Entity Fees: Which One Am I?
Various government fees must be paid when filing, prosecuting, and maintaining US patent applications to avoid abandonment. The due dates vary whereas the amounts due are most often relative to your fee level at the USPTO. The standard fee level is “large entity.” Most large, sophisticated companies are large entities. To incentivize innovation, the USPTO reduces most (but not all) government fees by fifty percent (50%) for a “small entity” and by seventy-five percent (75%) for a “micro entity” - provided that a valid entity status claim is made in due time.
What follows is a summary required qualifications for making valid small or micro entity status claims at the USPTO followed by answers to a common set of questions about entity status claims at the USPTO. As a golden rule on this subject: (i) be honest when filing, (ii) maintain honesty during prosecution, and (iii) always pay more when in doubt because prosecution costs pennies (e.g., $) whereas litigating invalid patents costs pounds (e.g., $$$$).
Qualification as a Small Entity under 37 CFR § 1.27
As a Person
Any inventor or other individual (e.g., an individual to whom an inventor has transferred some rights in the invention) 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.
As a Small Business Concern
Any business whose total number of employees (including the employees of all its affiliates) does not exceed 500 persons and 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 that would not qualify for small entity status as a Person, Small Business Concern, or Nonprofit Organization.
How is the Total Number of Employees Calculated?
The total number of employees includes the employees of the business and its affiliated concerns.
Concerns are “affiliated” if one controls (or has the power to control) the other, or if a third-party control(s) (or has or haves the power to control) both. The number of employees of a concern may be established by taking the average number of employees of the concern and all its affiliates (including those employed on a part-time or temporary basis) over the previous fiscal year.
What About Licenses with the Government?
A license to a federal agency resulting from a funding agreement with that agency under Section 202(c)(4) of the Patent Act does not constitute a license as meant here, so that small entity status will not be lost in case of a compulsory license of the Federal Government which is based upon the funding of the development of the invention.
As a Nonprofit Organization
According to the USPTO, a Nonprofit Organization is one of the following:
a university or other institution of higher education located in any country;
an organization of the type described in Section 501(c)(3) of the U.S. Internal Revenue Code of 1954 (26 U.S.C. 510(c)(3)) and exempt from taxation under Section 501(a) of the Internal Revenue Code (26 U.S.C. 501(a));
any non-profit scientific or educational organization qualified under a nonprofit organization statute of a state of the United States; or
any nonprofit organization located in a foreign country which would qualify as a Nonprofit Organization under the foregoing if such organization was located in the United States.
Government organizations, agencies, or facilities – domestic or foreign – typically do not qualify as Nonprofit Organizations. A government organization that also falls into any of the above-noted categories may qualify as a Nonprofit Organization; provided that it 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 for small entity status as a Person, Small Business Concern, or Nonprofit Organization.
Qualification as a Micro Entity under 37 CFR § 1.29
An applicant may claim micro entity status if the applicant certifies it meets both of the following:
The Applicant Qualifies as a Small Entity (as defined above); and
Either:
(a) the applicant’s employer from which the applicant obtains the majority of his or her income is an institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 – 20 USC 1001(a)); or
(b) the applicant has assigned (or is obligated to assign) rights in the invention to such an institution of higher education.
An applicant alternatively may claim micro entity status by certifying that it meets each of the following criteria:
The applicant qualifies as a small entity.
Neither the applicant nor any inventor has been named as an inventor on more than four previously filed U.S. patent applications (except those applications assigned by an inventor to a previous employer are not counted).
Neither the applicant nor any inventor had, in the calendar year preceding the calendar year in wich the applicable fee is paid, a gross income exceeding three times the median household income in the U.S. (as reported at http://www.uspto.gov/patents/law/micro_entity.jsp).
Neither the applicant nor any inventor has assigned, granted, or conveyed (and is not under obligation to do so) 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 paid, had a gross income exceeding three times the median household income in the U.S.
Common Questions and Issues Regarding Entity Status
What If You Make a Good Faith Error?
You must notify the office of your good faith error and pay the difference or claim a refund.
A good faith error in entity classification may be excused if you paid fees at what you thought was the correct fee level and later discovered that your initial claim to was erroneous. The correction process depends upon whether you originally filed as large entity, small entity, or micro entity.
