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Micro Entities: Who Qualifies and What Does It Mean?

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11.17.2011 | Legal Update

For many years, the United States Patent and Trademark Office (PTO) has provided, and still does provide, a 50% fee discount to “small entity” patent applicants. The Leahy-Smith America Invents Act (AIA) introduces an additional applicant classification: the “micro entity.” At least under the current, not-yet formally adopted definitions in the AIA, micro entity applicants are entitled to a 75% reduction in fees associated with filing, searching, examining, issuing, appealing, and maintaining a patent application. However, even though applicants already have the ability to claim micro entity status, because the PTO has not yet set fee schedules reflecting this new status, the benefits of this new status are not anticipated to be seen until 2013.

Micro entities are defined in a new section of title 35 added by the AIA—35 U.S.C. § 123. The new section requires applicants seeking micro entity status to make four certifications. Alternatively, applicants associated with an institution of higher education can also claim micro entity status.

First, an applicant must certify that it qualifies as a small entity under the existing requirements of 35 U.S.C. § 41. This means the applicant must be an individual, a small business having less than 500 employees, or a non-profit organization. It is important to note that if the applicant has assigned or licensed rights to the invention (or is under an obligation to do so) to another party that does not meet these requirements, small entity status, and thus micro entity status, cannot be claimed.

Second, an applicant must certify that he or she has not been named as an inventor in more than four previously-filed United States patent applications. Neither provisional applications nor Patent Cooperation Treaty (PCT) applications that do not subsequently enter the United States in a national stage filing qualify as a previously-filed United States patent application. Foreign applications also have no bearing on this patent application count.

Third, the applicant must certify that he or she did not have a gross income in the calendar year preceding the year the application was filed that was greater than three times the median household income. For the past few years, the median income has been around $50,000, so the gross income limit is approximately $150,000.

Finally, the applicant must certify that he or she has not assigned or conveyed (or is under an obligation to do so) a license or ownership interest in the application to another party whose gross income in the preceding calendar year exceeded the three-times-median-income limit discussed above. Importantly, for inventors looking to leave current jobs to start new companies, applications that have been assigned (or applications that are obligated to be assigned) as a result of previous employment do not count against the four previously filed patent applications for an applicant.

For each of these four certifications, if the application includes multiple applicants, each applicant must be able to make each of the four certifications for the applicants to be able to assert micro entity status.

The current, not-yet formally adopted definitions in the AIA also allows for applicants associated with an institution of higher education to take advantage of the micro entity fee discounts. In order to do so, applicants must certify that their employer (from whom they receive the majority of their income) is an institution of higher education. Applicants must also certify that they have assigned (or were under an obligation to assign at the time of the invention) a license or other ownership interest in the application to the institution of higher education.The four certifications discussed above are inapplicable to a micro entity status claim related to being associated with an institution of higher education.

Applicants associated with universities and other educational institutions may wonder which institutions qualify under the AIA. The AIA defines institutions of higher education by specific reference to the Higher Education Act of 1965. That statute defines institutions of higher education as public or non-profit accredited institutions that admit post-secondary students for programs lasting 2 years or longer. Importantly, the Higher Education Act of 1965 defines an institution of higher education as being located in the United States (including its territories), which is in contrast to the small entity regulations that include institutions located in any country as non-profits eligible for small entity status. As a result, foreign universities will not be able to take advantage of the micro entity fee discounts, at least under the current, not-yet formally adopted definitions in the AIA.

The new micro entity status can provide significant savings to applicants who, in many cases, can use the saved capital to help build businesses around their innovations. Applicants must be weary, however, of actions that may invalidate their micro entity status. For example, assigning or licensing rights to a party that does not qualify as a micro entity can revoke the status, and require payment of higher fees to the PTO. The penalties for failing to appropriately update an applicant’s status with the PTO and pay any required fees can be severe. These actions can be regarded as inequitable conduct (a fraud on the PTO) that can result in the loss of the application or patent.

The provisions of the AIA creating the micro entity status went into effect upon President Obama’s signature on September 16, 2011.  However, applicants cannot presently take advantage of the micro entity fee discount. This is because a significant amount of administrative rulemaking is still required at the PTO to implement the new provision and other provisions of the AIA. In fact, the AIA gives the PTO Director authority to impose additional income limits, annual filing limits, or other limits on who may qualify as a micro entity, meaning the micro entity status may have additional limitations upon implementation. In a press release dated September 21, 2011, the PTO confirmed that the micro entity fee discount will not be implemented until a later date. The PTO has more recently stated that implementation of the discount will likely take place in 12 to 18 months, putting the implementation date sometime in 2013.

Applicants looking to take advantage of the new micro entity status should monitor the PTO website for announcements regarding the fee structure, and should further consult a patent attorney to ensure they appropriately claim the new status.

This advisory was prepared by Nutter’s Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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