What if, as a tax professional, I came up with an idea to reduce your taxes that was so amazing, I wanted to patent it so that nobody else could use it without my approval? Fair?
Some members of Congress say no. Just last week, Sen. Max Baucus (D-MT) and Sen. Chuck Grassley (R-IA) introduced S. 139 (downloads as a pdf) to stop it. The bill, otherwise known as “The Equal Access to Tax Planning Act of 2011”, has as its official title, as introduced:
A bill to provide that certain tax planning strategies are not patentable, and for other purposes.
Here’s the meaty part:
For purposes of evaluating an invention under section 102 or 103 of title 35, United States Code, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from the prior art.
So, basically no tax patents. The bill goes so far as to bar attempts to patent a tax strategies under federal, state, local or foreign law.
Of course, this is prospective tax patent banning. Tax patents have been already granted so far and this bothers members of Congress who fear that continuing to do so will make tax planning complicated and, of course, expensive. On its face, I agree.
To be fair, I don’t know a great deal about patent law. I know enough about trademark law to be dangerous, having registered my own marks (“taxgirl” and “ask the taxgirl”) and sadly, having had to hire an attorney to protect those marks. When it comes to patents, though, my mind just goes to shoes. Fortunately, my firm does a fair amount of IP law these days, so I asked around. Here’s what I found out: the idea of a patent is to protect the person who came up with the invention by granting them exclusivity over the invention. That sounds good – for the inventor. But if you infringe on that patent by using it without permission, even accidentally, you can be sued and it’s expensive. Very expensive. Therein is the problem.
So that great tax idea I mentioned in the beginning? If I patent it and you later think of it and use it, I could sue you. There’s a pretty big chance I’d win – even if you didn’t know that I had the idea in the first place. For the most part, the defenses for infringement are fairly limited.
As you can imagine, this is a really tricky area. In terms of worlds colliding, it’s tax law meets patent law – who wants to sit on that jury?
That’s why Congress is taking steps to stop it now. Apparently, this is supposed to be a step towards a bigger scheme to reform patent law… Really? They start with tax patents?
What do you think? A fair place to start? Or unfair to tax professionals who might just have the key to the next big thing?
Plenty of evidence that “business model” patents are out of control. Trying to patent “how-to” do something, not an actual invention. Tax patents a just a particular form of “how-to” patents.
“But if you infringe on that patent by using it without permission, even accidentally, you can be sued and it’s expensive. Very expensive. Therein is the problem.”
Well, let’s see. We have people not being able to use the term Super Bowl to refer to the big football game at the end of football season. We also have that one charity suing others for using a similiar style name.
I’d say it’s time for common sense reform across the board. Okay, I’ll stop drinking now. 🙂
I’m not sure about the idea of patenting tax planning ideas. I wouldn’t be opposed if the defenses were more robust. Accidental, unknowing infringement should be a defense. There should also be an intent standard. There needs to be a balance between true innovation in the area of tax planning and the need to keep access to tax planning affordable. Any changes in this area should be carefully thought out and only enacted after full hearings ,open to the public and the solicitation of opinions from all stake holders.
The idea behind giving inventors protection is to promote innovation, which will grow the economy, create jobs, and in general add to the prosperity of the country. At the end of the day a more robust and successful economy means greater wealth for the public and more tax revenue for the government.
Therefore, having tax patents take us in the opposite direction. Tax patents are often designed to take advantage of the language in the Code and the Regs in a manner that congress never intended. They are specifically designed to reduce tax revenue. Why should the government promote what amounts to the creation and explotation of tax loop holes.
This is were a normal “how to” patent differes from a tax patent. We want people to come up with new ways to do business and grow the economy. We don’t want people to come up with new ways to avoid paying thier fair share of taxes.
If the tax code were crystal clear and well indexed, it would not be possible to have a patentable tax planning idea, because the tax code would have already disclosed it, and the idea would be part of the “existing art”.
But if someone did come up with a novel and correct idea and get it patented, then the IRS would be prohibited from disclosing the strategy in their publications!
Good thing to prevent patenting tax strategies.