Implementing the New Micro Entity Status at the U.S. Patent Office

As part of new rules introduced by the Leahy-Smith America Invents Act (AIA), a new section that defines a “micro entity” was added to Title 35 of the United States Code. As a subset of small entity status, micro entity status grants an applicant a seventy-five percent reduction of fees associated with filing, searching, examining, issuing, appealing and maintaining patent applications and patents. The new section sets forth procedures pertaining to claiming micro entity status, paying fees as a micro entity, notifying the United States Patent and Trademark Office (USPTO) of loss of micro entity status, and correcting erroneously paid fees.

An applicant has two options for qualifying as a micro entity, which are provided in 35 U.S.C. §§ 123(a) and 123(d) (and implemented in 37 C.F.R. § 1.29). Each will be discussed in turn below.

As a first option, an applicant can qualify as a micro entity under 35 U.SC. § 123(a) by establishing a limited income and limited experience with patent application filings.[1] Qualifying under the first option involves four requirements. First, the applicant must certify that the “applicant qualifies as a small entity as defined in 37 C.F.R. § 1.27.”[2] Second, the applicant must certify that “[n]either 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.”[3] Third, the applicant must certify that neither the applicant nor the inventor nor a joint inventor had a gross income in the preceding calendar year “exceeding three times the median household income for that preceding calendar year.”[4]  And fourth, the applicant must certify that neither the applicant nor the inventor nor a joint inventor had “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” to an entity that had a gross income exceeding three times the median household income in the preceding calendar year.[5] So what exactly do these requirements mean? The USPTO has offered a few clarifications in its guidelines for the implementation of the AIA.[6]

The types of applications that count towards the application filing limit include: “(i) U.S. non-provisional applications (e.g., utility, design, continuation, and divisional applications), (ii) U.S. reissue applications, and (iii) U.S. national stage applications,” whether pending, patented, or abandoned.[7] However, the application filing limit does not include: “(i) foreign applications; (ii) international (PCT) applications for which the basic U.S. national stage filing fee was not paid; and (iii) provisional applications.”[8]  Notably, under the micro entity definition, there is an exception for when an applicant is not considered to be named on a previously filed application. This exception arises if he/she has assigned or is under an obligation to assign all ownership rights in the application as the result of the applicant’s previous employment.[9] Thus, for instance, an inventor who has assigned all ownership rights to more than four previous applications to one or more other parties may file further applications, using micro entity status, as an individual inventor.[10]

The gross income limit is determined based on the median household income as reported by the Bureau of the Census, and the USPTO will post the maximum qualifying gross income for the preceding calendar year on its website.[11] For 2012, the maximum qualifying gross income, based on the 2011 median household income, is $150,162.[12]  The gross income limit applies to each applicant’s and inventor’s income separately, such that the combined gross income of multiple applicants or inventors need not be below the income level.[13] The USPTO interprets the gross income limit of an inventor filing a joint tax return as “applying to the amount of income the person would have reported as gross income if that person were filing a separate tax return (which includes properly accounting for that person’s portion of interest, dividends, and capital gains from joint bank or brokerage accounts).”[14] Further, if an applicant’s, inventor’s, or joint inventor’s gross income is received in a foreign currency for a given calendar year, “the average currency exchange rate, as reported by the Internal Revenue Service, during that calendar year” must be used to determine whether the applicant meets the gross income requirement.[15]

The second option for establishing micro entity status is set forth in 35 U.S.C. § 123(d). Under this provision, an applicant qualifying as a small entity may establish micro entity status by certifying that: (1) “the applicant’s employer, from which the applicant obtains the majority of the applicant’s income, is an institution of higher education as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)),” or (2) “the applicant has assigned, granted, conveyed, or is under an obligation by contract or law, to assign, grant, or convey, a license or other ownership interest in the particular application to such an institution of higher education.”[16] However, gross income is not relevant under 35 U.S.C. § 123(d), unless the inventor is employed by an institution of higher education and obtains the majority of his or her income from sources other than that institution. For instance, under the second option an inventor can have an income that is five times the median U.S. household income as long as the inventor is named as applicant and has conveyed his or her rights in the application to an institute of higher education. To qualify as an “institution of higher education” an educational institution, among some of the requirements, must be an accredited public or non‑profit institution located in the United States or its territories, and must provide a post‑secondary educational program that awards a bachelor’s degree or provides not less than a 2-year program that is acceptable for full credit toward such a degree.[17]

