Patenting Legal Strategies!

The ABA Journal reports that some practitioners are patenting legal strategies. In Crisis Pending, Steve Seidenberg reports that there has actually been a suit filed against a client for using their own lawyer's advice, claiming that the action infringed a patent held by another attorney. A snippet:

...the first-ever infringement lawsuit seeking to enforce a legal strategy patent is already under way.

The Patent and Trademark Office issued the first tax strategy patent on May 20, 2003, to Robert Slane, a financial adviser in Altamonte Springs, Fla. The patent gives Slane exclusive rights to a certain type of grantor retained annuity trust.

GRATs are well-known estate planning devices often used to slash the amount of gift taxes that must be paid when a donor gives large amounts of wealth to family members.

On Jan. 6, 2006, Slane’s company scored another first, filing suit in the U.S. District Court for the District of Con­necticut alleging infringement on its patent. Wealth Transfer Group v. Rowe, No. 3:2006cv00024. The suit alleges that, after Slane’s patent issued, John Rowe—the former chair and CEO of insurance giant Aetna—funded several GRATs covered by Slane’s patent. The suit seeks treble damages, an injunction and attorney fees. The suit does not name Rowe’s estate planning attorney or any other financial advisers as defendants. (Attorneys handling the litigation declined to comment for this story.)

When a GRAT is set up, the donor funds it with assets that are expected to grow in value. The donor receives a fixed annuity from the GRAT during the life of the trust.

When the GRAT expires, the corpus is distributed to the trust’s beneficiaries—and the amount of gift tax is based on the discounted future value of the assets at the time they were placed into the GRAT, not the (larger) actual value of the assets at the time they are distributed to the trust’s beneficiaries.

What Slane claims to have invented—and what his patent covers—is the use of unqualified stock options to partially or fully fund a GRAT.

Many tax experts ridicule the patent, saying GRATs typically are funded with whatever appropriate assets a client may have. “Coupling a GRAT with a specific asset should not be patentable, because there’s nothing unique about coupling a congressionally authorized estate planning technique with any asset,” says Belcher, a past chair of the ABA Section of Real Property, Probate and Trust Law.

Tax and trust experts fear Slane’s patent limits the extent to which they and their clients can use GRATs. If they want to put any unqualified stock options into a GRAT, they can do so only if they can obtain a license from Slane’s company, the Wealth Transfer Group, to which he has transferred the patent. Other­wise, they face the risk of being sued for patent infringement.

I predict that vendors will develop some product that will survey patents, scanning for law practice patents. Evidently, there are hundreds waiting decision at the Patent and Trade Office. If they make a good search engine and include a good editorial summary that makes it more findable with alternate terms and methods of practice, it should be a big seller for anxious attorneys.

Also, what's up with suing the client and not the lawyer who gave the advice? Is that professional courtesy?