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Assertion of Small Entity or Micro Entity in Patent Applications

One of the things that a patent applicant can do for purposes of cost-saving is to check whether it can apply for a patent as a small entity. The government fees paid to the United States Patent and Trademark Office (USPTO) by a small entity are reduced by 50 percent.

37 C.F.R. § 1.27 provides three types of small entities: a person, a small business concern and a non-profit organization. A requirement applicable to all types of small entities is that it must not have conveyed or be obligated to convey an interest in the patent application to a party which cannot qualify as a small entity.

In case of a business concern, it is eligible as a small entity if it has 500 or fewer employees including those at affiliate companies. Also, domestic and foreign non-profit organizations may also qualify as small entities if the nature of their businesses falls under the categories listed in 37 C.F.R. § 1.27(a)(3)(ii) (e.g., educational, religious, charitable, scientific).

Small entity status must be asserted in each application that is filed at the USPTO and, for example, small entity status in a parent application does not lead to the same status in a child application. The assertion of the small entity status is typically made in the Application Data Sheet (ADS) which is submitted when the application is filed.

Certain small entity applicants may further qualify as a micro entity in which case their government fees are reduced by 75 percent.

Unlike the small entity status, the micro entity status must be claimed by submitting a certification of entitlement indicating one of two grounds in which micro entity status is gained.

Under the first ground, each party holding a right to the invention must be a small entity that 1) has not filed more than four regular (non-provisional) applications, 2) satisfies a gross income requirement of less than three times the median household income, i.e., Maximum Qualifying Gross Income (which can be found here), for the preceding year, and 3) has not conveyed or is not obligated to convey an interest in the patent application to a party that cannot meet the aforementioned income requirement. Regular applications that were assigned or were subject to an obligation to assign due to the applicant’s previous employment do not count toward the limit on the number of regular applications.

Under the second ground, micro entity status is available for a small entity that either i) obtains a majority of its income from an institution of higher education or ii) has conveyed or is under obligation to convey an interest in a patent application to an institution of higher education.

Once status as a small entity is established in an application (and such status is established for a micro entity), government fees applicable to a small entity can continue to be paid regardless of any change in status until issue or maintenance fees are due. Any deficiency in past payments resulting from the good-faith but erroneous assertion of entity is excused and can be fixed by making payments when these fees are due.

Also, if large entity fees were paid where small entity fees should have been paid, it is also possible to request for a refund as long as the request is made within three months of a full and timely payment.

When a patent applicant/patentee is involved in a transaction involving patents such as a licensing agreement, the transaction can lead to a loss of micro or small entity status. Under such circumstances, a patent applicant or patentee should monitor whether the correct status is asserted for the relevant patent prior to the payment of issue or maintenance fees and should make payments to resolve any deficiencies.

Payment of government fees based on a good-faith mistake about entity status does not lead to an expired patent and does not render a patent unenforceable as indicated by the Federal Circuit in DH Technology, Inc. v. Synergystex International, Inc., 154 F.3d 1333 (Fed. Cir. 1998) and Ulead Sys, Inc. v. Lex Computer & Mgt Corp., 351 F.3d 1139 (Fed. Cir. 2003). However, in order to avoid allegations of inequitable conduct during a patent dispute, best practice requires checking the entity status when issue or maintenance fees are due or when an agreement affecting a patent right has been signed and promptly fixing any incorrect entity issues.

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