From Boring to Brilliant: How Reimagining USPTO Fee Structure Is Central to U.S. Economic Security

Howard Lutnick has been universally criticized by industry for his reported proposal to tax patent values and revenue share with universities. Lutnick is absolutely right about the problem. Here’s why.

The patent system was designed for individual inventors. Thomas Edison, the Wright brothers—these were lone entrepreneurs securing temporary monopoly rights in exchange for disclosing their inventions to the public. But sometime after World War II, corporations and universities completed a quiet takeover of the patent office. Today’s patent landscape is dominated by patent oligarchs: systematic corporate R&D programs filing thousands of applications annually, not individuals pursuing personal innovation.

Yet the U.S. Patent and Trademark Office (USPTO) still operates as if nothing changed. Individual examination. Individual fees. Individual maintenance. Individual enforcement. This architectural mismatch—19th century governance applied to 21st century corporate patent strategies—creates three simultaneous crises that converge at the worst possible moment for American competitiveness.

What Commerce Secretary Lutnick recognized, and what his critics miss, is that this is not a new excise tax. Instead, it can be a self-sustaining driver of the U.S. economy. Reform will enable the agency to be what recently confirmed USPTO Director Squires described as “the Department of Commerce’s Central Bank of Innovation. Every piece of IP we put into circulation is a potential job, a new business, a competitive advantage, or an investible asset.” It’s about appropriate cost recovery for corporate infrastructure that generates billions. It’s about acknowledging that the patent system has become corporate infrastructure, yet we govern and fund it as if individual inventors still dominate. That contradiction is undermining American innovation, enabling strategic competitors, and blinding corporate boards to their own assets.

From Individual Inventors to Corporate Patent Programs: The Evolution Nobody Acknowledged

The majority of patents granted in 2024 were filed not by individuals pursuing personal innovation, but by corporations pursuing strategic market positioning, competitive moats, and, too often, defensive patent thickets designed to impede competitors rather than advance innovation.

This architectural mismatch creates three devastating failures.

First: Corporate Governance Blindness

Ask any Fortune 500 board member to identify which patent families generate, say, 20% of their company’s revenue. The silence is instructive. Not because directors are incompetent, but because the patent system provides no visibility at the family level. Individual patents are atomized, tracked separately, evaluated independently. Boards cannot govern what they cannot measure at material scale. They cannot explain why their companies make money when the explanation requires understanding patent family dependencies that corporate systems don’t track.

Jonathan Gray, President of Blackstone, the world’s largest alternative asset manager, recently told the Financial Times that his firm’s investment decisions increasingly turn on how well a company leverages their brand, their data, and their AI capabilities. As USPTO Director John Squires recently highlighted, these are the intangible assets that patents protect. Yet most corporate boards lack the infrastructure to assess patent family materiality with the same rigor they apply to physical assets. A patent family representing $200 million in revenue for a billion-dollar company should be line-item number one on quarterly board reviews. Instead, it’s invisible.

Second: Filing Incentive Distortion and the Flooding Crisis

When individual patents cost $5-$15,000 to maintain over 20 years but can cost $5 million to litigate, the system incentivizes volume over value. Maintain for thousands. Enforce for millions. This disparity makes patents simultaneously too cheap to file and too expensive to defend. Companies file defensively, speculatively, strategically. They flood the system with patents that will never be commercialized, never generate revenue, never advance innovation. They’re legal positioning, not economic assets.  Corporations should be funding their patent filings up front, proportionate to their organizational size and materiality of their inventions, rather than the existing decades old, volume-based obfuscation of what genuine invention is.

Both foreign actors and domestic corporations exploit this gap. The system wasn’t designed for what it’s being asked to do: distinguish between patents filed for commercialization and patents filed for strategic obstruction. Individual-patent architecture treats all filers identically, regardless of filing patterns, commercialization intent, or corporate versus individual status.

Third: Exploitation Vulnerability

Foreign actors recognize the arbitrage opportunity. File in jurisdictions with minimal examination standards, obtain quick allowances, then use bilateral programs like the Patent Prosecution Highway (PPH) to exploit much diminished U.S. examination trusting foreign office “approval.” The result: patents granted in months that would take years under normal U.S. examination, with significantly less scrutiny.

