Understanding Different Entity Sizes in Intellectual Property

Decoding the Categories: Large, Small, and Micro Entities

The United States Patent and Trademark Office (USPTO) recognizes three distinct entity sizes when it comes to intellectual property. The first category is known as a large entity. By default, any applicant is considered a large entity and is required to pay corresponding large entity fees. The second category is referred to as a small entity, which benefits from a reduced fee of approximately 50% compared to the large entity fee. Lastly, there is the micro-entity category, which enjoys a further reduction of about 75% compared to the large entity fee.

Determining Your Entity Size: Essential Moments

You must determine your entity size and pay the appropriate fee in the following situations:

  1. When you file your patent application.
  2. When you pay an issue fee.
  3. When you pay your maintenance fee.

For micro-entities, determining your entity size and paying the correct fee is necessary each time you make a payment to the USPTO, such as when submitting an extension of time for a response.

Responding to Growth: Handling the Transition

It’s fantastic news that your company is experiencing growth. However, as your business expands, there may be an increase in fees owed to the USPTO. This may occur if your entity size changes and you transition into a larger entity category.

For small entities in the examination stage, you must determine your entity size and pay the appropriate fee when filing the patent application. There’s no need to reassess your entity size or pay an increased fee if your company becomes a large entity. You will continue paying the small entity fee throughout the application’s patent pendency.

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On the other hand, micro-entities must reassess their entity size every time a fee is paid to the government. If your entity size shifts to either small or large midstream, you will need to pay the increased fee from that point onward. Failure to do so may result in the invalidation of your patent during litigation.

Adapting to Downsizing: Embracing Reduced Fees

If your company downsizes and becomes a smaller entity, you have the opportunity to pay a reduced fee. This can be achieved by claiming either a small entity or a micro-entity status, depending on your eligibility.

Keep in mind that overpaying does not jeopardize the validity of your patents. However, failing to pay an increased fee can invalidate your patent. Should you make additional payments to the USPTO, you can request a refund for any excess fees paid.

Correcting Fee Oversights: Petitioning the Patent Office

Imagine you initially filed your patent application as a micro-entity or small entity. You paid the necessary fees accordingly. However, as your business expanded, you unintentionally neglected to pay the increased fee to the USPTO.

In such cases, you may petition the patent office to allow late payment of the increased fee, provided the original failure to pay was unintentional. However, if you deliberately chose not to pay the increased fee, your patent will be deemed invalid and cannot be salvaged.

Defining a Large Entity: Size and Licensing

By default, any entity that does not qualify as a small or micro-entity is designated as a large entity. Large entities are typically companies with 500 employees or more. This employee count encompasses both part-time employees and employees located worldwide.

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Even if you do not have 500 employees, if you license your patent-pending or patented technology to a company with 500 employees or more, you fall under the large entity category.

Let’s say you are on the borderline with 450 employees, just shy of the 500-employee mark. While technically qualifying as a small entity, we advise paying the large entity fees. Failing to pay the correct amount when your company grows beyond 500 employees can result in the invalidation of your patents. Given the difficulty in tracking entity size changes and the minimal price difference between small and large entity fees, it’s prudent to pay the higher large entity fees to safeguard the validity of your patents.

Understanding Small Entities: Definitions and Recommendations

A small entity is defined as:

  1. An independent inventor.
  2. A small business.
  3. A nonprofit organization (such as a university or 501(c)(3) organization).

Small entity status is lost if any patent rights are assigned or licensed to a large entity. By definition, a small business is an entity with 500 or fewer employees, including both part-time and worldwide employees. If your company is nearing the 500-employee threshold, we strongly advise paying the large entity fee as a precautionary measure. Failure to do so may put the validity of any patents derived from your patent application at risk.

As a small entity, it is crucial to reassess your entity size when paying the issue fee or maintenance fees. Should you now qualify as a large entity, you will be required to pay the corresponding large entity fees for these essential stages.

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Introducing the Micro-Entity: Additional Qualifications

A micro-entity is essentially a small entity with additional qualifications. To qualify as a micro-entity, an individual must meet the small entity criteria and:

  • Not have been named as an inventor on more than four previously filed nonprovisional patent applications (excluding provisional patent applications).
  • Not have had a gross income exceeding three times the median household income in the preceding calendar year.
  • Not have assigned, granted, or conveyed a license or other ownership interest (and not be obligated to do so) to an entity that had a gross income exceeding three times the median household income in the preceding calendar year.

The threshold income of three times the median household income can be found at Garrity Traina. As of 2022, the threshold is $212,352. Suppose your stated income level is close to this amount. In that case, we strongly recommend filing as a small entity to avoid any potential jeopardy to the validity of your patents. When applying the micro-entity definition, applicants are not considered named on a previously filed application if they have assigned or are obligated to assign ownership rights due to previous employment.

The definition also includes applicants employed by higher education institutions as defined in 20 U.S.C. 1001(a) who have assigned or are obligated to assign ownership to that institute.

Once micro-entity status is lost due to the assignment or licensing of patent rights to a small or large entity, small or large entity fees must be paid for subsequent USPTO fees.

To learn more about entity sizes in intellectual property and receive personalized guidance, please feel free to reach out to me at [email protected] or call (949) 433-0900. I’m an Orange County Patent Attorney, serving Orange County, Irvine, Los Angeles, San Diego, and surrounding areas. Don’t hesitate to share this article with your friends who may also find it helpful.

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