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Am I entitled to Small Entity or Micro Entity fee status? 

Many USPTO fees are discounted by 50% for applicants and patentees who qualify as "Small Entities", and (through the 2011 Patent Reform Act) by 75% for "Micro Entities" . Determining whether or not you fit within the "Small Entity" or "Micro Entity" class or not can be complicated. However, it is important to do it right, because the consequences of claiming Small Entity status when you are, in fact, a Large Entity, can be draconian - complete invalidity of a patent and loss of patent rights due to "fraud on the Patent Office". 

Micro Entity Status

According to the 2011 America Invents Act (a/k/a "Patent Reform"), which became effective on September 16, 2011, implemented in the USPTO rules at 37 CFR 1.29, a "Micro Entity" is an applicant who qualifies under one of these two categories:

A. Qualification based on experience and income:

(1) Small Entity: the applicant qualifies as a "small entity", as defined in 37 CFR 1.27, (see below for an explanation of small entity status)

(2) No more than 4 previous applications:  neither the applicant nor the inventor nor any joint inventor has been named as the inventor on more than four previously filed patent applications - but the following applications do not count toward the four application limit: 

  • applications filed in another country

  • provisional applications

  • international applications for which the National Stage fee was not paid - in other words, PCT applications which did not go past the International Stage

  • applications resulting from prior employment, if the applicant has assigned, or is under an obligation by contract or law to assign, all ownership rights in the application as the result of the applicant’s previous employment. Note that this does not apply to the applicant's current employment.

(3) Income Test: neither the applicant nor the inventor nor any joint inventor had, in the calendar year preceding the calendar year in which the applicable fee is being paid, a gross income (as defined by the IRS) exceeding  three times the median household income for that preceding calendar year (as most recently reported by the Bureau of the Census). The income level which will entitle an applicant to "Micro Entity" status (criteria (3), above) is initially set to $153,051, based on the 2012 figures (the latest year available when the regulations were updated in January 2014). According to the USPTO FAQ page, for the purposes of this comparison, it is only the inventor's own income which is used in this comparison, not the total income of the household:

Regardless whether an applicant, inventor, or joint inventor filed a joint tax return rather than a separate tax return in the preceding calendar year, the “gross income” limit applies to the amount of income the person would have reported as gross income if that person filed a separate tax return, which includes, for example, properly accounting for that person’s portion of interest, dividends, and capital gains from joint bank or brokerage accounts.

and 

(4) No grant of rights to a non-Micro Entity:  has not assigned, granted, or conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the application concerned to an entity that would not meet (3), above. 

B. Qualification based on Institution of Higher Education status:

"Micro Entities" also include applicants who certify that either:

(1) Employee of Institution of Higher Education: the applicant’s employer, from which the applicant obtains the majority of the applicant’s income, is an institution of higher education as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)); or

(2) Rights owned by Institution of Higher Education: the applicant has assigned, granted, conveyed, or is under an obligation by contract or law, to assign, grant, or convey, a license or other ownership interest in the particular applications to such an institution of higher education.

Notes:

  • These grounds for Micro Entity status are dependent on the applicant's relationship to an "Institution of Higher Education" - and as used here, an Institution of Higher Education is not the same as a "not for profit", or a school generally. See the appropriate section of the US Code for the definition of "Institution of Higher Education"
  • Many colleges and universities set up Technology Transfer offices and foundations to handle their patent holdings, for example Cornell Research Foundation or Stanford Research Institute (SRI), and in the past it was standard for applications from professors or the like to be assigned to this office. Under these rules, that would make it impossible to claim the Micro Entity discount, and if the institution wants to take advantage of that, applications should be assigned directly to the institution itself. 
  • All of the prior publicity about this part of the Micro Entity rules referred to this discount being given to Institutions of Higher Education. However, the way the rules were written makes this unclear - it appears that these rules were written before the PTO reversed its previous position and announced that assignees could be applicants. So, the second part of this section refers only to the applicant having assigned rights to an Institute of Higher Education, not being such an institution. The USPTO's Micro Entity FAQ's explicitly says that Institutions of Higher Education who are also applicants cannot take the Micro Entity discount because they cannot be under an obligation to assign to themselves. This is somewhat confusing, and inconsistent with the treatment of applicants vs. inventors elsewhere under the new rules. It will probably be made clear at some time in the future, but until then if an Institution of Higher Education wants to take advantage of Micro Entity fees for an application assigned to it, the inventors should be named as applicants, as was the only possibility in the past. 

