Taxing Patents – Axing Innovation

In July 2025, The Wall Street Journal reported that it had received information indicating that the Department of Commerce was considering taxing U.S. patents. This is an unexpected and novel idea that has never been undertaken in the United States. Since then, commentators have expressed their opinion that this proposal would be detrimental to the innovation seen in the U.S.  The present article summarizes those opinions.

As some background to this proposal, U.S. patent owners currently are obligated to pay maintenance fees on their patents in order to keep those patents active. On an annual basis, the United States Patent and Trademark Office (USPTO) collects about $4.5 billion in these maintenance fees, as well as other fees collected by the USPTO for filing a patent application, prosecuting that patent application, and issuing a patent. Additional USPTO fees associated with patent office procedures include Post-Grant Reviews (PGR) and Inter Parties Review (IPR) related fees. Thus, the USPTO does accumulate many dollars for the use of its role in furthering innovation through the U.S. patent system. This revenue is responsible for the USPTO being one of the government’s self-funded agencies. In fact, one of the arguments being levied against this proposed new tax is that the USPTO would then be funded well above what is needed for the USPTO to be self-funded. Commerce personnel have indicated that the excess revenue would be used to bring down the deficit or that the excess money would be transferred to be used elsewhere.

In any event, however,  individuals in the government are reviewing a provision to raise more revenue by instituting a tax on the value of an issued patent. The proposed tax would be based on a valuation of the patent’s worth, with this new tax being assessed at 1 percent to 5 percent of the patent’s value. This seems to raise some practical and policy concerns from opponents of the tax. To begin with, it is extremely difficult to determine the value of a patent, as that value is oftentimes not realized until well into the term of the 20-year U.S. patent life (sometimes extended for prosecution delays or regulatory delays). Additionally, a patent’s value is most often determined when challenged in a litigation or if licensed or sold. Anything else is speculative in nature. Furthermore, opponents of this tax on U.S. patents indicate that Congress would need to approve it rather than having it be a bureaucratic regulation.

Additionally, those opposed to this patent tax raise the possibility that taxing patents might reduce the number of patent applications filed in the U.S., thereby actually negatively affecting the revenue collected by the USPTO. Also, opponents of this tax proposal raise the possibility that direct competitors with the U.S. for business might most benefit from a  patent tax in the U.S. if those competitors are low-tax jurisdictions.

Another argument presented by those opposed to this proposed patent tax is that a tax on the value of a patent might most affect startups and companies without high resources, thereby diverting much needed funding for research and innovation. Finally, those opposed to this proposal argue that this tax on patents might keep companies from disclosing their inventions in patent applications that may mature into patents, and, instead, companies (and inventors) might depend on trade secrets, which might further hamper innovation.

This is merely a proposal at this point in time and under review by the Commerce Department. No regulatory or legislative action has been set into motion yet. However, industry leaders in all technical fields are monitoring any developments to this new tax in this proposal.