Paul L. Caron

Tuesday, April 29, 2008

Beale: Tax Patents: At the Crossroads of Tax and Patent Law

Linda M. Beale (Wayne State) has posted Tax Patents: At the Crossroads of Tax and Patent Law, 2008 U. Ill. J.L. Tech. & Pol'y ___, on SSRN.  Here is the abstract:

Since the 1998 State Street case, the U.S. Patent and Trademarks Office has been issuing patents on tax planning methods, even including methods that do not require computerized implementation. The tax and intellectual property bars generally have widely divergent views of tax planning method patents. The patent bar tends to view the incentivizing of innovation as a per se public good, while the tax bar expresses concerns ranging from the impact on practice to the impact on the federal fisc.

After a general introduction to the issues raised by tax planning method patents, Part II of the article provides a concise history of business method patents. Part III then sets out important recent developments relating to the patenting of tax strategy patents in three different arenas: Congress, where broad patent reform legislation is under consideration; the courts, where the rush towards an extraordinarily broad interpretation of patent law subject matter eligibility requirements is under question; and the Internal Revenue Service, which has issued proposed regulations to require reporting of transactions that use tax planning method patents.

In that context of across-the-board questioning of the rationales for tax planning method patents, Part IV explores the reasons that the tax bar's views of tax strategy patents diverge so widely from the intellectual property bar's views. Although acknowledging that patents on abusive tax planning strategies would be particularly offensive, this Part emphasizes that patents on legitimate tax planning techniques are also highly problematic. After acknowledging widespread concerns about impact on tax practitioners' practice of the law and lack of Patent Office competence to assess tax strategies for novelty and obviousness, this Part presents a critique of tax strategy patents based on the special attributes of the tax system that set it apart from other areas of the law. The critique rests in particular on three significant concerns: (i) the demand for an external distributive justice criterion rooted in institutions of a democratic polity based on personal liberty and equal respect, (ii) the institutional requirement for congressional authority in setting economic and tax policy through legislation, and (iii) the detriment to the profession from the inappropriate application to the tax laws of the patent law's focus on innovation.

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