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Sunday, November 09, 2008

The Patent Value Tax

Like all brilliant ideas, this one is infuriatingly obvious in hindsight -- a straightforward application of a hardcore bid-em-off-the-land version of the land value tax. Some quick web searching reveals no prior art; did you make this up just now?

I would consider modifying the bid-em-off-the-property provision in the same way that I would modify it for land (and maybe orbits but not spectrum). People who can't pay their tax can let it accumulate (with interest) as a lien against the eventual sale or transfer of the property, and the lien is capped at the market value of the property. However, market value of patents is harder to assess, and the escalating patent value tax rate would create an incentive to just let the tax accumulate and then abandon the patent when the rate is too high for anyone to want to bid for it. So I might worry that an undercapitalized inventor will not be able to defend a patent if he and a predatory bidder understand its value more than the market does (or else the inventor could get a loan from the understanding market). However again, I'm confident that markets are good enough at valuing patents that this wouldn't be a big problem.

So I don't yet see any problem with this idea. It could be applied to copyrights too, to the extent that one even believes in copyright.

Dan Sullivan wrote at dfc_talk:

Enter the patent value tax. The holder of a patent would be required to self-assess its value, with the stipulation that anyone could purchase the patent at that value. The purchaser would have to honor contracts into which the previous patent holder had entered, to the extent that he could not increase the royalty charge or impose other restrictions.

The contracts themselves would have to be public contracts. That is, if one producer is allowed to apply a patented invention to a particular type of product at a particular royalty rate, then all producers would be allowed to produce the same product at the same royalty rate.

For the first year a patent is granted, the tax rate could well be zero. It would then gradually increase until, at the year of expiration, it consumes nearly the entire amount of the patent's self-assessed value. Naturally, the value of the patent would decrease as the tax rate increases and the expiration date approaches.

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