Washington, DC.The International Intellectual Property Institute (IIPI) today released a policy review on the topic of patent donations. The review, part of the IIPI’s cooperative project agreement with the U.S. Patent and Trademark Office, is based on more than 80 interviews with representatives from 60 corporations, universities, appraisal companies and with legal experts and economists. The authors discovered that industry professionals are concerned about alleged tax abuse related to donations of patents, and also worried about the possibility that the program would be eliminated. Also documented is the limited discussion surrounding the innovation stimulated by such donations or of policy issues which might benefit the economy.

The review, written by IIPI consultants Ron Layton and Peter Bloch, lays the groundwork for future discussion on the merits of various alternatives to the current patent donation incentive scheme, which may soon be eliminated. The Internal Revenue Service recently started cracking down on companies and IP appraisers for taking excessive deductions by over-valuing patents donated to universities and research centers. Alarmed by the tax abuse allegations, Congress is evaluating a change to tax law that would eliminate the calculation of incentives by any valuation method and limit deduction to the book value of the patent.

“Not surprisingly, there has been much focus on the mechanics of patent valuation for donation deductions,” says report co-author Layton. “Contrary to some industry arguments, however, changing valuation methods will not fix the problem. Patent donations need to lead to applied technological advances that produce adequate economic growth benefits as a return to the tax cost to government. New policy needs to be set within the context of innovation policy for economic growth. Technological innovation plays an important role in the U.S. economy and in international competitiveness. Applied innovation helps the U.S. compete effectively in global markets and generates jobs at home.”

Bloch reports there was “reluctance on the part of participants to release financial information about patent donation activity. Whether the existing program is scrapped altogether, redesigned, or replaced by a new program, it would be highly desirable if the release of financial information from participants can be secured so that a measurement, forecasting and evaluation methodology can be applied to reported results, and used in the design of an improved policy regime.”

The Department of Treasury indicates that corporations save tens of millions of dollars a year on taxes through alleged patent donation over-valuations. If the change contemplated by Congress becomes law and valuations are eliminated for calculating deductions, Treasury has projected that increased revenue collected will be $3.85 billion for 2004 – 2013.

IIPI will be hosting a series of events in 2004 to provide a platform for discussion on national policy for corporate IP management, including the topic of Intellectual Property donations. Interested parties should contact IIPI directly.