Micro Entity: Everything You Need to Know
Micro entity status helps smaller businesses and individual inventors file for patents without paying as many fees. 10 min read
2. Basic Micro Entity Requirements
3. Qualifying for Micro Entity Status
4. Small Entity Status
5. Consequences of Micro Entity Status
6. Micro Entities Regime
7. Frequently Asked Questions
Updated August 03, 2020:
Micro Entity Status: What Is It?
Micro entity status helps smaller businesses and individual inventors file for patents without paying as many fees. People have been allowed to apply for micro entity status since 2012 when the America Invents Act was passed.
When you apply for a patent, you can register as a large entity, small entity, or micro entity. Large entities are the standard. They must pay the full United States Patent and Trade Office (USPTO) fee schedule. If you register as a small entity, your fees can be lowered by as much as 50 percent. However, you must qualify under the Small Business Administration's (SBA) rules as a small business. This includes having fewer than 500 employees.
The smallest businesses and inventors can qualify for micro entity status. If you qualify for micro entity status, you can have your fees reduced by as much as 75 percent. For instance, the filing fee for a provisional patent application (PPA) is $260. With a 50 percent discount, small entities would only pay $130. Micro entities would pay $65.
Basic Micro Entity Requirements
Qualifying as a small entity can be very complicated. There are several ways you could be disqualified. If, for instance, the invention you are trying to patent will be assigned or licensed to a larger company, you would not be eligible for small entity status. To get small entity status, you must fit into one of four categories:
- A small business with fewer than 500 employees
- An individual
- A university
- A nonprofit with 501(c)(3) status
If you fall into one of these categories, you can apply for micro entity status.
The basic procedure for claiming micro entity status includes these requirements:
- A certification of your micro entity status. This certification can be signed by the assignee, a patent attorney, or all of the applicants. File certifications before paying any micro entity rate fees. Fees will not be refunded if you fail to seek micro entity status.
- You must file a loss of entitlement notification if you are no longer eligible for micro entity status. Paying a different fee rate will not count as notification.
- Certifications should only be filed once with each application. Every related application, including divisional, continuing, continuation-in-part, and reissue application, needs its own certification.
Qualifying for Micro Entity Status
The America Invents Act (AIA) of 2011 lays the rules for qualifying as a micro entity. The AIA has been in effect since Sept. 16, 2011. It offers two paths for micro entity status:
- Experience and Income-Based Qualification
- Institution of Higher Education Qualification
Most people choose to apply under the experience/income qualification. If you choose this path, you must meet four requirements:
- You qualify as a small entity
- No person included in your application has been named as an inventor on more than four other patents. Applications filed in another country, provisional applications, international applications where the fee has not been paid, and employment-based applications where you must assign rights to your employer do not count toward this limit.
- You must pass an income test. In the year before the year where you are paying fees, your gross income cannot have been three times the median household income. The most that a person can make in a year and still qualify for micro entity status is currently $169,548.
- You are not required to grant rights to a large entity that is not eligible for micro entity status.
To receive micro entity status based on the higher education qualification, you only need to fulfill two requirements.
- You are employed by an institution of higher education.
- You have granted or are obligated to grant license or ownership of your application to an institution of higher education.
The USPTO rules for institutions of higher education are somewhat unclear. For instance, some universities once had offices whose sole purpose was to file patent applications on employees' behalves. This would make them ineligible for micro entity status. Additionally, because institutions of higher education cannot assign ownership to themselves, they cannot comply with the second requirement for micro entity status.
Whichever qualification forms you choose, you will need to file certification forms. Only authorized parties can sign these forms. These parties include:
- A patent practitioner who is representing your interests.
- The listed applicant who is also named as the sole inventor.
- All joint inventors listed on the application. Each inventor should sign his or her own certification form.
Certification forms should only be submitted once. However, your status will be reviewed every time you have to pay USPTO fees. It's possible you will lose your status during the review. You could lose your status if:
- Your income has increased beyond the published limit.
- You are employed by an institution of higher education but you took a second job that provided you a larger income than you earned at your educational institution.
- You provided a license to a company that isn't a micro entity.
Micro entity status only applies to a single patent. Your status will need to be determined for every patent you file. This makes it possible to get micro entity status for one patent and be denied it on another. Anytime you refile an application, you will also need a new certification of micro entity status. You can only pay the reduced micro entity fees after submitting a certification.
If you try to falsely claim that you're a micro entity or make false claims on your application, it's considered fraud. However, if you applied for micro entity status in good faith and it is later determined you weren't eligible, you will not face punishment. If it's found you have been paying the wrong fees, you will need to submit a report to the USPTO that includes the following information:
- Each type of fee that was paid incorrectly and the current amount that should have been paid.
- The amount that the micro entity actually paid and when.
- The rest of the money that the micro entity owes for each fee.
- The sum of the remainder owed.
You must pay the remaining fees from when you were incorrectly given micro entity status. The new amount owed will be based on the current fee schedule. Paying any of these fees will result in a loss of your micro entity status.
Small Entity Status
The main requirement for earning micro entity status is that the applicant must also qualify as a small entity. This prevents large entities from gaining micro entity status by being tied to an institution of higher education. On your micro entity application, you will claim small entity status. This is the only time you get to claim this status by paying a fee. In the future, you will have to file that you are now a large entity.
After establishing your status, you can keep paying small entity fees until:
- A continuing application is filed
- A reissue application is filed
- You've paid the issue fee
- You've paid any maintenance fee required after your patent has been issued
Before you can do this, you must receive a determination of your small entity eligibility. These rules are laid out in 37 CFR 1.27(f) and (g). Section f states that you need a new determination when you claim small entity status. Section g says that a determination is required when maintenance fees are due and that you must be notified of a change in your status at this time.
