News Highlights for November 2011


President Barack Obama signed into law the Leahy-Smith America Invents Act (HR 1249), which reforms the U.S. patent system and stops the granting of patents for tax strategies.

Under the act, any “strategy for reducing, avoiding, or deferring tax liability” is deemed to be “prior art” under patent law, and therefore not patentable. The tax strategy provision applies to “any patent application that is pending on, or filed on or after” Sept. 16, 2011.

The act defines “tax liability” as any liability for tax under federal, state, local or foreign law. The provision covers taxes imposed by any “statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability.” It does not, however, apply to tax preparation and other software, explicitly excluding any “method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing” or that is “used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.”

Tax strategies became patentable, as business methods, under a 1998 court decision (State St. Bank & Trust v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998)). Since then, the U.S. Patent and Trademark Office has granted more than 160 patents on tax strategies, covering a wide range of activities including real estate transactions, charitable giving, retirement planning and the granting of stock options. Another 167 applications were pending when the act was signed into law. Existing tax strategy patents are not affected by the act, but tax strategies in pending patent applications will be deemed prior art under the new law.

AICPA President and CEO Barry Melancon welcomed the new law, saying in a prepared statement, “Tax strategy patents are the equivalent of private tollbooths that block tax compliance options and could cost Americans more money. We are grateful that Congress and the president recognized this and acted to correct the inequity.”

The AICPA and state CPA societies have been advocating for legislation to address tax strategy patents for the past five years, raising concerns in a series of letters to Congress and the IRS during that time.

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