On Equal Terms

Rep. Rick Boucher tells why patents on tax planning methods run counter to public policy

April 1, 2008

Rep. Rick Boucher, D-Va. (9th District), has been at the forefront of efforts to stop patents on tax planning methods. With a fellow Virginian from across the aisle, Rep. Bob Goodlatte, R-Va., and Rep. Steve Chabot, R-Ohio, Boucher introduced HR 2365, a free-standing bill, to limit damages for infringements on patents for tax planning methods.

In May last year, Boucher introduced a measure to ban tax planning method patents, as an amendment to the Patent Reform Act, HR 1908, a bill to reform the patent system generally. The amendment was passed by the House Judiciary Committee on a voice vote, and the Patent Reform Act, with the tax patent ban, passed in the House in September by a vote of 220-175. In November, a companion patent reform bill was introduced in the Senate. The AICPA has been among groups and individuals who have lobbied against patents for tax planning methods (see "Washington Report ," JofA, June 07, page 26).

Recently, the JofA spoke with Boucher at his House offices in Washington about these patents.

JofA: What is the main reason for your belief that the U.S. Patent and Trademark Office should not issue patents for tax planning methods?

Boucher: I think these patents are fundamentally contrary to sound public policy because they vest in a single person or company control over a process that taxpayers generally can utilize in order to pay their taxes efficiently. The patenting of tax planning methods runs contrary to our long-held belief that people should be empowered to pay their taxes on equal terms, using whatever strategies they themselves perceive or their tax practitioners recommend.

To permit patents to be held for the specific ways in which taxes are paid is simply a trap for the unwary practitioner. Some of the smaller accountants, for example, do not have a habit of keeping track of patent law. They understand the Tax Code very well. They know how to advise their clients in a superb fashion. But they are not watching day to day for the award of particular patents that might interfere with their offering the best advice that they can. And so it is entirely possible that an accountant would not be aware of a particular patent that has been issued. Through his own cleverness, he might devise a strategy that would infringe upon that patent without realizing that he's doing it. And then not only would he or, potentially, his client be responsible for basic infringement, but if it seemed to be intentional in some way, then multiple damages could be awarded. And this is all contrary to the basic notion that people should not have to pay a license fee in order to pay their taxes.

JofA: Why is this issue personally important to you?

Boucher: I have served on the House Judiciary Committee now for 25 years, and I have been one of the advocates of the patent reform legislation that we're now putting forward. As it became apparent to me over the last several years that there has been a proliferation of the award of business method patents, I have become increasingly concerned that these patents generally undermine the principal purpose of the patent laws, which is to promote innovation and to stimulate creativity. Business method patents tend to wall off entire areas of commerce in a way that inhibits competition and therefore lessens creativity and innovation. From my perspective, the most virulent form of business method patent that has emerged to date are the roughly 60 patents that have been issued for tax planning methods, and we now have more than 106 applications for those patents pending in the Patent Office.

Not only was I pleased that our amendment to eliminate prospectively the award of tax planning method patents was approved, but I am now urging the Patent Office to re-examine the business method patents that have been issued so far with regard to tax planning methods to determine whether in the opinion of the Patent Office those patents were properly issued.

JofA: How have you been encouraging the Patent Office to do this, and have you received any response?

Boucher: I have not received any response yet; I simply made the recommendation to the Patent Office that these patents be examined once again with the goal of giving them very careful scrutiny and perhaps invalidate those that they found not to have been properly issued to begin with.

JofA: Someone might say that people who choose to use a patented strategy, if they do know about it, that's their choice to do so, or they could avoid that planning method.

Boucher: Some planning methods are clearly so superior to others that they would be preferential to all with the freedom to choose to adopt them. And if employing such a clearly preferential method only comes at a high price, in terms of a license fee that has to be paid to the patent holder, there will be those who choose to avoid that method and use a less beneficial method of paying taxes. The cost of using the less beneficial method, in terms of greater tax liability, may be less than the cost of a license fee for using the more beneficial method.

The government intends that all people be able to pay their taxes on equal terms and that the best method for utilizing the law that Congress wrote and intends for the public to utilize be freely available for the choice of all taxpayers, not just those who choose to pay a license fee to some person who holds a patent.

JofA: What needs to happen for the Senate to move patent reform forward?

Boucher: We are anticipating that the Senate will act favorably before the end of this year and that a patent reform bill will reach the president's desk before this Congress adjourns. I am anticipating that when that happens, our provision with regard to tax patents will be a part of that measure. The bill is in the Senate Judiciary Committee. Sen. [Patrick] Leahy [D-Vt.], who chairs that committee, is a strong proponent of the patent reform effort overall. I am not sure that he's announced a position with regard to the patentability of tax planning methods, but I would anticipate, given the broad base of support we had for our amendment in the House - where it passed by voice vote in committee and was not contested on the floor - that we would also have similarly broad support in the Senate. I'm not aware of senators having raised questions or opposition to this.

JofA: Do you think the president would be likely to sign it?

Boucher: I think that he would. The overall contention with regard to patent reform is a bit of a tug of war between the technology community on the one hand and the pharmaceutical community on the other, and it remains to be seen how that particular struggle will play out in the Senate. My prediction is the Senate will pass a bill not very dissimilar to what the House has passed. That would make a conference between the two bills relatively easy.

I'm predicting the president will sign it into law because it does so many things that I think people across the board believe are necessary to improve patent quality. Permitting, for example, more information about "prior art" to reach the patent examiner. Permitting a review within the Patent Office before the patent is actually issued, through a formal process to determine whether or not that patent should be awarded. That's a procedure that's absent today, and I think it would be extraordinarily helpful in improving patent quality.

There are parts of this reform that I think, without regard to the tussle between the pharmaceutical and technology industries, would be found to be strongly in the public interest, and my sense is that based on those, the president would be inclined to sign the bill. But that remains to be seen. I think the chances he would sign it greatly outweigh the chances that he would veto it.

JofA: In her most recent annual report to Congress, National Taxpayer Advocate Nina Olson identified tax planning patents as a top legislative priority. She called on Congress to eliminate tax patents, bar their enforcement or require the Patent Office to refer all tax patent applications to the IRS to identify abusive strategies that should not be eligible for patenting. The latter option would be kind of a middle way. Would that be acceptable?

Boucher: No, I think we should simply eliminate the potential for tax planning methods to be patented in the future. They are so fundamentally contrary to public policy as to merit complete eradication at this point.

JofA: Have you heard from your constituents or others who have personal experience with these business method patents, frustrations with them?

Boucher: Boucher: I have heard from a number of accountants and tax lawyers with whom I am well acquainted, both in my district and other places, who have applauded the amendment and have said that there never should have been awards of patents for tax planning methods, and they are very pleased to see Congress act affirmatively in order to stop the future award of these patents.

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