The AICPA has submitted an amicus brief in the patent case of In re Bilski, No. 2007-1130 (Fed. Cir., filed 2/15/08). The Federal Circuit heard oral arguments in the case on May 8, 2008.
The case involves the patentability of business processes, which have been eligible to receive patent protection ever since the Federal Circuit’s decision in State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F3d 1368 (Fed. Cir. 1998). Tax strategy patents are a subset of business process patents (see Ransome and Sherr, “Patenting Tax Ideas,” 38 The Tax Adviser (August 2007): 456).
Specifically, in Bilski the court is addressing the questions of what standard should govern in determining whether a process should be patentable under 35 USC Section 101; whether the claimed subject matter is not patent eligible because it constitutes an abstract idea or mental process; when a claim that contains both mental and physical steps constitutes patent-eligible subject matter; whether a method must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter; and whether it is appropriate to reconsider State St. Bank &Trust and AT&T Corp. v. Excel Commc’ns, Inc., 172 F3d 1352 (Fed. Cir. 1999).
The AICPA’s brief urges the court to hold that tax strategies are not patentable. The AICPA made three main arguments: tax strategy patents (1) preempt the public’s use of provisions of the tax law; (2) do not meet the Supreme Court’s criteria for patentable processes; and (3) do not “promote the progress of useful arts.”
Just as laws of nature, physical phenomena, and abstract ideas are not patentable, the AICPA argued that tax laws are “part of the storehouse of knowledge” and that compliance with those laws must be “free to all men and reserved exclusively to none” (quoting Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 US 127, 130 (1948)).
In Diamond v. Diehr, 450 US 175, 184 (1981), the Supreme Court stated that “transformation and reduction of an article to a different state or thing is a clue to the patentability of a process claim that does not include particular machines.” The AICPA argued that under this standard, tax strategies should not be patentable because they do not transform anything. The judges’ questions in the Bilski case’s oral arguments focused on the question of what a transformation is and how much transformation is needed for a process to move from the realm of abstract ideas to patent-eligible subject matter.
Finally, the Patent Clause of the U.S. Constitution (art. I, §8, cl. 8) directs Congress to provide patent protection to “promote the Progress of . . . useful Arts.” The Federal Circuit recently said that progress of useful arts means “the process today called technological innovation” (In re Comiskey, 499 F3d 1365, 1375 (Fed. Cir. 2007)). The AICPA argued in its brief that tax strategies are not technological or scientific innovations but are merely based on interpreting the tax law in a way to minimize taxpayers’ tax liability. Further, the AICPA argued, patent protection is not needed to encourage the creation of new tax strategies; taxpayers already have an economic incentive to minimize their tax liability.