Last week The Hill reported that Hillary Clinton promised to use patents owned by giant technology companies as leverage to get them to pay higher taxes. If you listen to the actual exchange between Clinton and a supporter it goes deeper than promising to leverage patents to ensure payment of taxes, rather Clinton agreed that patents should be suspended until companies repatriate foreign profits held in offshore accounts.
The exchange came thanks to a question from the audience at a campaign stop in Sioux City, Iowa, on Tuesday, January 5, 2016. Here was the question and response.
QUESTION: We have major corporations in this country— GE, Apple, many others— that are salting money away offshore. Can’t we use their patents as leverage to make them pay their taxes?
HILLARY CLINTON: Yes.
QUESTION: Is that possible?
HILLARY CLINTON: Yes, we can and we will. You know—
QUESTION: We should suspend their patents until they pay their taxes.
HILLARY CLINTON: You are right. You know, American companies have, I think, a couple trillion dollars stashed overseas. Now technically it’s on their books, but they park it somewhere they don’t want to pay their taxes. And I think we have to reform our whole tax code because the way it is working now it is driving companies away, and its driving companies to engage in all these really gimmicky tax games that they are playing. And we have to get a fair, consistent tax program so that corporations pay their fair share just like the wealthy, and that’s what I’m going to try and do.
According to the report the Clinton Campaign did not elaborate on what Secretary Clinton might have meant when she responded that patents would be used as leverage.
It is impossible to know whether or how Hillary Clinton would leverage patents in order to force companies, such as GE and Apple, to repatriate money from overseas and thereby incur enormous tax liability. This may be nothing more than Clinton not properly hearing the question, or all of the question, but it could be much more and should be at least somewhat disconcerting to those in tech companies who are generously funding her campaign (see here and here). Nevertheless, it is deeply troubling that Clinton agreed with the person asking the question when he offered the suggestion that patents should be suspended until taxes are paid.
Is it possible that the United States Patent and Trademark Office in a Clinton Administration might stop issuing patents to companies that refuse to repatriate money to the United States? Is it possible that patents would be withheld from those who more generally are not paying their taxes, or paying “enough” in taxes? Is it possible that already issued patents would become unenforceable or somehow otherwise suspended, as suggested by the above Clinton Q&A? These would be extraordinary steps, not to mention ones without precedent.
There is no legal authority to hold patents hostage as a bargaining chip to force corporations or individual patent owners to pay more or higher taxes, and no authority to suspend patents for failure to pay taxes or repatriate foreign profits. To be legal such a move would require a significant amendment to the patent laws of the United States. There would be enormous administrative burden imposed on those seeking patents and on the Patent Office.
In the question and answer above, Clinton says that the tax code is driving corporations away, but suspending patents or otherwise taking them hostage or somehow leveraging them to ensure taxes are paid or foreign profits repatriated would all but certainly do more to drive corporations away than anything the government has ever done. Indeed, a rule that tied paying taxes, or repatriation of foreign profits to the United States, to obtaining a patent would almost certainly create an extraordinary disincentive to seek a patent in the United States, which itself would lead to a nearly unimaginable parade of horribles at a time that the U.S. economy is nearly wholly reliant on innovation and technology. Holding patents hostage to force higher taxes or repatriation of foreign profits would be an ill-advised, shortsighted decision that would risk the destruction of the U.S. patent system.
While Hillary Clinton’s record on patent matters is not extensive, when she was a U.S. Senator from the State of New York she never embraced patent reform despite it being an issue of great importance for the senior Senator from New York, Senator Chuck Schumer (D-NY). In fact, during the 2008 Presidential Campaign Hillary Clinton publicly expressed opposition to patent reform because, in her view, it was bad for innovators. Why would she now be taking a stance that would categorically be bad for innovators and innovation?
Perhaps this rather brief question and answer at a campaign stop in Iowa does accurately reflect Clinton’s view of the patents and patent portfolios of the high tech elite. Perhaps she believes patents are pawns in a game of collecting the tax revenue she believes these companies are illegally withholding by keeping funds offshore and outside of the jurisdiction of the Internal Revenue Service. If patents are to be used as pressure points against patent owners it should cause great concern within the patent community and lead to supporters with patent portfolios asking Clinton some direct questions about what she plans for their future.