Court ruling on business patents leads AICPA to continue seeking legislative ban on tax strategy patents.

On Oct. 30, the Court of Appeals for the Federal Circuit issued a decision that may help the profession in its efforts to ban tax strategy patents. The case, In re Bilski, narrowed the standard applied by the court for determining the validity of patents on "business methods." Since the court did not prohibit patents on business methods outright (tax strategy patents are a subset of that category of patents), the AICPA is continuing to pursue a legislative remedy. During the past two years, the AICPA has built substantial legislative support for banning tax strategies in the interest of both tax practitioners and taxpayers.

Although the decision does not specifically address tax strategies, the court adopted many of the positions the AICPA urged in an amicus brief. The AICPA's brief (written with attorneys from Willkie Farr & Gallagher LLP) explained that tax strategies are not proper patentable subject matter under Section 101 of the Patent Act or the Patent Clause of the Constitution because they preempt the public's free use of certain provisions of the tax laws and do not meet the Supreme Court's criteria for the patentability of processes, among other things.

"Machine-or-Transformation" Test

Specifically, in Bilski, the Federal Circuit held that the "machine-or-transformation" test, as set forth by the Supreme Court, is the sole test for subject matter eligibility for a claim of patentability for a process: "A claimed process is surely patent-eligible under [section] 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." In adopting this "machine-or-transformation test," the Federal Circuit abandoned the more liberal test it had adopted in State Street Bank, the...