Small entity status only applies to the patent rights owner. Inventors are always treated as individuals under U.S. law. Granting ownership rights to an entity that is not a small entity makes you ineligible for small entity status. To earn a small entity status, you must fulfill one of three requirements:
- You are a legal person who has not given anyone else rights to your invention. If you have given rights to your invention, you can still earn small entity status so long as the person granted rights also qualifies.
- You are a small business concern. This means the size of your business complies with 13 CFR 121.801-805 standards. To comply, your business must have fewer than 500 employees and you must not have given rights to an independent inventor or an entity not eligible for small entity status. Your business should also be independently owned and operated and have annual profits of less than $2 million.
- The owner qualifies as a nonprofit organization. This means they are an institution of higher education, have obtained 501(c)(3) status, are a nonprofit scientific or educational organization, or are a nonprofit in a foreign country.
Generally, government agencies will never be considered small entities. However, there are some circumstances where granting a license to a government that will not prevent you from earning small entity status. For example, if you are an independent contractor receiving federal funding, you might still be able to get a small entity status.
Wholly owned subsidiaries of nonprofits or universities are considered part of these organizations, making them eligible for small entity status.
A small business's affiliation with a larger business might prevent it from getting small entity status. While the SBA Size Determination Board does consider things like ownership and management, it largely considers affiliation to be a matter of control. If a large business has some control over a small business's operations, they are affiliated. This means the small business cannot get small entity status.
Consequences of Micro Entity Status
Micro entity status is beneficial for most businesses and individuals. However, it has led to some unintended consequences. This is especially true when you use an attorney to file for your micro entity status. You and your attorney should talk about your income and find out if your earnings were under the current threshold. The income limit will change from year to year depending on the current year's median income.
Applying for micro entity status also adds a lot of work to a patent application. For example, the USPTO considers individual income based on tax returns. This can become complicated if you are married, as your spouse's income might be looked at, too. Also, any other patents you've filed for will need to be taken into account.
Because micro entity status must be reviewed every time you pay a fee, you might need to pay frequent attorney fees, as well. This undermines the purpose of micro entity status. The added work required to get micro entity status deters many people from applying.
Falsely claiming micro entity status is considered an act of fraud against the USPTO. This can result in your patent being invalidated and a complete loss of your patent rights. If you're unsure about your eligibility for micro entity status, it is better to not claim this status than to risk committing fraud.
Micro Entities Regime
Many countries have their own micro entity rules. For example, the British government passed the Micro Entities Regime in 2013. Similar to U.S. rules, you must qualify under the small companies regime to be eligible for the micro entities regime in the UK. This regime excludes certain organizations, including foreign companies, credit institutions, insurers, and unregistered companies.
Micro entities are much smaller in the UK. In America, your business must have fewer than 500 employees to qualify. In the UK, the threshold is 10 employees if you make a certain amount of money. For instance, the turnover limit is 632,000 pounds and the balance sheet total limit is 316,000 pounds. Even if you qualify as a micro entity in the UK, enrollment is voluntary.
Benefits of micro entity status in the UK are mostly related to financial reporting instead of fees. These benefits include:
- No director's report requirement.
- Much simpler profit/loss accounts and balance sheets.
- Account notes are not required. Instead, you must show transactions at the bottom of the balance sheet. This is called minimum accounting terms.
- Micro entities can choose to disclose additional information using the relevant accounting standard.
- Fair value accounting and alternative accounting are not available. No revaluations are permitted. This means micro entities measure cost instead of fair value.
- The Companies House only needs to receive the balance sheet.
In the past, micro entities would use the Financial Reporting Standard for Smaller Entities (FRSSE) accounting standard. The Financial Report Council changed this in 2016. Now, micro entities use Financial Reporting Standard (FRS) 105.
FRS 105 also includes Qualifying Partnerships and LLPs. FRS 105 only applies to organizations that have adopted the micro entities regime. Unincorporated businesses can still use FRS 105.
FRS 105 has simplified accounting standards in a few ways. These include:
- Accounting policy options are not available. Borrowing and development costs must be reflected in the profit/loss account.
- There is no accounting for equity share-based payments or deferred tax.
- Recognition and measurement requirements have been further simplified.
You should apply FRS 105 to balance sheets and profit/loss accounts retroactively. You will also need an opening balance sheet that shows when the transition to this new accounting standard took place.
The micro entities regime provides much simpler, but less flexible, accounting than the small companies regime. Profit and loss accounts cannot be combined, for instance. All accounts should include a balance sheet statement that indicates they have been prepared in accordance with the micro entities regime rules.
Frequently Asked Questions
- What is a micro entity?
A micro-entity is a status provided by the USPTO that provides you with a 75 percent reduction in patent fees.
- How do I earn micro entity status?
There are several ways to earn micro entity status. First, you must qualify as a small entity. You can also be employed by an institution of higher education, be a small business concern, have a gross income that is less than three times the median income, and have been named on less than four patents.
- Are there disadvantages to micro entity status?
Yes. First, achieving this status is a very drawn-out process. Second, your status will need to be reviewed every time you pay patent fees.
- Should I hire an attorney?
Yes. Earning micro entity status is difficult. This is true even for people familiar with the process. An attorney can make filing for micro entity status much easier. They can also help you decide if this status is the right choice for you.
If you need help filing your patent and acquiring micro entity status, post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers from UpCounsel come from schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.