Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Only in America: Tax Patents and the New Sale of Indulgences
The beginning of the sixteenth century provided the backdrop for a radical change within the structure of western religion. The humanist intellectual movement, developed during the heyday of the Renaissance, galvanized a small but persistent minority in the Catholic Church to question various practices of Catholicism, including the doctrine of indulgences. In 1517, Pope Leo X authorized the distribution of indulgences to anyone who donated money for the reconstruction of Saint Peter’s Basilica and Johann Tetzel, the papal commissioner in Germany, was said to use the catchy slogan “[a]s soon as the coin in the coffer rings, the soul from purgatory springs” in an effort to increase his collection for the reconstruction. This famously culminated in Martin Luther’s nailing of the 95 Theses to the door of the Wittenberg Castle Church, beginning the Protestant Reformation. Among other things, the 95 Theses represented a rejection of the papal hierarchy’s powers over spiritual law and the embrace of the laity’s ownership in their own salvation. Nearly 400 years later, across the pond, the issuance of tax patents by the Patent and Trademark Office seems equally poised to spark a comparable debate over the authority and scope of the Patent and Trademark Office’s powers over congressional law and may eventually lead to the public’s embrace of the public domain.This Comment discusses the development of patents on tax methods and strategies. Part I introduces the pending litigation that provoked the interest of tax practitioners, patent practitioners, and various government agencies in the patenting of tax methods. Part II of the Comment delineates the case law that has lead to the patentability of tax methods, which, as a subcategory of business methods, used to be unpatentable, and points out possible areas of weakness for practitioners wishing to invalidate tax patents. Part III summarizes the Ways and Means Committee Hearing on the patenting of tax methods and hypothesizes why the Service was reluctant to immediately denounce the intrusion of patents into the field of taxation. Part III also looks at the normative implications of allowing tax patents to issue. In Part IV, this Comment concludes that while the considerations of both Part II and Part III may weigh heavily in favor of a judicial ruling of invalidity for tax patents as a whole in the lower courts, change will most likely come only from the Supreme Court or as a result of congressional action. Part IV also explores the practical implications of a second best world in which tax patents are liberally issued.