From Scraping By to Facing a Patent Storm
I regularly measure my cash flow against the costs of filing and keeping my patents alive. It’s an inventor’s ritual of pain and hope. In lean times, I’ve agonized over whether to pay a maintenance fee or let a patent lapse. More than once I scrounged to cover those fees. Other times, cash flow forced me to watch a hard-won patent slip into abandonment, making a knot in my stomach – especially when a tech giant later launches something my patent would have covered. And those were just the modest maintenance fees in the low thousands of dollars. Little did I know that years later I’d be staring down a proposal that makes those earlier fees look like a drop in the bucket.
Fast forward to today. I have over 250 issued patents to my name (yes, hundreds – even I’m amazed, considering I’m not formally trained in many of those fields). I’ve always worn my independent inventor badge with pride. But now there’s a storm brewing over our heads, one that threatens to chill and financially soak every small innovator and startup to the bone. The Trump Administration is floating a radical change to how we maintain patents. Instead of the flat maintenance fees we’ve known – predictable if painful, and at least fixed – they want to charge a percentage of each patent’s “value.” In plain terms, it’s a tax on the very success we dream of. It’s hard to overstate how perilous this could be for small companies and independent inventors like me, and for U.S. innovation in general.
It is important to note that inventors and companies already pay taxes on patent revenues. I once made the mistake of putting a patent into a C corporation and had the “privilege” of paying tax on it twice — once at the corporate level, and once personally. At least when an inventor pays tax on revenue, they have revenue to pay taxes with.
A proposal to tax patents based on value is troubling if it is even possible to value a patent — and as Eric Goldman notes, “Patent valuation is an art, not a science.” Even more importantly, the boundaries of what is patent-eligible are amorphous and drawn by a Supreme Court without a single justice holding a science degree. It is not at all uncommon for me to advise inventors that their patent has a good chance of being invalid depending on how the District Court and Court of Appeals for the Federal Circuit (or the PTAB during an IPR on non-eligibility grounds) read the Supreme Court’s clumsy rules on patent eligibility. How do you square charging $1 million per year based on a $100 million valuation with a court ruling later invalidating the patent?
Imagine I have a patent that has a 50% likelihood of being held valid on appeal, and that an analysis shows the patent reads on $1 billion annually in sales of infringing goods. What is a reasonable licensing fee? 1% or 2.5% or 5%?? How much of the value of the goods is attributed to the patent infringement? How hard will it be to enforce? Do I have the cash to fund $10 million in litigation costs or do I have to sell it for pennies on the dollar? By definition, a patent is novel and not obvious, so there is no such thing as a true “comparable sale”. A rule requiring inventors to develop a valuation for maintenance fee payment purposes would be an unforgivable barrier to innovation.
In case you’re wondering, a trade secret costs $0 annually, involves no attorneys spending time getting it issued, and has no risk of invalidation. The more onerous patents become, the more scientific advances will be held as undisclosed trade secrets. Remember that the whole bargain behind patents is that the inventor teaches the world the invention in exchange for a short period of exclusivity. Trade secrets do not move science forward. Patents do.
Under this proposal, the government would impose annual fees tied directly to a patent’s estimated worth — anywhere from 1% to 5% of the patent’s value. That might sound small, but do the math: if your patent is deemed a $1 million idea, a 5% fee means $50,000 out of your pocket. And it wouldn’t be a one-time hit; it could recur year after year (imagine a property tax on your invention). This marks a dramatic shift from the current system of flat fees. Today, we pay US maintenance fees just three times over a patent’s life – at roughly 3.5, 7.5, and 11.5 years after issuance. Even for the largest entities, that final 11.5-year fee is about $8,280, and small entities get discounts. It’s a lot of money, sure, yet almost half of all patents are abandoned before that final payment comes due. Why? Because many owners decide their patent isn’t worth an $8k renewal to keep to full term. Now imagine a world where that last maintenance payment isn’t a flat $8k but potentially tens or hundreds of thousands of dollars every single year (millions for big inventions like pharmaceuticals), based on some bureaucrat’s guess of a patent’s value (and do they even include invalidity risks?). It doesn’t take a math whiz to see what happens next: small inventors would be dropping patents like they’re toxic — and the ability to pay ridiculously high fees before the patent even generates revenue would mean giving up on patent protection before you even get started.
A Barrier Aimed at the Little Guy
This scheme is being sold as a revenue generator – reportedly a way to drum up $10 billion annually for the government without “raising taxes” in the traditional sense. But calling it a fee doesn’t change what it is: a tax on innovation, hitting hardest those who can least afford it. As one Silicon Valley executive bluntly put it, “This isn’t just a fee; it’s a barrier to entry for small inventors.” I couldn’t agree more. If you’re a scrappy startup or a lone inventor with one breakthrough patent, this proposal would punish you precisely for having a breakthrough. The more world-changing your invention, the higher the toll to keep it. It’s as if the system started asking, “Oh, your idea might be really valuable? Great – now pay up, or surrender it.”
