Tax patent

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A tax patent is a patent that discloses and claims a system or method for reducing or deferring taxes. Tax patents have been granted predominantly in the United States but can be granted in other countries as well. [1] They are considered to be a form of business method patent. They are also called "tax planning patents", "tax strategy patents", [2] and "tax shelter patents". [3] In September 2011, President Barack Obama signed the Leahy-Smith America Invents Act passed by the U.S. Congress that effectively prohibits the granting of tax patents in general.

Contents

History

The earliest patent that the United States Patent and Trademark Office (USPTO) considers to be a tax patent is Van Remortel et al., U.S. patent 5,136,502 "System for funding, analyzing and managing health care liabilities". This patent issued in 1992 and covers, among other things, a computerized administration system for tax advantaged funding of health care programs for retirees. The United States Congress has never passed a law explicitly allowing tax patents [4] but in 1998, the U.S. Court of Appeals for the Federal Circuit ruled in State Street Bank v. Signature Financial Group that business methods (and hence methods for reducing taxes) have been patentable at least since 1952 when Congress amended the requirements for patentability in the Patent Act of 1952.

USPTO classification

The USPTO has created a patent class for tax patents. The classification is 705/36T.

The USPTO has placed 209 issued US patents [5] and 188 published patent applications [6] in this classification. The USPTO has not, however, published a formal definition of the class. [7]

About 10 new tax patent applications have been filed each year in recent years, and about five new patents have been issued each year. Some applications and issued patents appear to be mischaracterized since they do not deal with taxes. [8]

Regulation

In 2005, The U.S. Internal Revenue Service (IRS) determined that none of the then pending U.S. tax patents contained abusive tax avoidance transactions. [9] Nonetheless, in September 2007, the IRS proposed a set of rules that would require tax filers to disclose whether they have paid a license fee to the holder of a tax patent. [10] Similar to the ban passed by the U.S. House of Representatives, this regulation includes an exemption for patents on software for calculating taxes.

There is some concern in the financial community that complying with these regulations will increase the chances of a tax patent licensee being audited by the IRS and that this, in turn, will decrease the value of tax patents in general. [11] These regulations have, however, been strongly supported by the Section of Taxation of the American Bar Association. [12]

Examples

Examples of tax patents include: [2]

Enforcement


In 2006, the Wealth Transfer Group sued former Aetna CEO John Rowe for infringement of a tax patent. [4] The patent was U.S. patent 6,567,790 , entitled "Establishing and managing grantor retained annuity trusts funded by nonqualified stock options". [9] (i.e. SOGRAT) This case has been settled for undisclosed terms. [13]

New law

On September 8, 2011, the United States Senate passed the Leahy-Smith America Invents Act , which had already been passed by the House of Representatives. The Act is described as "a comprehensive patent reform bill that includes language to stop the U.S Patent and Trademark Office from issuing patents for tax strategy methods." [14] [15] The Act was signed into law by President Barack Obama on September 16, 2011. [16] [17]

Subsection (a) of section 14 of the Act provides (in part):

For purposes of evaluating an invention under section 102 or 103 of title 35, United States Code, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from the prior art. [18]

Subsection (b) of section 14 provides (in part):

For purposes of this section, the term "tax liability" refers to any liability for a tax under any Federal, State, or local law, or the law of any foreign jurisdiction, including any statute, rule, regulation, or ordinance that levies, imposes, or assesses such tax liability. [19]

Subsection (c) of section 14 provides (in part):

This section does not apply to that part of an invention that [...] is a method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing... [20]

Subsection (e) of section 14 of the Act provides that the tax patent prohibition takes effect on the date of the enactment (September 16, 2011) and that it will apply "to any patent application that is pending on, or filed on or after, that date, and to any patent that is issued on or after that date." [21]

Related Research Articles

Prior art is a concept in patent law used to determine the patentability of an invention, in particular whether an invention meets the novelty and the inventive step or non-obviousness criteria for patentability. In most systems of patent law, prior art is generally defined as anything that is made available, or disclosed, to the public that might be relevant to a patent's claim before the effective filing date of a patent application for an invention. However, notable differences exist in how prior art is specifically defined under different national, regional, and international patent systems.

