Will Universities Benefit from their Micro Entity Applicants?

In an introductory post on the USPTO’s proposed rules: “Changes to Implement Micro Entity Status for Paying Patent Fees,” 77 Fed. Reg. 31806 (May 30 2010), my partner, Gary Speier, spent some time on new 35 USC 123(a), which defines a micro entity as an applicant (an “individual”) who qualifies as a small entity under 37 CFR 1.27; has not been named as an inventor on more than four previously filed applications, not counting foreign filings or provisionals, did not, in the year previous to the year in which the fee is paid, have a gross income greater than three times the median household income of the preceding year, and has not assigned and is not under an obligation to assign to a higher income entity.

Micro entities will receive a 75% reduction in fees related to filing, searching, examining, issuing and appealing patent applications and maintaining patents. Remember, micro entities are individual inventor-applicants but, in a situation in which they are university employees, and assign to their universities, it is the universities who will be paying the patent fees, and that will benefit from the micro entity status of their employees. Or will they?

The second basis under which an applicant may establish micro entity status is set forth in 35 USC 123(d). This part of the statute provides that a micro entity (“ME” as I am getting tired of typing the full term) shall also include an applicant who certifies that: (1) The applicant’s employer, from which applicant derives a majority of applicant’s income, is an institution of higher education (I will use the term “university”) or (2) the applicant has assigned… or is under an obligation by contract to assign, grant, or convey a license or other ownership interest in the particular applications to a university.

Now this is getting interesting, at least for university tech transfer departments faced with increasingly tight budgets. There is no income limit in parts 1 or 2. There is also no requirement that the university be entitled to claim small entity status, in order to pay micro entity fees for its employee – who could be a senior professor making a lot more than the about $150000 limit in 123 (a). In other words, as I wrote in the margin of the Fed. Reg. notice, “Would applicant lose micro entity status if the university loses its small entity status?” [e.g., by licensing the application to a big pharma company].

Of course, Director Kappos’ crew noticed this and provided the answer which is, “Yes!”: “Section 1.29(d)[of the CFR I assume] implements the provisions of 35 USC 123(d) [which] provides that an applicant claiming ME status under 35 USC 123(d) must certify that; (1) The applicant qualifies as a small entity as defined in [37 CFR 1.27]; and (2)[see above for requirement to get income from university or be under obligation to assign, etc.].” Now we all should be familiar with 37 CFR 1.27, which grants universities small entity status (50% fee reduction) until they license the application they own to a large entity. When this happens, the professor-inventor loses their small entity status as well, and loses their ability to use 123(d) to claim micro entity status.

As explained in the proposed regulations: “To the extent that [123(d)](unlike [123(a)]does not expressly require that an applicant qualify as a small entity under 1.27, the Office is invoking its authority…to expressly require that a party claiming ME status via 123(d) qualify as a small entity under 1.27. The legislative history of 35 USC 123 is clear that it is directed to a subset of small entities, namely ‘truly independent inventors’” However, these proposed regulations still benefit the university who has undertaken to absorb the costs of patenting a professor’s invention and is just “starting out” to commercialize it.

So long as the university can claim small entity status, the professor can certify entitlement to ME status and the university can pay his/her ME fees (which have not yet been published). The proposed regulations, 1.29(e), also appear to suggest that a university claiming small entity status in a pending application can cut its fees by asserting ME status. If the university’s status changes, it must inform the PTO at the time it pays the next (higher) fee, but there would seem to be the opportunity for some real savings here, particularly for universities that have built up large portfolios of unlicensed patents, but that want to keep them alive.

In a cautionary section, 129(j), the PTO warns that intentional misrepresentation of ME status will be considered a fraud practiced or attempted on the Office. Remember, Therasense did not affect 1.56(a), which says that whatever the PTO considers to be fraud on the Office will result in no patent being granted. It was section 1.56(b) that was proposed to be amended to state that the Therasense standards for materiality of information relevant to patentability would be followed henceforth. ME “fraud” tracks small entity “fraud”, so careful tracking of the status of pending applications remains essential. Still, given the mess that the AIA made out of going to “first to file”, it is nice to see some concrete monetary benefit to universities and their employee-inventors.

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