Patent Office Orders Reexamination of Tax Related Patent

Scott Daniels, partner in the firm Westerman, Hattori, Daniels & Adrian, and the primary author of Reexamination Alert™, recently happened across a rather rare reexamination story.  See PTO Director Initiates Reexamination Against Gift Tax Patent.  Earlier  this month, on January 12, 2010, the United States Patent and Trademark Office ordered a Director Initiated Reexamination pursuant to 37 CFR 1.520.  See also MPEP 2239.   The patent in question, U.S. Patent No. 6,567,790, relates to a patent on a method of minimizing tax liability.

“Director-initiated reexaminations constitute less than 1% of all reexaminations since 1981, and a much lower percentage in recent years,” said Daniels.  “Reexamination is intended to give the Patent Office a chance to consider issues regarding the validity of claims, that had not been considered by the examiner during the original prosecution of the patent — specifically the issues of anticipation and obviousness based on prior patents and printed publications. It can be a less expansive, and sometimes more effective, alternative to litigation of those issues.”

Indeed, the reexamination statute and rules permit any person to file a request for an ex parte reexamination, which is the more common type of reexamination. The Office initially determines if “a substantial new question of patentability” is presented. If such a new question has been presented, reexamination will be ordered. In the Director-Initiated scenario, however, there has been no request for reexamination made by either the patent owner or a third party, which is why they are so rare.

Typically the Patent Office allows patent owners and third parties to sort out whether a reexamination is necessary.  The thought process is that there is no need to waste precious examining resources to reexamine a patent that no one cares about or is enforcing.  Thus, something out of the ordinary happened here, although what exactly is impossible to tell.  Perhaps the Patent Office was taking some heat on Capitol Hill for these types of patents or perhaps someone just stumbled on something that made them scratch their heads and wonder.  It is all just a matter of speculation.

In any event, once reexamination has started there is no way to stop the process.  The reexamination proceedings are very similar to regular examination procedures in patent applications; however, there are notable differences. For example, there are certain limitations as to the kind of rejections which may be made, special reexamination forms to be used, and time periods set to provide “special dispatch.” When the prosecution of a reexamination proceeding is terminated, a reexamination certificate is issued which indicates the status of all claims following the reexamination.

Like any other examination it can be expected that all the claims will initially be rejected, otherwise there wouldn’t have been the requisite substantial new question of patentability.  The patent owner will have the ability to respond, amend and make arguments to the Patent Examiner.  If the patent owner does not meaningfully participate it is all but certain that the reexamination certificate will issue with all claims gone.

The reexamination order, signed by Robert Bahr, Senior Counsel in the Office of the Associate Commission for Examination Policy, is extremely detailed and comes complete with claim charts.  In fact, the order is over 58 pages of text explaining why it is believed there is a substantial new question of patentability.

Time will tell, but these types of tax limiting methods have been under fire on Capitol Hill in some circles for some time.  While that isn’t a justification for denying patent claims, it does appear as if the applicant here is going to face an uphill battle to retain the patent claims.

As with all things, time will tell.  Stay tuned!


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Join the Discussion

16 comments so far.

  • [Avatar for Blind Dogma]
    Blind Dogma
    January 22, 2011 11:50 am

    If one were to apply the Broadest Reasonable Interpretation to the logic used by the Office as stated at the Westerman website:

    In this instance, the original examiner’s failure to consider a specific article “has created an extraordinary situation” requiring reexamination,”

    then the Office (read that as patent holders) is in a world of hurt. The logic of the sua sponte reexam dictates that for a full examination, the examiners list of considered art needs be much, much larger than the typical results obtained since, well, since decades of search and normal examination.

    I am having some mild difficulty accepting that a search and examination at the Patent Office that does not consider or discuss every possible prior art reference creates such an extraordinary situation. This redefining of “extraordinary” may moot the debate about the Clear and Convincing evidentiary standard for the presumption of validity, since it appears the mere presence of art not considered or discussed is so “extraordinary.”

  • [Avatar for Anon]
    January 21, 2011 08:42 pm

    Alas, my musings are misguided. This is the order that is substantial – and there is nothing wrong with an examination (search and analysis) coming out with the order.

    Perhaps if a link to the request could be found…

  • [Avatar for Anon]
    January 21, 2011 06:23 pm

    If it adds any light – there is nothing wrong with the Office initiating a request and explaining how they came across the art they are using to point out the SNQ that must first be met prior to any examination being authorized.

    However – there is a big difference if an examination is begun prior to the SNQ being vetted to allow an examination and using the fruits of that unvetted examination to support the SNQ which then would permit an examination to begin.

    There is nothing wrong with anyone – through due process (that process established by law) – asking the Office to initiate a reexamination based on proper SNQ. There must be someone else watching the henhouse though, when the requester is also the party charge with making the SNQ deliberation (we need watchers watching the watchers).

  • [Avatar for Mark Nowotarski]
    Mark Nowotarski
    January 21, 2011 01:01 pm

    The USPTO does issue a comprehensive document with the reasons for reexamination with a Director initiated reexam. In this case, the document ran a hefty 61 pages long.

    They cited several non-patent literature references that hadn’t been considered during the initial examination. The primary reference was Zaluda, Jeffrey A, “Leverage the Estate Planning Benefits of Non-Qualified Incentive Plans”, Tax Management Memorandum; Sep 29,1997; 38,20; Accounting & Tax Periodicals pages S-242 to S-250.

