Small Entity Status
What Does It Mean and What is It Worth?
When you first begin working with a new law firm they will ask you some questions to determine if you are a small entity. Why is this important?
It pays to be a small entity. If you examine the fee structure of
the US Patent Office your will find that for many of the fees there is a two
tier structure. An example - the basic filing fee for a utility patent is
currently $300.00; unless you are a small entity - then it is $150.00. And this
is the normal pattern - if you are "small" most of your fees are one
half of "large" entities. This can be significant over the life of a
patent because it extends to maintenance fees.
So What is a Small Entity?
A small entity is an independent inventor (or inventors), a small
business, or a non-profit. The normal government definition of a small business
is a company with fewer than 500 employees. So many high tech start-ups are
This is our simple definition of a small entity. As usual the real world can get more complicated. The more complicated definition of small entities can be found here.
And let's talk a little about non-profits. A non-profit could be for example a university, a scientific
organization, or many other educational organizations. Also included is
Don't you love government codes - they seem to be designed to
confuse communications. 501(c) is a provision of the United States Internal
Revenue Code (26 U.S.C. § 501(c)), listing 26 types of non-profit organizations
exempt from some federal income taxes. Sections 503 through 505 list the
requirements for attaining such exemptions. Many states reference Section
501(c) for definitions of organizations exempt from state taxation as well. I
am not about to untangle that. But if you need to know it is explained here.
It is fairly easy if you know your head-count to assert you are a
small business. Proving you are a non-profit may require a little more
But there is another wrinkle regarding US Patent Office
requirements for small entity status that you need to know.
And Here It Is...
In order to qualify as small at the US Patent Office your entity
must maintain complete ownership of the rights of the patent or patent
application. If you (even an independent inventor) either assign or license any
part of the rights of the patent or application to an entity that is not small
- you lose your small status. In fact even if you have not assigned the
invention but are eventually obligated to do so at the time of filing you lose
your small status.
Previously, the USPTO required the applicant or assignee to sign a
verification of Small Entity Status. Now, the simple written assertion of
such status or even the payment of the smaller fees is sufficient.
If a small entity pays large entity fees, it may request a refund
of the overpayment. And if small fees are paid by an entity that is
actually large, it can usually be corrected by simply paying the required
deficiency, if the incorrect amount was paid in good faith. Be aware
though, that fraudulently paying smaller fees when the applicant is not
entitled payment of small fees can result in losing your patent rights due to
Be aware of this danger and make it a point to occasionally review
your status and correct if needed. Especially if you are a small business that
is growing or you are a company that frequently licenses your patents. A lot
can change in the 20 years activity of a patent.