Small Entity Status

An applicant can claim small entity status if:

  • If the owner is a “person” (i.e. individual or individuals) who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention.
  • If the owner is a “small business concern.” Under the SBA regulations, this means that the owner, including affiliates, has fewer than 500 employees and the owner has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention.
  • A non-profit organization (regardless of size), including institutions of higher education who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention.
  • If the owner has transferred or licensed rights, or is under obligation to do so, it can still qualify for small entity status so long as each party individually meets the requirements listed here.

It will be interesting to see how this chart develops with the new “micro entity status” being implemented next month.

52 thoughts on “Small Entity Status

  1. Here is the rule: 1.27(g)

    (g) (1) New determination of entitlement to small entity status is needed when issue and maintenance fees are due. Once status as a small entity has been established in an application or patent, fees as a small entity may thereafter be paid in that application or patent without regard to a change in status until the issue fee is due or any maintenance fee is due.

  2. “I work with a small company on IP issues and applications, and generally we don’t find it worthwhile to take the risk of the small-company discount. When you’re spending tens of thousands of $$ on documentation, drafting and prosecution (especially when you consider PCT applications), the gain with small-entity designation is almost rounding error…”

    To the small company that is a client of Tom, please e-mail me. Dennis can give you my e-mail address.

  3. If you file as a small entity, and are in fact a small entity, and you subsequently lose that entity status (e.g. you assign/license the application/patent to a large entity, or exceed 500 employees, etc.), then you only have to pay the large entity fee when paying the issue fee and/or the maintenance fees. See Rule 27(g)(1).

    So the only time you need to even consider the entity status is when you intially file the application, pay the issue fee, and/or pay a maintenance fee. It’s not that tough. Checking the entity status is pretty much on the filing and notice of allowance check lists of every firm and company that actually has enough filings to warrant making and using a check list.

  4. However, if your entity is less than 500 people, including affiliates, why pay the large entity fees for filing and appeal?

    How are you restricting assignment/licensing possibilities by claiming small entity status?

  5. I work with a small company on IP issues and applications, and generally we don’t find it worthwhile to take the risk of the small-company discount. When you’re spending tens of thousands of $$ on documentation, drafting and prosecution (especially when you consider PCT applications), the gain with small-entity designation is almost rounding error, but adds one more thing for someone to attack, while also restricting assignment/licensing possibilities.

    A very interesting bit of data would be the actual sizes of companies applying for patents each year; I’d expect a similar trend of small companies patenting less, but I would also expect the small-entity determination decline to overstate this trend. And yes, I realize that this data would be practically impossible to come by.

  6. Per patent. For example, most of the patents owned by an individual inventor may be designated "small entity" but he may have one patent that is licensed to CISCO and that would therefore be designated "large entity."

  7. Is the small entity status determination made per application or per business?

    Is the small entity status determination made per application or per individual?

    Where do your rights in the invention come from? Do they come from the issuance of a patent? Do you have any rights in the invention when there is no patent covering the invention?

    Say my business, under 500 employees and affiliates, owns patent Y and has filed patent X application. My business has licensed patent Y to LargeEntity Corp (a large entity). Is it permissible to pay large entity status fees for a maintenance fee associated with patent Y, but pay small entity status fees for a filing fee associated with patent application X?

    Does it matter if the owner is a person?

    • If the owner is a “person” (i.e. individual or individuals) who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention.

    • If the owner is a “small business concern.” Under the SBA regulations, this means that the owner, including affiliates, has fewer than 500 employees and the owner has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention.

  8. Um No. Readers, pot here calls kettle black. I didn’t like it when you Um No’ed me about Paris Convention provisions. You’re the one who should “do the work up front” before Um No’ing me so gleefully and foolishly.

  9. See what I mean? Note “has been shown” “generously explained” and so on.

    Still schooling. Still sees himself as the benevolent task-master to us all here. Pathologically unable to stop, it seems.

