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Tuesday, January 25, 2011

Current Issues in Patentable Subject Matter: Business Methods, Tax Planning Methods, and Genetic Materials

John R. Thomas
Visiting Scholar

Congressional interest in the patent system has grown in recent years, tracking increasing recognition of the importance of intellectual property to innovative U.S. industries. One of the areas of interest is the topic of patentable subject matter—that is, the sorts of inventions for which patents may be obtained. In particular, patents on business methods, tax planning methods, and genetic materials have proven controversial. Legislation introduced in recent sessions of Congress would restrict the availability of patents in these fields. None of these bills has been enacted.

The patent statute currently provides that patents may be obtained on any invention that is a process, machine, manufacture, or composition of matter. The range of patentable subject matter under this provision has been characterized as extremely broad. The courts have nonetheless concluded that certain subject matter, including abstract ideas, mathematical algorithms, laws of nature, and mental processes may not be patented no matter how innovative they might be. They have reasoned that these inventions comprise the fundamental tools of scientific research, and that allowing them to be privately appropriated might interfere with future advancement.

Business method patents relate to a method of administering, managing, or conducting a business or organization. Tax planning method patents concern a method of reducing or deferring taxes. The 2010 decision of the U.S. Supreme Court in Bilski v. Kappos addressed whether particular methods are patentable, although opinions vary as to the conclusiveness of the Courts’ ruling.

Patents claiming the products of biotechnology, and in particular genetic materials, have also led to considerable debate. Genetic material patents cover such technologies as DNA sequences, amino acid sequences, individual mutations known to cause disease, and testing kits for detecting genetic mutations. Since the 1980 decision of the Supreme Court in Diamond v. Chakrabarty, the U.S. Patent and Trademark Office (USPTO) has viewed genetic materials and related technologies as patentable. However, the March 29, 2010, district court opinion in Association for Molecular Pathology v. USPTO cast doubt upon the patentability of isolated DNA. Proceedings in the so-called “Myriad” litigation were pending as of the date this report issued.

Numerous arguments have been advanced in opposition to patents on business methods, tax planning methods, and genetic materials. Some commentators believe that business method patents ultimately discourage competition, that tax strategy patents provide undesirable innovation incentives, and that patents on genetic materials lead to deleterious effects on healthcare and medical research. Other experts assert that these concerns are overstated, and further contend that the patent system provides a powerful incentive for innovation, investment, and public disclosure of technology across many fields of endeavor.

Several legislative options present themselves. If Congress decides the current rules with respect to patent eligibility are appropriate, then no action need be taken. Other possibilities include amendments to the Patent Act either to bar the issuance of patents in particular disciplines, or to limit the ability to enforce certain kinds of patents. The desire to comply with certain international agreements, in particular the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), may restrict certain legislative alternatives.

Date of Report: January 13, 2011
Number of Pages: 21
Order Number: R40681
Price: $29.95

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