The small entity status allows small businesses, independent inventors, nonprofit organizations to file a patent application and maintain an issued patent for a reduced fee—a 60% reduction.
Small Business Administration (SBA) regulations, discussed below, define "employees" and "affiliates".
The person seeking such status needs to simply file a verified statement in the patent application prior to paying the first fee as a small entity.
All individuals employed on a full-time, part-time, or other basis are counted in determining a business concern's number of employees.
The totality of the circumstances, including criteria used by the IRS for Federal income tax purposes, are considered in determining whether individuals are employees of a concern.
Small business concerns as defined by federal regulations for the purposes of receiving small-entity discounts on patent fees may have a maximum of 500 employees, including affiliates.
If the assignee of a patent application has difficulty determining for itself whether it qualifies for small-entity status, authorized SBA officials may make formal entity size determinations, based upon a specific patent application pursuant to USPTO rules.
Such determinations, which may be thought of as analogous to a private letter ruling issued by the IRS to resolve questions relating to federal taxation, are binding upon the parties.
Other SBA opinions provided to patent applicants or others are only advisory, and are not binding or appealable.
[citation needed] If an organization (including affiliates) has fewer than 500 employees, an application data sheet may be filed, the box as a small entity may be checked, and subsequently the small entity fees may be paid until the patent is allowed or a maintenance fee on a resulting patent is due.
At those points in time, the patent agent or attorney might need to send a notification of loss of small entity status.
[3][4] Changes to U.S. patent law in December 2012 created a sub-category of small entity status called "micro entity status"[5] for inventors who qualify for small entity status, but also have a gross income less than three times the current gross median income and have applied for no more than four patents previously, or who have[6] an association with an institution of higher education.
[7] Misrepresenting a firm's size status can result in suspension or disbarment, as well as civil and criminal penalties.
Moreover, all claims of a patent issued following an intentional misrepresentation of small entity status may be held to be unenforceable as the result of inequitable conduct, i.e., fraud upon the United States Patent and Trademark Office.