USPTO Clarifies and Expands Small Entity Status Exceptions

The US Patent and Trademark Office (USPTO) announced on December 4 a rule change to clarify and expand exceptions to small entity status, which primarily affects the fees that the USPTO charges patent applicants. Generally, if a small entity licenses a patent application or patent to a large entity, then large entity fees must be paid to the USPTO. The new rules clarify and expand exceptions where the patent application or patent is licensed to the US government. This rule change was promulgated to encourage independent inventors, small businesses, and nonprofit organizations to collaborate with the federal government and still qualify for the small entity patent fee discount for inventions made during the course of federally funded or supported research.

The rule change is being enacted to support independent inventors, small businesses, and nonprofit organizations that would otherwise lose their small entity status as a result of granting a use license to the US government, and would therefore have to pay full undiscounted patent fees to the USPTO.

Every party holding rights to an invention must qualify as a small entity in order to claim small entity status in a patent application. As a general rule, the US government is considered a large entity. The revised rule clarifies and expands the existing two exceptions and sets forth a third exception to this rule.

• The first exception applies to an inventor employed by the federal government and who retains title to the invention, but is obligated to grant the federal government a license to use the invention. The revised rule expands the exception to include certain government use licenses to a federal agency arising from an inventor’s retention of rights when the inventor is an employee of a small business or nonprofit organization contractor performing research under a funding agreement with the federal agency.
• The second exception, also referred to as the “federal licensing safe harbor provision,” prevents a small business or a nonprofit organization (“contractor”), which otherwise qualifies as a small entity, from being disqualified as a small entity due to a government use license to a federal agency when the contractor elects to retain title to the invention. In order to clarify what happens when a federal employee is a co-inventor with another inventor employed by the contractor, the revised rule explicitly provides that when the federal agency licenses or assigns all ownership rights with the contractor and retains only a license to use the invention, the exception still applies.
• The revised rule also adds a third exception for government use licenses for inventions made by a small entity under a cooperative research and development agreement (CRADA) with a federal agency. The revised rule provides that small business concerns and nonprofit organizations that have collaborated with a federal agency under a CRADA do not lose their small entity status as a result of a government use license where the invention was made solely by the employee of the small business concern or nonprofit organization, or where the federal agency has waived all ownership rights the government may have to the invention made by the small business concern or nonprofit organization.

The rule changes will go into effect on January 20, 2021.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, Dion M. Bregman (Silicon Valley), Alia M. Orbin, Ph.D. (Philadelphia), or Kelly A. Plummer, Ph.D. (Chicago), or any of the following lawyers:

Boston
Mark L. Hayman, Ph.D.

Chicago
Christopher J. Betti, Ph.D.

Houston
C. Erik Hawes

Philadelphia
Louis W. Beardell, Jr.
John L. Hemmer

San Francisco
Jeffry S. Mann, Ph.D.

Silicon Valley
Gary S. Williams

Washington, DC
Jeffrey G. Killian, Ph.D.
Robert Smyth, Ph.D.