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america invents act, IP, Patent

The $600M Innovation Tax

The following is an open letter written by Dr. Jose Melendez, the founder and CEO of Patent Calls, Inc. He is also co-founder and CEO of Spectral MD, Inc., a company developing advanced imaging technologies to improve patient outcomes while lowering healthcare costs. Dr. Melendez holds a BS EE and MS EECS from the Massachusetts Institute of Technology and a PhD EE from Stanford University. He is inventor of 26 U.S. patents.

The $600M Innovation Tax

September 2011

Dear Friends and Fellow Citizens,

I write today about a deeply disturbing and troubling proposal about to be enacted by the United States Congress. The “America Invents Act” is a sneaky way of generating $600M in new tax “revenue” from America’s innovators and job creators. Aspiring presidential candidates need to show their leadership now and stop this job killer.

Earlier this year, the United States Senate voted 95-5 to approve legislation guaranteeing funds paid by inventors to the US Patent and Trademark Office (USPTO) would be used to pay for patent examination and related expenses (S.23 Section 20). In contrast, the House of Representatives rejected this proposal. Under the House plan, any user fees that exceed the USPTO’s allocated funding would be placed into a special account that Congress could divvy up as it sees fit. (H.R. 1249 Section 22). Coupled together with the House bill is an automatic fee increase of 15% for all who bring their inventions before the USPTO. Only empty promises govern the use of the additional funding this hike will generate, and Congress has been unwilling to commit any portion of it to the USPTO.

The architects of this plan have successfully cast the debate, and the practice itself which has already siphoned off nearly $1 B over the years, as one of “fee diversion.” However, the “fees” are paid by individuals, and the effects of “diversion” are felt by all. Inventors, small businesses and innovators of all sizes bring their inventions to the USPTO, and gladly pay their fees for a thorough and competent examination, hoping that a valid US Patent will help stake their property claim to a piece of genuine ingenuity. But when a portion of those fees are siphoned off to fund further government spending, the USPTO is left under-funded and understaffed. The situation amounts to nothing more than a tax on innovation.

Supreme Court Justice John Marshall once said that “the power to tax involves the power to destroy.” The innovation tax Congress looks to pass could ultimately destroy American ingenuity, and ultimately American jobs. The destructive power of this innovation tax should not be under-estimated. Combining the USPTO’s current budget allocation with the proposed fee hike, retired Judge Paul Michel projects the office to take in $2.7 B in FY 2012, generating a slush fund of approximately $600,000,000 for big government to feast upon. Remember, increased fee collections generally means an increased workload, and a tax of this magnitude promises only to set the USPTO back even further.

Under an over-taxed, under-staffed system, patent applications proceed not on merit, but on the ability and resources to navigate the bureaucratic waters. Large companies with ample resources plow their inventions forward, while start-ups and inventors are left to languish. Valuable property rights will go to those who can pay for them, rather than those who first discover them. Experts have noted that the House legislation will only increase the importance of lawyers to the patent system, rather than inventors.

Ultimately, inventors and start-ups aren’t interested in hand-outs, but rather a level playing field. Allowing the USPTO, a user-fee supported organization, to allocate its fees the way innovators expect would be the single easiest step toward providing such equality. I urge you, as a member of the innovation community, to contact your Senators and Congresspersons, and ask them to oppose H.R. 1249 and instead put an end to the innovation tax.


Dr. Jose Melendez



3 thoughts on “The $600M Innovation Tax

  1. Humble proposal: Tax the applications and patents which have claims which are not currently being practiced in business by the inventor. That way we can end the tax on applications and patents which have claims only currently being practiced in business by the inventor.

    Note “inventor” not “assignee”.

    Posted by 6 | September 18, 2011, 3:07 am


  1. Pingback: Austan Goolsbee — Right Problem, Wrong Solution « Gametime IP - September 7, 2011

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