Testimony of Ellen Aprill on Tax Strategy Patents before the Subcommittee on Select Revenue Measures of the Committee on Ways & Means

Abstract

The topic of patenting tax strategies raises a broad range of issues, from the most theoretical to the most practical. Questions of theory and policy include whether it is desirable for the patent law to authorize tax strategy patents and whether the government monopoly granted to a patent holder is fundamentally inconsistent with the policies underlying our tax system. Important practical issues include the impact on how tax practitioners advise their clients and their potential liability for inducing patent infringement. Issues in the middle of this spectrum include questions of institutional capacity, namely how best to ensure the quality of such patents. Like other tax lawyers who have looked at this issue, I have concerns both about tax strategy patents that may not meet the patent criteria of novelty and non-obviousness and about others that may be novel and innovative, but are inconsistent with our tax laws. My testimony will address both categories, although I am, in fact, more concerned about the former - tax strategy patents that are not in fact novel - than the latter, tax strategy patents that are inconsistent with the tax law. I will begin with the practical issues raised by tax strategy patents, go on to the consideration of how we might improve the quality of tax strategy patents, and end by comparing the purposes of the tax law with the purposes of the patent law. In brief, I conclude that because a tax strategy patent constitutes a government-granted monopoly that turns on the interpretation of federal law, tax strategy patents differ from other business method patents in ways that require attention and action from the PTO, the IRS, associations of tax professionals, and this Subcommittee.