WASHINGTON (Thursday, Feb. 3, 2011) – A unanimous vote by the Senate Judiciary Committee Thursday sent comprehensive patent reform legislation to the full Senate for the third time since 2008. The Patent Reform Act is authored by Senators Patrick Leahy (D-Vt.), Orrin Hatch (R-Utah), and Chuck Grassley (R-Iowa).
Congressional efforts to reform the nation’s patent system first began in 2005. The legislation approved by the Judiciary Committee Thursday is the product of years of work and compromise. Enactment of the Patent Reform Act of 2011 will make the first significant changes to the patent system in nearly 60 years, and will create and protect American jobs without adding to the nation’s deficit.
“A balanced and efficient intellectual property system that rewards invention and promotes innovation through high quality patents is crucial to our nation’s economic prosperity and job growth,” said Leahy. “The Patent Reform Act will allow our inventors and innovators to flourish. And it will do this without adding a penny to the deficit. I hope that the Senate will act quickly, so that we can win the future by unleashing the American inventive spirit.”
“The United States is the most innovative and entrepreneurial nation in the world,” said Hatch. “If we are going to maintain our enviable position at the forefront of the world economy, it is absolutely essential for us to have an efficient and streamlined patent system. This bipartisan legislation, which would be the first major overhaul of our patent system in nearly six decades, is an important step toward maintaining our global competitive edge.”
“An effective and efficient patent system will help spur innovation and inventions and improve patent quality, and as a result, will provide incentive for entrepreneurs to create jobs,” Grassley said. “I hope the full Senate will soon have an opportunity to debate this bipartisan legislation.”
Leahy is the Chairman of the Senate Judiciary Committee. Hatch is the Committee’s senior Republican member and a former Chairman, and Grassley is the panel’s incoming Ranking Republican.
The Patent Reform Act makes changes to inter partes review, Patent and Trademark Office funding, and supplemental examinations. The legislation will also transition the nation’s patent system to a first-inventor-to-file system, create a first-window post-grant review process, provide certainty in damages calculations and findings of willful infringement, and includes important provisions to improve patent quality. The bill is based largely on a bill introduced in the 109th Congress by House Judiciary Committee Chairman Lamar Smith (R-Texas) and Congressman Howard Berman (D-Calif.).
The compromise legislation on which the patent Reform Act of 2011 is based was supported by the Obama administration and by industries and stakeholders, including the National Association of Manufacturers, the United Steelworkers, the National Venture Capital Association, the Association of American Universities, and companies representing all sectors of the patent community that have been urging action on patent reform proposals for years.
Here is a copy of the statement Grassley entered into the hearing record.
Prepared Statement of Ranking Member Chuck Grassley
Senate Committee on the Judiciary
Executive Business Meeting
Patent Reform Bill
Thursday, February 3, 2011
Thank you, Mr. Chairman, for your hard work on this bill. I appreciate all the outreach you’ve had with myself, as well as other Senators and interested parties in bringing the different sides together and crafting a compromise bill. Intellectual property rights are extremely important to our nation’s economy, and an effective and efficient patent system will help spur innovation and inventions. The bill before us will update the U.S. patent system and improve patent quality.
I want to particularly thank the Chairman for working with me on a provision that would curtail patents on tax strategies that Senator Baucus and I strongly believe needed to be part of this patent reform package. During the 10 years that Senator Baucus and I alternated as Chair and Ranking Member of the Finance Committee, we worked on many proposals to protect taxpayer rights. The tax patent provision in this bill is one such provision. The American Institute of Certified Public Accountants started expressing concern about tax strategy patents after the then-Chairman and CEO of Aetna was sued for patent infringement for using a widely-known tax planning strategy. He eventually settled, but most taxpayers don’t have the resources to fend off such challenges. I ask consent that a 2007 article describing the AICPA’s concerns and the lawsuit be inserted in the record.
In July 2006, the House Ways & Means Committee held a hearing on the use of tax strategy patents in facilitating abusive tax avoidance transactions. The Joint Committee on Taxation prepared a document for this hearing that outlines in detail the issues that tax strategy patents present. That document, JCX-31-06, is available on the Joint Committee’s website. The bottom line is that tax strategy patents may lead to the marketing of aggressive tax shelters or otherwise mislead taxpayers about expected results. Tax strategy patents encumber the ability of taxpayers and their advisors to use the tax law freely, interfering with the voluntary tax compliance system. If firms or individuals were able to hold patents for these strategies, some taxpayers could face fees simply for complying with the tax code. And, tax patents provide windfalls to lawyers and patent holders by granting them exclusive rights to use tax loopholes, which could provide some businesses with an unfair advantage.
Tax strategy patents are unlikely to be novel given the public nature of the tax code and related guidance. Moreover, tax strategy patents may undermine the fairness of the Federal tax system by removing from the public domain particular ways of satisfying a taxpayer’s legal obligations. The provision in the bill before us today expressly provides that a strategy for reducing, avoiding or deferring tax liability cannot be considered a new or non-obvious idea, and therefore, a patent on a tax strategy cannot be obtained. This ensures that all taxpayers will have equal access to strategies to comply with the tax code. In addition to Chairman Baucus, Senators Levin, Bingaman, Wyden, Conrad, Enzi, Kerry, Stabenow and Whitehouse support this provision.
I want to express my appreciation to Senators Leahy, Hatch, Sessions and Kyl for working with me in the Judiciary Committee to include this provision in the comprehensive patent reform bill we are debating today. It’s important that this provision remain in the bill since the number of tax strategy patents issued and pending are growing rapidly. As of the publication date of the 2007 article I inserted in the record, there were 60 patents issued and 86 pending applications just under PTO’s 36T classification. Just three years later, there are 137 issued and 157 pending. These are just the ones PTOs classified as tax strategy patents, but PTO’s classification isn’t perfect so there could be other tax strategy patents under other classifications.
On the issue of software, I’d like to make crystal clear that those of us working to limit the patenting of tax strategies do not intend for this to apply to tax preparation and other software, tools or systems used to prepare tax or information returns or manage taxpayer’s finances. I’m aware that various technology industry groups have written in opposition to this provision because of their concerns over how this impacts their ability to patent software. However, we’ve also heard from the public accountants and other consumer advocate groups, including the U.S. Public Interest Research Group, supporting this provision. I ask unanimous consent that their letter be inserted into the record.
I believe that we can protect taxpayer rights while also protecting the intellectual property rights of software companies. I encourage the technology groups to work with us to ensure we achieve that result and look forward to working with them to do so.