The China Exploitation: How Strategic Competitors Game Individual-Patent Architecture

The governance lag isn’t just an administrative inefficiency. It’s a strategic vulnerability that sophisticated actors are exploiting systematically.

The Subsidy-Driven Patent Flood

Between 2010 and 2021, Chinese government subsidies incentivized patent filing volume: 2,500 yuan per domestic grant, up to 1 million yuan (~$140,000) annually per applicant (almost 10 times the U.S. maintenance cost at the time). The result was predictable: a patent flood in America. From 0.2% of U.S. Patent filings in 2000, to 7.2% by 2022, A further 49,740 Chinese-origin filings in 2023 alone, many of whom benefit from the USPTO small entity discounts for applications filed by CCP-directed (and funded) universities and institutions. China now files 1.8 million patent applications annually around the world. That’s more than the United States, European Patent Office, Japan, and South Korea combined.

But as economists now recognize, volume creates its own strategic weapon through what China calls “involution,” a cycle of competition so fierce it destroys profits, creates overcapacity, and establishes dominance through manufactured scale. The Wall Street Journal recently documented how China’s “involution” strategy has created “a race to the bottom that threatens to devolve into widespread stagnation” domestically while flooding global markets with subsidized goods. The impact is so significant that the Chinese government is tackling the problem head on themselves. This is another example of the law of unintended consequences.

The same involution logic applies to patents: flood the field with volume, create patent thickets that impede competitors’ freedom to operate, establish IP monopolies in critical technologies. It’s the equivalent of China’s “ringfencing” of rare earths as recently described so well by Rana Foroohar in the Financial Times. It becomes evident that larger, front-end fees need to be included for corporate funded filers.  This is to disincentivize flooding and to incentivize sound patent filings with a focus on patent families as commercial drivers for corporations and provide the USPTO the resources to catch up to other patent filing jurisdictions. Genuine individual patent filers would be excluded from this, closing a 70-plus year loophole.  Furthermore, it will enable the USPTO to acquire the funding to accelerate resolving its backlog of over 750,000 unexamined applications that are being bypassed by Patent Prosecution Highway (PPH) applicants and insufficiently scrutinized by under resourced USPTO staff and woefully out of date IT infrastructure.

Gaming the Patent Prosecution Highway

Closing these types of loopholes is a must.  When Chinese applicants obtain quick allowances from CNIPA (China’s patent office), they leverage the PPH to accelerate U.S. examination. Research shows Chinese PPH applications receive significantly less scrutiny than U.S.-origin applications: 38% shorter examination actions, 39% fewer prior art references cited, statistically significant higher first-action allowance rates.

This isn’t speculation. Senator Patrick Leahy and former USPTO Director David Kappos documented this pattern in October 2021 congressional testimony. Kappos warned that foreign entities (mainly China) pay filing costs but abandon maintenance fees, “taking a subsidy from the U.S. Government” and “potentially leaving the U.S. Patent and Trademark Office with tremendous funding deficits.” He testified that each foreign-filed patent “provides the owner with the right to exclude all others from practicing the invention for up to 20 years,” meaning “330 million Americans” could lose “access to products and services” based on patents granted with minimal scrutiny.

Lutnick, during his January 2025 Senate confirmation hearing, in response to China IP questions from Senators Blackburn, Young and Budd, confirmed the sum of Leahy’s fears:

To Budd: “I think the Chinese use our patent office against us. They use our laws, they have huge applications, and those applications are growing like fire.”

To Blackburn: “I am a patent holder, I’ve used the patent office over many years, it could be much more productive, but the Chinese are abusing us…. They don’t give us protection in China and they come in and use our patent office against us. This is going to end, we are going to study that, and we are going to work on ending that and making sure our American inventors get taken care of quickly and effectively.”

The Deeper Problem: System Design, Not Just Abuse

Lutnick’s frustration is understandable, but the deeper problem is this: China figured out the inconsistency in our system before we did. We call it abuse, but we’re just slow closing the loophole. They’re doing exactly what we allow them to do. The strategic logic is straightforward: use America’s own legal protections to subsidize Chinese industrial policy.

