Tax Patents : At the Crossroads of Tax and Patent Law

Since the 1998 State Street decision, the U.S. Patent and Trademarks Office has been issuing patents on tax planning methods, even including methods that do not require computerized implementation. The tax and intellectual property bars generally have widely divergent views of tax planning method patents. The patent bar tends to view the incentivizing of innovation as a per se public good, while the tax bar expresses concerns ranging from the impact on practice to the impact on the federal fisc. The report provides context for understanding these positions with a summary of the history of business method patents and a review of important recent developments relating to the patenting of tax strategy patents in three different arenas: Congress, where broad patent reform legislation is under consideration; the courts, where the broad interpretation of patent law subject matter eligibility requirements evidenced in the State Street case is under question; and the Internal Revenue Service, which has issued proposed regulations to require reporting of transactions that use tax planning method patents. (This report primarily covers developments concerning tax strategy and business method patents through the summer of 2008, with a brief update on the impact of the Federal Circuit's October 30 decision in Bilski.) The report explores the reasons that the tax bar's views of tax strategy patents differ markedly from the intellectual property bar's views. It acknowledges a number of practical concerns and presents a critique of tax strategy patents based on the special attributes of the tax system that set it apart from other areas of the law