AIA Oddities: Tax Strategy Patents and Human Organisms

 EDITOR’S NOTE: This article is Part 3 in the America Invents Act: Traps for the Unwary series. I will be speaking on this topic at the AIPLA annual meeting on October 24, 2013. CLICK HERE to register for the AIPLA annual meeting.

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Everyone in the industry knows that over the past several years there have been numerous patent eligible subject matter issues raised and decided (to some extent) in the United States Supreme Court, the Federal Circuit and in the Patent Trial and Appeals Board at the USPTO. None of these cases are what I am referring to here in this section. In perhaps lesser known fashion Congress made two significant, but limited, statutory changes to what is considered patent eligible subject matter.

1. Tax strategy patents

The first of two noteworthy changes relates to tax strategy patents, which became effective on September 16, 2011.

In a bizarre circumstance Congress chose not to render tax strategy patents patent ineligible under 35 U.S.C. 101. Rather they chose a far more convoluted route. Tax strategy patents are still patent eligible subject matter pursuant to Section 101, but for purposes of evaluating an invention under section 102 or 103 of title 35, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, is deemed insufficient to differentiate a claimed invention from the prior art.

The deeming of tax strategies, known or unknown, as being within the prior art does not does not apply to that part of an invention that (1) is 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; or (2) is 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. Thus, you can still patent technologies, including software related innovations, that relate to the preparation of tax filings and the like.

On a bit of a tangent perhaps, it seems likely to me that the tax strategy exclusion contained within the AIA will become centrally important as the challenge to software patents continue to grow.

For example, in May 2013 the PTAB issued a decision in SAP America, Inc. v. Versata Development Group, Inc., which was the result of the first Covered Business Method Challenge finally determined by the USPTO. The PTAB, per Administrative Patent Judge Michael Tierney, determined that “Versata’s ’350 claims 17, and 26-29 are unpatentable under 35 U.S.C. § 101.” In a nutshell, the PTAB ignored all the recited tangible computer elements embodied in the claims. Once the specifically articulated and necessary structure is ignored the PTAB then concluded that the claims protect only an abstract idea. But at least since Bilski v. Kappos, 561 U.S. _____ , 130 S. Ct. 3218 (2010), tangible structure has been required to be present in claims to satisfy the machine-or-transforamtion test, which the Supreme Court said was an important clue to patent eligibility and which has become a safe harbor pursuant to USPTO practice and procedure. Thus, a compelling argument can be made that the PTAB approach to software patent claims would render software patent ineligible in a practical sense.

Furthermore, on May 10, 2013, the Federal Circuit sort of decided CLS Bank v. Alice Corp. Truthfully, all the important questions that we thought might be answered remain completely and totally unanswered because there were only 10 judges who sat on the en banc tribunal and no more than 5 judges signed on to any one opinion. Therefore, the only thing we know is this — the Federal Circuit issued an extraordinarily brief per curiam decision, which stated:

Upon consideration en banc, a majority of the court affirms the district court’s holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.

Thus, all of the asserted software patent claims are not patent eligible.

Complicating matters further, on June 21, 2013, Chief Judge Randall Rader of the Federal Circuit, along with Judges O’Malley and Linn, issued a strong pro-software patent opinion in Ultramercial, Inc. v. Hulu, LLC.  Thus, there are no definitive rulings and everyone watching this space suspects that the Supreme Court will get involved.

It is unthinkable that when the Supreme Court does get involved they will issue a ruling saying software is not patentable. Of course, when dealing with the Supreme Court anything is possible, but just several years ago the Supreme Court issued its Bilski decision in which 8 of the 9 Justices said that at least some business methods and at least some software are patent eligible. Indeed, even the four dissenters in Bilski acknowledged that the patent claims at issue in State Street Bank v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998), were patent eligible because they were directed to a machine. [1]

Furthermore, as previously mentioned and which lead to this tangent, the Patent Act specifically envisions that some software must be patent eligible, as evidenced by the reference to computer programs in the tax strategy prohibition of the AIA. Thus, Congress had to be of the opinion that tax strategy software could and should in the appropriate case be patented otherwise they would not have said that tax strategies embodied in computer programs would not render the computer program patent ineligble.

Still further, in the AIA Congress created the aforementioned covered business method review as a new form of post grant procedure to challenge at least some issued software patents. Had Congress believed that software could not be or should not be patent eligible it wouldn’t have needed to create that special proceeding, nor would it now be seeking to expand the covered business method review to apply to all software patents, which is currently a pending legislative proposal as of the writing of this article. [2]

The fact that software is specifically mentioned in the Patent Act and never listed as something prohibited from being patented is highly significant. A similar rational was used by the Supreme Court in Bilski to find that business methods are patent eligible (i.e., the Supreme Court noticed that Congress had enacted certain provisions of the Patent Act specifically mentioning business method patents, therefore, they had to be patent eligible the Court reasoned). Therefore, we should expect that the tax strategy exclusion will become a large part of future software patent eligibility battles because the last time Congress spoke on the issue, which was a part of the most significant overhaul of the U.S. patent laws since at least 1952, they chose to specifically carve out as patentable certain software relating to tax strategies. Therefore, a test that would render all software unpatentable certainly flies in the face of both Congressional intent and Supreme Court precedent in Bilski and Diamond v. Diehr, 450 U.S. 175 (1981).

2. Human organisms

The second noteworthy change to what is patent eligible relates to human organisms. Thanks to the AIA no patent may issue on a claim directed to or encompassing a human organism. [3]  There is no definition that I can see of “human organism,” so eventually we will have that case that will need to determine its meaning.  Nevertheless, this prohibition to patentability for human organisms became effective on September 16, 2011, and applies to any applications pending or filed after that date.  It does not, however, work to invalidate patent claims directed to or encompassing a human organism that were previously granted.

Given that the critical term “human organism” is not defined in the statute best practice here, like in so many situations, will be to explain to the client that there is a prohibition against the patenting of human organisms. Further point out that without a definition for human organism it is impossible to really know whether the USPTO and ultimately the Courts will determine the particular innovation to be a patent ineligible human organism. Thus, until there are cases that explain the full scope of this exception patent practitioners should probably tread lightly and not jump to the advise that a particular innovation is one that could not be patented. For example, will this prohibition apply to synthetically grown organs, such as man-made kidneys?

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