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Unintended Consequences of the New USPTO Micro Entity Fees

Written by: Raymond Millien
Senior IP Counsel, GE Healtcare
Posted: June 17, 2013 @ 2:15 pm
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Maybe it’s just me?  In my 15 years of practicing patent law, I have never felt uncomfortable interviewing potential clients in order to obtain the essential information needed to file a patent application on their behalf.  This was the case until now!  Ever since March 19, 2013, I have been feeling slightly uncomfortable asking one question to some of my new clients.  What is that question you ask?  It is: “What was your household income in the preceding calendar year?”  So, why am I asking a question that makes this Registered Patent Attorney sound more like a Certified Public Accountant?  Answer:  The AIA.

The Leahy-Smith America Invents Act (“AIA”), was signed by President Obama on September 16, 2011, after receiving overwhelming bi-partisan support by passing the House 304-117, and the Senate 89-9.  The AIA has been recognized as the first major overhaul to the patent system in almost 60 years!  Under the AIA, the USPTO now offers a three-tier pricing structure for a majority of its patent-related fees.

Prior to the AIA, the USPTO offered a 50% reduction on most fees (e.g., filing, searching, examining, issuing, appealing, and maintenance fees) to every “small entity” – individuals or corporate entities with less than 500 employees (including affiliates) – as defined by the Small Business Administration.  Now, under the AIA, the USPTO offers each “micro entity” a 75% reduction on such fees.  A “micro entity,” as defined in 35 U.S.C. § 123, is a patent applicant who meets the definition of a “small entity” in addition to: (1) not being named on more than four previously-filed, U.S. non-provisional applications; and (2) not having gross income exceeding three times the median U.S. household income for the preceding calendar year in which the applicable fee is being paid.  Obviously, a patent applicant that does not meet the “micro entity” nor the “small entity” definitions will be considered a “large entity” and must pay the standard (i.e., 100%) fee.

Paying micro entity fees can produce significant savings.  For example, the basic non-provisional patent application filing, search and examination fees for a large entity, as of March 19, 2013, is $1600.  The same fees for a small entity is $800 (or $730 if filed electronically).  For a micro entity, however, the same fees would amount to just $400!

So, the next question becomes: “How do we calculate ‘three times the median U.S. household income’”?  In 2011, the median U.S. household income, as reported by the Census Bureau on September 12, 2012, was $50,054.  Thus, the cut-off for micro entity status would be three times that, or $150,162.  (The USPTO makes the latest figure easy to find here.)  The income of an inventor’s spouse does not figure into the calculation, but  where there are joint inventors, each must meet (and certify that they meet) the “micro entity” status requirements.

So, what have I done to help cure my uneasiness?  Two things.  One, I’ve started to implement my personal “terminal disclaimer rule” when it comes to the Certification of Micro Entity Status form (PTO/SB/15A).  That rules states: “When a document can get you in trouble, even if it has a ‘Registration No.’ field on it, have the client sign it!  Second, I’ve inserted the following four questions into my firm’s standard Invention Disclosure Form in hopes of avoiding the “How much do you make?” conversation:

Invariably, however, a potential new client will still call me in order to discuss the reason for these questions or to clarify how to answer them.  Thus, the uneasiness cannot always be avoided!  But, then again, maybe it’s just me!

About the Author

Raymond Millien, a member of the IAM Strategy 300, is Senior IP Counsel at GE Healthcare where he leads global IP strategy for its $6.1B software, consulting and services businesses.  Mr. Millien received a B.S. from Columbia University, and a J.D. from The George Washington University Law School. Mr. Millien may be reached by at raymond.millien@ge.com.

PLEASE NOTE: This article reflects Mr. Millien's personal views as of the date the article was published and should not be necessarily attributed to his former, current or future employers, or their clients.

12 comments
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  1. In Australia, each taxpayer has a Tax File Number. It is the closest thing we have to a universal identity number, so the potential for breaches of privacy if various bits of information associated with this number were ever brought together is significant.

    There are, therefore, very few circumstances in which citizens can be compelled to provide their tax file numbers. If you open a bank account, you will be asked to provide it, but it is not compulsory to comply. The bank will tell you, however, that if you do not disclose your TFN, tax will automatically be withheld from interest payments at the top marginal rate. The customer can choose privacy, but frankly we mostly choose to keep our money in the bank until such time as we are obliged to pay tax on it.

