Tax Strategy Patents Under the Patent Reform Act of 2011

May 10, 2011, 2:17 PM

In addition to its more generalized attempts to improve U.S. patent law, the Bill to enact the Patent Reform Act of 2011 recently passed by the Senate includes a specific section intended to prevent patenting of tax strategies:

For purposes of evaluating an invention under Section 102 or 103 of Title 35, United States Code, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from the prior art.
Some reading this proposed statutory language might wonder how a tax strategy that was unknown at the time it was first invented could be precluded from patenting by prior art; or why strategies for reducing, avoiding or deferring tax liabilities should be treated differently from other business processes that could still be patented if this Bill becomes law. But who ever said Congress has to be logical or consistent in the laws it passes?

Inclusion of this provision in the proposed Patent Reform Act underscores the ongoing controversy over whether business methods and processes should or should not be patentable under U.S. law. Currently they are, within parameters laid down in pertinent court decisions, including those of the U.S. Supreme Court in its 2010 decision in Bilski v. Kappos.

It also underscores the unhappiness in some quarters about tax avoidance strategies that all lawyers, accountants and financial advisors think they should be allowed to use for the benefit of their clients being, in effect, owned by those of them who take the trouble and incur the expense to get patent protection for them. As justified by one of the sponsors of the Senate bill, Tax strategies are bad because they allow the tax law to be patented. And, Tax strategies are not like other inventions everyone wants to pay less tax. --Robert E. Smartschan