Summer/Fall 1999

A few new inflation adjustments or carry-overs for 1999:

  • Starting April 1, 1999, the new Standard Mileage rate is 31¢ per mile. The IRS has announced that the Standard Mileage rate for business use of an automobile for 1999 will remain at the 1998 level of 32.5¢ per mile until April 1, 1999 to allow employers and employees time to implement the new rate without causing employers to treat any excess payment as wages and forcing employees to include excess payments in their gross income.
  • The charitable mileage rate deduction has been increased for 1999 to 14.5 cents per mile.  [Editor’s Note: Charitable mileage rate for 1999 was inadvertently listed as 14.5 cents per mile when in fact it is 14 cents per mile.]

Upcoming Tax Deadlines:

  • Taxpayers whose tax returns were due by April 15, 1999 and who requested extensions of time to file have until October 15, 1999 to file their return before their extension expires.
  • Employers required to file IRS Forms 941 (Employer’s Quarterly Federal Tax Return) must do so by October 31, 1999 for the Third Quarter of 1999.
  • Maryland Employers: The deadline for filing forms MW506 (Maryland Employer Report of Income Tax Withheld) and DLLR/OUI 15 (Maryland Unemployment Insurance Quarterly Contribution Report) is October 31, 1999.
  • Unlike Roth IRAs, persons looking to fund an educational IRA for a qualified individual must fund this IRA by no later than December 31, 1999, to qualify their contribution for 1999.

Summer/Fall 1999

If you are an employer and think that all those W-2 forms you file with the Social Security Administration with Form W-3 annually and the Forms 941 that you file quarterly are never reconciled, think again.  Earlier this year the SSA announced that it had begun the process of reconciling the amounts reported on individual employee’s W-2s with employers’ Forms 941.  If the total amounts on the reported W-2s does not match the amounts reported on the employer’s Form 941, the SSA will send reconciliation notices to the employer.

Summer/Fall 1999

The Social Security Administration (SSA) has issued sample text which may be used by employers and payroll organizations to inform employees of the upcoming program by the SSA to issue Social Security Statements to all workers 25 and older.  Employers and payroll organizations have requested that the SSA prepare such a message which could then be distributed by employers and payroll organizations to employees as a way of explaining the upcoming program and hopefully minimizing inquiries by employees regarding the purpose and intent of the statements.  We are reprinting the text of the statement for your use.  The SSA has suggested that it be included in company newsletters, bulletin boards, paycheck stuffers, etc.

Your Social Security Statement: The Future’s In Your Hands

In October 1999, the Social Security Administration will begin mailing Social Security Statements (formerly known as the Personal Earnings and Benefit Estimate Statement) to all workers age 25 and older (about 125 million) who are not already receiving monthly Social Security benefits.

You can expect to receive your Statement each year about three months before your birth month.  For example, if your birthday falls in February, you can expect to receive your Social Security Statement in November.

The 4-page Social Security Statement is intended to help you plan your financial future by providing estimates of the monthly Social Security retirement, disability and survivors benefits you and your family could be eligible to receive now and in the future.  The Statement will remind you that Social Security is the foundation on which to build a more secure future.

The information in the Social Security Statement also will provide you with an easy way to determine whether your earnings (or self-employment income) are accurately reported and recorded on your Social Security record.  Making sure the name and Social Security Number your employer has on record matches your Social Security card is the best way to ensure earnings will be accurately posted.  That’s important because the amount of your future benefits will be based on your Social Security earnings record.  The Statement will tell you how to correct inaccurately recorded earnings.

In addition to helping plan your retirement, these are other ways to use your Social Security Statement:

  • Plan your financial security for today and tomorrow by knowing the amounts of Social Security benefits that could be available to you and your family if you become disabled.
  • Determine whether you have sufficient insurance to protect your survivors if you die.
  • See how your potential Social Security benefits fit in with your investments and savings.

For more information about Social Security benefits, call or visit your local Social Security office, call this toll-free number, 1-800-772-1213, or visit this Web site:

Summer/Fall 1999

Within the past year the Small Business Administration (SBA) and the Internal Revenue Service (IRS) have been partnering to provide SBA counseling in conjunction with IRS assistance and education for small businesses.  This service is being provided through the SBA’s Business Information Centers (BICs) (53 locations) and One Stop Capital Shops (4 locations).  The IRS also will be providing tax forms and publications at the BICs.

