Evolution of the Micro Entity

Today, as the last bit of the America Invents Act goes into effect, the Patent Office introduces a new fee structure.  Some fees are going up, some fees are going down (Patently-O has a nice article comparing new fees to old).  The micro entity status is now introduced and effective, and promises to save some inventors a little bit of money and create a huge logistical hassle.

Previously, two types of entities existed: large and small.  Small entities paid half the fee that large entities did.  By law, small entities are individuals and independent inventors who have not assigned or licensed their patent to a large entity.  Small businesses are defined under the SBA, and are typically considered as companies with less than 500 employees.  Nonprofit organizations, such as universities and nonprofit scientific or educational organizations, were also considered small entities, provided they have not assigned or licensed the patent rights to a large entity.

The AIA has created a third entity: the micro-entity.  Micro-entities get to pay 75% of the large entity fees – 50% of the small entity fees – but the restrictions placed on the definition of “micro-entity” are daunting.  A micro-entity must meet four requirements:

• it first qualifies as a small entity;
• it has not been named as an inventor in more than 4 previously-filed patent applications;
• it has not, in the last calendar year preceding the year in which the fee is paid, had a gross income (as defined in Section 61(a) of the Internal Revenue Code of 1986) which is greater than 3 times the median household income for that preceding year, as most recently reported by the Census Bureau; and
• it has not assigned, granted, or conveyed any ownership interest in the application to an entity that made more than 3 times the median household income.

Got that?  The first requirement is fairly easy to knock out.  We do it all the time.  The second requirement can be more tricky.  Some inventors forget they have been named in patent applications, particularly if their role was relatively minor (they may have contributed only a small bit of material claimed in an application).  So the attorney is probably going to look up each inventor before quoting the government fee.  If an application names several inventors, this grows a bit burdensome.

The last two requirements are really the stumbling blocks, for a few reasons.  First, attorneys generally don’t want to know – or don’t want to ask, at least – how much money their clients made.  It is a subject most consider rude, and it is especially awkward to ask a client how much he or she made before quoting them a fee.  Clients may be suspicious that the fee they are given has been adjusted after answering an income question.  Second, even if the client does tell the attorney how much he or she makes, now the attorney has to check that against the median household income.  This would seem to require a little research into the depths of the Internal Revenue Code and the Census Bureau both.  However, digging into the finalized rules on the AIA micro-entity status, the rules state that the Patent Office will provide this information on its (most difficult to read) website.  Well, I couldn’t find it.  But, the Patent Office does have a form for asserting micro-entity status, and a link on that form shows that the three times the median household income is $150,162.00 a year.  Houston, we have a number.

Unfortunately, the story doesn’t stop there.  Micro-entity status must be checked each time a fee is paid.  This can be quite frequently, depending on the examination of the application.  If a client’s income changes from year to year, the number will have to be checked each year.  So each time a fee is paid, the attorney will have to go through the rigamarole of asking a client how much he or she made last year, whether he or she has filed other patent applications, and then comparing his or her income to the rest of the US.  I predict that we won’t see many filings made under the micro-entity status because of the administrative burden on the attorney.