Even before the Supreme Court case Alice v. CLS Bank limited the areas of economic and financial innovation which could be patented, Congress was looking at ways to restrict patent applications and patent enforcement in these fields. In addition to business method review procedures for financial patents, the AIA also enacted a specific section, Section 14, that deemed all tax strategies to be in the prior art.[1] As a result, tax strategy applications such as this “Accelerated Tax Reduction Platform” application filed in 2001 became difficult to get allowed at the USPTO.
Operationally, Section 14 of the AIA uses the existing law of 35 USC 102 and 35 USC 103 to preclude patenting of tax avoidance strategies. Instead of using patent eligibility under 35 USC 101 as the decision point for excluding tax strategies, the AIA chose to use the robust and established laws of prior art (i.e. 35 USC 102 and 103) by deeming all tax strategies to be in the prior art. Specifically, Section 14 states:
For purposes of evaluating an invention under section 102 or 103 of title 35, United States Code, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from the prior art.
This approach for excluding patent subject matter has not been used by Congress or the USPTO before, but has been used by courts to understand 35 USC 101.[2] For instance, Section 33 of the AIA precludes patenting the human body by simply barring issuance, even though one would think the human body was more clearly prior art than a tax strategy.
In a rejection the Examiner may apply Section 14 to a part of a claim or an entire claim within a rejection under 35 USC 102 or 103. The typical arguments attorneys make regarding prior art cannot be used for a Section 14 rejection that presents no prior art reference to undermine. Instead, the rejection will simply deem the application’s claim to be in the prior art citing Section 14. Having a limitation deemed prior art under Section 14 in a broad, conclusive, and assertive statement in a prior art rejection can be intimidating to the uninitiated.
Fortunately, Section 14 itself provides two equally broad categories of exceptions that encompass most technology fields likely to be scrutinized. First, Section 14(c)(1) excludes:
a method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing
Likewise, Section 14(c)(2) precludes:
a method, apparatus, technology, computer program product, or system 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
Together these exclusions prevent Section 14 from applying to tax preparation technologies, payroll processing technologies, and fintech compliance software. As explained in the Examiner Guidance, the claim must recite a tax plan not mere tax-related compliance or data processing.
Examiners, however, may be skeptical of the argued scope or aim of the claim and may contend that the processing still encompasses a plan. In these cases, direct citation to the exceptions and arguing from that basis is on stronger footing than arguing that the claim does not include a tax plan.
Furthermore from a claim drafting and amendment perspective, claims that recite a method as data flows are able to fall more clearly into the above exceptions. Likewise, limitations for mere calculation of tax liability may be argued to be severable from any tax strategy, and therefore, not within the scope of Section 14.[3] For example, “an optimizer to automatically determine a suggested special apportionment method for each jurisdiction”[4] was rejected by PTAB as using technology to implement a tax plan. Likewise, a limitation involving legal tender transaction reports and explicitly recited “tax strategies” was rejected by PTAB.[5] Thus, reciting “tax return data” is preferable to “tax return” because “tax return data” can fall within both of the exceptions as both a tax filing and severable computer data. Implementing this strategy throughout is essential since Section 14 can be invoked by an Examiner for any portion of a claim.
Indeed, the memorandum from the USPTO outlining the examination procedures for this section suggests that Examiners treat tax strategy claim elements in the same way that printed matter limitations have been treated by MPEP 2112.01(III) and 2111.05. Unfortunately, printed matter rejections are about as arcane as Section 14 rejections. Printed letters or writing (printed matter) is treated by the MPEP as having no patentable weight; and thus, printed matter is insufficient to transform something in the prior art into novel subject matter. The useful exception under this analysis (if used by the Examiner) is that the printed matter may be given patentable weight if it functionally interacts or alters the substrate (e.g. a printed semiconductor etching mask). Thus, if the Examiner uses printed matter reasoning or citations for their Section 14 rejection, then a response should outline the functional relationship between the tax elements of the claim and the technology or structure of the rest of the claim.
Finally,
Section 14 went into effect immediately on September 16, 2011 and applied to
any application pending at that time or filed thereafter. In addition, it applies to any patent issued
on or after September 16, 2011 and can be used in reexamination and other
post-grant proceedings only for patents issued on or after September 16, 2011.
So inevitably some tax strategy patents will still be enforceable and unassailable
in an IPR or re-examination using Section 14. That said, the drafters of
Section 14 appealed to courts to not enforce any tax strategy patents as
against public policy — though that has yet to be done.[6]
[1] Joe Matal, A Guide to the Legislative History of the America Invents Act: Part I of II, 21 Fed. Cir. Bar J. 435, 502 (2012).
[2] O’Reilly v. Morse, 56 U.S. 62, 115-16 (1853).
[3] Ex Parte Foley, 2017 WL 633185 (PTAB 2017) (successfully appealing Section 14 application in App. No. 11/841601); Ex Parte Pai, Appeal 2017-005730 (PTAB 2017)(finding tax labels in software is not a tax strategy).
[4] Ex Parte McIntyre, 2014 WL 710040 (PTAB 2014).
[5] Ex Parte Hakim, Appeal No. 2017-005359 (PTAB 2018)
[6] Joe Matal, A Guide to the Legislative History of the America Invents Act: Part I of II, 21 Fed. Cir. Bar J. 435, 505 (2012).