The IRS services are targeted at new and prospective business owners and includes small business workshops and one-on-one counseling.  However, the IRS assistance is intended to be educational in nature and is not provided as a means of assistance with tax delinquencies or other taxpayer disputes.  It is hoped that by providing IRS services at BICs, a greater array of business services will be available to businesses seeking SBA counseling.  In this vain, the IRS has stated that “[b]y partnering with the SBA, the IRS can reach small business entrepreneurs during their earliest planning stages or soon after they open their doors.  Providing educational assistance at these junctures can help familiarize business owners with their tax obligations and improve the chances of positively influencing tax behavior.”  Accordingly, small businesses may now have a resource for acquiring federal tax information and basic counseling through the same agency that in the past has provided so much needed advice and assistance to the business community.

Spring 1999

As a general matter, the burden of proof in any dispute with the IRS has always been with the taxpayer.  However, with the enactment of new Section 7491 of the Internal Revenue Code (IRC), enacted July 22, 1998, the burden of proof has been shifted to the IRS for issues of general burdens of proof, statistical information, and penalties.

Now the question remains: what does this mean for the taxpayer?  Basically, in cases that involve factual issues, the IRS now has the burden of proving the factual basis for a tax liability once the taxpayer has provided “credible evidence” regarding the questionable issue.  However, expect to see a fair amount of litigation on the definition of “credible evidence” as the Code requires that the burden only shift once the taxpayer has demonstrated that they have complied with all the substantiation requirements; maintained all the records required by the IRC; cooperated with IRS’ reasonable requests for witnesses, information, documents, meetings, and interviews; and met certain net worth requirements in the case of partnerships, corporations, or trusts.

Additionally, if the IRS attempts to assert that a taxpayer has income based exclusively on statistical information acquired through unrelated taxpayers, the burden is on the IRS to prove the existence of income.  The taxpayer is not required to maintain records or cooperate with the IRS to validate the IRS’s statistical information.  However, taxpayers should be aware that as a practical matter it is anticipated that the IRS will attempt to oppose the shifting of the burden of proof by stringently applying each of the prerequisites to shifting the burden of proof away from the tax payer and thereby maintain as much pressure as possible on the taxpayer during the audit and review process.

Winter 1999

  • Employers and those of you who are required to provide IRS Form W-2s, the deadline for filing these forms with the Social Security Administration (with Form W-3) is February 28, 1999.  Maryland employers: the deadline for filing Form MW508 (Annual Employer Withholding Reconciliation Report) with the State’s copies of each employee’s Form W-2 is February 28, 1999.Persons required to provide IRS Form 1099s, the deadline for filing these forms with the IRS (with Form 1096) is February 28, 1999.
  • Businesses with calendar year tax reporting requirements that are required to file Forms 1120 and 1120S, you are required to file these forms with all attachments by March 15, 1999 or apply for an extension.  Related State tax returns or extensions are generally due at the same time. 
  • New Internal Revenue Code Section 7525 extends the common law protections of attorney-client privilege to taxpayers and their federally authorized practitioners for advice given within the scope of a practitioner’s authorized practice area as subject to Federal regulation under 31 U.S.C. § 330.
  • A few new inflation adjustments or carry-overs for 1999:
    •  Self employment income and wages subject to Social Security tax will increase to $72,600 of your earned income in 1999.  All earned income remains subject to the Medicare tax.
    • The Unified Credit for gift and estate taxes increased to $211,300 for 1999.
  • FYI Tax Exempt Organizations: The IRS has issued a new publication 3079 for tax-exempt organizations providing general information on tax exemption, unrelated business income tax, record keeping, filing requirements and provides examples of the type of record keeping required for tax exempt organizations conducting bingo, pull-tabs, and other games of chance.  Publication 3079 titled Gaming Publication for Tax-Exempt Organizations is available by calling 1-800-829-3676 or over the Internet at

Winter 1999

Many people have never heard of the Rule Against Perpetuities (“the Rule”). Yet it may have a profound affect on estate planning for those individuals who choose to utilize trusts and other estate planning vehicles that may last for many years. Basically, the Rule Against Perpetuities states in legal terminology that “no [contingent] interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.” Gray, Rule Against Perpetuities, 191 (4thed., 1942). The problem with the Rule is that there is basically no easy way to explain or apply the Rule on a consistent basis. Each State has found its own interpretation of the Rule and in many cases the interpretation provided by one State’s courts, as well as legislated exceptions, will differ from that of another. For example, when applying the Rule a general interpretation has been that “lives in being” are interpreted from the date of the Testator’s death while other interpretations and/or legislative enactments provide that “lives in being” can be tracked from the date of the Testator’s death and at such time as the last “life in being” ends we can apply the Rule. Now, as is obvious from the ambiguities present in the Rule, we may have differing results depending upon how we view the time line for application of the Rule (i.e. Does the 21 years track from the Testator’s death assuming all lives in being could end at such time, or does the 21 years track from the actual end of the last of the lives in being at the Testator’s death?). Accordingly, given the many difficulties presented by the varying interpretations of the Rule, most Last Wills and Testaments merely provide a clause that may state that all interest created under the Will will be considered vested prior to the twenty-one year time limit if they would otherwise violate the Rule.

