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Financial Planning > Tax Planning

House Passes Tax Strategy Patent Ban

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H.R. 1249, a bill that includes a provision banning tax strategy patents, has passed 304-117 in the House.

Members of the Senate voted 95-5 to pass S. 23, a bill containing a similar patent law provision, in March. To get a bill signed into law, lawmakers now must find a way to reconcile the differences between the two bills, or else to get the House to pass the Senate bill or the House to pass the Senate bill.

H.R. 1249, a bill introduced by Rep. Lamar Smith, R-Texas, covers tax strategy patents in Section 14, “Tax strategies deemed within the prior art.”

“For purposes of evaluating an invention…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,” according to the text of the bill.

The provision excludes “a method, apparatus, technology, computer program product, or system… 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,” and it also excludes “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.”

Lawmakers began working on the tax strategy patent ban after learning that some tax accountants and tax lawyers have been patenting strategies for holding down income taxes.

The Financial Planning Association (FPA), Denver, has been one of the groups lobbying for a ban on tax strategy patents.

The FPA has argued that the practice of patenting tax strategies and the related tax advice limits taxpayers’ ability to use some parts of the tax code.

Business Method Patents Transition

Another section of H.R. 1249, Section 18, “Transition Program for Covered Business Method Patents,” could affect life insurers that have patented annuity riders and other insurance and annuity product features.

In June 2010, the U.S. Supreme Court ruled 9-0 against petitioners that had tried to patent a commodity price hedging strategy. The court indicated that inventors might still be able to patent some business methods. In July 2010, a 3-judge panel at the Federal Circuit Court of Appeals blocked efforts by an insurer to defend a variable annuity administration method patent.

Business method patent holders have asked for help with dealing with the possible loss of patent protection.

H.R. 1249 Section 18 calls for the director of the U.S. Patent and Trademark Office to set up a program for reviewing the validity of “covered business method patents” within 1 year after the date of the enactment of the bill into law.

The bill would define a “covered business method patent” to be a patent “that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.”

A party could ask for a patent review only if the party had been sued for infringing on a business method patent or had been charged with infringement under the patent.

The transition program law and related regulations would expire 10 years after the regulations implementing the law took effect.

One part of Section 18, “ATM Exemption for Venue Purposes,” states that, for purposes of determining where a patent dispute should be handled, an “automated teller machine shall not be deemed to be a regular and established place of business.”

Other patent law coverage from National Underwriter Life & Health:


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