Paul L. Caron
Dean




Saturday, January 8, 2022

Determining Patent Worthlessness For Tax Purposes

Christina Sumer, Determining Patent Worthlessness for Tax Purposes, 24 Marq. Intell. Prop. L. Rev. 93 (2020):

Introduction
Patent valuation is a complex, occasionally confusing concept that has become somewhat of a gray area in intellectual property. Patent value is “the economic benefit that the patent can bestow upon its owner.” It involves determining a patent’s monetary value to the patent’s owner, which can prove difficult based on the fact that patents are inherently unique. Generally, the more significance a patent has to society, the higher its value. There are currently seven different valuation methods used for valuing intellectual property. They include the following: the twenty-five (25) Percent Rule, Industry Standards, Ranking, Surrogate Measures, Disaggregation Methods, the Monte Carlo Method, and Option Methods. While these are all widely used methods, none of them are definitive, and they are continually being updated. In fact, the Federal Circuit recently held that the twenty-five (25) Percent Rule is flawed, and it would no longer be accepting evidence using that method.

Conclusion
Though there have not been many worthlessness or obsolescence cases regarding patents in the last eighty years or so, it is still important to look at this area of case law because of the different reasoning the courts have used to reach decisions. The cases on patent obsolescence from the paper patent era are still considered good law, so a determination needs to be made if future patent obsolescence cases should follow their logic. This comment’s assessment of that era’s reasoning concludes future cases should not. The reasoning of those cases was too broad and had no uniform justification on how decisions were reached.

The approach that should be followed is the most recent test employed, which is not a product of the paper patent era. It provides a clearer standard for courts to use that will be subject to less abuse. By giving the taxpayer his subjective say in the matter and checking that by an objective event the court can look to, it provides the fairest result. Additionally, there is less of a chance for courts to reach an outcome that may have later tax complications.

https://taxprof.typepad.com/taxprof_blog/2022/01/determining-patent-worthlessness-for-tax-purposes.html

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