Built on the foundation of the Tax Management Portfolios™, Bloomberg BNA Tax & Accounting is a comprehensive tax research solution designed by tax practitioners for tax practitioners.
By Michael B. Lang, Esq. and William A. Drennan, Esq.
Chapman University School of Law, Orange, CA, and Husch, Blackwell, Sanders LLP, St. Louis, MO, Southern Illinois University School of Law, Carbondale, IL, respectively.
Although a patent holder cannot sue an infringer until the patent issues, once the patent issues the patent holder can sue and recover damages from anyone who had "actual knowledge" of the published patent application and used the patented technique before the Patent Office actually issued the patent. As a result, if a taxpayer has actual knowledge of the patent application, and uses the patented technique, once the patent issues the patent holder can sue the taxpayer (and perhaps the taxpayer's advisor)1 for damages for the acts taken before the patent actually issued. These pre-issuance rights are referred to as "provisional rights" and are authorized under 35 USC §122(b).
Historically all patent applications were kept secret, and the public was not informed about a new invention until the patent issued. After 1999, the U.S. Patent and Trademark Office (the "Patent Office") publishes a patent application 18 months after it is filed unless the inventor seeks only U.S. patent protection and files a document titled "NonPublication Request Under 35 USC §122(b)(2)(B)(i)."2 Approximately 85% of all patent applications in all fields are published after 18 months.3 The Patent Office classifies tax planning patents as "business methods" (under class 705), and assigns tax patents to subclass 36T. Pending tax patent applications can be found at the Patent Office website.4 On Feb. 12, 2010, there were 139 published tax patent applications pending.
Should taxpayers and tax advisors peek at the patent applications posted on the Patent Office website? Knowledge is power, and some taxpayers and tax advisors may want to review the pending applications to determine whether the implementation of their tax strategies might infringe,5 particularly when a tax strategy may take years to implement. If the taxpayer has some flexibility, she might carefully assess whether to go forward with the planned course of action, or whether it may be possible to tweak the approach to arguably avoid infringement, or perhaps adopt a completely different strategy to avoid any risk of infringement.
It can be extremely difficult to determine whether a planned course of action will infringe a patent. The patent claim must be interpreted, and then compared to the accused use. Interpreting claim language can be very difficult because "an invention [may] exist most importantly as a tangible structure or a series of drawings … [and] a verbal portrayal is usually an afterthought written to satisfy the requirements of patent law."6 Even if a use may avoid the literal language of the patent claim, the use could still be held to infringe under the doctrine of equivalents. If the use is only "insubstantially different" from the patented claim, under the doctrine of equivalents the user will be considered an infringer.7
A taxpayer or a tax advisor who acquires actual knowledge about a pending patent application and proceeds with an infringing action can be subject to damages under 35 USC §122(b) for the infringing actions taken before the patent issues. In contrast, a taxpayer or tax advisor who never bothered to check the roster of pending tax patent applications and is able to complete implementation of the tax strategy before the patent issues can escape liability.
1 A party can be liable for "direct infringement" if he or she performs the steps in a patented claim. SeeJanice M. Mueller, Patent Law 327 (3d ed. 2009) (With direct infringement the "accused infringer has … [used a process] that meets each and every [element] of the asserted [patent] claim."). Also, a party "who … actively induces infringement of a patent shall be liable as an infringer." 35 USC §271(a). In addition, a party that sells a component of a patented product can be liable as a contributory infringer. 35 USC §271(c).
3 See Janice M. Mueller, Patent Law 54 (3d ed. 2009). The percentage of patent applications published in the tax field may be lower than in other fields because many tax inventors may seek only U.S. protection.
4 See www.uspto.gov/patft/index.html (using the search term "ccl/705/36T").
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