Tax Patents Provision in Patent Reform Bill


Floor Statement of Senator Chuck Grassley

Tax Patents Provision in Patent Reform Bill

Delivered March 3, 2011

 

Mr. President, I understand that there are questions about what the tax strategies portion of the bill does and who it impacts. So I want to take a few minutes to address those questions.

 

In simple terms, a tax strategy is any method for reducing, avoiding or deferring tax liability based on the tax law -- including interpretations and applications of the Internal Revenue Code, regulations and related guidance.

 

A tax strategy can be as simple as a plan to buy tax exempt bonds or invest in an IRA to reduce your tax liability or as complex as a sale-leaseback tax shelter involving multiple domestic and foreign corporations and partnerships.

 

A tax strategy patent is just that – a patent on a particular tax strategy.

 

Mr. President, I ask unanimous consent to insert an article from The Tax Adviser into the record. This article provides some examples of tax strategies that shouldn’t be patented.

 

Tax strategies are bad because they allow the tax law to be patented.

 

A patent gives the holder the exclusive right to exclude others from using the patented invention. A tax strategy patent makes taxpayers choose between paying more than legally required in taxes or providing a windfall to a tax strategy patent holder by paying a royalty to comply with the tax law.

 

Tax strategy patents add another layer of complexity to the tax laws by requiring taxpayers or their advisors to conduct patent searches and exposing them to potential patent infringement lawsuits.

 

If a tax strategy patent is granted for a tax shelter designed to illegally evade taxes, the fact that a patent was granted may mislead unknowing taxpayers into believing that the strategy is valid under the tax law.

 

Tax strategies are not like other inventions -- everyone wants to pay less tax. 

 

Tax strategy patents are on the rise which means more and more legal tax strategies are unavailable or more expensive for more and more taxpayers.

 

Mr. President, I ask unanimous consent to insert a letter into the record.  This letter, which is from a coalition of 15 consumer groups including the umbrella group for public accountants, the Tax Justice Center and the US Public Interest Research Group, provides more information on why tax strategy patents are bad for taxpayers.

 

Section 14 of the bill before us prevents patenting of the tax law.  It provides that a strategy that relies on the tax law to reduce, avoid, or defer tax liability cannot be novel and nonobvious.  

 

So, a strategy for reducing, avoiding, or deferring tax liability will be deemed insufficient to differentiate a claimed invention from the prior art for purposes of evaluating an invention under section 102 or under section 103 of the Patent Act.  This ensures that taxpayers and their advisors will be guaranteed equal access to the tax law.

 

I want to be clear that tax preparation software is not a tax strategy. Senior policy and examination staff from that the Patent & Trademark Office agree that such software is not a tax strategy.  I also have letters from H&R BlockKPMG LLP and Grant Thorton that state that the underlying language does not impact their software patents. Mr. President, I request unanimous consent that these letters be inserted in the record.

 

However, in order to allay the concerns of Intuit, maker of TurboTax, I have worked with Senator Baucus to make clear that tax preparation software like TurboTax is not a tax strategy. 

 

Financial management software is a little murkier. While products like Quicken and Quickbooks are not tax strategies, tax strategies can be embedded in financial management products and software. (Click here for an AICPA statement.)

 

The investment banks and law firms that have patented tax strategies often use software that could be deemed financial management software. The Tax Adviser article I mentioned earlier describes some of these.

 

With financial management software, patent claims that include inventions that are severable from tax strategies may be entitled to patent protection. But the tax strategy itself will remain available to all taxpayers.

 

It is important to protect intellectual property rights for true tax preparation and financial management software. However, we must be sure to protect the right of taxpayers to have equal access legal tax strategies.

 

I yield the floor.