Additional government fees may be due if you erroneously claim small or micro entity status at one stage of prosecution (e.g., at the time of filing) and later determine that you were not entitled to make that claim. Conversely, a refund may be due if originally filed as a large entity but were entitled to claim small or micro entity status. The requirements for correcting these errors are set forth in 37 CFR § 1.28(c) for a small entity and 37 CFR § 1.29(k) for a micro entity, both of which require you to list all the fees you paid at the erroneous fee level, identify the correct fee level and what fees should have been paid at that level, and provide a corrective amount that is owed or to be refunded. Additional documentation may be required.
Conclusion: this can be fixed provided that take action to make the appropriate corrections.
What If Your Eligibility Changes During Prosecution?
You continue paying fees according to your current entity status claim until you pay an issue fee or a maintenance fee, at which time corrections must made.
You are legally required to verify your entity status at certain times during prosecution, such as when filing the application, paying the issue fee, and paying each maintenance fee. 37 CFR § 1.27 (g). Accordingly, if you become aware of an error (as above) or simply a change in entity status triggered by the normal course of business after filing your application, then you should notify the USPTO as soon as reasonable. If the change happens during the normal course of business, then you may not be required to notify the USPTO until when paying the issue fee. Otherwise, if the change happens during the normal course of business at a time between paying the issue fee and paying the first maintenance fee, or in between two maintenance fees, then you may only need to pay for the increased or lowered fee for the future fees, meaning that there is no need to make up the difference from what was previously paid.
There are many reasons to notify the USPTO sooner than later. First, if your application requires multiple rounds of prosecution requiring multiple “Request for Continued Examination” or “RCE” filings, then the amount due may be considerable (e.g., into the thousands), suggesting that you act sooner than later. Second, as described in detail below, it is imperative that you avoid any possible allegations of “fraud practiced or attempted on the Office,” which is another reason to act sooner than later, especially if you become aware of the error shortly after filing the application and/or there are adverse public facts (e.g., via press release).
Conclusion: notify the USPTO when you become aware of facts requiring a change of entity status.
What If You Make an “Intentional” Error To Save Money?
Any attempt to claim or establish small or micro status by acting fraudulently, improperly, or with intention to deceive will be considered fraud practiced or attempted on the office by the Applicant. 37 CFR § 1.27(h)(1), (h)(2); 37 CFR § 1.27(j). There are many reasons not to do this.
First, it should be assumed that any patents granted subsequent to any fraud practiced or attempted on the office will eventually be invalidated during litigation as being improperly granted under 37 CFR § 1.56 (A), which states the “[N]o patent will be granted on an application in connection with which fraud on the Office was practiced or attempted or the duty of disclosure was violated through bad faith or intentional misconduct.” These issues are taken seriously. Accordingly, if any facts are available to prove that you knew or should have known about an incorrect entity status, and were informed about the issue, then you should expect an experienced patent litigator to challenge validity on that basis when you sue his client for patent infringement, such as by asking you pointed questions relative to whether you acted fraudulently, improperly, or with intention to deceive at any point during prosecution.
Second, it could invalidate any related patents and prevent you from obtaining future patents. For example, if the first patent in a large patent family was granted subsequent to fraud practiced or attempted on the office, then the first patent and potentially every other patent in the large family may be invalidated under 37 CFR § 1.56 (A), potentially putting huge sums of money at risk.
And third, if you hired a registered US patent attorney to handle your matter and induced them to act fraudulently, improperly, or with intention to deceive on your behalf, then they may be subject to allegations of inequitable conduct requiring them to prove whether or not they were aware of your correct entity status when claiming small or micro entity status. These are serious allegations that may negatively effect their practice even if disproved. PS: I will drop you as a client long before this happens.
Conclusion: there are no good reasons for taking these risks.
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Thank You for Reading!
Matthew Leaper & Associates can help you resolve these and related issues in a professional, efficient manner. Mr. Leaper and his team of international associates know how to effectively communicate with the USPTO, have extensive knowledge of its requirements and timeframes, and are well versed in all phases of the patent process, making us well suited to help realize your ambitions.
