Suppose you have an inventor or applicant who asks you to file a patent application in the U.S. However, the applicant has limited financial resources for filing the patent application. Should you claim small entity status or micro entity status for the applicant at the time of filing the patent application? The answer depends on whether the applicant qualifies for small entity status and, in particular, micro-entity status every time a fee is paid.
First, applicants must determine whether they qualify for small entity status. In the United States, small entity status may be established if an applicant meets certain conditions. If the applicant does not meet certain conditions, it must pay fees charged by the United States Patent and Trademark Office (USPTO) based on a large or undiscounted entity. However, if the applicant meets certain conditions, small entity status may be established that allows an applicant to receive a 60% reduction on most fees charged by the USPTO. If the applicant qualifies for small entity status, micro entity status may be available if they have limited income and have filed only a few patent applications. Micro entity status allows an applicant to an 80% reduction on most fees charged by the USPTO. To benefit from USPTO fee reduction, an applicant must establish either “small entity status” under 37 C.F.R. § 1.27 and, for further fee reduction, “micro entity status” under 37 C.F.R. § 1.29.
Under 37 C.F.R. § 1.27, to qualify for small entity status, the applicant must be a person, a small business (including affiliates and having no more than 500 employees), or a nonprofit organization. In addition, the inventor or applicant must not have assigned, granted, conveyed, or licensed the invention, or be legally obligated to do so, to anyone who does not also qualify as a small entity.
Under 37 C.F.R. § 1.29, to qualify for micro entity status, the applicant must certify that the (1) the applicant qualifies as a small entity without relying on a government use license exception; (2) neither the applicant nor the inventor nor a joint inventor has been named as the inventor or a joint inventor on more than four previously filed patent applications, other than applications filed in another country, provisional applications, or international applications for which the basic national fee was not paid; (3) neither the applicant nor the inventor nor a joint inventor, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986 (26 U.S.C. 61(a)), exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census; and (4) neither the applicant nor the inventor nor a joint inventor has assigned, granted, or conveyed, nor is 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, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986, exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census.
Not only does the above apply to the patent application filed by the applicant, the filing of a continuation, divisional, or continuation-in-part application (including a continued prosecution application under 37 C.F.R. 1.53(d)), or the filing of a reissue application, requires a determination of small entity status or entitlement to micro entity status.
Once status as a small entity has been established in an application, the applicant may pay fees as a small entity without regard to a change in status until the issue fee is due. Before submitting the issue fee, a determination of the entitlement to small entity status should be made.
Once micro entity status has been established in an application, the applicant may pay fees as a micro entity until it is changed. However, the applicant must re-evaluate whether or not the application still qualifies for micro entity status every time a fee is paid to the USPTO in that application. This may be particularly onerous and hard to determine because (1) the income limit changes every year (usually in September or October) and (2) the gross income of any applicant, inventor, or other person with an ownership interest in the patent or application will likely change from year to year.
However, an applicant should note that any attempt to fraudulently establish a small entity or micro entity status or pay fees as a small entity or micro entity shall be considered as a fraud practiced or attempted on the USPTO. Further, if an applicant pays any fee improperly, and with intent to deceive, establishing status as a small entity or micro entity, or paying fees as a small entity or micro entity, shall be considered as a fraud practiced or attempted on the USPTO. Thus, the application may be potentially rendered unenforceable as a result of fraud practiced or attempted on the USPTO.
It is the obligation of an applicant to notify the USPTO of a loss of entitlement to small entity status in the application or patent before paying, or at the time of paying, the issue fee due after the date on which status as a small entity no longer applies. Similarly, an applicant must notify the USPTO that micro entity status no longer applies each and every time a fee is paid to the USPTO. It should be appreciated that payment of a fee other than the micro entity amount is not sufficient notification that micro entity status is no longer appropriate.
For practice tips, it is recommended that, if the applicant qualifies, to claim small entity status at the time of filing because it applies without regard to a change in status until the issue fee is due. On the other hand, if micro entity status is filed at the time of filing, an applicant must re-evaluate whether or not the application still qualifies for micro entity status each and every time a fee is paid to the USPTO based on a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986 (26 U.S.C. 61(a)), exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census. Based on this, it is recommended that a practitioner avoid micro entity status unless it can be determined that the applicant qualifies every time a fee is paid. Otherwise, paying fees as a micro entity, when the applicant does not qualify, is considered fraud practiced or attempted on the USPTO. Since paying fees as a small entity only needs to be redetermined when paying the issue fee, we recommend avoiding establishing micro entity status and paying fees as a small entity because there is less chance of committing fraud on the USPTO.