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Tax Strategies No Longer Patent Eligible

December 27, 2011

The recently approved Leahy-Smith America Invents Act includes several significant changes that relate to financial patents.

According to one of the new provisions, “tax strategies” are not eligible for patent protection.  A “tax strategy” is defined as any strategy for reducing, avoiding, or deferring tax liability.  However, the law has a carve out that specifically permits patents related to technology that is used solely for preparing a tax return, or technology used solely for financial management, as long as it does not limit the use of any tax strategy by a taxpayer.

More specifically, tax strategies are treated as though they are in the prior art.  Therefore, any attempt to obtain a patent on a tax strategy will require novel and not obvious features apart from the tax strategy itself.  For example, a new way to visualize various tax liabilities might be patentable, whereas the strategies for reducing taxes that are suggested by the visualizations would not be patent eligible.

The law applies to all patents issued after September 16, 2011, and to all pending and new applications.  Tax strategy patents issued before September 16, 2011 are not affected by the new law.

The Patent Office and courts have not had much opportunity to apply the new law.  The most interesting areas will relate to retirement savings products, which often include as a component the ability to defer tax liability.  Going forward, new applicants will definitely want to make sure the invention is presented as including technology apart from the mere ability to avoid, reduce, or defer paying taxes.  As a practical matter this may require additional disclosure and claim limitations relating to the computer systems used to implement the invention and the structures used to communicate or display the results.

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