In a patent or patent application, the claims define in technical terms the extent, i.e. the scope, of the protection conferred by a patent, or the protection sought in a patent application. In other words, the purpose of the claims is to define which subject-matter is protected by the patent. This is termed as the "notice function" of a patent claim—to warn others of what they must not do if they are to avoid infringement liability. The claims are of paramount importance in both prosecution and litigation.

An interference proceeding, also known as a priority contest, is an inter partes proceeding to determine the priority issues of multiple patent applications. It is a proceeding unique to the patent law of the United States. Unlike in most other countries, which have long had a first-to-file system, until the enactment of the Leahy-Smith America Invents Act (AIA) in 2011, the United States operated under a first-to-invent. The interference proceeding determines which of several patent applications had been made by the first inventor.

First to file and first to invent are legal concepts that define who has the right to the grant of a patent for an invention. Since 16 March 2013, after the USA abandoned its "first to invent/document" system, all countries have operated under the "first-to-file" patent priority requirement.

Business method patents are a class of patents which disclose and claim new methods of doing business. This includes new types of e-commerce, insurance, banking and tax compliance etc. Business method patents are a relatively new species of patent and there have been several reviews investigating the appropriateness of patenting business methods. Nonetheless, they have become important assets for both independent inventors and major corporations.

Sufficiency of disclosure or enablement is a patent law requirement that a patent application disclose a claimed invention in sufficient detail so that the person skilled in the art could carry out that claimed invention. The requirement is fundamental to patent law: a monopoly is granted for a given period of time in exchange for a disclosure to the public how to make or practice the invention.

The Patent Reform Act of 2005 was United States patent legislation proposed in the 109th United States Congress. Texas Republican Congressman Lamar S. Smith introduced the Act on 8 June 2005. Smith called the Act "the most comprehensive change to U.S. patent law since Congress passed the 1952 Patent Act." The Act proposed many of the recommendations made by a 2003 report by the Federal Trade Commission and a 2004 report by the National Academy of Sciences.

The United States is considered to have the most favorable legal regime for inventors and patent owners in the world. Under United States law, a patent is a right granted to the inventor of a (1) process, machine, article of manufacture, or composition of matter, (2) that is new, useful, and non-obvious. A patent is the right to exclude others, for a limited time from profiting from a patented technology without the consent of the patent holder. Specifically, it is the right to exclude others from: making, using, selling, offering for sale, importing, inducing others to infringe, applying for an FDA approval, and/or offering a product specially adapted for practice of the patent.

<span class="mw-page-title-main">Commissioner of Internal Revenue</span> Government official that leads the US Internal Revenue Service

The Commissioner of Internal Revenue is the head of the Internal Revenue Service (IRS), an agency within the United States Department of the Treasury.

In United States patent law, a reexamination is a process whereby anyone—third party or inventor—can have a U.S. patent reexamined by a patent examiner to verify that the subject matter it claims is patentable. To have a patent reexamined, an interested party must submit prior art, in the form of patents or printed publications, that raises a "substantial new question of patentability". The Leahy-Smith America Invents Act makes substantial changes to the U.S. patent system, including new mechanisms for challenging patents at the U.S. Patent and Trademark Office. One of the new mechanisms is a post-grant review proceeding, which will provide patent challengers expanded bases on which to attack patents.

This is a list of legal terms relating to patents and patent law. A patent is not a right to practice or use the invention claimed therein, but a territorial right to exclude others from commercially exploiting the invention, granted to an inventor or their successor in rights in exchange to a public disclosure of the invention.

In former United States patent law, a statutory invention registration (SIR) was a publication of an invention by the United States Patent and Trademark Office (USPTO). The publication was made at the request of the applicant. In order for an applicant to have a patent application published as an SIR, the following conditions had to be met:

  1. The application must disclose the invention in sufficient detail that another person of ordinary skill in the art can make and use the invention without undue experimentation ;
  2. The application complies with the requirements for printing, as set forth in regulations of the Director of the patent office;
  3. The applicant waives the right to receive a patent on the invention within such period as may be prescribed by the Director; and
  4. The applicant pays application, publication, and other processing fees established by the Director.
<span class="mw-page-title-main">United States Defensive Publication</span>

A United States Defensive Publication is a published patent application for which the inventor has elected not to get patent coverage. Defensive Publications were made between April 1968 and May 8, 1985. The program, called Defensive Publication Program, was replaced by the statutory invention registration program, which itself was discontinued after the Leahy-Smith America Invents Act (AIA) entered into force in 2013.