    Changing the subject, anon, question to you: why “MF”? What does it stand for?

  10. Vast difference in the way we each asked IANAE.

    Your method was a bit, shall we say, indelicate? (hint: I asked for raw data without making an assumption, you lead in with an assumption that simply flew in the face of the data already presented) – I can perfectly understand IBP’s understanding of your post – even if it was a misunderstanding.

  11. The difference, IANAE, is that anon’s request was open-ended, and did not express any internally inconsistent positions, as did yours.

    I would also like to see more study in this area. I have only my anecdotal observations to bring to the table, along with those of some other practitioners. I’m sure there is vastly more data mining that can be done, and I think it would be worth more if it were done before the micro-entity status kicks in, so that changes can be more readily perceived and more meaningfully interpreted.

    As far as small entities go, there is a very broad spectrum within that category, all the way from sole independent inventors in their garages, to tech startups, to locally well-established businesses–and their attitudes toward patenting are as varied as their economic situations and business goals.

    Established businesses have some money to spend, but with current conditions, many have had to lean out their operations to balance the books. Increased tax burdens and health-care costs are taking an increasing bite, and things like patents–which are often not a part of their core business but instead something they were willing to try, given a bit of money to play with–are the first thing to fall in support of core business activities and their HR requirements.

    Independent garage inventors? Forget it, they are almost extinct. The choice is often filing an app vs buying something like a needed new car, maxxing-out 401k contributions, paying into HSA accounts, paying off credit card debt. These are potential clients who are likely to ask attorneys to cut them a break on fees, or to try to arrive at some sort of non-standard fee arrangement. Skirting the recommendations not to enter into a business relationship with clients can be tricky for attorneys in these situations, and is something that many avoid completely–and you can only do so much pro bono and cut-rate work before you end up subsidizing people with an income greater than your own.

    Start-ups, it occurs to me that we have discussed this topic before, in particular with Mooney. Many are now university spin-off’s, with attendant obligations. To get out from under those obligations, I’m seeing more people try to rent university facilities for very specific research and/or testing, under agreements that are fee-for-service, with no other rights, and no IP rights in particular, transferring to the university.

  12. Another funny thing, IANAE. I simply have no idea why the appellation “MF” is an insult. The attempted put-down is totally lost on me.

    One more thing while I’m on: the faint praise. Our Um No friend surely congratulates himself that he is being dispassionately fair when he prefaces one of his obnoxious snarks with a “kudos” or so. Give credit where credit’s due, and so on. If he could cease that as well, we would together have made another small step forwards. He’s got intelligence, that’s for sure, and every so often comes out with something funny or even helpful. I’m hoping he will put his focus there, from now on.

  13. When they exercise their incessant and embarrassing impulse to school other writers here (rejoicing in cutting off their heads and so on) I imagine …

    I imagine they’re asserting small entity status.

    Thanks for the glimmer of sanity, Max.

  14. A conversation? I do Dennis, I do. I think like that about every one of your thought-provoking threads. If it were taking place under shady trees in ancient Athens, or during a summer’s day on the banks of the Isar, the Cam or the Cherwell, we would be having excellent mind-broadening exchanges, then going home to our children intent on helping them to broaden their minds too.

    But here, things are not so smooth. There are posters here, who have no idea how one debates an issue and who are unable to tell the difference between a robust academic evisceration and a gratuitous personal insult. They see themselves as unfairly excluded from “the circle” and are pathologically disruptive. I find it sad (and irritating) and I’m not the only one. When they exercise their incessant and embarrassing impulse to school other writers here (rejoicing in cutting off their heads and so on) I imagine they grew up in a dysfunctional family with at least one parent who was a sadist. I feel sorry for any children they themselves might have.

    You did intervene once. It had a positive effect. I hope you will step in again, whenever you think a deterrent or a corrective is needed. Then we can look forward to debates that are less polluted by posters with a mind that has not got beyond that of a child. Otherwise, the debating circle will fade away, as members walk away and nobody else finds it worthwhile turning up.

