Author: Neelaabh Shankar, Ph.D.
Editor: Stephanie M. Sanders
The United States Patent and Trademark Office (PTO) reduces certain government fees by 50% or 75% to patentees/applicants who qualify as “small entity” or “micro entity,” respectively. Correctly determining applicant status bears not only on fees, but also if entity status is improperly established, it will be considered as a fraud practiced or attempted on the PTO. What’s your entity status? Outlined below are the general requirements for qualifying as a “small” or “micro” entity.
Establishment of a small entity status permits payment of reduced fees and in particular, a 50% reduction in government fees. There are three classes of applicants who may be eligible for a small entity status: a person, a business, or a non-profit organization.
Person: A person is eligible for small entity status when there has not been an assignment, grant, conveyance, or license of the invention, and there is no contractual or legal obligation to do so. If the person transferred some of the rights or is under an obligation to transfer a portion of the rights to a person or a business, small entity status may still be applicable if the transferee is also entitled to small entity status.
Business: A business can claim small entity status if the number of its employees and affiliates does not exceed five hundred. Parent companies, subsidiaries, and any other affiliated companies are included in counting the number of employees and affiliates. Also, the business should not have assigned, granted, conveyed, or licensed its rights in the invention to any concern that is not a non-profit organization or a small entity.
Non-Profit: A non-profit organization is entitled to small entity status and includes: a university or an institution of higher education, an organization that falls within the scope of section 501(c)(3) of the Internal Revenue Code, a non-profit scientific or educational organization qualified under 35 U.S.C. § 201 or a foreign nonprofit organization (conditions apply).
Micro entity status applies to applications filed before, on, or after March 19, 2013. Micro entities must certify as condition for an applicant to be considered a micro entity. Certification must be in writing and must be filed prior to or at the time a fee is first paid in the micro entity amount.
There are two bases for establishing micro entity status: (1) “gross income basis,” and (2) “institution of higher education basis.” Generally, under the “gross income basis,” an applicant:
- i) should be a small entity,
- ii) must not be an inventor or co-inventor on more than four previously filed patent applications,
iii) the applicant, the inventor, and any joint inventor should not have gross income (as defined by the IRS) exceeding three times the median household income for the calendar year preceding the calendar year in which the applicable fee is being paid, and
- iv) should not have assigned, granted, or conveyed rights to a non-micro entity and should not be under any contractual or legal obligation to do so.
For the “institution of higher education basis,” an applicant:
- i) should be a small entity; and
- ii) A) applicant’s employer is an institution of higher education; or
- B) applicant assigned or is under an obligation to assign the application to such an institution of higher education.
For each basis, there are applicable definitions, e.g., “gross income,” “previously filed applications,” and “institution of higher education.”
Take Home: When claiming small entity or micro entity status, it is advisable to verify eligibility every time a fee is paid. There are circumstances where an applicant may lose small or micro entity status; for example, the number of employees/affiliates increases beyond the 500 limit, the applicant’s income increases due to capital gains or sale of an asset, or the applicant licenses the application to a company that is not a micro entity.
Link to USPTO resources for Small and Micro Entity Status here.
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