Section of Taxation Publications

VOL. 61
NO. 3

Contents | TTL Home


Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Everything You Always Wanted to Know About Patents but Were Afraid to Ask:
A Tax Practitioner’s Primer on Patenting Tax Strategies

Thomas J. Monks*

*Professor of Law and Accounting, Western Connecticut State University;
Quinnipiac University School of Law, J.D., 1989; LL.M. (Taxation), 1993


Prior to 1998, members of the tax bar and members of the patent bar, respectively, did not concern themselves with the others’ respective Title of the United States Code. In those days, tax strategies were not patentable. Thus, patent lawyers did not obtain or enforce tax patents and tax lawyers did not patent their work. More importantly, tax practitioners and taxpayers did not worry about patent infringement. In 1998, the Court of Appeals for the Federal Circuit (CAFC) changed the status quo when it held “business methods” could receive patents. Since then, the United States Patent and Trademark Office (PTO) has granted tens of tax strategy patents that qualify as patentable business methods.

Tax strategy patents did not receive much attention until the filing of an infringement lawsuit in 2006. An executive of Aetna, Dr. John Rowe, established two “grantor retained interest trusts” (GRATs) and funded them with “nonqualified stock options” (NQOs) awarded to him by Aetna. Through securities law disclosures, Wealth Transfer Group, LLC (WTG) became aware of the transfers. WTG held a patent for “Establishing and Maintaining Grantor Retained Annuity Trusts Funded by Nonqualified Stock Options,” U.S. Patent No. 6,567,790 (filed December 1, 1999)(’790 Patent or SOGRAT patent). The ’790 Patent claimed the right to exclude others from the process of transferring the value of NQOs to a grantor’s family members via a GRAT. Seeking to enforce its patent, WTG filed suit against Dr. Rowe alleging a single count of patent infringement for “establishing and managing a grantor retained interest trust funded by, inter alia, nonqualified stock options . . . .” WGT sought injunctive relief and damages.

As a result of the lawsuit, tax bar associations and CPA societies throughout the country began bringing awareness of the policy and legal issues associated with tax patents to their members. Despite those efforts, many tax practitioners still do not know that tax strategies can be patented. Of those who do, many lack a basic understanding of patents.

This Article provides tax practitioners with an introduction to patents in general and tax strategy patents in particular. A question and answer format is used for ease of understanding and reference. The Article first discusses general concepts of patent law, then provides a discussion on tax strategy patents. The Article next discusses a recent Supreme Court case that should have a major impact on tax strategy patents. Finally, the Article discusses the future of tax patents.


Published by the
American Bar Association Section of Taxation
in Collaboration with the
Georgetown University Law Center


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