The United States Patent and Trademark Office (“USPTO”) has reduced the patent fees for small businesses and certain other applicants. This fee reduction is part of an effort to reduce financial burdens and resulting barriers that discourage or prevent these entities from participating in the patent system. Most of these fee reductions have an effective date of March 22, 2023, with the remaining ones effective as of April 1, 2023.

Patents offer many advantages to individuals and companies. For example, they can increase the value of a business, provide an advantage over competitors, and serve as a source of income through licensing. In some industries, patents may even be essentially required to enter the market and compete successfully. However, the cost of obtaining and maintaining patents may be a barrier for individual inventors and small businesses to benefit from the advantage or enter certain markets. 

In 1952, Congress discounted patent fees for certain entities to reduce these barriers. The UAIA further increases the discounts as an additional incentive to encourage them to participate in the patent system.

Through a bipartisan effort, the U.S. Senate proposed the Unleashing American Innovators Act (UAIA) in September 2021. The goal was to provide better access to the patent system for a number of potential participants, such as individual inventors, small businesses, and underrepresented innovators.

The UAIA was signed into law on December 29, 2022, and included in the U.S. government’s spending package, the Consolidated Appropriations Act, for 2023. As a result, discounts for micro entities will increase from 75% to 80%, and discounts for small entities will increase from 50% to 60% relative to the regular, non-discounted fees. The USPTO is largely funded through the fees it collects. Therefore, as an offset for the decrease in these fees, the UAIA increased the USPTO’s spending authority.

To take advantage of these reduced fees, an entity must qualify as a micro entity or a small entity. For an actual determination of whether an applicant qualifies, it is necessary to study the full language of the rules. However, the following gives a summary of some of the basic requirements.

A small entity is defined under 37 CFR § 1.27 as any “person, small business concern, or nonprofit organization.” In general, a small business concern is a business that (1) “has not assigned, granted, conveyed, or licensed, and is under no obligation under contract or law to assign, grant, convey, or license, any rights in the invention to any person, concern, or organization which would not qualify for small entity status” and (2) has fewer than 500 employees. Further, anyone holding rights in the invention must also qualify as a small entity.

In general, an applicant qualifies as a micro entity under 37 CFR § 1.29 if (1) “[t]he applicant qualifies as a small entity”; (2) “[n]either the applicant nor the inventor nor a joint inventor has been named as the inventor or a joint inventor on more than four previously filed patent applications”; (3) “[n]either the applicant nor the inventor nor a joint inventor … had a gross income … exceeding three times the median household income for [the] preceding calendar year …”; and (4) “[n]either the applicant nor the inventor nor a joint inventor has assigned, granted, or conveyed, nor is under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the application concerned to an entity that … had a gross income exceeding three times the median household income for [the] preceding calendar year …”

If an entity meets the requirements to qualify as a micro entity or small entity, then the cost savings are substantial. However, the UAIA calls for increasing the penalties for falsely asserting micro entity or small entity status by adding language to Title 35 of the United States Code. Specifically, false assertions and/or false certifications of entitlement to a fee reduction “shall be subject to a fine, to be determined by the Director, the amount of which shall be not less than three times the amount that the entity failed to pay …, whether the Director discovers [it] before or after the date on which a patent has been issued.” It is left to the Director to issue rules on how these penalties will be enforced.

Therefore, not only is it important to select the proper entity status when filing a patent application, but it is also critical to recognize if and when an entity status changes. A change in entity status changes the required fees that must be paid during patent prosecution and maintenance periods.