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The end of tax strategy patents?

October 31, 2008

The Federal Circuit Court of Appeals has issued a decision that may signal the end of tax strategy patents. The decision restricts the ability to patent "business processes." Patent attorney Brett Trout explains:

The CAFC ruled that to be eligible for patent protection, an invention must fall into one of two categories: (1) it must be tied to a particular machine or apparatus, or (2) it must transform a particular article into a different state or thing. The court went on to note that business method claims are subject to the “same legal requirements for patentability as applied to any other process or method.” The CAFC declined however, to toss out software patents as a whole.

This ruling will certainly come as a shock to the thousands of companies in possession of the over 50,000 business method patents the United States Patent and Trademark Office has already granted.

Ellen Aprill, "the nation's leading authority on tax strategy patents," according to the TaxProf, says some issues remain to be sorted out for tax patents:

Many, perhaps most, tax strategy patents call for the use of a computer. The opinion leaves open the question of what it means for a process to be tied to a “particular machine:” “We leave to the future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.” Thus, what is perhaps the most important practical question is left unresolved.

Tax stategy patents are unwise as a matter of policy. Taxpayers shouldn't have to worry about having to contest a royalty claim if their tax information becomes public in a Tax Court case.

The TaxProf and the BenefitsBlog have more.

Related: Patently Absurd

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The biggest winners from the Bilski decision might be technology consultants. As a patent agent specializing in tax patents, one of the strategies I’ve emphasized for financial professionals seeking a patent is for them to spend a little extra money to hire a technology consultant (e.g. actuary, IT professional, etc.) to spec out the technical implementation of their inventions. We then include those specifications in the patent application with the tech consultant as a coinventor.

The strategy has been very successful and with Bilski taking such a strong stand on the importance of tying a new financial invention to a “particular machine”, it should be even more so in the future.

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