(Dow Jones) A Supreme Court ruling that was expected to clear up confusion over tax patents has instead stepped up a controversy between those who want to patent tax strategies and those who want them banned.
The focus of the case, Bilski v Kappos, is on business methods in general. Tax advisors had hoped a high court decision would shed light on tax patents specifically.
No such luck. When it came on Monday, the decision offered "at best a mixed bag for those who think tax strategies should be patentable," according to Ellen P. Aprill, a tax law professor at Loyola Law School.
And for those who oppose tax patents, the ruling is a call to arms. It "reaffirms that we have a huge problem here," said Matthew Young, director of congressional and political affairs at the American Institute of Certified Public Accountants. The AICPA and other groups will redouble efforts to get a congressional ban on the patents, he said. The American Society of Appraisers, the Financial Planning Association and the Consumer Federation of America have also opposed tax patents.
A big concern is that a patent lets an individual corner the market on a tax play. Patents infringe on taxpayer rights to use the tax code and can actually cost them more tax than they should owe, opponents say.
Indeed, a catalyst for the opposition was a 2006 infringement suit over a patent awarded in 2003 to Robert C. Slane of Wealth Transfer Group Inc. Known as the SOGRAT patent, it describes an estate-planning technique that uses grantor retained annuity trusts to transfer nonqualified stock options with few or no gift tax consequences.
Stephen D. Milbrath, a lawyer for Slane, said the Supreme Court decision this week invites the courts to weigh in further on business patents, and that he expects they will. The SOGRAT patent, he said, is valid under patent rules and likely to remain so under any new tests.
The U.S. Patent and Trademark Office continues to grant patents in the face of a stream of applications. So far, it has approved 247 tax patents, some related to tax preparation and others to tax strategies, according to office spokesperson Jennifer Rankin Byrne. Most worrying to opponents are those that have the widest potential application. For example, one is on calculating the tax consequences of converting a regular IRA to a Roth IRA and another is on college savings plans.
Those on both sides of the tax patent issue had awaited the Bilski ruling eagerly. Last year, the Supreme Court agreed to hear the appeal of Bernard L. Bilski and Rand A. Warsaw in a case involving a rejected patent application for a method of hedging risks in commodities trading.
The court said Monday that Bilski's invention was not patentable because it was based on abstract ideas. Judges also said a standard known as the "machine or transformation test" is not the only factor to determine patentability.