Patenting Tax Strategies Under Bilski

Except for the few patent holders and Accenture, the tax strategy business community has been largely anti-patent – going so far as to lobby congress to introduce legislation to create a specific exception that would block enforcement of those patents.

In Bilski, the Federal Circuit refused to categorically exclude any particular fields of business or technology from the scope of patent protection. The court specifically mentioned software and business methods as still patentable. Presumably, tax strategies are still patentable as well. The closest the court came to creating an exclusion is for purely 'mental' processes – where each step of the process could be performed in the human mind.

Rather than an approach focusing on specific exclusions, the court applied the machine-or-transformation rule: A process is patent eligible under §101 if "(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state of things." Bilski's claim was not patentable as a mental process. Additionally the Bilski claim failed the machine-or-transformation test because it was (1) not tied to any machine and (2) the alleged transformations in Bilski were not sufficient because they did not transform "physical objects or substances" nor did the transform articles "representative of physical objects or substances." Notably, transformation of "legal obligations or relationships, business risks, or other such abstractions" do not qualify as 'transformations' under the new test. The Federal Circuit left the State Street patent hanging – we know the test used in State Street was wrong, but we don't know whether the claimed invention would be patentable under the new test.

Going forward, tax strategies (and business methods generally) that necessarily need computer assistance will be able to obtain protection by including sufficient recitation of ties to "particular machines." Practically, the links should be tied to particular portions of the computer to ensure that the tied machine is "particular" enough. On the transformation side, it is unclear whether the transformation of money will be considered sufficiently "representative of physical objects or substances."

Links:

• Tax Law Prof
• Linda M. Beale

Comments

[Mark Nowotarski]

“it is unclear whether the transformation of money will be considered sufficiently representative of physical objects or substances”

I doubt that examiners would buy any argument that money is representative of physical objects without a specific directive from management.

Applicants that don’t have a technical background, however, would do well to spend a few extra $ and hire a technical consultant to spec out, in some detail, the “particular machine” required to practically implement their tax planning inventions. The net effect should still be effective protection of tax planning inventions.

[Leopold Bloom]

"Mark Nowotarski is ... a registered U.S. patent agent specializing in business method patents. He currently serves clients in the insurance, financial services, ... industries."

Ouch. In re Bilski means a lot more to you than most, doesn't it?

Good luck tying those abstract tax planning methods to particular machines...

[Mark Nowotarski]

"Good luck tying those abstract tax planning methods to particular machines."

Thanks. It's a challenge, but it's fun.

[MaxDrei]

....and not at all "post-solution activity" right?

[Mark Nowotarski]

"....and not at all "post-solution activity" right?"

perish the thought!

[Paul E. (]

"... will be able to obtain protection by including sufficient recitation of ties to 'particular machines.'"

Did you miss the word "whether" in the following sentence from the Court's opinion?

"We leave to 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."

[Anon.]

Patenting tax strategies is dead. The only ones you could patent, based on the 'mental activity' rule, would involve illegal activity ('a strategy for kidnapping and brainwashing tax examiners'). ;-)

There is absolutely nothing in tax law which can't be done by hand, mentally. I kid you not.

[Anon.]

Patenting tax strategies is dead. The only ones you could patent, based on the 'mental activity' rule, would involve illegal activity ('a strategy for kidnapping and brainwashing tax examiners'). ;-)

There is absolutely nothing in tax law which can't be done by hand, mentally. I kid you not.

[Cass L. Singer]

On the transformation side, it is unclear whether the transformation of money will be considered sufficiently "representative of physical objects or substances."
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I'm not at all certain this comment was thought through, nor certain what it was supposed to mean. "Transform" money into what? Money is intangible property, and other than as paper or coin has no physical nature. Insofar as a "tax strategy" involves the exchange of intangible property for satisfaction of or relief from tax liability (i.e., the IRS accepts the amount of tax paid as satisfaction of the taxpayer's complete obligation to pay tax) I still don't see where there is any tie to a physical object or substance, without regard to whether a machine is used to calculate the amount of the exchange. If SCOTUS is willing to read a constitutional standard of obviousness into patentability (KSR) I suspect it would certainly be willing to discern a constitutional standard of subject matter as well.

[SM]

AT&T upheld (and this case affirmed) a process that produced a final share price.
I think this indicates that $ counts as not just "representative" of physical objects, but a physical object itself

[SM]

AT&T upheld (and this case affirmed) a process that produced a final share price.
I think this indicates that $ counts as not just "representative" of physical objects, but a physical object itself

[SM]

AT&T upheld (and this case affirmed) a process that produced a final share price.
I think this indicates that $ counts as not just "representative" of physical objects, but a physical object itself

[MG]

Tax strategy patents generally relate to money as legal obligations, rather than as representatives of physical substances. In Bilski the claims required purchasing commodiites and that was not sufficiently physical or representative of physical. Tax payments seem even more like a legal obligation than purchasing a commoditiy. I don't think tax patents are going to pass muster under the "transformation" test.

[Walter Scott]

It is my recollection that none of the claims in the patent in issue in the State Street were method (or process) claims. Rather, each claim in U.S. Patent 5,193,056 is directed to "A data processing system . . .." Data processing systems are either machines or manufactures, and as such, to the best of my knowledge, are patentable subject matter.
Consequently, I believe that Bilski does not leave the State Street patent hanging.

[zoobab]

@Walter Scott

Data processing is something I can do by hand with a pen and a piece of paper, and my brain. I can also program a computer to do the same operation.

But in any case, data processing is not a product of "manufacture".