Pursuing patent protection in multiple countries can be expensive. Whilst cost is always important, for some small companies, reducing expenditure is currently paramount to survival during the enforced global slowdown.
All intellectual property offices around the world charge official fees. These fees can be significant, especially when applying for a patent in multiple jurisdictions. Small companies may be able to claim small or micro entity status; these entities pay lower official fees, and thus protection in multiple jurisdictions may become economically viable for a small company.
Before taking this approach, however, small businesses should consider carefully whether, and where, they might qualify as a small or micro entity.
What is a small entity?
An applicant must fulfil certain criteria, which differ by country, to qualify as a small or micro entity. Usually, an applicant must be either a small or medium-sized enterprise, or a not-for-profit institution such as a university or research institute. Individuals or a group of individuals that do not have a substantial patent application portfolio may also qualify. An applicant could qualify as a small entity in one jurisdiction, but not in another, apparently comparable jurisdiction. This can lead to potential pitfalls.
Is claiming small entity status worth it?
Having considered examples from the U.S., Canada and Japan in the following discussion, the short answer is – as is often the case – it depends.
Where official fees are relatively low, asserting small entity status is almost always not worth the added work required, or the risk of losing patent rights. In jurisdictions where the potential benefit is greater, claiming small entity status is almost always worth the minimal additional formalities.
Which countries offer small or micro entity status reductions?
The United States Patent and Trademark Office (USPTO) offers fee reductions for small and micro entities and, as the discounts are significant, many applicants take advantage of these. Small entities may receive a fifty percent reduction in official fees and renewal fees, while micro entites may receive a seventy-five percent reduction. This is a significant saving, for example, when the standard renewal fees due at 3.5 years and 7.5 years are USD 2,000 and USD 3,760, respectively.
Canada also offers discounts on all official and maintenance fees for small entities. There is no micro entity status in Canada. Like the U.S., Canada gives a fifty percent discount in fees to small entities. But, as the official fees are substantially lower than those in the U.S., the potential savings are not as significant. The non-discounted renewal fees due each year on a Canadian patent are CAD 100 per year, up to the fourth year. The renewal fee due each year for the fifth to the ninth year is CAD 2001. Thus, there is less benefit to be gained by paying fees as a small entity in Canada.
Japan offers discounted fees to academic applicants, small companies, micro entities and startups. For academic applicants, care should be taken to ensure that commercial activities do not negate their eligibility. Small entities can save significantly on fees. For example, the fee to file an examination of an application with 25 claims is around USD 2,300. A small entity could pay USD 9201. The discount applies to the examination fee and all annuities up to ten years, leading to a significant saving. The discount for startups and micro entities is even larger.
A range of other jurisdictions offer discounts to applicants who qualify as small or micro entities. Each of these jurisdictions have their own schedule of discounts and qualifying criteria that vary from jurisdiction to jurisdiction making the process of applying for a small entity status more complicated.
What or who qualifies for small or micro entity status?
The answer varies among jurisdictions.
To qualify as a small entity in the U.S., an applicant must satisfy one of the following criteria:
- Have fewer than five hundred employees
- Be a non-profit organization or an independent inventor or other individual
A university may qualify as a non-profit organization, but this depends on its commercial activities. Small entity status is available for an application provided the applicant has not assigned, granted, conveyed or licensed any rights in the invention to a non-small entity and are not under any obligation to do so.
The location of the entity is unimportant (e.g. a U.K. company or university may qualify in the U.S.). Micro entity status dictates that the inventors must qualify as a small entity and additionally:
- Must not have been named on more than four previously filed U.S. applications
- Must have a gross income less than three times the current gross median income in the U.S.
- Have no legal obligation to assign, grant, convey or license any rights in the invention to an entity that does not meet these criteria
An applicant whose employer (the entity from which the applicant obtains the majority of his/her income) is a higher education institution (HEI), or where the applicant has assigned, granted, conveyed, or is obligated by contract or law to assign, grant, or convey a license or other interest in the application to an HEI, may also qualify as a micro entity.
