Last September, the LTA blog discussed a line of Tax Court cases in which taxpayers unsuccessfully attempted to defend themselves from I.R.S. penalties by arguing that their reliance on tax preparation software amounted to reasonable cause and good faith.  After this line of consistent taxpayer defeats, the Tax Court recently ruled in favor of a taxpayer who used tax preparation software to self-prepare his tax return and mistakenly omitted a large amount of trust fund income from his taxable income. See Olsen v. Commissioner. T.C. Summ. Op. 2011-131.  While Olsen is notable because a taxpayer who relied on a tax return preparation program was able to assert a successful defense against I.R.S. penalties, it is especially interesting because the successful taxpayer argument in this case was more nuanced than those in previous cases.

Generally, when a taxpayer substantially understates his tax liability by more than $5,000, the I.R.S. asserts a substantial omission penalty against the taxpayer. I.R.C. §6662(b)(2), I.R.C. §6662(d).  When faced with this substantial omission penalty, a taxpayer may argue that he qualifies for an exception to the penalty because he had a reasonable cause for the understatement and he acted with good faith.  I.R.C. §6664(c).  In determining whether a taxpayer acted with reasonable cause and good faith, a court will look at all the pertinent facts and circumstances. Treas. Reg. § 1.6664-1(b)(1).

In the past, taxpayers who relied on software programs to help them prepare their tax returns had a hard time proving reasonable cause and good faith and the Tax Court upheld the penalty, reasoning that tax return preparation software is only as good as the information a taxpayer puts into it. See e.g. Bunney v. Commissioner, 114 T.C. 259, 267 (2000), Lam v. Commissioner, T.C. Memo 2010-82, Anyika v. Commissioner, T.C. Memo 2011-69.

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Recently, Carrier IQ has come under scrutiny for the vast amounts of data it gathers from cell phone users.  A cell phone analytics company, Carrier IQ claims it’s software is installed on over 141 million devices. Apparently, the software is mostly on phones from AT&T, Sprint, and T-Mobile. This software has the ability to gather vast amounts of data from users, including logging keystrokes, user location, and telephone calls. For example, the software can track what websites a person visits, as well as the usernames and passwords used on those sites. Since this information is tracked directly from the phone or mobile device, it does not matter if the device is used over wi-fi networks or cellular networks, or if the website itself is encrypted. The potential for invasion of privacy is enormous.

Carrier IQ has responded, saying “While we look at many aspects of a device’s performance, we are counting and summarizing performance, not recording keystrokes or providing tracking tools.” Continue reading →

The University of Washington School of Law on Monday published the Fall 2011 issue of the Washington Journal of Law, Technology & Arts, the nation’s first student-run electronic law journal focusing on technology, commerce, and artistic innovation. The Washington Journal of Law, Technology & Arts publishes concise legal analysis aimed at practicing attorneys on a quarterly basis. This quarter’s edition includes four articles by current students of the Law School and two articles authored by external contributors.

This issue’s lead article, “Ninth Circuit Unmasks Anonymous Internet Users and Lowers the Bar for Disclosure of Online Speakers,” is written by Articles Editor Mallory Allen. The article surveys the prevalent online defamation cases, summarizing the three primary judicial tests applied by state courts in determining whether a plaintiff may compel disclosure of an online commentator. The article posits that the federal circuit courts likely will adopt the reasoning set forth in the July 2010 Ninth Circuit decision In re Anonymous Online Speakers. Continue reading →

Perhaps you have seen the TV commercials for fast-food restaurant chain Chick-fil-A during Saturday college football games: apparently semi-illiterate cows unveil banners urging consumers to “Eat Mor Chikin”[®].  A Vermont artist’s spoof of the restaurant’s trademarked phrase instructs people to munch on more of a leafier substance—kale. Bo Muller-Moore has printed the phrase “Eat More Kale” on merchandise such as apparel and bumper stickers (which have found their way onto Washington State cars), reportedly since 2000. He claims the phrase is meant to promote local agriculture (kale is a type of cabbage). His recent attempt to register “Eat More Kale” with the United States Patent & Trademark Office (USPTO), however, irked Georgia-based Chick-fil-A, which sent him a cease-and-desist letter claiming the marks are confusingly similar, according to press accounts.

Chick-fil-A appears to have an aggressive trademark-enforcement strategy. The letter reportedly alludes to the company’s many successful efforts to rebuff cooptation of the phrase (evidenced by the company’s activity before the Trademark Trial & Appeal Board (TTAB)). Muller-Moore apparently has enlisted the assistance of an IP professor to resist Chick-fil-A’s pressure to cease use of the similar mark. But is the law on Muller-Moore’s side? His case raises two interesting questions: (1) whether Muller-Moore can register the mark, and (2) whether Chick-fil-A can prevent him from using the phrase in commerce on products. Much of the resulting legal analysis probably turns on the likelihood that consumers would confuse the source of goods bearing the respective phrases. This kale conundrum also implicates the broader issue of parodies on products vis-à-vis trademark law. Continue reading →

For the second time in less than two years, the Supreme Court will decide on the patent eligibility of method claims.  In June of this year, the Court granted Mayo’s petition for certiorari in Prometheus Laboratories, Inc. v. Mayo Collaborative Services.  Oral arguments before the Court are scheduled for December 7, 2011.  The case involves the patent eligibility of personalized medicine (PM) technologies.  PM refers to the customization of health care for an individual patient.  PM can take into account a patient’s genetics and other individualized information to optimize therapeutic and preventive care in accordance with the patient’s specific biology and medical conditions.  Examples of PM include genetic screening, engineering of a drug’s molecular structure, or dosage as a function of patient biomarkers.  Given the significant current and future potential benefits of PM, as well as the large capital requirements for medical research, the Court’s ultimate holding will have far-reaching consequences.

The case involves method claims in two issued patents: U.S. Patent No. 6,355,623 and U.S. Patent No. 6,680,302.  Prometheus holds exclusive licenses for both patents.  The patents cover methods for determining optimal dosage, individualized to a particular patient, of a drug used to treat stomach disease.  Claim 1 in the ‘623 patent recites a method for optimizing therapeutic efficacy for treatment comprising (a) administering a drug to a subject and (b) determining levels of metabolites present in the subject.  The determined levels of metabolites correlate with the drug’s toxicity to the subject.  The claim further recites, using a wherein clause, to either increase or decrease the amount of administered drug as a function of the determined levels of metabolites.  Other claims in the patent cover similar, albeit different, methods.    Continue reading →