Paul L. Caron

Tuesday, November 7, 2006

ABA Tax Section Task Force on Patenting Tax Advice

Aba_tax_33 The ABA Tax Section has formed a task force to study patenting of tax-related advice:

Tax strategy patents are a part of business method patents, which have been growing in number since 1998, when the concept was approved by a federal circuit court. Since that time, more than 40 patents have been issued for tax-related advice, and over 60 applications are pending. Most of those patents deal with ways to reduce taxes for taxpayers. The granting of a patent by the government does not guarantee its legality – a distinction that may be confusing to consumers.

The Task Force will look closely at these issues,” said Dennis Drapkin, chair of the Tax Section’s Tax Strategy Patenting Task Force and former chair of the Tax Section. “We want to stimulate discussion and debate, and make policy makers aware of the issues involved. These developments could have tremendous implications for the tax system and for the practice of law in general.” Vice-chair of the Task Force is Loyola Law School Professor Ellen Aprill.

The task force will assist in training examiners at the Patent and Trademark Office (PTO) who review patent applications in the tax field, to help them identify relevant information on tax strategies. To be granted a patent, tax strategies must be considered novel, nonobvious and useful.

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In the Patent Act, Congress established certain requirements for patentability, including a requirement that only “inventions” may be patented. The term “invention,” in turn, has been construed by the Supreme Court to mean anything “made by man” that utilizes or harnesses a “law of nature” (such as gravity, thermodynamics or calculus) for human benefit. See, e.g., United States v. Dubilier Condenser Corp., 289 U.S. 178, 187 (1933) (“the act of invention . . . consists neither in finding out the laws of nature, nor in fruitful research as to the operation of natural laws, . . . but in discovering how those laws may be utilized or applied for some beneficial purpose, by a process, a device, or a machine”). A watermill, for instance, harnesses the power of gravity to run machinery; an airplane exploits certain laws of fluid dynamics to achieve lift.

But tax strategies are not “inventions” in this sense, because they employ or exploit “laws of man”---not laws of nature---to produce a useful result. Hence, tax strategies are excluded from patentability by the Patent Act and the Patent Office has overstepped its authority by awarding patents therefor.

This analysis is laid out in my article, "The Patent Office Meets The Poison Pill: Why Legal Methods Cannot Be Patented," forthcoming in the spring 2007 issue of the Harvard Journal of Law & Technology. A draft of the article is available for download at

Posted by: Andrew A. Schwartz | Nov 9, 2006 12:37:55 PM