The Canadian Patent Rules define a small entity as one that employs fifty or fewer employees, or a university. An applicant may not claim small entity status if it is controlled by a non-small entity or has transferred or licensed or has an obligation (other than a contingent obligation) to transfer or license any right in its invention to an entity (other than a university) that employs more than fifty employees. The applicant must determine whether it is eligible and submit a small entity declaration before or when fees are paid, if a declaration is not already on file. This needs to be submitted once and will apply for all future fee payments.
The situation in Japan is more complex. The criteria determining whether an applicant qualifies as a small entity varies by business sector. For example, a small entity in the manufacturing sector can have up to three hundred employees, whereas a small entity involved in rubber product manufacturing (see the table below) may employ up to nine hundred people. In addition, businesses in different sectors may own varied amounts of capital, and still qualify as a small entity (see the table below).
To qualify as a micro entity in Japan, a company must have less than 21 employees, unless the applicant business is in the commercial or service industry. These entities have an upper limit of six employees.
A company that qualifies for a discount as a startup small entity must be under ten years old and have less than JPY 300m in capital.
It quickly becomes clear that there are many opportunities to lower fees, but there are also many potential pitfalls.
|Industry||Number of regular employees||Amount of Capital|
|Manufacturing, construction, transport, and other industries except for categories (b)-(g)||up to 300||up to 300 million JPY|
|Wholesale||up to 100||up to 100 million JPY|
|Services other than categories (f) and (g)||up to 100||up to 50 million JPY|
|Retail||up to 50||up to 50 million JPY|
|Rubber product manufacturing (excluding automobile or aircraft tire and tube manufacturing industry and industrial belt manufacturing industry)||up to 900||up to 300 million JPY|
|Software industry & information service industry||up to 300||up to 300 million JPY|
|Hotel industry||up to 200||up to 50 million JPY|
Table 1: Small Entity status criteria in Japan
What are the risks of incorrectly claiming small entity status?
The answer is not clear-cut and varies among jurisdictions.
In order to claim small entity status in the U.S., it is necessary only to make a simple declaration that the applicant meets the required criteria. Paying the exact amount of the basic filing fee (or national phase entry fee) due by a small entity is treated as a written assertion of entitlement to small entity status. This may be a simple procedure, but if the fee is paid in error (i.e. the applicant is not entitled to small or micro entity status) then the balance must be paid with the appropriate surcharge.
The ultimate risk in the U.S. is that the patent is unenforceable. Although this is rare, an opponent may use the incorrect status to attack the enforceability of the patent during proceedings, therefore leading to large or increased litigation costs to defend the patent.
Care must be taken where an applicant has been granted small entity status, but changes to the entity mean it no longer qualifies. In this case, the USPTO must be informed. Failure to do this could ultimately result in the loss of the patent or patent application. This is rare but could cost a substantial amount in litigation fees if the status is challenged.
Claiming small entity status in Canada is similarly straightforward, requiring a simple declaration made at the time of filing.
The consequences of incorrectly claiming small entity status in Canada appear to be much more serious than in the U.S. The Dutch Industries 2001 decision of the Federal Court of Appeal stated that the entity status of an application does not change over its lifetime, so there is no requirement to update the Canadian Patent Office if the applicant no longer qualifies as a small entity. However, the Federal Court of Appeal also made it clear that if small entity status is incorrectly claimed at the time of filing there is no way to rectify this later. Therefore, an incorrect entity status renders the patent invalid – a severe consequence and a potentially unacceptable risk for very little financial gain.
Until April 2019, asserting small entity status in Japan was a laborious process that required filing multiple documents (in Japanese) as proof of entitlement. The onerous requirements meant that any savings on official fees were easily offset by the substantial additional work required by both local and Japanese agents. These requirements were simplified in April 2019, to bring them more in line with the U.S. All that is required is a simple statement by the applicant indicating the category under which the applicant qualifies.
 Fees accurate as of 12 November 2020