
Currently, there are more than 160 issued tax strategy patents in the United States, and another 167 applications were pending when the Leahy-Smith America Invents Act was signed into law.2 The Act reforms the current U.S. patent system and ceases the granting of tax strategy patents.3 While the new Act does not affect the existing patents, the new law deems the pending applications prior art.4
This Part gives a brief history of the current state of patent law in the United States and defines both tax strategy patents and business method patents. It gives a historical account of the relevant precedent protecting such patents and explores the public opposition to granting such patents. Finally, it discusses Congress' recent Patent Reform Bill that ended the patentability of tax strategies.
A. Patent Law Generally
"Patent law is as old as the U.S. government"5 and is grounded in Article I, Section 8 of the Constitution.6 This intellectual property clause grants the federal government the power to enact legislation regarding patents and the protection of patent owners.7 A patent is a federally granted right that enables the owner to exclude others from "mak[ing], us[ing], offer[ing] to sell, or sell[ing]" the invention without the owner's consent.8 Usually, this is equivalent to the holder owning a "state-sanctioned monopoly over the patented invention during the term of the patent."9 In turn, this monopoly allows inventors to recover the costs of research and development, and gives them the ability to monetize their invention.10 This right helps to provide "an incentive to invent and encourages technological progress."11
Currently, the law states that "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter" is entitled to obtain a patent.12 The Patent Act of 195213 grants patents to inventors of these processes, machines, manufactures, and compositions of matter provided that the invention is useful,14 novel,15 nonobvious,16 and the inventions are properly disclosed. …