M·CAM Comments on IRS Patent Donation Enforcement

Date:  Mon, 2005-10-17

Janet Novack Excerpted from Forbes – October 17, 2005 pg.56 For years the Internal Revenue Service tried to crack down on folks donating clunker cars to charity and taking inflated deductions. Now it’s doing the same to companies that took billions of dollars in charitable deductions for donating what could be clunker patents. The IRS has already disallowed $1 billion in patent deductions and is auditing another 50 companies that claimed $4.7 billion worth of contributions. The first public battle involves Procter & Gamble. In October 1999 P&G donated 40 patents involving injection moldings to the Milwaukee School of Engineering and claimed an $86.5 million charitable deduction. It predicted that revenues from their commercialization “could exceed $1 billion annually.” In fact, they were never commercialized. Advances in computerized machining have “pretty much passed” the technology by, says Vito Gervasi, who directs the Milwaukee school’s research in the area. Such appraisals, however, typically calculated the patents’ “market value” on the sales a hypothetical company with plants and distribution in place might reap–not their value to a not-for-profit, says David Martin, chief executive of patent valuation firm M·CAM, an IRS consultant. The valuations also ignored the fact that if there had been corporate buyers ready to pay so much for patents, they would have been sold, not donated. Martin says some companies took deductions for patents they retained an interest in (a clear no-no), for disputed patents and even for inventions they hadn’t won patents for. This kind of nonsense won’t be happening for long. Clunker Patents