Rules and forms:

The final regulations from the USPTO also include the provision that the party claiming Micro Entity status under this section must also qualify as a "Small Entity" (see below). This is intended to prevent Large Entities from qualifying for "Micro Entity" fees by granting some rights to an institution of higher learning. 

The "Micro Entity" 75% discount applies to fees for filing, searching, examining, issuing, appealing, and maintaining patent applications and patents. See our USPTO Patent Fees page for a complete list of fees and discounts. 

The USPTO published final rules for administering Micro Entity status on December 19, 2012. The rules were published in the Federal Register at vol 77 page 75019, and went into effect on March 19, 2013. 

The USPTO has certification forms which would need to be filed once in any application to give the applicant "Micro Entity" status. There are separate forms for qualification under Experience and Income status (SB15A) and under Institute of Higher Education status (SB15B). The certification of micro entity status forms may only be signed by an authorized party as set forth in 37 CFR 1.33(b)- an officer of an assignee corporation or organization is not authorized to sign a certification of micro entity status form. This means that the only parties who may sign a certification of micro entity status form are:

  • A registered patent practitioner, meaning a registered attorney or agent who is either of record or acting in a representative capacity under 37 CFR 1.34;
  • An inventor who is named as the sole inventor and identified as the applicant; or
  • All of the joint inventors who are identified as the applicant. If qualified for micro entity status, joint inventor applicants should sign separate copies of the relevant micro entity certification form(s).

While the certification form only needs to be filed once, the applicant's status needs to be reviewed each time a fee is paid to make sure that the applicant is still a "Micro Entity" - the status is tied to a comparison of the applicant's income and the income limit published by the PTO for the year in which the fee is paid, or that the majority of the applicant's income comes from an Institute of Higher Education, and that the application wasn't assigned or licensed to a non-Micro Entity, and that may have changed since the form was filed. For example, any of the following would result in a loss of Micro Entity status:

  • The applicant's income increased over the published limit for the year, because they had a large capital gain from sale of an asset.

  • The applicant is employed by an Institute of Higher Education, but this year in addition to being a professor at a college, they took a summer job and taught at a ski area during the winter so that their income from their outside job was more than they earned at the Institute. 

  • The applicant gave a license to a company which wasn't a Micro Entity. 


Small Entity Status

Assuming you are entitled to it, you must make an assertion of your Small Entity status when you file the application. You do this either by checking the "Applicant claims small entity status" box on the transmittal form, or by paying the small entity fee exactly. 

This is the last time you get to claim small entity status just by paying the right fee, though - if your status changes before you have to pay the issue fee (or one of the maintenance fees after issue) you must file a written assertion that you are now a Large Entity when you pay the fee. Merely paying the Large Entity fee will not correct your status. Similarly, if you filed your application as a Large Entity, and at the time of paying an issue or maintenance fee you are entitled to Small Entity status, you must file a written assertion of your new status. 

Once you've established your Small Entity status when you file the application, you can continue to pay small entity fees until you (a) file a continuing application (continuation, division, CIP), or (b) file a reissue application, or (c) pay the issue fee, or (d) pay any maintenance fee which is due after the patent issues. Before you take any of these actions, you need to make a new determination of your eligibility for small entity treatment. This is set forth in the Patent Rules at 37 CFR 1.27(f) and (g):

(f) Assertion requires a determination of entitlement to pay small entity fees. Prior to submitting an assertion of entitlement to small entity status in an application, including a related, continuing, or reissue application, a determination of such entitlement should be made pursuant to the requirements of paragraph (a) of this section. It should be determined that all parties holding rights in the invention qualify for small entity status. ...

(g)

(1) New determination of entitlement to small entity status is needed when issue and maintenance fees are due. Once status as a small entity has been established in an application or patent, fees as a small entity may thereafter be paid in that application or patent without regard to a change in status until the issue fee is due or any maintenance fee is due.

