Tax Shelter Patent Case Update

I checked in on the status of case of Wealth Transfer Group v. Rowe, a federal patent case in Connecticut in which the Plaintiff seeks to enforce a tax shelter patent involving putting a certain kind of stock options in a certain kind of trust, previously discussed on this blog.

Last week, the Court approved an amendment of the Answer in the case (the Complaint in the case was initially filed in January of 2006), in which Rowe asserts that Wealth Transfer Group knew about an article written by someone else two years before their patent application which described the tax shelter in question. If established, this would provide a basis to invalidate the patent in the case on the ordinary intellectual property law ground that the patent holder was not forthcoming in his application for a patent and was not the original inventor of the idea, without addressing the larger policy question of whether it is permissible to patent a tax shelter at all. Discovery in the case will continue until January 15, 2007.

Apparently, the article came up in the discovery process from the patent holder. If discovery shows that indeed the patent holder knew about the article, which production of the article in discovery would tend to imply, the case will probably be settled and dismissed without being considered by the judge at all. Even if the patent holder didn't know about the article, proof that the patent was not in fact a new discovery may be enough by itself to invalidate the patent, although this would make it much harder for Rowe to recover his attorneys fees in the case.

A solid factual defense is good news for Rowe (a former executive with Aetna). It is bad news for the public, as the unresolved legal issue posed by the case, i.e. the patentability of tax shelters, which has attracted nationwide attention, would go unresolved. Until the issue is resolved, tax planners, like myself, face a constant risk that we could infringe someone's patent with an innovative planning technique, unless we do a patent search first, which we won't, because it isn't cost effective and isn't likely to be discovered by the patent holder even if it is infringing.