Small Entity Status

Certain fees paid to the US Patent and Trademark Office for a patent application or a patent can be reduced by 50% if the patent applicant or patentee is a “small” entity. But what does it mean to be a small entity?

Actually, a person or entity does not necessarily have to be “small” in size, worth or income in order to qualify for small entity status. For example, a person could have a yearly income of millions of dollars, a university could have billions of dollars in endowments, and a business entity could have hundreds of employees and earn millions or billions of dollars in revenue each year, and each of these could still possibly qualify for small entity status. Thus, small entity status should be viewed more as a way of singling out certain applicants or patentees for preferential treatment, than as a way of identifying those that are most deserving of financial advantages because they are “small.”

There are three categories of applicants or patentees that can qualify for small entity status. These categories are: persons, small business concerns and nonprofit organizations.

A “person” is an individual (a human being) that is an inventor or a person to whom the inventor has transferred some rights in the invention. Thus, to qualify for small entity status, a person must trace his/her rights in the invention back to the inventor (or one or more co-inventors). There are no limits on the person’s yearly income or total wealth.

A “small business concern” is a business entity having no more than 500 employees. There are no limits on the business entity’s yearly revenue or total assets.

A “nonprofit organization” is an educational institution (such as a university or other institution of higher education), or an organization (such as a nonprofit charitable, religious, scientific, community support, disaster relief, animal protection or environmental organization) that would be tax-exempt under certain provisions of the Internal Revenue Code. Again, there are no limits on the organization’s yearly revenue or total assets, but net earnings cannot flow to a shareholder, and the organization’s activities cannot include certain political activities (such as influencing legislation or supporting a candidate for office).

For each of the above categories, there is a requirement that rights in the invention to which the application or patent is directed have not been assigned, granted, conveyed or licensed (and is there is no obligation to assign, grant, convey or license) to another party that does not qualify for small entity status. Thus, a party that otherwise qualifies for small entity status loses that qualification if the party grants or licenses rights in the invention (or is under an obligation to do so) to another party that does not qualify as a small entity. Exceptions are provided for cases where the rights in the invention are granted or licensed to a US governmental agency.

If there is any uncertainty as to whether an applicant or patentee qualifies for small entity status, then small entity status should not be asserted. Improperly paying reduced fees can result in invalidity of a patent, and so the reduction in fees is definitely not worth the risk of an inappropriate assertion of small entity status.