  15. Would you be willing to share the data set? I would be interested in seeing if the raw data can be crunched to reveal other possible perspectives.

    You owe me another coke, anon.

    Now, let’s see how upset IBP gets when it’s you doing the asking.

  16. Prof. Crouch,

    Would you be willing to share the data set? I would be interested in seeing if the raw data can be crunched to reveal other possible perspectives.

    Thanks

  17. It would have been more helpful if an explanation and analysis of the graph were presented at the time this article was posted. To merely show a graph and provide no explanation (other than the definition of “Small Entity Status”) serves no benefit to the reader of the post. That said, my initial reaction was that the trend seems to be that the number of issued patents to small entities is shrinking. A more complete analysis of the data would be to show how many applications were originally filed as small entities. Is the overall number of small entity filings declining as well?

  18. I’m seeing this as well. The certainty of obtaining favorable relief on an issued patent and the cost of getting there have become prohibitive for smaller entities. And the problem isn’t so much standard litigation costs as it is litigation costs caused my judges with no understanding of tenants of patent law that we take for granted like claim differentiation, open ended claims, how prosecution history estoppel is supposed to work, etc.

    A patent court or dedicated patent judges or technical advisors (i.e., disinterested patent attorneys) would be a welcome development to help get those initial issues quickly and efficiently resolved.

  19. The point of my first post above was that it would perhaps be more informative as to small entity “filing”, rather than as to small entity “issuance”, although those statistics might not be easily available.

    As we all know, and as revealed by Dennis’ response to my post, there are a great number of small entity patents which are ultimately gulped up by large entities. This is what I feel to be the predominant business model on behalf of both types of entities.

    A “small” entity gets into a particular field, creates some marketable IP, files a patent or two, then bails out when bought by a “large” entity. So the patent, when issued, shows up as being issued to a large entity, when in reality it was filed by a small entity.

    So when considering this business model in viewing the data in Dennis’ graph, I don’t think it is necessarily proper to conclude that small entity filing is “down”, at least not to the extent that the graph suggests.

  20. “If the owner is a “person” (i.e. individual or individuals) who has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention.”

    So what if a large entity has some other interest in the application that is lesser than the “assign, grant, convey, or license”?

    For example, if a large entity has a contract promise from the small entity that the small entity will not to shop the application to other parties for 12 months, or has a contract granting the large entity a first refusal right (or other similar option-type language) to license the application?

    Is it as cut-and-dried as it sounds from the reg, that these types of situations do not change the status with respect to that application? (I.e., because there is no present obligation to license, just a potential future/triggerable obligation?)

    Thanks.

  21. Don’t throw stones. “wrongly”

    Feel free to use the shooting arrows analogy. IANAE and Leopold are circle mates and I am sure they won’t mind.

  22. That’s right. For each week, the chart shows the number of patents that claim “small entity” status according to the maintenance fee records. In general, small entities are more likely to drop out during prosecution and then, after issuance, are more likely to fail to pay maintenance fees.

  23. IANAE–

    Don’t throw stones. “wrongly”

    Here you are, once again demanding absolute numbers, and then criticizing “incorrect normalization”.

    Which is it that you want–absolute numbers, or more appropriately normalized numbers?

  24. You shoot yourself in the foot when you call for an absolute number measure,

    Yes, I definitely undermine my position that the graph is misleading by asking for a different, more representative graph.

    having identified the current measure as deficient for not having accounted for environmental factors.

    Someone’s been taking English lessons from anon.

    What “environmental factors”? All I said was that the data was normalized wrong.

    You can’t have it both ways.

    I can’t have graphs both ways? Isn’t that up to Dennis?

  25. IANAE–

    Yes, it is, by your own logic.

    You shoot yourself in the foot when you call for an absolute number measure, immediately after having identified the current measure as deficient for not having accounted for environmental factors.

    You can’t have it both ways.

  26. Mark–

    I deal with small entities, and can say definitively that small entities are being priced out–or more specifically, that they see less value in patents than they once did.

