Proposed legislation in previous sessions of Congress demonstrates legislative interest in the recently recognized phenomenon of patented tax strategies. According to some experts, tax strategy patents may limit the ability of taxpayers to utilize provisions of the tax code, interfering with congressional intent and leading to distortions in tax obligations. Others assert that tax strategy patents potentially complicate legal compliance by tax professionals and taxpayers alike. Other commentators explain that patents on "business methods" have been obtained and enforced for many years. In addition, some commentators believe that tax strategy patents present a positive development, potentially improving the public disclosure of tax shelters for the attention of Congress and federal tax authorities. The Phenomenon of Tax Strategy Patents

		Patents on Methods of Doing Business

The availability of patents on tax strategies has been linked to the grant of patents on the broader category of business methods. This long period of ambiguity over the patentability of business methods ended with the 1998 opinion of the U.S. Court of Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group . Other tax patents have also been subject to litigation. On June 28, 2010, the Supreme Court issued its decision in Bilski v. Kappos concerning patentable subject matter. Innovation Policy Issues

Although business method patents have been held to be patentable at least since the issuance of the State Street Bank opinion in 1998, the more recent phenomenon of tax strategy patents has resulted in a spirited discussion. Other observers go further, believing that to the extent that tax patents encourage further innovation in developing innovative tax avoidance strategies, such an incentive is not socially desirable. Tax professionals have also expressed concerns over the impact of tax strategy patents upon their own practices, as well as taxpayers in general. Some observers believe that the burdens of investigating whether a taxpayer's planned course of action is covered by a tax strategy patent, determining whether the patent was providently granted by the USPTO, and potentially negotiating with the patent proprietor in order to employ the strategy, will be costly and impractical for many taxpayers. Others make the affirmative case that tax strategy patents will produce positive social benefits. Observers also note that professionals in many spheres of endeavor have long had to account for the patent system during their decision-making process. In the view of these experts, if taxpayers mistakenly believe that the grant of a patent implies government approval of the patented strategy, then the proper response is to promote taxpayer awareness, not to limit or prohibit tax strategy patents altogether. In the 111 th Congress, three bills were introduced that would limit the enforcement of tax strategy patents. None were enacted. H.R. Other legislative responses are also possible. Congress could also encourage continued cooperation between the USPTO and the IRS with respect to tax strategy patents.
Several bills were introduced in previous sessions of Congress that would have addressed the recently recognized phenomenon of patented tax strategies. These legislative initiatives would have prevented the grant of exclusive intellectual property rights by the United States Patent and Trademark Office (USPTO) on methods that individuals and enterprises might use in order to minimize their tax obligations. This issue may arise before the 112th Congress.
Many commentators trace the rise of tax strategy patents to the 1998 opinion of the Federal Circuit in State Street Bank v. Signature Financial Group, which rejected a per se rule that business methods could not be patented. In recent years, the USPTO has issued a number of patents that pertain to tax strategies. Several of these patents have been subject to enforcement litigation in federal court. The 2010 decision of the Supreme Court in Bilski v. Kappos continues to allow for the possibility of business method patents, and potentially tax strategy patents as well.
The impact of tax strategy patents upon social welfare has been subject to a spirited debate. Some observers are opposed to tax strategy patents. These commentators believe that patent protection is unnecessary with respect to tax avoidance techniques due to a high level of current innovation. Others believe that patent-based incentives to develop tax avoidance strategies are not socially desirable. They assert that patents may limit the ability of individuals to utilize provisions of the tax code intended for all taxpayers, interfering with congressional intent and leading to distortions in tax obligations. Others have expressed concerns that tax strategy patents may potentially complicate legal compliance by tax professionals and individual taxpayers alike.
Other experts believe that these concerns are overstated, and also make the affirmative case that tax strategy patents may provide positive social benefits. They explain that patents on "business methods" have been obtained and enforced for many years. They also observe that the grant of a patent does not imply government approval of the practice of the patented invention, and that professionals in many spheres of endeavor have long had to account for the patent system during their decision-making process. They also believe that the availability of tax strategy patents may promote innovation in a field of endeavor that is demonstrably valuable. Further, such patents might promote public disclosure of tax strategies to tax professionals, taxpayers, and responsible government officials alike.
Three bills that were introduced, but not enacted, in the 111th Congress—H.R. 1265, H.R. 2584, and S. 506—would have prohibited the issuance of patents on tax strategies. Other legislative responses, including oversight of the USPTO, promotion of cooperation between the USPTO and the IRS, and the encouragement of private sector contributions to the patent examination process, are also possible.