The USPTO has published final rules governing the new Micro Entity status that will permit certain patent applicants to pay certain patent fees at a 75% reduced rate. The rules set forth three independent ways to qualify for Micro Entity status: (i) based on the income of each applicant, (ii) based on each applicant’s employer being an “institution of higher education,” and (iii) based on each applicant having assigned or licensed the application to an “institution of higher education” (or being obligated to do so). This article focuses on (ii) and (iii). Although the rules technically take effect on March 19, 2013, applicants will not be able to pay fees at the Micro Entity rate until the USPTO implements its own fee-setting authority, which it expects to do in “Spring 2013.”  When it takes effect, Micro Entity status will offer a cost savings of at least $750 per application, and at least $3000 over the life of a patent. This savings could add up quickly across a university’s portfolio, and may justify the costs of both aligning internal practices to qualify for Micro Entity status and taking the steps to claim Micro Entity status.

The Statutory Definition of Micro Entity

The AIA defines Micro Entity in new 35 USC § 123.  Paragraph (d) relates to institutions of higher education:

(d) INSTITUTIONS OF HIGHER EDUCATION. For purposes of this section, a micro entity shall include an applicant who certifies 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 applications to such an institution of higher education.

Paragraph (e) also may be relevant:

(e) DIRECTOR’S AUTHORITY. In addition to the limits imposed by this section, the Director may, in the Director’s discretion, impose income limits, annual filing limits, or other limits on who may qualify as a micro entity pursuant to this section if the Director determines that such additional limits are reasonably necessary to avoid an undue impact on other patent applicants or owners or are otherwise reasonably necessary and appropriate. At least 3 months before any limits proposed to be imposed pursuant to this subsection take effect, the Director shall inform the Committee on the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate of any such proposed limits.

Important Statutory Language

The following aspects of the statutory language may have particular importance:

  • The statute keys qualification for Micro Entity status to the applicant. The statute was drafted against the backdrop of the pre-AIA Patent Act, in which “applicant” was synonymous with “inventor(s).” Now that the AIA permits other entities to be “applicants,” a question arises as to the meaning of the term “applicant” as used in the Micro Entity statute. The USPTO has interpreted the term with reference to its broader, post-AIA meaning, as including whoever is named as an “applicant,” be it a “natural person” or a “juristic entity.”
  • The statute defines an “institution of higher education” with reference to 20 USC § 1001(a):

(a) Institution of higher education
For purposes of this chapter … the term “institution of higher education” means an educational institution in any State that
(1) admits as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such a certificate, or persons who meet the requirements of section 1091 (d) of this title;
(2) is legally authorized within such State to provide a program of education beyond secondary education;
(3) provides an educational program for which the institution awards a bachelor’s degree or provides not less than a 2-year program that is acceptable for full credit toward such a degree, or awards a degree that is acceptable for admission to a graduate or professional degree program, subject to review and approval by the Secretary;
(4) is a public or other nonprofit institution; and
(5) is accredited by a nationally recognized accrediting agency or association, or if not so accredited, is an institution that has been granted preaccreditation status by such an agency or association that has been recognized by the Secretary for the granting of preaccreditation status, and the Secretary has determined that there is satisfactory assurance that the institution will meet the accreditation standards of such an agency or association within a reasonable time.

[The term "State" includes ... the Commonwealth of Puerto Rico, the District of Columbia, Guam, American Samoa, the United States Virgin Islands, the Commonwealth of the Northern Mariana Islands, and the Freely Associated States [the Republic of the Marshall Islands, the Federated States of Micronesia, and the Republic of Palau."]

Thus, while ex-U.S. universities may qualify for Small Entity status under 37 CFR 1.27(a)(3)(ii)(a), they cannot qualify for Micro Entity status.

Further, as the USPTO points out in the Federal Register Notice setting forth the final rules, this definition does not include institutions that are related to but legally separate from an institution of higher education, such as separate, non-profit corporations, research foundations, technology transfer organizations, Federal Government research laboratories, or other non-profit scientific or educational organizations.

The Small Entity Requirement

The USPTO acknowledges that 35 USC § 123(d) does not expressly require an applicant to qualify as a Small Entity in order to qualify as a Micro Entity (although the statute does impose such a requirement under 35 USC § 123(a)), but the USPTO has adopted such a requirement (invoking its authority under 35 USC § 123(e)). Further, the Federal Register Notice explains:

Each applicant must qualify for micro entity status, and any other party holding rights in the application must qualify for small entity status.

While not expressly set forth in the rules, it appears that a “party holding rights in the application” includes assignees and licensees. Thus, it appears that an application that qualifies for Micro Entity status can be licensed or even assigned to a Small Entity without losing Micro Entity status.

Micro Entity Examples

University-Employed Inventor-Applicants (35 USC § 123(d)(1))

It appears that an application naming university-employed inventors may qualify for Micro Entity status as long as:

  • the university qualifies as an “institution of higher education”
  • the inventors obtain the majority of their income from the university
  • the inventors are named as the “applicants”
  • the application is not assigned or licensed to any entity that does not qualify for Small Entity status

Under 35 USC § 123(d)(1), the application does not have to be assigned or licensed to an “institution of higher education.” Thus, as long as the inventors are employed by the university, the application can be assigned to a separate but related technology transfer entity, as long as that entity qualifies as a Small Entity. However, if any inventor has another significant source of income, that inventor may need to assign or be obligated to assign a license or ownership interest in the application to the university, as illustrated below.

