Why we never use “micro entity” status

We are all accustomed to “large entity” and “small entity” USPTO fees.  A small entity gets to pay half price for most USPTO fees, as compared with what a large entity would have to pay.

Micro entity status has been available since the AIA happened in about 2012. A micro entity gets to pay half price for most USPTO fees, as compared with what a small entity would have to pay.  That amounts to one-fourth of what a large entity would have to pay.

In the three or so years that have passed, our firm has never even once made use of “micro entity” status for a patent applicant in the USPTO.  Why?

I should mention that there are actually three kinds of “micro entity” status.

A first way to be a micro entity is to arrange for the applicant to be a small entity, and to arrange for the applicant to be someone (or something) other than an institution of higher education, and to arrange for the applicant to assign or promise to assign the invention to an institution of higher education.

A second way to be a micro entity is to arrange for the applicant to be a small entity, and to arrange for the applicant to be someone other than an institution of higher education, and to arrange for the applicant to be an employee of an institution of higher education, and to further arrange for the applicant to obtain the majority of his or her income from that institution.

A third way to be a micro entity is to arrange for the applicant to be a small entity, and to arrange for the applicant to not have been named on more than four previously filed patent applications, and to not have a gross income more than three times the median household income in the previous year from when the fee was paid, and not to have assigned, or licensed, or promised to assign, or promised to license, the invention to a non-micro entity.

(Each of these three kinds of micro entity is actually much more complicated — I have merely summarized the requirements and simplified the description.)

What I am commenting upon here is mostly the second and third kinds of micro entity status.

Imagine all of the work that has to be carried out at the time of filing a patent application, to work out whether or not the client counts as “micro”.  Check the client’s tax returns to see what the applicant’s income was.  Oh, the client is married but separated?  Check the tax returns of the estranged spouse too.  Click around the Internet to find out what the median household income was last year, and multiply that number by three.

Count the client’s previous patent applications.  Be sure to include the previous patent applications which were filed by some co-inventor who never told the client that his or she was named as a co-inventor.  Subtract off the previous patent applications that were provisionals, or that were filed by a previous employer.

Check to see how many employees the client has.  Is the number 500 or more?

If path two is being followed, check to see if the client had a lucrative summer job, or a lot of income from a MacArthur fellowship, or a lot of dividend income, so as to flunk the test of getting a majority of his or her income from the institution of higher education.

Okay, having done all this work, let’s imagine the client somehow seems to count as a micro entity.  What did all of that work cost?  Did the practitioner charge $250 for this work?  $500?

Then what?  What happens next is that during the next few years this work has to be done all over again.  Under the micro entity rules, the question of whether the applicant continues to count as a micro entity has to be investigated all over again every time another micro entity fee is paid to the USPTO.  So the time comes to respond to an Office Action and to pay for a twenty-first claim.  Shall we pay $20 (the micro entity fee) or $40 (the small entity fee)?   Well, the problem is that a year has gone by and the dollar amount of median household income is different than it was the previous year.  And in the year that has gone by, the client has filed another tax return showing a different amount of income than the previous year.  The estranged spouse may have scratched off a lottery ticket and won a lot of money and may not have mentioned this to the client.  The client has by now had another summer vacation to make a lot of money consulting for industry, perhaps no longer getting a majority of his or her income from the institution of higher education.

So maybe another $250 or $500 of professional fees need to be spent, to carry out a detailed investigation so as to permit a confident conclusion as to whether the correct fee to pay is $20 or $40.

The same question comes up again when the time comes to file an IDS ($45 or $90?) or to purchase a one-month extension of time ($50 or $100?).  Again the practitioner needs to round up a copy of the most recent tax return of the client, check on the latest developments in the life of the estranged spouse, and see whether the client did some lucrative consulting last semester.

But more subtly, from the practitioner’s point of view the problem is that the practitioner who has taken on a “micro” client obligation is required to remember to do this investigation over and over again.  This is so very different from the situation with a mere “small” entity.  With a mere “small” entity you only need to evaluate “smallness” twice — once when the patent application is filed and again when the issue fee is paid.  On the other hand with a micro entity the practitioner has to remember to re-evaluate “micro-ness” maybe half a dozen times during the pendency of a patent application.