    Not only have the costs gone up, but the perceived value is less due to decreased certainty. This of course takes into account costs of enforcement and defense including concepts like the relatively recent prosecution history estoppel, and the perceived likelihood of being able to secure injunctive relief.

    So, not only do potential patentees have to pay more in the first instance for the privilege of incurring the subsequent costs of enforcement, those actual enforcement costs have also risen, and the disposition on the merits is less certain–and even where certain, the availability and cost of remedies is uncertain and more expensive to pursue.

    When money is tight, it is expensive, uncertain things that take the first hit. Small entities are now more likely to invest in markets they see as less speculative than the patent market, such as the real estate market!

  27. The drop off in small entity patenting is significant.

    No, it’s not. Small entity grants used to be 30% of a small number of grants, and now they’re 20% of a much larger number of grants.

    It would be interesting to see absolute numbers for patents issued to small entities, broken down by technology in some way if possible.

  28. Dennis–

    If I understand this correctly, these data points represent only the percentage issued on a particular date, or small date range, that claimed SE status–is that correct?

    If it is, my guess would be that a survey of all issued patents in force on a particular date would show an even more precipitous decline, due to my guess that there is an increased abandonment rate among small entities.

  29. What the graph provides is a glimpse of an on-going trend over the past 20 years (not just during the recent economic downturn). The drop off in small entity patenting is significant.

    What the facts indicated by the graph can’t answer is why this particular trend is occurring. Is it a change in the nature of inventive activity, so that more invention is occurring in large entity settings and relatively smaller portions of invention are due to small entities? Or are small entities actually being priced out of the patent ‘market’ due to changes in PTO fee structure or changes in pricing for patent legal services. Or is it because of one or more PTO examination practices or patenting strategies that may boost the overall expense or the time from filing to patenting and therefore lead to a different calculation of perceived cost versus benefit from small entities. Any thoughts?

  30. i wonder if attorneys shy away from using this because of inequitable conduct risks from fraudulently claiming small entity status.

    It’s certainly worth something to keep potential infringers from raising that issue in court but it’s usually not difficult to determine the entity status. Of course if the client is a small entity seeking licensors you need to do your best to stay in the loop in case the invention is licensed to a large entity. Likewise if the client is a rapidly growing company.

  31. Not exactly what you are asking, but the following is the number of patents whose owner changes status from small to large each year (according to maintenance fee records).

    Year Count
    2013 985 (As of Feb 8, 2013)
    2012 6596
    2011 5996
    2010 6284
    2009 7210
    2008 7330
    2007 6395
    2006 4429
    2005 3783
    2004 4043

    Thus, when Google bought a bundle of patents from Kia Silverbrook last year, they changed the status from Small to Large. (See U.S. Pat. No. 7,573,501).

  32. § 121.802

    What size standards are applicable to reduced patent fees programs?

    A concern eligible for reduced patent fees is one:

    (a) Whose number of employees, including affiliates, does not exceed 500 persons; and

    (b) Which has not assigned, granted, conveyed, or licensed (and is under no obligation to do so) any rights in the invention to any person who made it and could not be classified as an independent inventor, or to any concern which would not qualify as a non-profit organization or a small business concern under this section.

  33. as i understand it,”small-entity”, for small business concerns, is defined in 13 CFR 121 (what mr. crouch said) qualification is determined by revenue or employee number. choosing which yardstick is contingent on industry.

    i wonder if attorneys shy away from using this because of inequitable conduct risks from fraudulently claiming small entity status.

  34. C. SBA has various regulations for defining a small business concern depending upon the context. For patent fees, they have issued a set of regulations found at 13 CFR 121.801-805.

  35. I do not believe determining a “small business concern” under the SBA regulations is as simple as counting employees. I think you also need to consider revenue.

  36. It might be more interesting to see the percentage of patents which were filed and/or prosecuted as “small entity” and then issued as “large entity”.

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