As with many things we have become accustomed to in our world, the impact of the Rule too is changing. For example, as of October 31, 1998 the State of Maryland eliminated the rule against perpetuities. This change now allows Maryland residents (for estate and probate purposes) to establish perpetual dynasty trusts (trusts which can effectively exist forever). However, you should be aware that given that the majority of States still retain some form of the Rule, if at the time of probate the decedent is not a resident of Maryland or the trust falls under another State’s probate laws, you then run the risk of violating the Rule which may cause a substantial alternative disposition of estate assets. Accordingly, now more than ever it is critical that any person changing their State of residence have their Wills and ancillary estate planning documents reviewed to consider and adjust for the differences between States’ laws and ensure that their intentions are accurately laid out.

Winter 1999

With changes in technology occurring at high speed and the growth of “virtual companies,” as well as traditional business ventures, copyright law has come to both help and hurt many business owners, employees and “consultants” alike without their fully understanding the consequences of their actions. Generally speaking, a copyright is an author’s rights in ownership of his or her original works of authorship. In the most basic terms, a copyright is established by the act of an author fixing his or her work in a tangible medium of expression. 17 U.S.C. §102(a). In general, this has been interpreted as reducing the work to a relatively stable form of expression and placing it in a relatively stable and permanent embodiment. Accordingly, the work must be recorded or written in some manner in order to obtain federal statutory copyright protection.

Under U.S. copyright laws, all works which may receive the benefit of protection are by default owned by the author. However, as with most legal principals there are several exceptions to this general rule of ownership. One broad exception to this rule is a situation where an employee creates a copyrightable work and the task or duty of creating the copyrightable work falls within the “scope of their employment duties.” By default, all works which are created in such a situation are owned by the employer. Of course, it is important to review and outline the duties of an employee so that a dispute does not arise after the work is created as to what falls within the “scope of their employment duties.”

In addition, another broad, yet common, exception to the ownership default is copyrightable works which are created under a “work for hire” agreement prior to the initiation of any effort to create the new and original work. Under a written “work for hire” agreement, all works created by the author within the terms of an agreement are understood to be owned by the entity which has contracted for the product as this is literally set forth in the agreement. However, an agreement may be used to further apportion ownership rights as the parties to the agreement see fit. Accordingly, there are situations in which a copyrightable work created by an author may be owned by another party.

In view of the confusion which commonly arises in cases of ownership of copyrightable works as a result of the general rule and its exceptions, it is important to outline the relationship of the parties in writing before work on a product is initiated as this will hopefully clarify ownership in the work. Also, this usually mitigates disputes and resolution of any misunderstandings between the parties as a well drafted agreement should at a minimum represent the understanding of the parties.

Additionally, the mere lack of a written agreement does not preclude the party paying for the project from acquiring ownership rights in the product. The “scope of employment” exception may apply. Furthermore, if there is no agreement between the parties before a project is initiated, an assignment or licensing contract to a work product may be executed after initiation of any effort, or even upon completion of the product. Of course, having the relationship between the parties memorialized prior to initiating any work is advisable as this may reduce the chance that any unforeseen conflict may arise, and may also reduce or eliminate the need for licensing royalties that may result from unknowingly proceeding without a written agreement. As many other factors may impact the terms and conditions of any written agreement addressing copyright ownership, it is advisable to consult an attorney prior to drafting or executing such an agreement as this may avoid future problems and/or expenses.

Summer/Fall 1999

On August 4, 1999, the House of Representatives passed the American Inventors Protection Act of 1999 (H.R. 1907).  This Bill may have an impact on how inventors protect their inventions through the patent application process.  The Bill now awaits action by the Senate.  The following is an outline of several of the sections present in the Bill, as passed:

1. Title I (Inventor’s Rights Act)

This section applies to companies providing invention development services.  People may recognize these businesses as the ones who advertise to inventors and claim that for a “modest” fee they will assist the inventor in successfully developing their invention and bringing it to market with the implied understanding that the inventor could well become rich with the company’s assistance.  The Bill requires that such companies provide a standard contract and disclosure statement from the entity promoting the invention.  Included within this section is the following provision:

The disclosure statement must provide a written disclosure of the percentage of their client’s whose earnings from their inventions has exceeded the money paid to the promotion company.  Failure to provide such a disclosure to a potential client may result in a voiding of the contract as well as monetary damages.