You can see where this is going.  Our feeling is that in many and perhaps most real-life client situations, the professional fees that we would have to charge to cover our time on the many and repeated “micro-ness” evaluations would dwarf the fee savings to be obtained by being “micro” instead of merely “small”.

In fairness to the discussion I will mention that I have spoken with several patent practitioners who report that they always make use of micro entity status for the clients whenever it is possible to do so.  These practitioners say that they feel it is encumbent upon them to carry out the “micro-ness” investigations at no charge to the clients.

What do you think?  Please post a comment.


12 Replies to “Why we never use “micro entity” status”

  1. That is one way to handle it (the practitioner as the private investigator). The other option is to trust your client. When they tell you they are a sole inventor do you survey their peers to confirm? When they tell you they have less than 500 employees do you ask for payroll data to check? When they tell you they don’t know of any material prior art do you research this? I assume the answer is “no” in which case you are trusting your client to provide you with truthful information. I feel the same way about micro entity status.

    Feel free to delete this part as I am not trying to spam this blog which I read regularly but I created an online calculator (link may be above) which forces my clients to go through systematic questions to determine micro entity status and then sign an affidavit certifying that their information is true. This lets me get them the lowest possible fee level and gives me documentation to show the USPTO that I asked the proper questions to determine this. As a side note the calculator is free and I have no intention of charging money for it in the near future.

  2. Carl – The micro entity program does involve a bit of extra work, but it makes a world of difference for the “mom & pop/garage” inventors, especially with extension of time and RCE fees during prosecution when cash flow often has a direct impact on prosecution decision making.

    A couple of points: Marital status doesn’t matter even though the term “median household income” is used as a determining factor: From the PTO’s AIA FAQ page available at http://www.uspto.gov/patent/laws-and-regulations/america-invents-act-aia/america-invents-act-aia-frequently-asked: “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.”

    Also, the PTO tells us exactly what the Maximum Qualifying Gross Income is at http://www.uspto.gov/patent/laws-and-regulations/micro-entity-status-gross-income-limit (currently $155,817) so there’s no need to click around the Internet.

    I’m not saying that complications can’t arise with determining micro entity status, and it can be uncomfortable discussing something as personal as income with a client, but it hasn’t yet been a burden in my practice and it does give more inventors access to the patent system.

  3. You appear to be exaggerating the effort required by the practitioner in claiming micro status for an applicant.

    5 U.S.C. 123 states ” For purposes of this title, the term “micro entity” means an applicant who makes a certification that the applicant— (detailed requirement follows)”.

    That would appear to mean that it is the applicant making the certification, not the practitioner. So a simple form letter – updated once a year to include the latest median household income – sent to the applicant explaining the requirements – along with the penalty for misinformation. If the client signs the document saying they are a micro-entity, file the signed document along with the micro-entity fee.

    A pretty simple administrative procedure as almost all clients know, in great detail, their incomes, sources of income and patent history. Moreover, if their signed certification is false, it is they who are on the hook, not the law firm.

    For a $20 fee reduction, it may not be important, but for an individual entrepreneur in a start up, being able to file for Track 1 prioritized examination for an addition fee of only $1000, the saving of $1000 over being a small entity – and $3000 over being a large entity, may be of enormous importance. In addition to the savings, they get a tremendous boost to the credibility of their business as Track 1 really works and can result in a patent being issued in way less than 1 year.

    Your red-herrings of “estranged spouses with winning lottery tickets”, “forgotten MacArthur grants” or “someone including you on a patent without you knowing” are far-fetched. 1. It is the applicant’s individual income that matters, not their household income. 2, Whoever forgot that check from the MacArthur Foundation?. 3. How can an application be filed with an applicant as a co-inventor without a signed declaration from the applicant?

    You seem to be trying too hard to find an excuse for carrying out a very simple, low cost administrative task that may be of considerable financial benefit to some of your clients.

    Maybe you have forgotten what it is to be a struggling entrepreneur, maxing out your credit cards just to get you business afloat – including paying what can appear to be outrageously high bills from your patent lawyers and USPTO fees? They are the people for whom micro-entity status is intended, not the already successful enterprise to whom a few thousand dollars extra on their legal fees is not even noticed.

  4. As others have said… you rely on the client to assert same. I tell the client the requirements and tell them to sign the document only if they’re sure and put in my filing report that they must notify me if the situation changes or they can expect their patent to be anything up to invalid. I write similarly for the IDS requirement.