    This emphasizes the importance of applicants doing a thorough search of non-patent literature before filing any financially related business method patent. See “Making Progress with Difficult Patent Applications”

  • [Avatar for IANAE]
    January 21, 2011 12:18 pm

    I’m still not sure I understand. Are you saying that the PTO may initiate a reexam sua sponte, but in so doing it must present the SNQ before looking at the patent or the prior art?

    If you’re saying that the PTO put a surprising amount of effort into establishing the SNQ, I don’t see why that should be a problem. If anything, it’s commonly believed that the PTO puts too little effort into determining whether a SNQ exists before initiating a reexam. If the PTO can produce 60 pages of detailed reasons why there is a SNQ and a reexam is proper, it doesn’t sound like they’ve skipped any steps. How else could they possibly do what the statute says they’re allowed to do?

  • [Avatar for Anon]
    January 21, 2011 11:50 am


    You misunderstand. I am not saying that the PTO cannot initiate reexams. I am not saying that there is not an express statutory authority to initiate reexams.

    I am saying that the process of initiating reexams has only one legislated pathway. That pathway indicates that a SNQ must be presented (and accepted) prior to actually performing any steps of examination.

    The stellar document is a strong sign that this process was not followed and that an examination was conducted prior to the acceptance by the Office of a purported SNQ.

    Yes, the situation does have signs of the classic Catch-22. But the process of reexam – as it is – does not allow reexamination prior to the Office making a decision on the purported SNQ. All the statutory authority in the world simply allows the Office to sua sponte initiate the process. They too must abide by that process, since no other process is available. The authority provided does not allow them to skip steps in the process, now does it?

  • [Avatar for IANAE]
    January 21, 2011 10:27 am

    Anon, if you’re implying that the government (the PTO?) can never logically initiate a re-exam because the act of finding a SNQ constitutes impermissibly re-examining the patent prior to finding a SNQ, 35 USC 303 would like a word.

    The PTO has express statutory authority to initiate re-exams on its own initiative, so you can’t “make the case” that it would be paradoxical for the PTO to ever initiate a re-exam.

  • [Avatar for jefferson]
    January 21, 2011 09:28 am

    I am concerned about the possibility of some special interests using their access and influence … to use the resources and powers of the government to attack other citizen(s). Even the possibility of such an attack reduces … citizen confidence in their government.

    To prevent abuses, there should be a disclosure/documentation requirement … for how a re-exam need … initially (internally) occurred to the USPTO and whether any non-USPTO parties were involved in the initial questioning or in the generation of the re-exam request. To minimize abuse, non-USPTO government agencies (e.g., IRS) should also make their re-exam requests via the normal (non-director) process?

  • [Avatar for Anon]
    January 20, 2011 11:57 pm

    I am curious about one thing. For the government to meet its burden of providing a SNQ prior to the grant of the reexam request (which then allows – the government – to begin a reexamination, how did the government actually achieve the stunning request document, without actually approving itself to do the examination that resulted in the 50+ page request?

    Looking at that document, one can make the case that the government did not follow its own rules may have violated due process.

  • [Avatar for Accept Nothing at Face Value]
    Accept Nothing at Face Value
    January 20, 2011 08:47 pm

    “The Office initially determines if ‘a substantial new question of patentability’ is presented.”

    And therefore the patent owner/s should (also) challenge such a determination by the Office; no?

    Including in order to preserve the right to do so at the appeal/Supreme Ct level?

  • [Avatar for Blind Dogma]
    Blind Dogma
    January 20, 2011 05:04 pm

    Interesting. I didn’t know the President even knew we had a patent office, as he has never actually used those words (sure, he has spoken of innovation, but has not said “Patent Office” in any remarks I have seen).

  • [Avatar for Mark Nowotarski]
    Mark Nowotarski
    January 20, 2011 03:48 pm

    The lawsuit against John Rowe, former CEO of Aetna, has been a call-to-arms for the American Institute of Certified Public Accountants (AICPA). They have made it a high priority to lobby Congress to ban so called “tax patents”. They have succeeded in getting their desired language added to the various patent reform legislation over the years. A certain junior senator from Illinois, now our President, was a principal sponsor of this legislation.

  • [Avatar for Mark Nowotarski]
    Mark Nowotarski
    January 20, 2011 03:41 pm

    “Why would the IRS want to invalidate a patent that stops people from minimizing their tax liability?”

    Tax Patents are something new for the IRS. They are not quite sure if they are good or bad in the sense of making their jobs easier or harder.

    Recently they proposed some rule changes to require disclosure of any use of a patented tax process. I’m not quite sure what the status of those rules are.

  • [Avatar for TINLA IANYL]
    January 20, 2011 02:20 pm

    Why would the IRS want to invalidate a patent that stops people from minimizing their tax liability?

  • [Avatar for biz method guy]
    biz method guy
    January 20, 2011 10:36 am

    I think that this patent was previously asserted against at least the CEO of Aetna for his use of the SOGRAT technique – resulting in a settlement

  • [Avatar for Kale]
    January 20, 2011 10:23 am

    I’d put good money that pressure came from another agency, e.g., IRS, to file reexamination.