Comments on Setting Patent Fees Based on Their Value

The Trump administration is floating the idea of tying patent fees to the value of the patent. Details are sketchy right now, and who knows if this is a serious proposal or a one-news-cycle blip. In any case, some comments I sent to a reporter:

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There would be some value to cleaning the patent database of worthless and low-value patents. So long as those patents remain in the database, they clutter it up, which raises the diligence costs and launch risks for true innovators. Traditionally, the imposition of patent maintenance fees was designed to declutter the patent database by making it too costly for low-value or worthless patents to remain. Revising the existing maintenance fee scheme might be worth considering.

Imposing fees based on a patent’s value raises at least two important questions. First, how does this fee fit into the overall taxation scheme? Is the fee just a tax, and if so, how will it interact with the existing set of taxes, and how would a change in taxes encourage or discourage socially valuable activity?

Second, imposing fees calculated based on a patent’s valuation makes no sense because the valuation is difficult and costly to estimate. Patent valuation is an art, not a science. As a result, a value-based fee will almost certainly drive patentholders to “sandbag” the PTO by understating the estimated valuation.

This inevitable valuation sandbagging risk reminds me of Pres. Trump’s frequent and well-documented personal strategy of valuing an asset low when he reported its value to the government and valuing the same asset high when seeking third-party financing. Do we really want to encourage such unethical and duplicitous gamesmanship?

Potential investigations into valuation sandbagging gives the government another discretionary enforcement tool that could be wielded to punish disfavored entities and exert leverage over them. We should not assume that any investigations into patent valuation calculations would be done in good faith to improve our country. Objectively calculated fees, like the existing maintenance fee scheme, avoid the risks of discretionary enforcement abuse.