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 small entities.

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 501(c)(3) organizations.

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 homework.

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 inequitable conduct.

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.

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