The America Invents Act (“AIA”), H.R. 1249, signed into law on September 16, 2011, potentially effects a number of now pending financial product and method patents dealing with tax liability and strategy. A copy of the AIA is available here as an attachment and the entire Section 14 of the AIA is reproduced below. Section 14 of the AIA bans all pending patent applications and future patents seeking to protect “any strategy for reducing, avoiding, or deferring tax liability.” AIA, Section 14(a). Existing issued financial product patents are not effected by the ban on tax strategy patents. AIA, Section 14(e).
The statue conclusively establishes that patent claims on tax strategies are not patentable since it declares that these inventions are within the “prior art” whether the tax strategy is “known or unknown at the time of the invention or application for patent.” AIA, Section 14(a). As a general proposition, the patent statute requires that, in order to obtain patent protection, the claimed invention in the patent application must be novel, 35 U.S.C. sec. 102, and non-obvious, 35 U.S.C. sec. 103. Therefore, by declaring that all tax strategies are within the prior art, the revised Patent Statute (the AIA) effectively bars patent protection for that class of invention. “The term ‘tax liability’ refers to any liability for a tax under any Federal, State, or local law, or the law of any foreign jurisdiction, including any statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability.” AIA, Section 14(a).
AIA Section 14 is broadly written to cover “any” tax strategy. However, certain exclusions are listed in the new statute.
“This section [14 of the AIA] does not apply to that part of an invention that — (1) is a method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing; or (2) is a method, apparatus, technology, computer program product, or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.” AIA Section 14(c).
In order to avoid the adverse consequences of the AIA for financial product patents, several tactics may be applied. Until the courts rule on the following tactics, the practitioner should research the topic.
Negative Claim Limitations
Many financial product patents cite tax benefits. See U.S. Patent No. 5,864,685 to Hagan entitled “Increasing Income Trust Computer Transaction System and Insured Investment Account System” (available here) and U.S. Patent No. 7,454,379 to Wolzenski entitled “Process for Comprehensive Financial and Estate Planning” (available here). Newly filed or “in process” financial patent application claims should include a negative claim limitation that the invention is “not used solely for preparing a tax or information return or other tax filing” to avoid the proscriptions of the AIA. The Manual or Patent Examination Procedure (MPEP) states: “The current view of the courts is that there is nothing inherently ambiguous or uncertain about a negative limitation. So long as the boundaries of the patent protection sought are set forth definitely, albeit negatively.” MPEP section 2173.05(i) Negative Limitations.
Solely for Financial Management
Financial product patents are permitted if they are limited to methods, apparatus, technologies, computer programs, or systems “used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.” AIA Section 14(c). For example, if the claim states “A computer-based method for [describe non-tax benefit] used solely for financial management and not used solely as a tax strategy” may pass muster under the AIA.
Solely for Preparing Tax Returns or Tax Information
A claim reciting “A computer-based method for [describe non-tax benefit] used solely for preparing tax returns or tax information returns or other tax filings and not used solely as a tax strategy” may pass muster under the AIA.
A claim reciting “A computer-based method for [describe non-tax benefit] used solely to record, transmit, transfer, or organize data used in the preparation of tax returns or tax information returns or other tax filings and not used solely as a tax strategy” may also pass muster under the AIA.
Tax Strategies Are Not Patentable but Computer Methods and Systems Are Patentable
Effectively, since most sophisticated tax planning systems and methods use a computer to compile data and the processed data is used to generate tax reports, these claim limitations may not adversely effect the true value of the financial product patent. Rarely does the patent owner sue one person who uses one tax strategy because the cost of litigation is too great (upwards of $1,000,000 or more). Law firms, investment houses and accountants are more common targets since they use the tax strategy over and over again. In theory, the legal trust document implementing the tax strategy is not subject to a clam of patent infringement under Section 14 of the AIA but the computer program and method for preparing returns, or preparing reports which support the tax strategy does fall within the EXCLUSION of section 14.
Uncertainties For Patents Issued Prior to the AIA
Since all issued patents may be subject to reissue in the event an error is found in the patent, the effect of Section 14 of the AIA is uncertain as to pre-September 2011 financial product patents effecting a tax strategy. Section 14 of the AIA “shall take effect on the date of the enactment of this Act and shall apply to any patent application that is pending on, or filed on or after, that date, and to any patent that is issued on or after that date.” A reissue application is filed to correct an error in an issued patent. A reissue corrects patents wherein (A) the original patent claims are too narrow or too broad; (B) the disclosure contains inaccuracies; (C) applicant failed to or incorrectly claimed foreign priority; and (D) applicant failed to make reference to or incorrectly made reference to prior copending applications. The error must have be made without any deceptive intention, where, as a result of the error, the patent is deemed wholly or partly inoperative or invalid. Therefore, care must be taken if a reissue is contemplated.
Otherwise, the AIA only effects now-pending applications and patent applications filed after September 16, 2011. All pending financial patent applications should be reviewed to pass muster under the AIA.
Section 14 of the AIA
SEC. 14. TAX STRATEGIES DEEMED WITHIN THE PRIOR ART.
(a) IN GENERAL.—For purposes of evaluating an invention under section 102 or 103 of title 35, United States 24 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.
(b) DEFINITION.—For purposes of this section, the term ‘‘tax liability’’ refers to any liability for a tax under any Federal, State, or local law, or the law of any foreign jurisdiction, including any statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability.
(c) EXCLUSIONS. — This section does not apply to that part of an invention that — (1) is a method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing; or (2) is a method, apparatus, technology, computer program product, or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.
(d) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to imply that other business methods are patentable or that other business method patents are valid.
(e) EFFECTIVE DATE; APPLICABILITY.—This section shall take effect on the date of the enactment of this Act and shall apply to any patent application that is pending on, or filed on or after, that date, and to any patent that is issued on or after that date.