This language clearly intends to penalize companies from misleading potential clients from believing that a “modest” investment with this company will always return greater value than initially paid.  Accordingly, although this provision may not directly address all of the seemingly fraudulent and misleading activities perpetrated by some of these invention development companies or directly address the theft of intellectual property by unscrupulous individuals, this section does provide some protection to the individual inventor and small businesses with regard to invention development companies.

2. Title III (Patent Term Guarantee Act)

This provision provides limited circumstances under which the term of a U.S. patent may be extended beyond the standard patent term.  Currently, a utility patent resulting from a patent application filed on or after June 8, 1995, has a term of 20 years from the date of filing with the U.S. Patent and Trademark Office, and a design patent has a term of 14 years from the date of issuance of the patent.  Under this provision, a patent term may receive daily extensions under the following conditions:

        (1)    If the initial examination of the pending application exceeds 14 months from the date of filing; 
        (2)    If following a first office action, the Examiner exceeds 4 months in responding to any response or amendment filed by the applicant; or 
        (3)    If publication of the patent exceeds 4 months from the payment and submission of the Issue Fee.

Accordingly, should this provision be enacted, inventors and patent applicants may finally achieve some of the benefits of the 20 year patent term envisioned with the implementing provisions of the GATT Treaty.

3. Title IV (Publication of Foreign Filed Applications Act)

This provision directs the U.S. Patent and Trademark Office to publish pending U.S. patent application 18 months after their effective filing date.  The current policy of the U.S. Patent and Trademark Office is that all U.S. patent applications are confidential and not published until such time as they may be issued.  Generally, this results in abandoned applications being permanently sealed and beyond public review or examination.  This resulted in eliminating a major source of prior art which may directly affect the validity of future patents and limit the information in the public domain.  Under this provision, the U.S. Patent and Trademark Office still may not publish an application if the applicant requests that the pending application not be published and states in the request that the application has not been filed in another country or under an international agreement that requires publication of pending patent applications, such as the Patent Cooperation Treaty (PCT).  However, applicants should take note that if an applicant files for patent protection in the United States and later files the same application abroad or under the PCT, the applicant is required to notify the U.S. Patent and Trademark Office within 45 days of such a filing, or their patent application in the United States will become abandoned.  Therefore, this section only provides limited publication of pending patent applications, but provides an added filing and notification requirement on applicants with respect to pending patent applications.  Accordingly, patent applicants should take notice of this potential new law and its requirements or risk abandonment of their rights.

4. Title V (Patent Litigation Reduction Act)

This section provides that a third party filing a request for reexamination will now have the right to file a written response at each stage of the reexamination proceeding.  Current U.S. law provides that a third party filing a request for reexamination may only reply to a response by the patent owner to a notice from the U.S. Patent and Trademark Office informing the patent owner that a Reexamination has been instituted.  Therefore, if the patent owner elects not to file such a response and awaits an official action by the U.S. Patent and Trademark Office before responding, the third party will have lost their opportunity to further participate in the process.

In addition, the new provision also provides that a third party requester can appeal or participate in the patent owner’s appeal of the reexamination decision to the U.S. Court of Appeals for the Federal Circuit.  Accordingly, under this provision any third party will have the right to submit “prior art” and further legal arguments for consideration at all stages of a reexamination proceeding and may delay an action by a patent owner for infringement of the patent by further extending the litigation process through the reexamination procedure by as much as years.

Spring 1999

When inventors consider how to protect their rights in a new invention, they often do not consider or fully appreciate the options available to them.  Under U.S. Patent Law there are three different types of patents which are granted by the U.S. Patent & Trademark Office (PTO).  They are Utility, Design and Plant Patents.  Of interest to the vast majority of inventors are utility and design patents, as plant patents apply to the invention of different plants (as in that which grows in your back yard).   Accordingly, this article will address the embodiments and differences between utility and design patents in the United States.

