A Tax on Innovation? The Trump–Lutnick Proposal and Its Implications for Patent Holders

In a surprising policy shift aimed at deficit reduction, the Trump Administration is reportedly considering a significant structural change to the United States patent system: replacing, or more likely supplementing, the current maintenance fee schedule with a value-based annual tax on issued patents. While the initiative is being framed as a deficit-closing measure, its long-term implications may be felt more profoundly in the innovation economy, where the cost and predictability of intellectual property rights are foundational. The clearest winners in the short term may not be inventors or the public but rather the U.S. Treasury, tax attorneys, and valuation professionals.

• The Current USPTO Fee System: Tiered and Predictable

Under current law, the U.S. Patent and Trademark Office (USPTO) collects maintenance fees at three specific points after a patent is granted: at 3.5, 7.5, and 11.5 years. The schedule is relatively predictable and is designed to encourage patent holders to retain only those patents that continue to offer economic value.

The cost of these maintenance fees depends on the applicant’s status.

Undiscounted (Large Entity): The full maintenance fee schedule applies, with the final payment at 11.5 years totaling $8,280.

Small Entity: A 50 percent discount applies for independent inventors, small businesses, and nonprofit organizations, reducing the final fee to $4,140.

Micro Entity: An even deeper 75 percent discount is granted to qualifying individuals or small groups with limited patent application history and income, bringing the final maintenance fee down to $2,070.

This tiered structure has historically incentivized participation by smaller players while maintaining revenue from large corporate applicants. Importantly, the system enables patent holders to make informed decisions about portfolio strategy and budgeting. Nearly half of all issued patents lapse before the final fee is due, signaling that many are voluntarily abandoned when their perceived commercial value declines.

• The Trump–Lutnick Proposal: A Value-Based Annual Tax

The proposed overhaul would institute a recurring tax ranging from 1 percent to 5 percent of patent value charged annually for the life of a patent. This would be a sharp departure from the one-time maintenance fees at set intervals. Critically, early reporting indicates that the value-based tax may supplement rather than replace the existing maintenance fee regime.

This model introduces several new complexities. First, valuation becomes paramount. Patent holders would need to determine a defensible value for each asset, likely triggering increased demand for patent appraisals and third-party experts. Second, the predictability of patent cost structures would erode, which could complicate budget forecasting, licensing negotiations, and investment analysis, particularly in IP-heavy sectors such as biotechnology, pharmaceuticals, and software.

• Winners and Losers: Accountants, Tax Attorneys, and the Federal Government

While the proposal has already rattled biotech markets, it may represent a boon for certain professional services. Tax attorneys, IP counsel, accountants, and valuation firms will likely see increased demand as clients attempt to navigate a new compliance regime. If the proposal advances, annual reporting, audit defense, and tax planning will become central to patent portfolio management.

From the government’s perspective, the appeal is straightforward. The plan offers a recurring revenue stream derived from intangible assets that are notoriously difficult to capture under traditional taxation frameworks. And by tying fees to value, the government aims to extract proportionally more from entities that derive the greatest benefit from the patent system.

• Strategic Considerations for Patent Owners

For in-house counsel, IP portfolio managers, and investors, the shift, if enacted, will require rethinking the traditional calculus.

Abandonment strategies may accelerate. If the tax burdens marginal patents, some rights holders may choose to let them lapse earlier.

Valuation will become operationally critical. Companies will need repeatable methodologies to substantiate patent values for tax purposes.

Licensing and structuring will evolve. License terms, royalty rates, and asset transfers may be renegotiated to reflect tax exposure.

There is also a risk of disparate impact. While micro and small entities may receive exemptions or lower rates, high-value portfolios held by large entities could bear the brunt of this policy shift.

• Policy Implications and International Context

This approach would make the U.S. a global outlier. Most patent systems use fixed maintenance fees, often with incentives for small entities but without recurring value-based taxation. The proposal risks eroding U.S. competitiveness in IP-heavy sectors and could disincentivize participation in the U.S. patent system for foreign and domestic applicants alike.

Moreover, this could lead to forum shopping, where inventors prioritize jurisdictions with more stable, predictable IP costs, and shift innovation abroad over the long term.

• Conclusion: A Tax Policy Masquerading as Patent Reform

While the Trump–Lutnick patent tax proposal may appear to be a technocratic reform, it represents a significant reorientation of U.S. innovation policy. It is not merely an adjustment to fee structures but a redefinition of how we finance and regulate patent rights. The potential for unintended consequences is high, particularly if the value-based tax undermines the incentives it purports to preserve. If these changes go into effect, clients should conduct internal audits of patent value, revisiting portfolio maintenance strategies, and consulting tax and legal professionals. Click HERE to learn more about Derek Fahey, Esq., the author of this article.