University Inventor-Applicants With A Significant Source of Other Income (35 USC § 123(d)(2))

If an application names university-employed inventors who do not obtain the majority of their income from the university (i.e., who have a significant source of other income), the application still may qualify for Micro Entity status as long as:

  • the inventors have assigned or are obligated to assign a license or ownership interest in the application to the university
  • the university qualifies as an “institution of higher education”
  • the inventors are named as the “applicants”
  • the application is not assigned or licensed to any entity that does not qualify for Small Entity status

Thus, if university-employed inventors are named as the applicants, the ability to claim Micro Entity status may depend on both the sources of income of each inventor and whether the inventors have assigned or are obligated to assign to the university.

Non-University Inventor-Applicants (35 USC § 123(d)(2))

It appears that an application naming non-university inventors may qualify for Micro Entity status as long as:

  • at least the non-university inventors have assigned or are obligated to assign a license or ownership interest in the application to the university
  • the university qualifies as an “institution of higher education”
  • the inventors are named as the “applicants”
  • the application is not assigned or licensed to any entity that does not qualify for Small Entity status

Thus, if some inventors are not employed by the university, it appears that they should assign or license an ownership interest to the university–not to a separate but related technology transfer entity–in order to qualify for Micro Entity status. However, it appears that the university could convey its rights to a separate but related technology transfer entity (as long as that entity qualifies as a Small Entity) without losing Micro Entity status.

University Technology Transfer Entities (35 USC § 123(d)(2))

It appears that an application naming a university technology transfer entity as the applicant may qualify for Micro Entity status as long as:

  • the university technology transfer entity has assigned or is obligated to assign a license or ownership interest in the application to the university
  • the university qualifies as an “institution of higher education”
  • the application is not assigned or licensed to any entity that does not qualify for Small Entity status

Thus, if the university technology transfer entity can be named as the applicant (i.e., if the inventors have assigned or are obligated to assign to the university technology transfer entity), it appears that the application could qualify for Micro Entity status if the university technology transfer entity in turn has assigned or is obligated to assign a license or other ownership interest in the application to the university.

Note that there is no parallel provision for university applicants!

That is, 35 USC § 123 does not appear to provide for Micro Entity status for applications where the “institution of higher education” is named as the applicant. Universities who have taken advantage of the new option to be named as the applicant may want to rethink this practice once Micro Entity status is available.

Small Entity Applicants

It appears that an application naming any Small Entity as the “applicant” may qualify for Micro Entity status as long as:

  • the Small Entity has assigned or is obligated to assign a license or ownership interest in the application to the university
  • the university qualifies as an “institution of higher education”
  • the application is not assigned or licensed to any entity that does not qualify for Small Entity status

Thus, if an application names a Small Entity as the “applicant,” it appears that the application could qualify for Micro Entity status if the Small Entity has assigned or is obligated to assign a license or ownership interest in the application to the university.

Does this open the door for Small Entities to fabricate Micro Entity Status by granting a de minimus license to a university?

Claiming Micro Entity Status

The procedures for establishing Micro Entity status and paying fees at the Micro Entity rate differ somewhat from the Small Entity status procedures.

  • A signed certification of entitlement to Micro Entity status with the relevant statement(s) must be filed in each application.
  • Entitlement to Micro Entity status should be verified each time a fee is paid, although only one certification is required.
  • If entitlement to Micro Entity status is lost, a signed notification of loss of entitlement to Micro Entity status should be filed before any fee is not paid at the Micro Entity rate.

Fraudulently Claiming Micro Entity Status

The rules address fraudulent claims of Micro Entity status in 37 CFR § 1.29(j):

(j) Any 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. Improperly, and with intent to deceive, establishing status as a micro entity, or paying fees as a micro entity, shall be considered as a fraud practiced or attempted on the Office.

The procedures for rectifying good faith errors regarding Micro Entity status are similar to those for rectifying good faith errors regarding Small Entity status.

The Costs And Benefits Of Micro Entity Status

As noted above, while the Micro Entity rules technically take effect on March 19, 2013, applicants will not be able to pay fees at the Micro Entity rate until the USPTO implements its own fee-setting authority, which it expects to do in “Spring 2013.” The USPTO has proposed to revise many aspects of the patent fee structure, as you can read about here. Included in these revisions is an overall increase in “Large Entity” fees to make up for the predicted revenue losses from the new Micro Entity fees.

Currently, a Small Entity pays at least $1500 to prosecute a patent application through grant, and a total of at least about $6,000 when all maintenance fees are paid. Thus, Micro Entity status offers a cost savings of at least $750 per application, and at least $3000 over the life of a patent. This savings could add up quickly across a university’s portfolio, and may justify the costs of both aligning internal practices to qualify for Micro Entity status and taking the steps to claim Micro Entity status.

Many thanks to my associate Max Colice for his input into this article!