    That being said… it’s a pain to explain and takes extra time and I do bill for the that time once per application. Basically, some of the fees they save for filing are income to me and they’ll save on further fees down the road with prosecution.

    I do agree that I wouldn’t want my income like that being public record. Try suing for infringement as a micro-entity … I’d take the plaintiff a lot less seriously if they even can get to court in the first place.

    The other issue is I’m pretty sure it’s $156k *gross* income, not net. That makes no sense.

  5. Can someone define “gross income” for me please? Is it the same as ADJUSTED gross income? I am assuming that it is not. If it is not AGI, then for example do we include all rental income from a rental unit independent of maintenance costs? This term “gross income” seems very vague.


  6. Wow! So many problems with micro-entity. Well, yup, I agree. I have a spreadsheet with a bunch of questions for the inventor and it generates a YES/NO result at the end. Helps a bit.

    Here is the bigger problem. Most “real inventors” are prolific. Suppose three people invent something and they are probably in a startup. What are the odds that NONE of them is named on more than four applications? And NONE of them has the magic income limit (prior startups and all that). Half my clients don’t even know what applications they might have been listed on. Sure, somebody comes to you with a brilliant piece of garden equipment — your best client ever.

    I have an idea, let’s reward the nation’s best inventors with … NOTHING!

    Never let it be said that Congress hurt themselves with backslaps.

  7. I don’t see on the Certification of Micro Entity Status where one has to reveal their income. Just certify that they are below the current limit.

    My name has been on 26 patent applications (12 granted, 14 abandoned). Does that make me a “real inventor” or a “prolific inventor”? However, I qualify for micro entity because I was obliged to assign all 26 applications to my employer at the time.

  8. What kind of micro-entity can afford a lawyer? I file patent applications Pro Se because Social Security and my minuscule retirement income wouldn’t pay a lawyer for a day’s work.

    The bigger problem for any Pro Se inventor is the procedural IEDs that the Patent Office likes to salt around. I’ve filed 5 NPPAs, but don’t see anything on the micro entity form about that number. And the biggest problem of all is the way the Office treats at least one Pro Se micro-entity – 4 or 5 times now, the Office has tried to get me to sabotage my own applications, once even telling me that I had to mark any amendment as “new material”. Not to mention the outright lies about what appears on my forms or in my applications. For example, I recycle my fillable PDF forms, deleting old information and putting in new for the next application. One time a form went through with backward slashes on my “digital signature”. The next time, the Office repeatedly claimed that my mailing address was missing, while sending notices to that same address. We had several rounds of paperwork until I hand-underlined the address that had always been there, and by hand struck through the “bad” signature and hand-signed an underlined signature.

    My second patent examiner insisted that the most patentable part of my 20+ original claims was “eliminating duplicates”. Then, when I salted that throughout the amended claims, turned around and use it to attack the application. In one e-mail, he claimed that my invention was “obvious” because he stuck his favorite term into a term search and got 14,000 hits. I stuck “flat earth” into Google and got 11,000,000. Can you say “super-obvious”?

    On my third application, I accidentally split a table in the Specification over two pages. I got a notice back citing those pages and several others, claiming that I would have to turn several items into drawings and rewrite the Specification to describe them. But not a single item was identified as erroneous. Apparently I was supposed to read that person’s mind.

    It’s more fun and reasonable doing my taxes. The IRS never pulls this kind of crap on me, not even when I did income averaging and depreciation years back. I make an honest mistake, and they fix it for me and move on. No endless rounds of paperwork, while dealing with hostile and not very competent prima donnas.

    We need a blog for this stuff, detailing the lengths to which the Patent Office will go to discourage ordinary inventors from filing for patents. But I’ve gotten too old to handle that kind of grief, and I have a publishing agreement to write a textbook based upon the details of my patent applications. I’m into Chapter 7. Maybe I’ll write a chapter on “working with” the Patent Office.

    1. Dear Donald L. Baker, Ph.D., would love to read your book, and am sure will be in total agreement with your thoughts on the PTO staff!

  9. All of this is a fantastically great argument for the Utility Model patent which most of the world enjoys (such as China for example) but the US does not. This is one of the ways China “cheats” along with the use of interchangeable parts instead of a never ending series of replaceable parts.

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