Charlotte Lucas, JLST Staffer
The overall objectives of the U.S. patent system are to foster innovation, maintain inclusivity and fairness to all potential patent applicants, and achieve overall financial balance.[1] A patent, because it grants the patent holder a temporary monopoly of their invention, inherently has costs and benefits to society. Patent holders are able to face less competition for their product and thus make more money from it during the patent period, which incentivizes inventors to put time and money into developing new inventions that can benefit society.[2] However, the fact that patents create a monopoly on that invention, forcing consumers to spend more money than the market value to obtain a patented invention, is a cost to society.[3]
The patent system works by charging patent holders fees to obtain and maintain patents.[4] The fees cover the services that the United States Patent and Trademark Office (“USPTO”) provides.[5] Entities file for patents, and the size of that entity determines the fee amount.[6] The USPTO charges fees for filing and examining an application, for issuing a patent, and for maintenance during the 20-year life of the patent.[7]
The current fee system has multiple goals, one being to achieve financial balance for the USPTO by covering the costs of the patent process.[8] The discounts for small and micro entities are meant to foster innovation and increase fairness by lowering the barrier to obtaining and maintaining patents.[9] Additionally, charging maintenance fees will decrease the number of patents currently in effect, especially economically unviable ones, because not all entities will maintain all their patents.[10] Overall, the current fee model works, at least to make money for the USPTO. The USPTO estimated almost $4 billion in income from patent fees last year.[11] The USPTO does not cost taxpayers money and just runs on the fees paid by current patent holders.[12]
The Trump Administration is discussing charging patent holders fees equal to a percentage of their overall patent value.[13] The proposed percentage would be one to five percent.[14] The new fee system “would be a much more exorbitant cost for some patent holders that would function like a property tax.”[15] It would be a complete change to the 235-year-old patent system and a stark departure from the practices of any foreign country.[16] Whether the proposal would replace or add to the current fee system is unclear.[17]
The presidential administration suggests using the revenue to pay the national debt or for purposes in other areas of the government.[18] The administration is also considering a budget item for the USPTO that could transfer the extra money to other agencies of the government.[19] Trump nominated John Squires (“Squires”) to the position of USPTO director, and the Senate confirmed his appointment.[20] Squires, as a nominee and supporter of Trump, is expected to support the proposed fee system.[21] The USPTO’s authority to set its fees expires next year, and, therefore, Congress may change the way that the patent fee system works to be in line with the proposal, or Congress may prevent the USPTO from changing the system.[22]
Congress, and not the executive branch, has the power to levy taxes.[23] The USPTO has the right, granted by Congress, to charge fees to patent holders to pay for the services the USPTO provides.[24] However, charging patent holders a percentage of the overall patent value may constitute a tax more than a fee. The primary purpose of the proposed plan is to raise money for the government, generally to pay off the deficit or for services outside of the USPTO.[25] Such a goal is usually the purpose of a tax.[26] In contrast, the purpose of a fee is to pay for the cost of the specific services provided to the payer of the fee, such as the services the USPTO provides to patent applicants.[27] Additionally, the voluntariness of obtaining a patent and thus paying the proposed fees is not relevant to determining if the charge is a tax or a fee.[28] If someone voluntarily purchases alcohol at a store, they have to pay a sales tax, not a sales fee. The sales tax, although voluntary because no one has to purchase alcohol, still has the primary purpose of general revenue raising, not paying for a specific service. This would be the same as charging patent holders a percentage of the overall patent value, because, although voluntary, it would raise money, generally not just for the USPTO’s services.
In addition to the potential legal issues, several implementation and policy concerns exist. First, how or when the patent value will be assessed is unclear.[29] Patents can have commercial value but also hold value for the amount for which the patent owner could sell or license the patent. The commercial value of a patent is unknown at the time the patent is granted.[30] Even if the amount is assessed multiple times during the patent term, many different components go into how valuable a patent is.[31] For example, a patent granted to Apple to be used in an iPhone is working alongside hundreds of other patents in the phone. How would the government decide how the success of an iPhone is split among all the patents? Also, Apple’s branding, reputation, business model, and previous customer base are other factors contributing to an iPhone’s success. Would the government account for that, and if so, how?
If the government equates the overall patent value to the amount for which the patent owner could sell or license the patent, additional concerns are raised. How would the government determine that amount accurately? Especially because the patent owner may not want to sell or license the patent, or might not have any competitors interested in that specific patent on its own, despite being valuable.
