November 17, 2002
The Gift of Opportunity... or Clever Tax Evasion?

Patent donations have been gaining in popularity, particularly among large corporations, according to an article in today's NY Times. When companies earn patents on inventions they'll never use, who could question the obvious win-win proposition of transferring them to hungry research institutions in exchange for a tax write-off? Well, the IRS, of course, and not entirely without reason.

A growing number of corporations (including DuPont, Eastman Chemical, Honeywell International, Boeing, Dow Chemical, GM, Procter & Gamble) have been cashing in on patent donations in recent years, reaping lucrative tax write-offs and valuable good will (e.g., special consideration from their recipients in research activities). The practice has become quite popular as a means of extracting benefit from new technologies without pouring more resources into their development. There's now even a website devoted to matching donors with recipients.

The value placed on such donations is determined by an independent appraiser, and tends to be a complicated and approximate science. Yet while corporations slash their tax bills, there's no guarantee recipients will ever reap financial benefits of their own. That said, some learning institutions claim that these donations offer excellent educational opportunities for their students.

Clearly, donors are much less likely to part with patents that would be easy to make profitable. And patent renewal can cost institutions tens of thousands of dollars every few years. The odds of successfully transforming an invention into a royalty-earning product can be quite slim, especially if the donor has failed to include essential equipment or consulting expertise in the donation package.

As unpredictable as patent donations can be for recipients, donating corporations have nothing to lose and plenty to gain.

Posted by Maggie Law at November 17, 2002 10:18 AM

I wonder if the Free Software Foundation has thought of setting itself up as a possible recipient for a software patent donation?

Posted by: Baldur on November 17, 2002 12:48 PM
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