Taxing your intellectual property

I was reminded of the software patent snarl again when I found a link to a Hacker News comment about a new idea. Basically, it suggested that every patent have a value attached by its owner. The patent is then taxed on that value, licence agreements are a set percentage of that value, and if licences are refused, the patent can be bought for that value. I want to walk through the implications here to see if it could be workable.

The rules

  • Every patent has a value specified as part of the application, which is made public along with the rest of the application
  • The owner has until November 15th of a given year to specify a new value for the next calendar year
  • A tax is levied against the owner of a patent at 5% of the patent value
  • Anyone wanting a licence to use said patent can get one for the rest of the patent for 50% of the value multiplied by the years left (paid to the owner)
  • The owner can put up the patent for sale at the current value at any time
  • The owner can donate the patent to public domain at any time

Implications, issues, and problems

Minimizing value

A company will naturally want to minimize the value of the patent to avoid the tax burden. This will be countered naturally because a low value means the company's competitors can licence the patent for very cheap.

Maximising value

A company looking to lock out competitors from getting a licence will jack up the value, which should be allowed, as the company would be committing to use the patent since it will cost them taxes every year.

Licence terms

With mantatory licences at a fixed price, the real question will be the terms of said licence. Given that it would have to be legislated, I think there would be issues trying to get the right balance.

For example, if Company A has a patent on a type of image recognition, they would set the value high enough to keep all their competitors from using it in a profitable way (and they'd pay the tax to set it so high). If I was allowed to buy a single licence and setup a web service that does image recognition, then all the competitors could purchase recognition as a service from me, and I could amortize the cost of the licence over 50 different companies/customers.

If on the other hand the licence was per unit, is that something that's even possible to specify in enough precision in a generic law, or can the definition of "per unit" only really be defined in a specific contract negotiation?

Patent trolls

Ideally, the combination of mandatory licences and a tax on patent holding would destroy the current troll business model. If the trolls set a low price, then everyone can get a licence to avoid being sued. If they set a high price, then they'll be bleeding income tax every ear. The big win is that there would be a single licence fees for the whole year, meaning they can't charge smaller companies a lower fee to get income, then use that income as legal backing to charge higher fees to others.

This wouldn't actually stop the trolling of smaller companies, as the licence fee in those cases would be targetted small enough that the resulting patent value would incur almost no tax. Larger companies could purchase licences at the same time for bargain prices, but that's not the worst of the drag on our economy caused by trolls (in my opinion).


Patent trolls acting against a broad base of small companies wouldn't be hurt much by this system, because in those cases, the trolls are looking for licence fees anyways, so they're pricing them to be just barely affordable. Cases like 1-800-CONTACTS buying a patent to starve a competitor would be somewhat solved. CONTACTS would at least have to shell out a bunch of money every year (for taxes) in order to keep the value high enough that Ditto (the competitor) couldn't afford a licence.

Overall, it looks like the system, despite being novel and interesting, won't address the worst problems.