Utility Patents

Utility Patents are the most common form of patent protection available for an invention and are the type of patent most people think of when they consider filing for patent protection.  Since June 8, 1995, the term of a utility patent has been fixed at twenty years from the date the patent application was first filed with the PTO.  Utility patent applications filed prior to June 8, 1995 are enforceable for seventeen years from the date of issue by the PTO.  Once a patent is granted, owners of utility patents are also required to pay periodic maintenance fees to the PTO in order to retain their rights in the patent.  There are currently between five and six million utility patents issued by the PTO from the inception of our patent system although most have long since fallen into the public domain (available for use by anyone).  Once a patent expires, either because it has reached the end of its valid term or for failure to pay maintenance fees, it enters the public domain and its owner no longer has exclusive rights to the limited monopoly granted to them in the patent.  Utility patents are generally available for inventions which perform a function, although other elements of the invention may be covered by design patents or copyrights.  Among the general scientific fields covered by utility patent protection are mechanical, electrical, chemical, biotechnology and computer software disciplines.  Accordingly, when someone generally refers to a patent they usually are referring to a utility patent.

In addition to the patent protection provided under U.S. law, an Applicant (for foreign purposes this may be the inventor(s) and/or owners of the rights in the subject matter of the patent application) may seek protection of their invention under the auspices of the Patent Cooperation Treaty (PCT).  The PCT provides an international framework for seeking and acquiring utility patent protection in the member states of the treaty.  (You should note that this does not apply to Design patents as they are not a part of the treaty.)  Alternatively, or if the subject country is not a member of the PCT, an Applicant may seek patent protection directly in individual countries.  Under a number of international treaties, including the PCT, an Applicant is generally granted a 12 month window from when they file for utility patent protection in the U.S. to file for utility patent protection in most, but not all, foreign countries.  Accordingly, international patent protection is available for one’s inventions although one should consult with an experienced patent attorney for particulars on specific countries and their filing requirements.

Design Patents

Unlike a utility patent, a design patent applies to the ornamental features of an invention, and does not protect the functional elements of the invention.  This occasionally necessitates the filing of both design and utility patent applications to more fully protect a particular invention.  There are currently over 400,000 design patents in the U.S.  Also unlike utility patents, design patents are not covered under the PCT.  Accordingly, design patents differ greatly from utility patents.

In general, the invention(s) which is the subject matter of a design patent is the ornamental features contained in the drawing figures of the patent.  As a practical matter, this necessitates the need for accurate and precise drawing figures in design patent applications, as even the slightest variation from the actual item may result in the failure of the patent to provide rights in the intended item.  Furthermore, as the design patent process is different from the utility patent process, the consequences of a failure to provide accurate and precise drawings at the initial filing stage may result in one’s difficulty in obtaining a design patent or in abandonment of their rights to a design patent.  Therefor, one must take great care in retaining a qualified and experienced draftsman when drafting drawing figures intended to represent the subject matter of a design patent.  Accordingly, one should consult with an attorney experienced in design patent prosecution prior to seeking design patent protection as this may greatly aid the applicant in successfully acquiring enforceable rights in a design patent and ensuring that the design patent actually will be applicable to the intended item.

If an Applicant is interested in seeking design patent protection in any foreign countries, the Applicant is generally granted a six month window from their filing date in the U.S. to file for design patent protection in individual foreign countries in which design patents are available.  Not all countries have design patent protection.  However, for those that do, the Applicant must file directly in each country since an international application under the PCT is not available for design patents.  Accordingly, if the invention has new, useful and non-obvious ornamental features, a design patent may be a wise form of protection.

In conclusion, these are different forms of patent protection available for different aspects of an invention.  Design and utility patents are two forms of patent rights which are intended to provide patent protection to differing inventions.  Accordingly, one should consult with an experienced patent attorney when considering seeking patent protection for one’s invention as alternative methods and forms of protection may be available to an Applicant depending upon the subject matter of the invention. 

Design Patent v. Utility Patent
Design Patents Utility Patent
  • Protects only design and ornamental subject matter of invention
  • Life of the patent may be 14 years from date patent is issued by the U.S. Patent & Trademark Office
  • The specific drawing figures in the patent grant are the subject matter claimed
  • 6 month window for filing for foreign patent rights based upon U.S. filing date
  • Cannot file for foreign protection under the Patent Cooperation Treaty (PCT)
  • Lower U.S. filing fees and issue fees than that of a Utility patent
  • Protects only utility aspects of an invention (i.e. computer software, mechanical, electrical, chemical, and biotech aspects of invention)
  • Currently the life of the patent may be 20 years from date patent is filed
  • The claims contained in the patent grant are the deed of the patent grant — drawing figures depict the subject matter of the patent
  • 12 month window for filing for foreign patent rights based upon the U.S. filing date
  • Can file for foreign protection under the PCT