And they expect to gain these American benefits without providing reciprocity in their own domestic markets. This exploitation succeeds because the USPTO cannot distinguish between individual inventors filing legitimate innovations and corporate programs filing strategic volume. Individual-patent architecture treats all applicants identically.

The Evidence Mounts

The in-depth CATL IPO investigation in 2025 revealed systematic financial misrepresentations around high patent value filings that cut the company’s targeted $7.7 billion raise nearly in half and triggered ongoing Congressional investigations. In a striking example of this asymmetry, Chinese battery competitors CATL and CALB chose U.S. courts to resolve their patent disputes: a tacit admission that even Chinese companies trust American IP enforcement over their domestic system. The pattern is clear and documented across multiple cases.

The Corporate Materiality Gap: Why Boards Can’t See Their Own Assets

The disconnect between patent governance and corporate reality creates a peculiar blindness: companies invest billions in R&D, generate thousands of patents, yet struggle to articulate which intellectual property actually drives business value.

This isn’t corporate negligence. It’s a failure of the infrastructure.

The Family-Level Blindness

Corporate strategy operates at the level of product lines, market segments, and revenue streams. Patent families, groups of related patents protecting a coherent technology, map to these business realities. A pharmaceutical company’s blockbuster drug is protected by a patent family covering the compound, manufacturing process, formulation, and therapeutic applications. A technology company’s platform is protected by families covering architecture, algorithms, user interfaces, and data structures.

But USPTO governance, corporate IP management systems, and financial reporting all operate at the individual patent level. Boards review aggregate patent counts, not family-level materiality. Strategy discussions reference “our IP portfolio” without identifying which specific families are material to which specific revenue streams.

The result? Patents are treated as legal overhead rather than strategic assets. This is the bumper sticker for the entire problem. Companies optimized the patent system around what we thought were the historic rationales for praising individual inventors. But that optimization, counterintuitively, harms our country and leads to the stagnation that technology leaders like Peter Thiel warn against.

Patent families representing a material share of corporate revenue remain invisible to boards. Strategic planning proceeds without IP considerations. Acquisition due diligence misses critical dependencies. Competitors file around unprotected adjacent claims because companies don’t recognize family-level vulnerabilities.  Our accounting systems, and thereby our tax systems, are 140 years out of date to recognize the commercial and economic dependency we have on patents, especially patent families.

The Incoherence of Current Governance

Individual-patent governance made sense when individual inventors filed individual patents for individual inventions. It’s incoherent for corporate R&D programs generating systematic patent families as strategic business infrastructure. Corporations should be funding their own patent protections at a level commensurate with the commercial materiality those protections enable, not treating $5-15,000 maintenance fees as sufficient support for assets that generate hundreds of millions and often billions in revenue.

The Historic Opportunity: 2026 as the Inflection Point

Three forcing functions converge in 2026 to create conditions for fundamental reform, and Commerce Secretary Lutnick has the authority, motivation and incentive to act.

First: USPTO Fee Authority Expires

USPTO fee-setting authority expires September 16, 2026. The default assumption: extend authority another seven years, change nothing, is available. But so is reimagining fee structure to incentivize commercialization, reward domestic retention, and align costs with commercial materiality rather than administrative overhead.

Second: America’s 250th Anniversary

The 250th anniversary of American independence provides symbolic framing for systemic renewal. In President George Washington’s First State of the Union address on January 8, 1790, using just 1,096 words total, he devoted 77 words to patents, calling for “effectual encouragement as well to the introduction of new and useful inventions from abroad as to the exertions of skill and genius in producing them at home.” Patents weren’t administrative overhead to the Founders. They were economic security infrastructure, placed in Article I, Section 8 of the Constitution before the Bill of Rights.

Third: An Administration Committed to Reshoring

An administration explicitly committed to reshoring manufacturing and re-industrializing America creates political will. To paraphrase Marc Andreessen’s recently backed calls for massive investment in American industrial capacity: Just give Elon Musk $10 trillion—he’ll rebuild America. He’ll re-industrialize America.

