The administration’s proposed fee based on patent value is not only bad policy; it is unconstitutional.
The Trump administration’s proposed fee based on patent value is not only bad policy; it is unconstitutional.
A ccording to a recent report in the Wall Street Journal, the Commerce Department is weighing a plan to charge patent owners a new annual “fee” of 1 to 5 percent of a patent’s value for the purpose of raising revenue. Trump administration officials suggest this patent fee system could generate tens of billions of dollars. But whatever the political appeal, the proposal is not only misguided policy; it is unconstitutional at its core.
Patents are legally codified as property. Section 261 of the Patent Act states unequivocally: “patents shall have the attributes of personal property.” That makes any valuation‐based levy functionally a federal ad valorem property tax on personal property.
Under Article I, Section 9 of the Constitution, direct taxes on property must be apportioned among the states by population. Courts have reaffirmed this principle since the early days of the republic. In Hylton v. United States (1796), the Supreme Court acknowledged that while the carriage tax at issue was not direct, taxes on real property clearly are, and thus must comply with the apportionment rule.
Subsequent legal interpretation has consistently held that capitation, real property, and personal property taxes constitute direct taxes and must be apportioned. Only income taxes (post–16th Amendment) may escape that requirement.
Last year, the Supreme Court in Moore v. United States confronted whether a one‑time tax on corporate earnings — arguably representing unrealized property wealth — was a property tax or an income tax. The Court’s decision upheld the tax as a tax on income. It again reaffirmed that non‑income direct taxes remain subject to apportionment, while holding that an income-derived tax, even on unrealized gains, need not be apportioned under the 16th Amendment.
Thus, a patent-value “fee” operates as a direct tax on personal property. Without apportionment, it squarely violates the Constitution.
Constitutional concerns aside, the proposal would be unworkable. How would the government measure the value of 3.5 million active patents every year? As the Commerce Department itself has admitted in litigation, assigning value to intellectual property is notoriously speculative. Some patents become the foundation of billion-dollar industries; most never generate a dime. Creating a bureaucratic “mark-to-market” system for intangible rights invites endless disputes, inflated assessments, and costly litigation. It would mire innovators in valuation battles rather than encouraging them to commercialize technologies.
A broad coalition of taxpayer and innovation groups warned Commerce Secretary Howard Lutnick that taxing patent value would undermine the One Big Beautiful Bill Act’s R&D expensing provisions, drive venture capital offshore, and encourage innovators to forgo patenting altogether in favor of trade secrets. A patent tax would penalize precisely the behaviors — risk-taking, investment, disclosure — that the patent system exists to encourage.
This is basic economics: Taxing something yields less of it. If you tax innovation, you will get less innovation. At a time when America faces stiff technological competition from China and others, deliberately weakening our patent system is self-defeating.
The proposal is especially troubling when seen through the lens of Austrian economics. Friedrich Hayek taught that only market prices, generated by dispersed knowledge and entrepreneurial risk-taking, can allocate resources efficiently. Government-assigned “values” for patents sever that vital link. They replace the market’s discovery process with bureaucratic guesswork, distorting price signals and encouraging malinvestment.
Secure property rights and the ability to accumulate capital are the foundations of growth, as Murray Rothbard famously emphasized. Patents allow inventors to defer consumption, risk capital on R&D, and hope to recoup costs through exclusive rights. A recurring tax on those rights shortens recovery time horizons, increases effective R&D costs, and reduces willingness to pursue breakthrough technologies. The perverse result is that by taxing the very assets that generate growth, the government undermines the long-term revenues it seeks to raise.
Internationally, the United States would be an outlier. No other major patent office imposes a value-based levy. U.S. firms currently enjoy a $74 billion surplus in global licensing revenues. Turning patents into a taxable revenue stream could prompt retaliation abroad, weakening U.S. competitiveness in precisely the industries — AI, semiconductors, biotechnology — where leadership is most contested.
If the Trump administration seeks revenue, straightforward reforms are available. But a patent wealth tax is no panacea. It is a constitutional violation, an administrative nightmare, and an economic own goal. More fundamentally, it betrays the Founders’ vision of patents as private property rights designed to encourage disclosure and invention, not as revenue streams for the Treasury.
The lesson is simple: Respect the Constitution. Trust markets, not bureaucrats, to set values. Do not punish invention with a property tax masquerading as a fee. America’s innovation system — indeed, our future prosperity — depends on it.