No New Taxes: Why the Department of Commerce’s new fee proposal for patent holders would be a big mistake.
Written by Ben Esplin
In the past week, the Wall Street Journal reported the Department of Commerce is considering charging patent holders fees based on patent value. The “specifics” provided in the report were that Secretary of Commerce Howard Lutnick is considering a proposal that would require payment by patent holders of between 1% - 5% of “patent value.” This would be a significant departure from the current system, which requires patent holders to pay fixed maintenance fees that come due 3.5, 7.5, and 11.5 years from issuance.
A primary concern is that establishing the value of any individual patent is not straightforward. Without getting too far inside baseball, it should be accepted as a premise that whatever yardstick is used to measure “patent value” will be imprecise, at best. However, I do not believe this is the most persuasive argument against the newly proposed fees.
Over the past decade, the value of a U.S. patent has been steadily eroded. The restriction on injunctions by the Supreme Court in Ebay has reduced the ability of patent holders to negotiate ultimate settlement terms with proven infringers. The subject matter eligibility debacle wrought by Bilski, Myriad, Mayo, and Alice has made getting and defending patents in critical technologies like artificial intelligence, software, biotech, and medical diagnostics more and more difficult. The institution and execution of the Patent Trial and Appeal Board is an ongoing experiment that causes frustration for both patent holders and potential infringers, and is potentially unconstitutional to boot.
There can be no dispute that the policy being floated by the Department of Commerce amounts to a new tax on innovation. Essentially, it will mean a higher price (in some cases significantly higher) for the diminishing returns that investment in a patent portfolio has brought in recent years. The basic theory of market economics tells us what may happen next – innovators may forego U.S. patent application filings because the juice just is not worth the squeeze. This is what Secretary Lutnick and the other big brains at the Department of Commerce should be most concerned about.
If innovators decide the U.S. Patent system delivers too little and asks too much, this new proposed tax on innovation could be a significant misstep in our national policy attempting to foster America’s dwindling innovation advantage. The reason for the Intellectual Property Clause of the Constitution is that the Founders knew a strong, transparent, and accessible patent system would be critical to technology leadership for the U.S., and history has demonstrated the prescience of this policy. My hope is America’s (understandable) search for additional national revenues to address budget shortfalls and concerns about general affordability does not cause further damage to the already creaking U.S. patent system.
