(Dow Jones) A Supreme Court ruling that was expected to clear up confusion over tax
patents has instead stepped up a controversy between those who want to
patent tax strategies and those who want them banned.
The focus of the case, Bilski v Kappos, is on business
methods in general. Tax advisors had hoped a high court decision would
shed light on tax patents specifically.
No such luck. When it came on Monday, the decision offered
“at best a mixed bag for those who think tax strategies should be
patentable,” according to Ellen P. Aprill, a tax law professor at
Loyola Law School.
And for those who oppose tax patents, the ruling is a call
to arms. It “reaffirms that we have a huge problem here,” said Matthew
Young, director of congressional and political affairs at the American
Institute of Certified Public Accountants. The AICPA and other groups
will redouble efforts to get a congressional ban on the patents, he
said. The American Society of Appraisers, the Financial Planning
Association and the Consumer Federation of America have also opposed
tax patents.
A big concern is that a patent lets an individual corner the
market on a tax play. Patents infringe on taxpayer rights to use the
tax code and can actually cost them more tax than they should owe,
opponents say.
Indeed, a catalyst for the opposition was a 2006
infringement suit over a patent awarded in 2003 to Robert C. Slane of
Wealth Transfer Group Inc. Known as the SOGRAT patent, it describes an
estate-planning technique that uses grantor retained annuity trusts to
transfer nonqualified stock options with few or no gift tax
consequences.
Stephen D. Milbrath, a lawyer for Slane, said the Supreme
Court decision this week invites the courts to weigh in further on
business patents, and that he expects they will. The SOGRAT patent, he
said, is valid under patent rules and likely to remain so under any new
tests.
The U.S. Patent and Trademark Office continues to grant
patents in the face of a stream of applications. So far, it has
approved 247 tax patents, some related to tax preparation and others to
tax strategies, according to office spokesperson Jennifer Rankin Byrne.
Most worrying to opponents are those that have the widest potential
application. For example, one is on calculating the tax consequences of
converting a regular IRA to a Roth IRA and another is on college
savings plans.
Those on both sides of the tax patent issue had awaited the
Bilski ruling eagerly. Last year, the Supreme Court agreed to hear the
appeal of Bernard L. Bilski and Rand A. Warsaw in a case involving a
rejected patent application for a method of hedging risks in
commodities trading.
The court said Monday that Bilski’s invention was not
patentable because it was based on abstract ideas. Judges also said a
standard known as the “machine or transformation test” is not the only
factor to determine patentability.
Barry L. Grossman, of counsel at Foley & Lardner LLP in
Milwaukee, Wis., said the decision reaffirms that the patent statute
does not place a lot of limits on patenting new technology. It is
encouraging those who want to develop new technology for that reason.
But it also underscores the uncertainty for tax
professionals because it “supports the view that there is no precise
definition of a tax patent.”
The U.S. Patent Office issued guidance on the court decision on Monday.
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