Statements on Introduced Bills and Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - November 15, 2007)

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Mr. GRASSLEY. Mr. President, this legislation that Senator Baucus and I are introducing changes the current rules governing tax patents. Recently, the U.S. Patent and Trademark Office, PTO, has allowed the patenting of tax strategies. Because of the serious policy concerns about this practice, our legislation would make tax strategies an unpatentable subject matter.

Tax patents are a relatively recent phenomenon. The rise of these patents can be traced back to the 1998 opinion of the Federal Circuit in State Street Bank v. Signature Financial Group that rejected a per se rule that business methods could not be patented.

As of September 2007, the U.S. Patent and Trademark Office had identified 60 issued tax related patents, with another 99 published tax patent applications pending. The recent growth of these patents, coupled with their deleterious effect on the tax system, necessitates legislative action in this area.

Tax patents undermine the integrity and fairness of the Federal tax system. They place taxpayers in the undesirable position of having to choose between paying more than legally required in taxes or paying a royalty to a third party for use of a tax planning invention that reduces those taxes.

A patent holder can preclude others from using their tax strategy. This may result in taxpayers paying more in taxes than is otherwise legally required. An exclusive proprietary right should not be granted for methods of compliance with the tax law, which is obligatory for all.

The patentability of tax strategies also adds another layer of complexity to the tax laws by requiring patent searches and potential exposure to patent infringement suits.

This legislation contains a general prohibition on ``tax planning inventions,'' with an exception for tax preparation software and other tools or systems used solely to prepare tax or information returns.

I hope that we can move this legislation quickly. The House has already included a version of prohibiting tax strategy patents in their comprehensive patent reform bill. The Senate should act as well.

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Mr. GRASSLEY. Technical corrections are derived from a deliberative and consultative process among the Congressional and Administration tax staffs. That means the Republican and Democratic staffs of the House Ways and Means and Senate Finance Committees are involved, as is the staff of the Treasury Department. All of this work is performed with the participation and guidance of the nonpartisan staff of the Joint Committee on Taxation. A technical enters the list only if all staffs agree it is appropriate.

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