[Congressional Record Volume 157, Number 10 (Tuesday, January 25, 2011)]
[Senate]
[Pages S221-S222]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself, Mr. Grassley, Mr. Levin, Mr. 
        Bingaman, Mr. Wyden, Mr. Conrad, Mr. Enzi, and Mr. Kerry):
  S. 139. A bill to provide that certain tax planning strategies are 
not patentable, and for other purposes; to the Committee on the 
Judiciary.
  Mr. BAUCUS. Mr. President, American judge and judicial philosopher 
Learned Hand once wrote: ``Any one may so arrange his affairs that his 
taxes shall be as low as possible; he is not bound to choose that 
pattern which will best pay the Treasury.''
  Judge Hand would probably have been surprised to learn that, through 
the use of patents, certain individuals have acquired monopolies on 
methods of arranging one's affairs to lower taxes.
  That is precisely what patenting a tax strategy does: it gives the 
holder the exclusive right to exclude others from a particular 
transaction or financial arrangement without permission or payment of a 
royalty.
  And patents have been granted on ideas as simple as funding a certain 
type of tax-favored trust with a specific type of financial product or 
calculating the ways to minimize the tax burden of converting to an 
alternative retirement plan.
  These commonsense tax planning approaches should be available to 
everyone. No one should be able to patent those techniques.
  Let's first assume that the tax planning technique is legitimate 
under the Tax Code and does, indeed, reduce taxes.
  In that case, every taxpayer should be able to plan in a way that 
they can lower their taxes without paying royalties or worrying that 
they are violating patent law while filing their tax returns. This is a 
matter of fairness and uniform application of the tax laws.
  Conversely, there are tax planning techniques that are not legitimate 
under the Tax Code, say, for example, a tax shelter designed to 
illegally evade taxes.
  No taxpayer should be using those strategies. A patent on those ideas 
may mislead unknowing taxpayers into believing that the strategy is 
valid under the tax law.
  Today, we have gathered a coalition of Senators to introduce 
legislation to prevent patents from being issued on claims of tax 
strategies.
  Our bill, the ``Equal Access to Tax Planning Act,'' makes it clear 
that any strategy for reducing, avoiding, or deferring tax liability 
relies on the provisions of the Tax Code to work, will not be 
considered a new or nonobvious idea and therefore not be eligible for a 
patent.
  In the lingo of the patent law, the Tax Code is ``prior art''--which 
is just another way of saying it isn't novel and nonobvious--and 
methods of complying with the Code cannot be patented. This would be 
the result under patent law whenever an invention was not found to be 
novel or nonobvious.
  This legislation does not hinder patent protection for otherwise 
novel, non-tax driven inventions but only stops the patenting of the 
tax strategy claims.
  Where a patent is indeed granted--for example, where an application 
advances multiple claims--the taxpayer has certainty that what is not 
patented is a strategy for applying the Tax Code.
  It is encouraging that our bill has been incorporated into the larger 
patent bill that is being introduced by Senators Grassley and Leahy 
today.
  I strongly believe in the importance of patents. America is a land 
that fosters innovation and competitiveness by

[[Page S222]]

allowing inventors to benefit from their creative ideas.
  Intellectual property drives our exports and our economy. But patents 
cannot be used to upset the fair and uniform application of the Tax 
Code.
  Our tax system relies on the voluntary compliance of millions of 
taxpayers and the Tax Code cannot and should not be co-opted for 
private gain.
  Mr. GRASSLEY. Mr. President, Senator Baucus and I first introduced a 
bill to ban patents for tax inventions in the 110th Congress. Since 
then, we have worked with the leaders of the Judiciary Committee, the 
Patent and Trademark Office, the American Institute of Certified Public 
Accountants, industry, and members of the patent bar to perfect the 
language. I am pleased to introduce this new and improved bill today 
with Senators Baucus, Levin, Wyden, Bingaman, Conrad, Enzi, and Kerry.
  There are strong policy reasons to ban tax strategy patents. Tax 
strategy patents may lead to the marketing of aggressive tax shelters 
or otherwise mislead taxpayers about expected results. Tax strategy 
patents encumber the ability of taxpayers and their advisers to use the 
tax law freely, interfering with the voluntary tax compliance system. 
If firms or individuals were able to hold patents for these strategies, 
some taxpayers could face fees simply for complying with the Tax Code. 
And, tax patents provide windfalls to lawyers and patent holders by 
granting them exclusive rights to use tax loopholes, which could 
provide some businesses with an unfair advantage.
  Tax strategy patents are unlikely to be novel given the public nature 
of the Tax Code. Moreover, tax strategy patents may undermine the 
fairness of the Federal tax system by removing from the public domain 
particular ways of satisfying a taxpayer's legal obligations. The Equal 
Access to Tax Planning Act expressly provides that a strategy for 
reducing, avoiding or deferring tax liability cannot be considered a 
new or nonobvious idea, and therefore, a patent on a tax strategy 
cannot be obtained. This ensures that all taxpayers will have equal 
access to strategies to comply with the Tax Code. I encourage support 
for this bill.
                                 ______