(2) Notification of loss of entitlement to small entity status is required when issue and maintenance fees are due. Notification of a loss of entitlement to small entity status must be filed in the application or patent prior to paying, or at the time of paying, the earliest of the issue fee or any maintenance fee due after the date on which status as a small entity as defined in paragraph (a) of this section is no longer appropriate. The notification that small entity status is no longer appropriate must be signed by a party identified in § 1.33(b). Payment of a fee in other than the small entity amount is not sufficient notification that small entity status is no longer appropriate.

Note that the "Small Entity" or "Large Entity" status applies to the owner of the patent rights - not the inventor or inventors, who would always be individuals under US law. If the owner has granted patent rights to an entity which is not a Small Entity, then the owner cannot claim Small Entity status. 

As stated in 35 U.S.C. 41(h)(1) and 37 CFR 1.27(a), an owner of a patent or patent application is entitled to Small Entity Status if and only if:

  • The owner is a "person" (i.e. individual or individuals) who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention. An inventor or other individual who has transferred some rights in the invention to one or more parties, or is under an obligation to transfer some rights in the invention to one or more parties, can also qualify for small entity status if all the parties who have had rights in the invention transferred to them also qualify for small entity status either as a person, small business concern, or nonprofit organization under this section.; or
  • The owner is a "small business concern", meaning a business which meets the size standards set forth in 13 CFR 121.801 through 121.805 to be eligible for reduced patent fees.  

Those standards (13 CFR 121.802) say that a concern eligible for reduced patent fees is one:

(a) Whose number of employees, including affiliates, does not exceed 500 persons; and

(b) Which has not assigned, granted, conveyed, or licensed (and is under no obligation to do so) any rights in the invention to any person who made it and could not be classified as an independent inventor, or to any concern which would not qualify as a non-profit organization or a small business concern under this section.

The regulations of the SBA define how you count an "employee", what is an "affiliate", and over what period that counting is done. If you really want to find out exactly, you will need to review all of the regulations and your employment records very carefully, and account for all of the "employees" who worked for your business or its "affiliates" at any time during the previous 12 months. If your business concern (counting its parent company, subsidiary companies and any affiliated companies)  was anywhere near 500 employees at any point, you should probably pay Large Entity fees, just to be safe. 

Questions related to standards for a small business concern may be directed to: Small Business Administration, Size Standards Staff, 409 Third Street, SW., Washington, DC 20416;  
or

  • The owner is a nonprofit organization, meaning (37 CFR 1.27(a)(3)) any nonprofit organization that:

(i) Has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention to any person, concern, or organization which would not qualify as a person, small business concern, or a nonprofit organization; and

(ii) Is either:

(A) A university or other institution of higher education located in any country;

(B) An organization of the type described in section 501(c)(3) of the Internal Revenue Code of 19 86 (26 U.S.C. 501(c)(3)) and exempt from taxation under section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a));

(C) Any nonprofit scientific or educational organization qualified under a nonprofit organization statute of a state of this country (35 U.S.C. 201 (i)); or

(D) Any nonprofit organization located in a foreign country which would qualify as a nonprofit organization under paragraphs (a)(3)(ii)(B) of this section or (a)(3)(ii)(C) of this section if it were located in this country.

What about rights held by Government Agencies? 

Normally, transfer of any rights to an entity which does not qualify for Small Entity status means that Large Entity fees must be paid. Government agencies are not, themselves, Small Entities. The MPEP says so explicitly in section 509.02 - "Federal government agencies do not qualify as nonprofit organizations for paying reduced fees under the rules ... 37 CFR 1.27(a)(3) is not intended to include within the definition of a nonprofit organization government organizations of any kind located in any country". 

There are certain exceptions to the general rule where some licenses to government agencies by those who themselves qualify as Small Entities will not preclude Small Entity treatment. Those exceptions deal with compulsory licenses granted the government under Executive Order 10096 (inventions by government employees) and 35 USC 202(c) (inventions by private contractors who make inventions while receiving Federal funding, where a license is required as a condition of financing). 

If a Federal agency (or any other government body)  is an owner of a patent or application (even a co-owner), rather than a licensee, the application/patent would NOT qualify for Small Entity fees.

For details on this, see MPEP 509.02, particularly section VI - RIGHTS HELD BY GOVERNMENT ORGANIZATIONS - http://www.uspto.gov/web/offices/pac/mpep/documents/0500_509_02.htm


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