What is a Micro Entity Patent?

A micro entity patent is a patent awarded to someone or some company that has a micro entity status. Micro entity status is awarded based on the circumstances a given inventor finds himself in. Micro entity status must be applied for, and certain conditions must be met.

Micro Entity

In 2011, Congress passed the Leahy Smith America Invents Act in patent reform. The American Invents Act, also referred to as the AIA, provides for applicants to make patent applications at a reduced fee based on status.  This Act received bipartisan support. It passed the House of Representatives by a vote of 304 – 117. The Senate passed the Act by a vote of 89 to 9.  This was the first major overhaul of the United States system of patents in almost 60 years. The purpose of the AIA was to modify the pricing structure for patent applicants. Formerly a two-tiered system, the AIA changed the system to include a third tier of applicants. Micro entity status applicants receive a 75 percent reduction in fees as opposed to a regular sized status person or company.

There are different ways that one can obtain micro entity status.

Micro Entity Qualification Based on Experience and Income

In order to qualify as a micro entity, for each applicant, joint inventor, and inventor, the following conditions must be met: none of the applicants or inventors have been named as an inventor in more than four prior patent applications. It should be noted that patent applications filed in a foreign country, provisional applications, applications where the party either has assigned or is required to assign as the result of previous employment, or PCT international applications where the basic US national fee has not yet been paid, do not count toward the for our micro entity patent application rule.

Additionally, each applicant, inventor, and joint inventor must have less gross income than three times that of the median household income in the United States for the year preceding the applicant year. By way of example, if the median household income for 2016 is $50,000, to be considered a micro entity to qualify for reduced fees in 2016, each individual applicant, inventor, and joint inventor must make less than $150,000 to qualify.

When an applicant, inventor, or joint inventor is paid in money other than United States dollars, the patent office applies the average currency exchange rate during the previous calendar year to determine income. Additionally, each applicant, inventor, and joint inventor must not have licensed, assigned, or otherwise granted any interest in the invention to a person or entity with a gross income greater than the three times the median household income. The exception to this rule is where the entity at issue is somehow related to a higher education institution.

Micro Entity Qualification Based on Relationship to Higher Education

There's an alternate way to qualify for micro entity status. This is by having a relationship with United States institution of higher education. Under the circumstances, the applicant must receive the majority of their income from the referenced institution of higher education. Alternatively, the application may assign, convey, grant, or create an obligation under the law to assign, grant, or convey an ownership interest in a given application to Empire education institution.

Small Entity Status

Small entity status may be assigned to a nonprofit organization. Alternatively, it can be assigned to an organization with less than 500 employees including its affiliates. Additionally, a small entity may not have conveyed, licensed, or assigned an interest in an invention to a non-small entity. The patent office has four categories of concerns for categories that qualify as a small entity. These include nonprofit organizations, universities, small-business concerns, and individual inventors. The patent office and patent regulations provide definitions for the terms University, individual inventor, and nonprofit organization. It's important to note that wholly-owned subsidiaries of either universities or nonprofit organizations are considered part of the university or nonprofit organization, and therefore are entitled to claim small entity status.

Unlike the terms university, individual inventor, and nonprofit organization, the term small business concern has not been defined in patent regulations. It is the small business administration (SBA), that has the sole right to make determinations about "small-business concerns". The patent office does not independently accept requests for size determinations of applicants. The small businesses administration defines a small business concern generally speaking as a concern including its affiliates that is both independently owned and operated; that is not dominant in the field in which it is bidding on government contracts; and that the small-business concern meets any applicable criteria for any given industry.

These criteria include the number of employees, which is usually less than 500 employees; or the amount of annual receipts, which typically tends to run less than $7 million; or annual profits, which generally is more than $2 million. The small business administration Size Determination Board has a history of defining the term affiliate broadly, encompassing nearly any situation where what would generally be considered a small company might be interacting with the larger business company or larger business concern. Factors including management, ownership, prior relationships with another individual concern, and contractual relationships within the United States and worldwide can determine whether there is significant affiliation to meet the size determination requirements.

Large Entity Status

Entities that do not qualify to be either a micro entity status or a small entity status are granted large entity status.  Applicants with large entity status pay the full rate for fees to the United States Patent Office.