Title 35 of the United States Code is a title of United States Code regarding patent law. The sections of Title 35 govern all aspects of patent law in the United States. There are currently 37 chapters, which include 376 sections, in Title 35.

The Wealth Transfer Group is a consulting firm that provides estate planning services. They serve only clients with estates worth more than US$10,000,000.

A grantor-retained annuity trust is a financial instrument commonly used in the United States to make large financial gifts to family members without paying a U.S. gift tax.

The history of United States patent law started even before the U.S. Constitution was adopted, with some state-specific patent laws. The history spans over more than three centuries.

After claiming, or late claiming, is the practice of filing a US patent application after the publication by a third party of a description of the same invention. This is possible in US patent law with regard to applications not subject to the Leahy–Smith America Invents Act, since an inventor has one year after the publication of the description of an invention to get a patent application on file.

<span class="mw-page-title-main">David Kappos</span>

David "Dave" J. Kappos is an attorney and former government official who served as Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office (USPTO) from 2009 to 2013. Kappos is currently a partner at New York law firm Cravath, Swaine & Moore.

<span class="mw-page-title-main">Leahy–Smith America Invents Act</span>

The Leahy–Smith America Invents Act (AIA) is a United States federal statute that was passed by Congress and signed into law by President Barack Obama on September 16, 2011. The law represents the most significant legislative change to the U.S. patent system since the Patent Act of 1952 and closely resembles previously proposed legislation in the Senate in its previous session.

References

  1. ↑ Australian patent AU0766112B2: Life insurance method, system and product
  2. 1 2 Tax Strategy Patents, Patently O blog, November 13, 2007
  3. ↑ Summary of Levin-Coleman-Obama Stop Tax Haven Abuse Act, U.S. Senator Carl Levin press release, February 17, 2007.
  4. 1 2 Floyd Norris, Patent law is getting tax crazy, International Herald Tribune, October 19, 2006.
  5. ↑ List of issued US patents in class 705/36T
  6. ↑ Published US patent applications in class 705/36T
  7. ↑ USPTO list of subclasses for class 705, DATA PROCESSING: FINANCIAL, BUSINESS PRACTICE, MANAGEMENT, OR COST/PRICE DETERMINATION
  8. ↑ Stamper, Dustin "Tax Strategy Patents: A Problem Without Solutions?", Tax Notes
  9. 1 2 Nowotarski, Mark, "Tax Strategies?", Insurance IP Bulletin, October 15, 2006
  10. ↑ IRS Patent Transactions Rule Changes, Federal Register / Vol. 72, No. 186 / Wednesday, September 26, 2007 / Proposed Rules 54615
  11. ↑ Lambert, Lisa “Trend of "owning" tax avoidance methods grows in U.S”, Reuters November 15, 2007
  12. ↑ Drapkin, Dennis, "Comments Concerning a New Category of Reportable Transactions Covering Patented Tax Strategies", February 21, 2007 Archived July 24, 2011, at the Wayback Machine
  13. ↑ Herman, Tom, "Patents on Tax-Related Ideas Stir Worry", Wall Street Journal , March 14, 2007
  14. ↑ "Statement from AICPA President and CEO Barry Melancon Praising Final Congressional Action on Bill to Stop Tax Strategy Patents," Sept. 8, 2011, American Institute of Certified Public Accountants, at .
  15. ↑ See generally: Bill Summary and Status, Library of Congress, Leahy-Smith America Invents Act, H.R. 1249; passed U.S. House of Representatives on June 23, 2011; passed U.S. Senate on Sept. 8, 2011, at Archived 2014-10-15 at the Wayback Machine .
  16. ↑ Darlene Superville, "Obama signs Obama signs 1st major patent law change since 1952," Sept. 16, 2011, Associated Press, at .
  17. ↑ Leahy-Smith America Invents Act, Pub. L. No. 112-29 (Sept. 16, 2011).
  18. ↑ Leahy-Smith America Invents Act, Pub. L. No. 112-29, sec. 14(a).
  19. ↑ Leahy-Smith America Invents Act, Pub. L. No. 112-29, sec. 14(b).
  20. ↑ Leahy-Smith America Invents Act, Pub. L. No. 112–29, sec. 14(c).
  21. ↑ Leahy-Smith America Invents Act, Pub. L. No. 112–29, sec. 14(e).
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