    You should adopt the same approach. Explain the consequences up-front (both of claiming micro-entity status, and the consequences of doing so falsely), and if the client prefers not to provide information about their financial circumstances, they can pay the higher fees. The choice is theirs, and you will have to field fewer phone calls. My bet is that the hip pocket will trump privacy concerns for most people!

    Mark

  2. I agree. The most uncomfortable question to ask a client. I do ask it most of the time when it appears as an issue. Although I will admit that at times I skip over it and assume a he/she is a small entity. Second most dreadful question is are you over 65 to get a expedited application. There have been times that I was off by years in guessing they were over 65 and there have been times where I routinely asked it and was shocked to find out that they were way over 65.

  3. @Mike

    Again, the answer is to be found in another field of endeavour.

    I have been in liquor stores with signs saying ‘if you look under 35 we may ask to see ID’. (The legal age here in Australia is 18.)

    Just put up signs in your conference rooms stating ‘if you look over 40 we may ask you if you are over 65′.

    :-)

    Mark

  4. Extreme weirdness. If a girlfriend is co-inventor, we can each earn $150,000 and claim micro-entity. Unfortunately, if we get married, our household income is $300,000, so no reduced filing fees for you!

    Patent law is quickly approaching copyright law in its rules and exceptions and game playing and special interest provisions. . .

    Of course, I might not be cut out for the game anymore. I still can’t understand how the first guy who claims a disk, his invention passes 101. The second guy can claim the same disk with a stored program, but now the physical statutory disk is no longer patent eligible?

  5. This should be a non-confrontational topic, and I like Mark’s answer. A mix of sensitivity (for the sake of the client’s feelings) and a willingness to obtain the complete picture (an ethical requirement we have to serve our client with competence) is the best way forward.

    Making assumptions will not do – and actually may indicate a culpable failure on the part of the attorney.

  6. The approach I use is to simply notify clients of the requirements and put it on them to sign the Certification Statement. They might have questions about what types of applications count toward the limit and which ones don’t, but they will nearly always know right away if they make too much money. If you notify them and they never bring it up, consider the issue resolved.

    Where it gets hairy is if you have multiple inventors, and especially if one of them is the employer of the other inventor(s). You need to be cautious of who you ask first.

    I find the age 65 requirement to be much more uncomfortable. By even asking the question in the first place, you’ve admitted that they at least look over 60.

  7. Ray – I believe your interpretation that the income of an inventor’s spouse figures into the calculation is incorrect. 35 USC § 123 makes it clear that to be eligible “an applicant . . . did not, in the calendar year preceding the calendar year in which the applicable fee is being paid, have a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986, exceeding 3 times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census.” The threshold amount may be based on household income, but the statute is clear that it’s an applicant’s gross income.

    The USPTO’s AIA FAQ page (http://www.uspto.gov/aia_implementation/faqs_fees.jsp#heading-4) also has the following: “Regardless whether an applicant, inventor, or joint inventor filed a joint tax return rather than a separate tax return in the preceding calendar year, the “gross income” limit applies to the amount of income the person would have reported as gross income if that person filed a separate tax return, which includes, for example, properly accounting for that person’s portion of interest, dividends, and capital gains from joint bank or brokerage accounts.”

  8. Couldn’t you just phrase your question differently?

    Like saying: “BTW, if your company or household income is below $X, and you have filed less than X patent applications before, there is a special Micro Entity Patent Office fee reduction I can get for you, if you would want to indicate that.”

  9. Anyone know what the penalty(ies) is(are) if the inventor(s) file & pay as (a) micro(s); but aren’t?

    Is intent a factor/consideration in the inquiry?

    Can one’s status be changed/corrected during prosecution? After issuance?

  10. Steve,

    I believe that if you pay the fees in good faith, but they are in error, you merely pay the difference at the time the error is discovered.

    I agree that asking about income is awkward. One way to approach it is point out to the client that all of these criteria must be met to qualify for the micro entity discount and then ask if they want to be certified for a given patent. That way you are not asking specifically about their income.

    Another challenge of the micro entity discount is that you need to revisit it every time a fee is paid. Almost by definition, if a product becomes a success, the associated patents will no longer qualify for micro entity discount.

  11. By the way, when it comes to paying maintenance fees, give yourself extra time (a month?) to have the office process the microentity certification. You won’t be able to pay the micro entities fees on-line until then.

  12. Doesn’t one also have to be a small business concern. The queries in your ‘Invention Disclosure Form’ do not seem to suffice.