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TechRoadmap Directions
Intellectual Property Issues for High Tech Companies
Vol 4 Issue 3 March 2004

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Are You a Small Entity?

Thinking Small Can Be a Big Pain

Tip of the Month

IP Links of Interest

On-Line Patent Glossary


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Directions is a newsletter from TechRoadmap Inc. discussing intellectual property issues and ideas. We hope to stimulate you to examine and improve your own IP practices. (You can change your subscription options with the link at the bottom of the page)


The US Patent system recognizes the difference between large and small entities. Large companies are presumed to have greater financial resources than small companies, so the fees for small companies are set at 50% of those for large companies.

The reduced fee structure applies to almost all required Patent Office fees, but not to fees for elective USPTO services (for example, the $900 fee for an expedited examination is NOT reduced). While filing as a small entity can save your company thousands of dollars, thinking small now can cause big headaches later for companies with aspirations to grow. To see what happened to one 20-person company, read Thinking Small Can Be a Big Pain.

  • Are You a Small Entity?
  • TechRoadmap combines technical expertise with patent experience to function as your Director of Intellectual Property. We work closely with your patent attorney to ensure your status is properly certified.

    Review our services.

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  • Thinking Small Can Be a Big Pain

  • No intelligently managed company will pay double the required fee for a government service, right? Well, as a lawyer might say, it depends. The USPTO offers "small entities" a 50% discount on most of its mandatory fees - fees like the basic filing fee ($770), multiple dependent claim fee ($290), Issue fee ($1330), and the maintenance fees ($910, $2090, and $3220). Clearly, a small company can save thousands of dollars over the life of a patent by certifying that it is a small entity.

    And a small entity is not all that small. The USPTO uses the SBA definition that a small company is one with fewer than 500 employees (including affiliates). The majority of high tech start ups will remain smaller than 500 employees for many years and many may remain small entities forever by taking the licensing route to profitability. So where's the rub?

    The trap for small entities is forgetting about the circumstances that effect their status. You start out as a small company, but lose your small entity status by licensing your invention to a large entity , by merging with another small company, or by being bought by a large entity. Certifying your small entity status is serious business to the PTO. PTO rules warn that an attempt to fraudulently affirm small entity status may result in unenforceability of your patent.

    In a recent case before the Court of Appeals Lex Computer & Management Corp. appealed the summary judgment of the lower court that invalidated their patent for improperly claiming small entity status. Lex has never had more than 20 employees and properly filed for and was issued a patent as a small entity, paying half the standard fees, as it did 3.5 years later for the first maintenance fee. Subsequently, however, Lex granted a non-exclusive license to a large entity but continued to pay the 7.5 and 11.5 year maintenance fees as a small entity.

    Lex defended itself pointing out that the small entity certification document does not repeat the statutory limits on being a small entity, that the company honestly and reasonably misinterpreted the definition as applied to a non-exclusive license, that their patentattorney was unaware of the licenses, and that common sense dictated that they would not jeopardize $10 million in license fees for the sake of saving about $2500 in maintenance fees.

    The appeals court felt "This case presents significant questions concerning the standards for rendering patents unenforceable for misconduct before the PTO in connection with claims of small entity status." The court made it clear that it requires evidence of an intent to deceive the PTO, not just evidence of, say, pure negligence in determining one's status, to invalidate one's patent.  Because there were genuine issues of material fact remaining as to Lex's intent, the appeals court remanded the case back to the lower court.

    Although Lex will probably be able to prove it had no intent to deceive, in this ruling the Appeals Court has actually lowered the bar for invalidating a patent, making the standard that of "inequitable conduct" rather than common law fraud. Under this standard your attorney's failure to ask about licenses might be considered intentional. The PTO says a patentee "has a duty to investigate [its] entitlement to small entity status to the fullest extent.It is important to note that small entity status must not be claimed unless [you] can unequivocally make the required self-certification."

    Read this article on line.

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  • Tip of the Month
  • Consider whether the risks outweigh the potential cost savings of asserting small entity status at all:
    • Track you licensees: - While it may be difficult to track the small entity status of your licensee, it is your patent that's on the line if the licensee grows from a small to a large entity. An IP database with updated information will help at maintenance fee time.
    • Know your corporate cousins: - When two companies merge the small entity status is based on the total number employees at the acquired and acquiring companies. Be particular aware when the merged entities operate independently, since it is easy to forget to count your merged partner.
    • Question your patent attorney: - Often your patent attorney doesn't know what licenses your corporate counsel has executed. When you are presented with a form to sign ask what it is and why you have to sign it. The attorney may have prepared the form based on outdated information!
    On-line version of the Tip of the Month

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  • IP Links of Interest
  • US Patent office - Searchable database of all US Patents and, now, published patent applications.
    The Patent Cafe - an on-line source of interesting insights into current IP issues.
    EKMS Inc. - a company with whom we've worked that provides a range of IP management services including portfolio analysis, deal-making, and process improvement.

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  • On-Line Patent Glossary
  • Industry's Best Glossary
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    Newsletter copyright 2003, TechRoadmap, Inc. Nothing in the preceding articles should be construed as legal advice. TechRoadmap Inc. serves as an interface between companies and their legal counsel.


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