United States v. Norwest Corp.

Norwest Corporation (defendant) was a bank-holding company with over 300 subsidiaries. Norwest and its subsidiaries filed consolidated tax returns. Norwest prepared its returns using a proprietary, tax-preparation software suite called Tax Director, which was licensed by Arthur Andersen & Company (Andersen). Andersen licensed Tax Director to hundreds of corporations, and the software itself contained no data or information specific to any particular taxpayer. Essentially, Tax Director was a set of coded algorithms that took as inputs a customer’s own accounting and financial records and produced as outputs numerical figures intended to populate the customer’s tax-return forms and accompanying schedules. Andersen maintained that Tax Director and the algorithms coded within it comprised protected trade secrets. The Internal Revenue Service (IRS) (plaintiff) audited Norwest’s consolidated returns. As part of its audit, the IRS sought production of the Tax Director software under the IRS’s summons power. Norwest resisted production of the software, proposing alternative solutions to the IRS, such as furnishing sets of files produced by Tax Director and demonstrating to IRS investigators how Norwest used Tax Director. The IRS continued to pursue production of the software itself and filed a summons in district court. A magistrate judge issued an order that the summons be enforced, which the district-court judge affirmed. Norwest (and Andersen as an intervenor) appealed.