Although the micro entity provisions are based on the small entity status provisions, an important difference between the two arises when the university or institute of higher education is identified as the applicant in a patent application. The requirements of 35 U.S.C. § 123(d) would not be met by an institution of higher education that is itself an assignee-applicant because the institute cannot certify that it (1) is its own employer, or (2) has conveyed rights to the application to itself. Therefore, naming an institute of higher education as the applicant, rather than the inventor as applicant, would prevent eligibility for the micro entity discount under 35 U.S.C. § 123(d).[18] Furthermore, an institute of higher education, as defined under 35 U.S.C. § 123(d), currently does not include non-profit corporations, research foundations, technology transfer organizations, or Federal Government research laboratories.[19]

Regardless of the option used, to establish micro entity status and pay fees as a micro entity, an applicant must certify in writing (using form PTO/SB/15A or 15B) that they are entitled to micro entity status. This must be done before paying any fees in the micro entity amount, and a fee may be paid in the micro entity amount only if the applicant/patentee is entitled to micro entity status on the date the fee is paid.[20] Certification can be filed along with the application, and each application (e.g., continuations or divisional applications) must be certified separately.[21] Once an applicant is certified for micro entity status for an application, re-certification is not required for each fee paid in that application, however the applicant should evaluate their entitlement to micro entity status each time a fee payment is made.[22] Unlike small entity status, a notice of loss of micro entity status must be made in writing, and payment of a small or large entity fee will not serve as notification of loss of micro entity status.[23] The USPTO explains that by requiring a written notification of loss of micro entity status, it intends to prevent increased costs for a micro entity resulting from an inadvertent payment of a small entity or large entity fee.[24]  However, in the case of good faith erroneous payment of fees in the micro entity amount, a fee deficiency payment will be treated as notification of loss of entitlement to micro entity status.[25] Unlike payment of fees as a small entity, the USPTO will not refund previously-paid fees upon later establishment of micro entity status.[26]

A seventy-five percent reduction in fees may tempt some inventors to align with an institute of higher education or company (i.e., a dummy corporation) in order to claim benefit of micro entity status under 1.29(d) or (a). Even if this strategy meets the letter of the rules, section 1.29(j) states that “[a]ny attempt to fraudulently establish status as a micro entity, or pay fees as a micro entity, shall be considered as a fraud practiced or attempted on the Office.”[27] This language is similar to that of small entities and the USPTO notes that in the case of small entity status, an inventor considering such a strategy should consider that “the Federal Circuit has noted that an applicant would be ‘foolish’ to claim small entity status if there is the slightest doubt about an applicant’s claim to small entity.”[28] The USPTO has stated it intends to monitor the percentage of applicants claiming micro entity under 35 U.S.C. § 123(d) and may propose additional limits if there is an indication of fraudulent activities.[29] While no case law currently exists for fraud or inequitable conduct relating to micro entity status, it is possible a patent could be held unenforceable as a result of fraudulent certification of micro entity status.

Given the current fee schedule, establishing micro entity status could save an applicant filing a utility application as much as $600 or more from filing through issuance as compared to paying fees as a small entity, and at least $3,750 from filing through 3^rd stage maintenance under the final fee schedule that is scheduled to go into effect January 1, 2014. As the savings to independent inventors – and the collective savings to higher educational institutions – are significant, it will be interesting to see how the micro entity provisions affect the number of applications filed under each provision. On the other hand, the strict requirements for establishing and maintaining micro entity status may be deemed so oppressive by some inventors that they might prefer to continue filing under the simpler, safer small entity status.

© 2013 McDonnell Boehnen Hulbert & Berghoff LLP

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