Taxing Invention

The Leahy-Smith "America Invents Act" takes full effect next week. A little noticed provision of the act which passed through Congress two years ago and is already in effect is Public Law 112-29, sec. 14, 125 Stat. 284. This portion provides that:

(a) IN GENERAL.—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.
(b) DEFINITION.—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.
(c) EXCLUSIONS.—This section does not apply to that part of an invention that—
(1) 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; or
(2) is a method, apparatus, technology, computer program product, or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor.
(d) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to imply that other business methods are patentable or that other business method patents are valid.
(e) EFFECTIVE DATE; APPLICABILITY.—This section shall take effect on the date of the enactment of this Act [Sept. 16, 2011] and shall 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.]

So from a patent examiner's perspective, whose job it is to evaluate an invention for novelty and nonobviousness under 35 U.S.C. 102 and 35 U.S.C. 103, any tax strategy will be considered indistinguishable from all other publicly available information that is relevant to a patent’s claim of originality. Tax strategy now belongs on the short—but odd—list of other things unpatentable including laws of nature, scientific principles, human beings, Jerusalem artichokes, and perpetual motion machines.

The stated public policy is "to keep the ability to interpret the tax law and to implement such interpretation in the public domain, available to all taxpayers and their advisors."  Fair enough. A reasonable person might agree that we shouldn't encourage inventors to come up with ways to cheat on taxes, even if it's within the bounds of the law. But an unintended consequence may be to drive such undesired tax strategies underground and thus less available to the general public. People will always pay good money for novel ways to save on taxes.

The Jeffersonian bargain—the basis for our patent policy—was to reward inventors with a relatively brief window of exclusivity in exchange for full disclosure. Jefferson was utilitarian on this point and wanted to promote and disclose technological innovation rather than to protect inventors’ moral rights to their discoveries.