In recent years, the United States Patent and Trademark Office ("USPTO") and the Federal Circuit have struggled with the proper standard for patent-eligibility of so-called business method inventions, which generally are thought to include tax strategies. Even though pursuant to statute "any new and useful process, machine, manufacture, or composition of matter" are patent-eligible subject matters, the courts had excluded any "business process" until the decision in State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998). In that case, the court held that a business method was patent-eligible as long as it produced a "useful, concrete, and tangible result." The State Street decision opened the gates to applications for patents covering tax strategies – many have been filed with the USPTO and some interesting tax patents have been granted (for one example see The Learning Annex below). It now seems, however, that the Federal Circuit may have closed the door with its decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008).
Bilski claimed a method of hedging risk associated with volatile commodity prices by entering into swaps to smooth out price fluctuations. The Federal Circuit, addressing whether the claim involved patent-eligible subject matter (the first prong discussed below in the Learning Annex), however, determined that the claim involved a "non-transformative process that encompasses a purely mental process of performing requisite calculations without the aid of a computer or any other device." As a result, it did not meet the court's test of being tied to a particular machine or apparatus or transforming a particular article into a different state of things. The holding in Bilski would seem to apply equally to tax strategies that involve only mental processes and that are not sufficiently physically tied to the use of a computer or other apparatus. The Bilski court did not say that all business methods (and by extension tax strategies) are not patent-eligible per se. Quite the contrary. Thus, it will be interesting to see just how the patent examiners at the USPTO will apply Bilski to applications for tax strategies and what the effect of the new decision will be on business method and tax strategy patents that have already been granted.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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