The wacky world of patent law

From the oh so radical pages of the International Herald Tribune

As the American tax law gets more and more complicated, lawyers have come up with one more way to make life difficult for taxpayers: Now you may face a patent infringement suit if you use a tax strategy that someone else thought of first.

“I can’t even imagine what it will be like in 5 or 10 years,” said Dennis Drabkin, a tax lawyer with Jones Day in Dallas, “if anytime a lawyer or accountant gives tax advice, they have to find out if there is a patent on this.” He notes that researching patents, and then licensing them, would just make tax compliance more costly.

Drabkin is chairman of an American Bar Association task force on the issue. He said that at one conference where tax strategies were discussed, participants later got a letter warning that using one idea mentioned would be in violation of a patent.

Why would Congress pass a law allowing such a thing? The answer is that it did not. But a U.S. appeals court ruled in 1998 that business methods could be patented, and since then the U.S. Patent and Trademark Office has issued 50 tax- strategy patents, with many more pending.

My light-hearted title doesn’t do the subject matter justice, but then I’ve more or less given up hope on international patent reforms since the concept of patents doesn’t seem to protect anyone other than the side who can afford the lawyers.

Why do you hate game programmers’ children?

The very fact that there is such a thing as “tax strategy” is a sign that the whole thing is fucked anyway.


If I want to do a transaction, and I can structure that transaction one way to minimize my tax obligation or another way where I get socked with a big tax bill, it is entirely reasonable, legal, and moral for me to use the first structure. As long as I am not commiting fraud or otherwise violating the tax code, there is nothing wrong with me structuring my affairs in a way that reduces my tax burden.

As long as there are deductions and exemptions, there will be tax strategies.

If it’s essentially the same transaction, an ideal tax system would leave you with essentially the same obligation no matter how you structured it. I think that’s what he was getting at.

Which means that the government should not provide incentives for businesses via the tax law (for example, by providing tax credits for companies that invest in alternative energy sources)?

Sorry, I can’t get on board with that. Tax incentives are one of the major ways we can help drive business investment into areas that are in our national interest.

National interest? I think the for at least the last 30 years that’s meant subsidies to Archer Daniels Midlands to grow food we don’t need, tax incentives to politically wired developers to blow up downtown housing for the poor to build malls that are exempt from all taxes, and funding land speculation in the sunbelt.

Investing in GreenTech and investing in RapeTheEarth Inc. are not the same transaction, structured differently. I was going to write something about how tax strategizing is needed if the tax system is to be used to influence economic decisions, but decided to be brief. Of course, all those incentive and penalty programs provide lots of tools for the rules mechanics, and may not be serving their intended purpose.

What bothers me about a complex tax system is it creates this arms race of wasted effort. It seems like a massive zero-sum game for high stakes that everyone is forced to play.