By Sujai Shivakumar and Chris Borges
The Commerce Department is reportedly considering a novel revenue-raising idea to address the national debt: a “patent tax.” Under this proposal, patent holders would be required to pay the federal government between 1 and 5 percent of their patents’ assessed value each year.
While the idea of taxing patents is being sold as a creative way to help pay down the nation’s $37 trillion debt, this approach is not only impractical, but detrimental to U.S. economic and national security. A patent tax would introduce enormous administrative challenges, distort incentives for both patent holders and the U.S. Patent and Trademark Office (USPTO), and, most importantly, risk undermining U.S. innovation at a time when national competitiveness and security depend on it. Further, it’s unclear if the tax will increase revenue or simply be offset once administrative expenses and damage to innovation are taken into account.
Secure and predictable intellectual property (IP) rights, such as patents, are the bedrock of the nation’s innovation system. By making the United States an anomaly in the global IP system and discouraging investment in research and development (R&D), a patent tax would weaken the very innovation engine that sustains both economic growth and national security.
How the U.S. Patent System Is Financed Today
Reviewing, granting, and maintaining patents is not a costless process for the United States, but the U.S. system has long relied on user fees rather than taxes to fund operations. Applicants and patent holders pay a series of flat-rate fees to file applications, obtain patent protection, and maintain patents over time. For utility patents—the most common type—these include maintenance fees due periodically throughout the patent’s 20-year life. If maintenance fees are not paid, the patent owner forfeits their rights and the patent falls into the public domain. Altogether, the costs typically amount to several thousand dollars, sometimes reaching $10,000 or higher over the life of a patent.
These fees fund the operations of the USPTO, which is a fully self-financed agency. Each year, the USPTO collects over $4 billion in fees, which sustains its staff of patent examiners, information technology systems, and other resources essential to reviewing applications. Unlike most federal agencies, the USPTO does not rely on general tax revenues.
The proposed patent tax would break with this tradition. Unlike user fees, which are tied to services provided, a tax on patent value would be levied not to fund the USPTO, but to generate revenue for broader government purposes. This shift would raise a number of issues and risk altering the incentives at the heart of the patent system.
The Problems with a Patent Tax
The proposed patent tax raises a host of challenges. Beyond the basic question of whether it would generate revenue, the plan would create serious administrative burdens, conflict with international obligations, distort incentives, and ultimately undermine innovation.
Patent Valuation Is Unworkable
The most immediate challenge to a patent tax is valuation. How will the government determine the value of a patent to know how much to tax it? Many patents cover early-stage ideas or technologies whose commercial potential is unknown at the time they are granted. Some patents go on to undergird billion-dollar industries, where businesses already pay taxes on profits generated by the inventions that these patents protect. But most patents never generate any revenue at all. Indeed, because many inventions never mature to successful, marketable products, many patents have negative commercial value, costing their holders thousands of dollars in application and legal fees with no market return.
The USPTO has no experience or infrastructure for valuing patents, nor does any government agency. Creating a bureaucratic system to assign annual dollar values to the 3.5 million currently active patents in the United States would be both expensive and prone to error. Patent owners might contest valuations they view as inflated, leading to a flood of disputes and litigation. The tax may not only mire the system in uncertainty, but also raise the costs of operating it.
Disruptive International Implications
The United States is party to several global agreements that set norms for how countries treat IP rights. No major patent office in the world levies a value-based tax on patents. Implementing one would make the United States a glaring outlier in the global IP system and could potentially conflict with treaty obligations.
Such a step would invite international backlash at a time when the global IP system benefits U.S. companies and innovators. U.S. firms—from biotechnology to semiconductors—rely on predictable international patent protections to operate across borders and generate revenue from international IP licensing agreements. Indeed, the United States leads the world in global IP revenue flows. In 2022, the nation earned $127 billion from foreign licensees and buyers, while paying only $53 billion to use foreign IP—a surplus of roughly $74 billion. If the United States undermines this framework by turning patents into a taxable revenue stream, trading partners could respond with retaliatory measures or weaken their commitments to U.S. innovators abroad, undermining the United States’ strength in the global patent system.
Burden on Startups and Small Businesses
Resource-limited startups and small R&D firms would face significant hardship under the proposed system. These smaller firms often hold patents as their primary assets, long before they generate significant revenue. Forcing them to pay taxes on the uncertain “paper value” of those patents could drain scarce resources from research, development, and scaling. The inevitable result: fewer new entrants, less experimentation, and a dampening of the entrepreneurial dynamism that underpins U.S. economic and technological leadership. Instead of empowering small entities, patents would burden them.
Distorted Incentives and Double Taxation
A patent tax would create perverse incentives for both patent holders and the USPTO itself. If patent values become a source of government revenue, the USPTO could face subtle or overt pressure to grant more patents—or assign higher values to them—to maximize collections. This could undermine confidence in the integrity of the patent system. At the same time, the tax may encourage many patent owners to abandon their patents rather than pay, reducing the very revenues the tax is supposed to raise.
For inventors, the tax would also amount to double taxation. Any income earned from commercializing patented inventions is already taxed under the corporate and individual tax codes. Adding a separate tax on the underlying patent value would mean taxing the same innovation twice: once for holding the patent, and again for profiting from it.
Undermining the Core Purpose of Patents
The ultimate problem with a patent tax is that it undercuts the very purpose of the patent system: to promote innovation. The logic of patents is simple—if you want more investment in risky, uncertain research and development (R&D), you must give innovators a chance to earn a profit if they succeed. Adding a tax on patent value reduces that incentive, making it less attractive to invest in breakthrough ideas.
For the U.S. government, this creates a paradox. By taxing patents, Washington may gain short-term revenue, but at the cost of long-term innovation and economic growth. Less innovation means fewer new industries, weaker global competitiveness, and ultimately lower tax revenues in the future. In a geopolitical era defined by technological competition, particularly with China, the United States can ill afford to erode its own innovation ecosystem.
Don’t Tax Innovation
The idea of a “patent tax” may be motivated by a necessary search for new revenue, but it would come at an extraordinary cost. The proposal is administratively unworkable, internationally destabilizing, and economically harmful. Most importantly, it would undermine the very innovation that patents exist to encourage.
Historically, the U.S. IP system has been a competitive asset. Entrepreneurs and investors around the world trust that, in the United States, their rights will be secure, disputes will be fairly adjudicated, and rules will not suddenly change. This confidence helps channel billions of dollars into the United States and into risky R&D, much of which fails but some of which produces life-altering breakthroughs.
A patent tax would break that trust. It would introduce uncertainty about costs, invite valuation disputes, and disincentivize risk-taking in precisely the industries—artificial intelligence, advanced communications, biotechnology—where U.S. leadership is most contested. It would amount to taxing the ingredients of U.S. innovation at a time when the nation can least afford it.
Sujai Shivakumar is the director and senior fellow of Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Chris Borges is an associate fellow with the Economics Program and Scholl Chair in International Business at CSIS.
This piece was originally published on September 4th with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, D.C.
