Paul L. Caron

Sunday, May 3, 2009

Improving, Not Eliminating, Tax Strategy Patents

Lucas Osborn (Fulbright & Jaworski, Houston) has published Tax Strategy Patents: Why the Tax Community Should Not Exclude the Patent System, 18 Alb. L.J. Sci. & Tech. 325 (2008).  Here is the abstract:

A relatively recent phenomenon of patents covering tax saving strategies has generated an overwhelmingly negative response from the tax community. This Article reviews current patent laws in the context of tax strategy patents and business method patents (of which tax strategy patents are a subset), and then analyzes the major concerns voiced by opponents of tax strategy patents. The Article suggests that the lack of searchable prior art and patent examiner expertise are temporary problems that can and will be adequately addressed by the Patent Office and the tax community.

In addition, while the tax community has put forth many thoughtful concerns regarding why tax strategies should be outside the realm of patentable subject matter, this Article contends that many of the concerns arise from either a misunderstanding of the patent laws, or dislike and fear of change, rather than from fundamental reasons to exclude tax strategies from patenting. The Article does, however, recommend some slight changes to the laws relevant to this area, including

  • requiring patent applicants to base tax strategy patent applications on current tax laws, and to identify and explain the primary tax laws relevant to an alleged invention,
  • reviewing all tax strategy patents under a strict obviousness standard based on the recent KSR v. Teleflex Supreme Court case, and
  • amending the tax laws to make the use of patented tax strategies reportable transactions.

Minimizing the issuance of “bad” tax strategy patents will result in a patent system whose value to the public correlates with the value of the tax planning profession as a whole. Thus, interested parties should focus their efforts not on eliminating tax strategy patents, but on increasing the quality of issued patents and improving the tax laws under which any such patents would operate.

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“many of the concerns arise from either a misunderstanding of the patent laws”

A vastly less serious error than misunderstanding (or simply ignoring) the reasons for patent laws in the first place. Not having read the article, would I be wrong in guessing that it just doesn't contain the (enormously surprising and counterintuitive) economic analysis justifying such an extension of patent eligible subject matter that would be necessary to save it from being an empty exercise in burden of proof shifting?

Posted by: phayes | May 4, 2009 6:58:30 AM

"Tax planning" (in the sense of avoidance rather than just prediction), i.e., inefficient behavior, by definition has negative overall value to the public. Banning patents, to the extent it creates a free-rider problem for tax planning, would therefore benefit the public.

Posted by: Anonymous | May 3, 2009 7:15:09 PM