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California’s position as IP king threatened by state taxes and China

California is home to Hollywood, Silicon Valley and several major music labels. So, it comes as no surprise that the state is king of intellectual property creation in America. Forbes estimates that 27.3% of all patents granted in the United Sates are given to individuals and corporations based in the Golden State. This is even more spectacular when you consider that California accounts for just 12.1% of America’s population.

Over the years, however, high taxes have threatened to dethrone California. Businesses and people alike want to reduce their tax liabilities, which has encouraged many people to take their business out of state. This move first started after the Cold War era when California’s aerospace jobs were sent to Texas and Florida, neither of which have individual income taxes. Texas also has no corporate income tax.

Ironically, despite being a high-tax and regulation-heavy state, California’s real threat comes not from neighboring states with more favorable tax laws, but foreign countries, specifically China. Forbes estimates that California loses billions of dollars to Chinese infringements at the state, corporate and individual level.

Perhaps for this reason, Forbes provides the controversial advice of not filing a patent in order to protect intellectual property. The logic behind the advice is that a patent provides the recipe for how a device works, which provides the opportunity for other companies to simply reuse the recipe with minor changes to avoid infringement.

However, in a business environment that increasingly requires working with Chinese partners and vendors, not filing a patent may ultimately do more harm than good. Without a patent, an inventor has no means of pursuing patent infringement, injunctions, and related damages.

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