Benefits of Micro Entity Status at the United States Patent Office

On its face, the principal benefit for a patent applicant who qualifies as a micro entity or for micro entity status at the United States patent office is that there is a discount on most United States patent office fees. The discount is 75 percent off what a large entity status individual would pay for the identical fees. Fees include filing fees, fees paid to extend the time necessary within which things need to be completed or filed, and issue fees, as well as patent maintenance fees.

Contrast small entity applicants to micro entity applicants.  Small entity applicants qualify for a 50 percent discount on their government fees at the United States patent office. Large entity status patent applicants, of course, receive zero discount. The difference in fees that a micro entity applicant can expect to pay as compared to a small entity applicant is approximately $4000. A large status entity in the same position would pay $16,000 in fees.  In other words, small entity applicants pay only 25 percent of what a large status entity applicant will have to pay given the same circumstances regarding filing fees and adjustment fees, and other fees. 

Certification of Micro Entity Status Required

For micro entity status, the applicant is required to file a document entitled the certification of my status with United States patent office. When there is a single inventor the application and only that sole inventor must certify that. However, when an application has two or three more inventors jointly, then each individual inventor must certify as to their micro entity status with United States patent office. When an applicant is considered an assignee, then the assignee has to certify that they qualify as a micro entity with United States patent office.

False claims regarding micro entity status are considered fraud on the United States patent office. Fraud can have serious consequences. These consequences can include completely invalidating the patent, if the patent is granted. Fraud can also result in the loss of patent rights by the otherwise valid patent holders. Because the consequences and penalties are so severe, it's generally believed that the best approach, when there is any question, is to not to claim micro entity status. Rather the applicant should simply claim small entity status, which continues to enjoy a 50 percent discount of the large entity status fees, without the attendant legal fees.

Why Micro Entity Status May Not be the Best Status for a Given Client

While on its face it appears that the micro entity applicant enjoys an extreme benefit, practically speaking, this may not be the case. The reason this is so is because, in order to qualify for a micro entity status, certain information must be researched, established, and verified.  For example, applicants must establish for each applicant, and inventor, and joint inventor, what their applicants’ income was in the year prior to the application for patent. Next, the applicant must determine the median household income for the previous year. The median household income must then be multiplied by three.  Finally, the applicant and each co applicant must determine whether the applicant’s gross income qualifies them to be a micro entity applicant as being less than three times the amount of the median household income for the prior year.

Next, each applicant, inventor, and joint inventor must consider their previous patent applications. Due diligence must be exercised to ensure that some other co-inventor on a prior patent did or did not include the name of the applicant of the current patent. Provisional applications for patents or patents filed by prior employers don't count against the maximum of four prior applications.

Next, in certain circumstances, the question is how many employees does the applicant have?  If the number is more than 500 or hovers around 500, confirmation must be made about the precise number of employees. Additionally, each inventor, joint inventor, and applicant is limited in the amount of income they can have in a given year as well as limited as to the source of the major income.

All of these steps require time and attorney’s fees. Under the micro entity status rules, in order to continue to qualify as a micro entity, this type of investigation and confirmation must be performed each and every time another micro entity fee is due and owing to the United States patent office. At some point, the savings garnered by being a micro entity will be outweighed by the cost in lawyer’s fees as well as the time and effort due diligence requires in order to investigate and assure the patent office that the micro entity status is still in place for all applicants and co applicants. 

How Establishing Small Entity Status is Different

Unlike micro entity status, to qualify for small entity status, the size of the applicant (large, small, or micro), is only evaluated two times.  The first time is when the patent application is filed with the United States patent office.  Second, when the issue fee is paid, the small entity status must be affirmed.  This is very different than with micro entity status, which must be reaffirmed six or more times during the ongoing patent application process

Rules and Forms

Parties claiming micro entity applicant status must also apply for small entity status.  (This is another argument for small entity status only, as you save both time and resources, including attorney’s fees, by failing to establish two entity statuses, but rather, staying with only one status.)

There are different forms for income and experience status, as well as status due to association with an Institute of Higher Education.  Only parties authorized in 37 CFR 1.33(b) may sign the micro entry status forms.  Officers of assignee corporations or organizations are not allowed to sign the certification form for micro entry status.  Rather, only registered patent practitioners (also referred to as the attorney acting in a representative capacity or as the attorney of record), the sole inventor who is also the applicant, or the joint inventors if they all sign the application.  If this is the case, the joint inventor applicants should each sign their own separate copy of the certification forms at issue.

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