If the government determines how to assess the patent value, the proposal might not even raise money for the government. First, many patents already do not have a significant amount of commercial value.[32] The holders of those patents sometimes let the invaluable patents lapse, but sometimes keep the patents active and pay the maintenance fees. The holders of commercially invaluable patents under the new system likely would not be paying that much in fees and would not make that much money for the government. Second, some potential patent holders may not even apply for a patent because of the possible taxes and instead rely on trade secret protection or first-to-market benefits. Not only would that mean that the USPTO would not get any revenue from that potential patent, but the potential decrease in patents would not encourage innovation or the distribution of knowledge. Third, large companies with many resources would likely find loopholes or reorganization tricks to limit the value of their patents.[33] Companies would be spending money and time on avoiding or limiting the tax rather than on R&D, thus limiting and discouraging innovation and not truly raising money for the government.[34] Fourth, the government would have to create a system to determine the value of the 3.5 million active U.S. patents, which would be very expensive.[35] Additionally, patent holders upset at the valuations could try to contest the amount, leading to a significant amount of litigation.[36] Therefore, the plan would raise operating costs for the USPTO and not lead to more money to pay off the government deficit.
The proposed plan would likely achieve the opposite of the USPTO’s goals. Any money that companies make from the patents they own is already taxed on the federal and state levels. More money that companies have to pay under the proposal to maintain patents would take money away from their profits and reduce investment into R&D, therefore decreasing innovation. Small businesses and start-ups would be the most impacted. They have the least amount of money to pay any patent fees, and often they hold patents as their primary assets. Forcing them to pay more to maintain would decrease the likelihood of innovation. It would not encourage fairness, and it would increase the barrier to entry for gaining a patent, the opposite of what the current system attempts to achieve with its tiers of patent fees.
Overall, the proposed system would discourage innovation, decrease fairness, and be difficult to implement. The system probably would not even achieve the goal of raising money for the government due to the increased costs of implementing the system. Additionally, legal challenges and backlash from patent-holding companies are likely. The proposal would be a drastic shift in how the patent system works and would make the U.S. a significant outlier in the world.
Notes
[1] Gaétan de Rassenfosse & Adam B. Jaffe, Framework for Analysis of U.S. Patent Fee Structure Options 2 (Dec. 2024), https://www.uspto.gov/sites/default/files/documents/UAIA_Fee_Study_Framework_for_Analysis.pdf.
[2] Id. at 10–12.
[3] Id.
[4] Id. at 2.
[5] Id.
[6] 37 C.F.R. § 1.16.
[7] 37 C.F.R. §§ 1.16, 1.17, 1.18, 1.20.
[8] De Rassenfosse & Jaffe, supra note 1.
[9] Id. at 16–18.
[10] Id. at 18–19.
[11] United States Patent and Trademark Office, Fiscal Year 2025 Congressional Submission 3 (Mar. 2024), https://www.uspto.gov/sites/default/files/documents/fy25pbr.pdf.
[12] Id.
[13] Amrith Ramkumar, Trump Administration Weighs Patent System Overhaul to Raise Revenue, Wall St. J., July 28, 2025, https://www.wsj.com/politics/policy/patent-system-overhaul-18e0f06f?gaa_at=eafs&gaa_n=AWEtsqcrNTdIjXDybihSzFhBXwdMfKp1P3twYDq3pdyZ1O9OqaQjMcPsCTRSSd162eE%3D&gaa_ts=69167aa4&gaa_sig=sn7mig18LPadrQwSl70zopRzxIWhd-iGUBVS5lUE7D6lZS-f4l7FaJOwcYTLujXukFEKbMBrfD0SCOOLFvxJhw%3D%3D.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Press Release, United States Patent and Trademark Office, USPTO Welcomes New Director John A. Squires (Sept. 22, 2025), https://www.uspto.gov/about-us/news-updates/uspto-welcomes-new-director-john-squires.
[21] Ramkumar, supra note 13.
[22] Id.
[23] U.S. Const. art. I, § 8, cl. 1.
[24] De Rassenfosse & Jaffe, supra note 1, at 2.
[25] Ramkumar, supra note 13.
[26] Nat’l Cable Television Ass’n, Inc. v. United States, 415 U.S. 336, 340–41 (1974).
[27] Id.
[28] See generally, Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012) (determining that the individual mandate penalty was a valid tax, even though it was a voluntary choice for citizens to not purchase insurance and thus pay the individual mandate penalty).
[29] Rodrigo Balbontin, Taxing Patent Value Is a Patently Bad Idea, Info. Tech. & Innovation Found. (Aug. 4, 2025), https://itif.org/publications/2025/08/04/tax-on-patent-value-is-a-patently-bad-idea/.
[30] Id.
[31] Id.
[32] Sujai Shivakumar & Chris Borges, Don’t Tax Invention: The Risks of a Patent Tax, Ctr. for Strategic & Int’l Stud. (Sept. 4, 2025), https://www.csis.org/analysis/dont-tax-invention-risks-patent-tax.
[33] Balbontin, supra note 29.
[34] Id.
[35] Shivakumar & Borges, supra note 32.
[36] Id.