Micro-Entity Status: Can We All Qualify?

On his blog, Mike Kondoudis highlights an important point regarding fees. Once an applicant properly establishes small entity status the small entity fees can continue to be paid until the issue fee is due (even if actual status changes). 37 CFR § 1.27(g)(1). However, in the proposed micro-entity rules, the USPTO has proposed that the micro entity status must be repeatedly established throughout prosecution (except for University applicants). In its response to the proposed rules, the AIPLA argues that this process makes the micro-entity status overly confusing and burdensome. "AIPLA's overall recommendation is to simplify the procedures created by the rules."

In a major giveaway to universities, the America Invents Act includes a provision that allows US Universities to take advantage of the 75% reduction in fees offered by the micro entity status. Independent inventor and author Raoul Drapeau wrote to the PTO with the following response: [This] is another sad example of how large organizations have influenced rulemaking to suit their own ends, to the disadvantage of small inventors. How could an institution of higher learning under any interpretation be considered a small – much less a micro-entity." An ongoing question regarding the micro-entity fees is whether university IP holding companies (such as WARF) and university-esque entities (such as Scripps) will receive the reduction in fee status.

Major Loophole: In an e-mail to the USPTO, well known patent attorney Rick Neifeld highlighted a major potential loophole in the statute that would allow virtually any patent applicant to take advantage of the micro entity status by licensing the invention to a US university. The issue stems from the language of newly added 35 U.S.C. 123(d)(2) that allows patent applicants to qualify for micro-entity fees if the subject applicant is licensed to (or under obligation to license to) a US university. The statute:

(d) INSTITUTIONS OF HIGHER EDUCATION.–For purposes of this section, a micro entity shall include an applicant who certifies that—

… (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 [as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a))].

Since US universities are – for the most part – non-practicing entities, granting a limited license to a university would have little negative impact and would open the possibility of qualifying for a 75% fee reduction.

In its proposed rules, the USPTO has offered to close the loophole with a requirement that anyone claiming micro-entity status must also qualify for small entity status. In most situations, the USPTO would not have the authority to make such a dramatic change in the law. However, the new Section 123(e) gives the USPTO Director authority "in the Director's discretion, [to] impose income limits, annual filing limits, or other limits on who may qualify as a micro entity pursuant to this section." Of course, it is quite possible that the USPTO's broad limit set here actually surpasses its discretion. In that case, the rule would be struck-down as in Tafas v. Dudas. Neifeld suggests a more narrow rule that would block micro-entity claims in cases where the university-license was created in order to take advantage of the micro-entity status.

27 thoughts on “Micro-Entity Status: Can We All Qualify?

  1. Right. On the micro-entity policy issue. The statute gives the PTO particular power to issue additional limitations on micro-entities. That should be sufficient to ensure that most system-gaming can be avoided.

  2. Yes, and I’ll concede that the anti-ME people have the better of the textual argument. I just hope on policy grounds that they lose that fight (I can also cite some canons of statutory interpretation like legislating against a background of established principles, etc.). Here, I don’t see the policy as being inconsistent with the textual implication.

  3. I received zero compensation for my contribution as an inventor to that larger organization. In fact, I was not even an employee of that organization. At most, I was considered an independent contractor that would have been paid the same fee with or without the inventive contribution.

    So you could have not assigned those inventions to the company, and you’d have been paid the same?

    even though I am the very definition of an independent inventor

    This is clearly not a benefit aimed at an “independent inventor”, but rather an independent inventor who is just starting to try his hand at inventing/patenting. An independent inventor who already has his name on too many applications is disentitled even if he still owns them all.

  4. To clarify for the benefit of IANAE’s comment below – I received zero compensation for my contribution as an inventor to that larger organization. In fact, I was not even an employee of that organization. At most, I was considered an independent contractor that would have been paid the same fee with or without the inventive contribution. It is again frustrating to state that I do not qual for the micro-entity fee reduction even though I am the very definition of an independent inventor, and THAT does not make sense to me.

  5. License is a well understood term? Even an exclusive license could be a “field” license of little commercial significance, such a for basic research funded in whole or in part by the US government.

    I would hope the PTO requests clarifying legislation sooner rather than later.

  6. regardless of whether they were an “indentured servant” of a big corp before they strove for independence.

    Exactly. The benefit is regardless of who he sold his inventions to, at what price, or for what reason. Or whether he sold them at all.

    At least your guy got quite a lot of money for his first “over a dozen” inventions, which might not even have been worth anything. You say he’s looking for work?

  7. That’s a bit factitious IANAE. The benefit should be to anyone trying to be an independent entrepreneur regardless of whether they were an “indentured servant” of a big corp before they strove for independence.

    Stop p1ssing on the little guy.

  8. Now, on my own, I am unable to claim the fee reduction even though I personally have rights in only two other applications.

    Well, yes, but you’ve previously sold over a dozen patent applications to a large company. The micro entity fee structure is supposed to benefit people who haven’t achieved that level of commercial success yet.

  9. Perhaps already noted by another reader, but another potential issue with the proposed micro-entity status is that it penalizes independent inventors that had previously worked for a larger organization to which previous patents were assigned. For example, because I had previously assigned my rights in over a dozen applications under an employment agreement to a large entity, I am named as an inventor on more than the allowed number of applications to qualify for the fee reduction. Now, on my own, I am unable to claim the fee reduction even though I personally have rights in only two other applications. Poor wording of the rule…

  10. You are not misreading. However, the PTO rules of implementation indicate that you must also be a small entity. Also, see TJ’s comment above that suggests interpreting license as “exclusive license.”

  11. No. I am saying that the fact that the statute says “license or other ownership interest” implies that a “license” is a kind of ownership interest. Since non-exclusive licenses are not usually considered ownership interests, this implies that the word “license” means an exclusive license.

  12. It will be a very long time. This is about as sharp as a plane because the accord to other members is there. The rules of micro-entity status apply equally to domestic as well as to foriegn inventors, and it is the disparity of treatment that would violate Article 3(1).

  13. Yes, the micro-entity rules are a clear violation of that article. I wonder how long it will be before someone challenges them?

  14. Article 3(1) which starts "
    Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property…."

  15. Why not just interpret… or other ownership interest” as meaning an exclusive license…?

    Because black is not white…?

    Or do you think “or other” should just be like totally ignored?

  16. I must be misreading this. It appears that all you need for micro-entity status is assigning a non-transferable, non-assignable, etc. license to some university that is not likely to practice the invention. Or, maybe a .1% interest.

  17. Why not just interpret “license or other ownership interest” as meaning an exclusive license that conveys all substantial rights in the patent?

  18. The much simpler solution is a joint development agreement with the university wherein the underwriter is the sole licensee and has the right to require enforcement. You get the fees discount PLUS the prior user defense goes away because you’re a university entity.

  19. Another ME Status question: how can a size fee force a limitation on inventiveness (maximum number of lifetime applications)? This smacks of an arbitrary limit that goes against a fundamental policy of promoting innovation.

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