A “Small Entity” is a party who is entitled to pay certain PTO fees associated with patent prosecution at a reduced rate, usually 50%.
In the early 1980s, Congress substantially raised many of the PTO fees associated with patent prosecution and introduced some new fees that had not previously been charged, such as issue fees and maintenance fees. To help off-set the burden this would cause for smaller or non-profit parties, Congress also introduced the Small Entity Status.
PTO rules define a Small Entity as an individual inventor or inventors, a small business concern, or a nonprofit organization. In order to qualify as one of these three types of entities, none of the rights associated with a patent or patent application may have been assigned or licensed to any party that would not qualify for Small Entity Status, nor must there be any obligation on the part of the small entity to make such an assignment or license.
In other words, IBM cannot set up a small holding company for all of its patents in order to qualify for Small Entity Status if it wishes to retain any rights in the patents. Nor can IBM pay Small Entity Fees and wait until the patent issues to assign it to the company if the inventor(s) had an obligation to assign the invention to the company at the time of filing.
The rules define a Small Business Concern as a company having fewer than 500 employees. The rules define a Nonprofit Organization as a university, 501(c)(3) organization, or a scientific or educational organization under any state law or in a foreign country. If an individual inventor, small business concern, or nonprofit organization licenses the patent or patent application to a company that doesn’t qualify for Small Entity Status, the full price fees must be paid at the PTO.
Previously, the PTO 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 Small Entity Fees is sufficient.
If a small entity pays large entity fees, the small entity may request a refund of the overpayment. Conversely, if Small Entity Fees are paid by an entity that is actually a large entity, it can usually be corrected by simply paying the required deficiency, if the incorrect amount was paid in good faith. The rules do warn, however, that fraudulently paying Small Entity Fees when the applicant is not entitled payment of such fees can result in the resulting patent being held unenforceable due to inequitable conduct.
The PTO notes applicants have a contiuing duty to conduct a thorough investigation of the facts surrounding a claim of Small Entity Status. The facts should especially be revisited at the times of paying the issue fee and maintenance fees. For example, a patent issued to a Small Entity may have been licensed to a non-small entity between the time of its issuance and the time to pay a maintenance fee, or the company itself might have grown to more than 500 employees, making Small Entity Status inappropriate.