Think about the perverse incentives this creates. Today, you might file a patent with the hope of creating the next big thing. Tomorrow, under a value-based fee, you’d have to hope your idea isn’t seen as too valuable – because a high valuation could price you right out of your own patent. It’s a cruel irony: succeed, and you get hit with a giant bill; struggle, and at least you don’t owe as much. Would Thomas Edison or the Wright Brothers have persevered under such a regime? Would they have mortgaged their homes again to pay a patent tax on the lightbulb or the airplane? Or just walked away and tinkered with something smaller? What if Alexander Graham Bell had been told to pay 5% of the telephone’s value in 1877? He might have decided it was wiser to go invent a slightly better telegraph instead. History could have taken a very different course, all because an inventor was fined for dreaming too big. Since the tax code could be changed to put a surcharge on patent revenues, the only explanation for putting it in the form of renewal fees is that it must be intended to apply pre-revenue.
How will inventors respond? Consider an inventor or startup monitoring their cash flow. What would they do? Faced with surprise five-figure bills, the little guys will have no choice but to let their hard-won inventions lapse — or would they? This would trigger a renaissance for what some have called “patent trolls”. Let’s walk through a theoretical scenario: I have a patent that reads on the latest iPhone. So if the patent has a 50% chance of being held valid and infringed and the most likely verdict amount in an infringement case is $200 million, that means that the patent is statistically worth $100 million. Now as a human being, I’m naturally averse to a risk of getting zero, so if Apple offered me $10 million, I’d take it because $10 million in hand is better than a 50/50 chance of getting $200 million or zero. I only need so much money to have the lifestyle I want. But oops, I can’t afford the $1 million annual maintenance fee. What do I do? I find a non practicing entity (“NPE” or “patent troll” as some call them) to buy my patent for $10 million. An NPE is a business and won’t settle for less than the statistical value of the patent. They are responsible to investors, and can’t just say “I’m so proud of my invention, and if I have $10 million in the bank, I can retire, so I’ll sell for cheap”. Apple’s choices are now to litigate the patent to the bloody end or to pay close to the $100 million statistical value. Instead of me being happy and Apple being happy, Apple faces a miserable number of years in patent litigation. Why on earth would the Administration want to encourage patent litigation this way?
Eric Goldman takes the position that “There would be some value to cleaning the patent database of worthless and low-value patents”. However, this only provides material value if every country adopts it. If the US prices small entities out of ever getting patents, the EU, China and others will still loom large. The US patent on a new toy expired because the innovation tax was too high? Great, we’ll take the idea and blow it out without paying the patentee a cent. Except we can’t manufacture it in China because there is a patent in place there. We can’t access the 75% of global GDP that the US doesn’t represent because of patent thickets in other countries. All it does is clear out some of the millions of valid and non-expired patents. I refuse to give “freedom to operate” legal opinions because it is impossible to properly review all US patents, much less all patents globally. Even a 50% reduction in the number of non-expired US patents leaves us with too many patents to truly advise that a company is free to operate.
We’d be erecting a toll gate on the bridge of innovation and charging a price that only the wealthiest can pay — and hey, if you can’t afford to maintain the patent, sell it to a troll (once we’re going with toll gates and bridges). The proposal calls for a 1% to 5% levy on a patent’s assessed value, and while that might sound like a tiny tariff, it could easily dwarf today’s fees. It’s telling that industry and startups alike are already mobilizing against the plan, viewing it as a direct attack on innovation. Even before any rule has changed, just rumors of this plan sent biotech stocks tumbling – investors feared that steeper patent costs would smother R&D in life-saving drugs and therapies. When you have both big industry and little inventors aligned in opposition, you know something is fundamentally poorly thought out.
There’s another frightening aspect: discretionary enforcement. If valuations are subjective, who’s to say the government won’t challenge an inventor’s self-assessment? You claim your patent is worth a mere $50k to get a manageable fee; the Patent Office (or IRS, or whoever) decides to investigate, suspecting you undervalued it. Suddenly the government has a new club to swing at patentees – audits, penalties, maybe even accusations of fraud. As Eric noted, this gives authorities a potent tool that could be “wielded to punish disfavored entities” All of a sudden, keeping a patent is not just a financial risk but a legal one. The current flat fee system, for all its flaws, at least treats us equally and objectively. I pay the same fee as any other small entity for maintaining a patent, whether my invention is a dud or a world-changer. That neutrality is a feature, not a bug. It avoids the slippery slope of government officials effectively deciding which patents are “valuable” (and taxing them more) and which aren’t. A value-based system would erode that objectivity and could open the door to abuse.