Treasury Secretary Scott Bessent benefits directly from patent fee reform: deficit reduction through appropriate cost recovery, economic stimulus through eliminating the ordinary income tax burden on middle Americans (funded by patent monetization taxes), and validation of the 2017 Tax Cuts and Jobs Act’s GILTI provisions that already incentivized domestic patent retention, continuing the curbing of offshoring American innovation capital and tax avoidance schemes.

Use It or Lose It

The “use it or lose it” principle should govern monopoly rights: file patents in America if you intend to monetize in America. Pay fees commensurate with commercial materiality. The Constitution makes patent protections optional but mandates they must provide exclusion. If we’re not funding examination quality sufficient to provide meaningful exclusion, we’re violating the constitutional bargain. Director Squires’ “born strong” patents cannot be created with the USPTO’s antiquated IT systems. IT modernization will take a massive influx of investment, something comparable to the $60 billion provided to modernize the IRS’s IT system. That’d be the equivalent of $184,000 per patent issued in 2024. Inventor filing fees cannot raise that sort of money.

Stagnation Is the Alternative

Peter Thiel has spent years warning that America faces a choice between accelerating innovation or accepting irreversible decline. His “Antichrist” framework, that failure to accelerate progress in AI, medical research, and advanced manufacturing will lead to societal stagnation, directly implicates patent systems that can’t distinguish valuable innovation from defensive filing.

When corporations flood the system because filing is cheap and enforcement is expensive, we get exactly the involution that’s destroying Chinese industrial profitability: competition without progress, volume without value. As Charlie Munger taught us: “show me the incentive, I’ll show you the outcome.”

The Window for Action

Secretary Lutnick can act now, at the height of this administration’s power, to implement fee restructuring that serves reshoring, re-industrialization, and deficit reduction simultaneously. Unlike Congress, which has proven incapable of action, the executive branch has existing authority through USPTO fee-setting powers and, as recent executive orders demonstrate, broad discretion to reprogram resources for national security purposes.

We reiterate, this is a cross-partisan necessity.

The Path Forward: Lutnick and Bessent Can End 70 Years of Mismatch

The conventional path forward is boring: extend fee authority, increase fees incrementally, maintain individual-patent architecture. Industry will complain about being treated like villains, raising costs without improving services. Consider this instead.

Recognize that patent governance, corporate materiality, and economic security are the same problem requiring the same solution. Evolution from individual-patent architecture to family-based governance. Fee structures that incentivize domestic commercialization. Alignment between legal protections and economic contribution.

This reform offends everybody equally, which is precisely why it’s cross-partisan. It offends those who benefit from status quo complexity: litigation funders, patent trolls, foreign actors gaming PPH, corporations hiding behind defensive filings they’ll never commercialize. And it offends those who choose inaction rather than confronting the reality that we’re subsidizing foreign adversaries while our American corporate boards can’t identify their most valuable assets.

President Obama confronted Silicon Valley with this truth in his 2016 White House Frontiers Conference. Obama’s remarks lay bare that the platform enabling disruption was itself publicly constructed. GPS, MRI, neural interfaces, speech recognition, the Internet itself—all emerged from government research that private actors exploited but rarely originated. His critique applies equally here: the patent system that protects trillion-dollar valuations was built for a world that no longer exists, and, failing to modernize it threatens the conditions that make future breakthroughs possible.

Secretary Lutnick and Secretary Bessent can resolve what previous administrations couldn’t see: that 70 years of governance drift created a subsidy system where other countries get stronger IP protections than American companies pay American taxes for. That corporate boards can’t govern assets they can’t measure. Those $5-15,000 maintenance costs and $5 million litigation costs incentivize exactly the wrong behaviors.

Inaction isn’t neutrality. It’s acceptance that the patent system will continue subsidizing competitors, powering adversaries, blinding corporate boards, and failing to serve the innovation it was designed to protect. The window closes quickly. Either governance evolves to match economic reality, or irrelevance accelerates. This is no way to run our Central Bank of Innovation.

This isn’t about patent policy. It’s about whether America will build the infrastructure for the next 250 years of innovation or continue managing decline with 19th-century tools.

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