[author: Courtenay C. Brinckerhoff]

A Federal Register Notice set to publish on May 30, 2012, sets forth the USPTO’s proposed rules for implementing the Micro Entity provisions of the America Invents Act (“AIA”). The proposed rules closely track the new law, but the USPTO seeks input on one important issue of statutory interpretation. Public comments on the proposed rules should be submitted by July 30, 2012.

The New Statutory Definition

The AIA defines Micro Entity in new 35 USC § 123:

35 USC § 123. Micro entity defined

(a) IN GENERAL.—For purposes of this title, the term ‘micro entity’ means an applicant who makes a certification that the applicant—
(1) qualifies as a small entity, as defined in regulations issued by the Director;
(2) has not been named as an inventor on more than 4 previously filed patent applications, other than applications filed in another country, provisional applications under section 111(b), or international applications filed under the treaty defined in section 351(a) for which the basic national fee under section 41(a) was not paid;
(3) did not, in the calendar year preceding the calendar year in which the applicable fee is being paid, have a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986, exceeding 3 times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census; and
(4) has not assigned, granted, or conveyed, and is not 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, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income, as defined in section 61(a) of the Internal Revenue Code of 1986, exceeding 3 times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census.

(b) APPLICATIONS RESULTING FROM PRIOR EMPLOYMENT.—An applicant is not considered to be named on a previously filed application for purposes of subsection (a)(2) if the applicant has assigned, or is under an obligation by contract or law to assign, all ownership rights in the application as the result of the applicant’s previous employment.

(c) FOREIGN CURRENCY EXCHANGE RATE.—If an applicant’s or entity’s gross income in the preceding calendar year is not in United States dollars, the average currency exchange rate, as reported by the Internal Revenue Service, during that calendar year shall be used to determine whether the applicant’s or entity’s gross income exceeds the threshold specified in paragraphs (3) or (4) of subsection (a).

(d) INSTITUTIONS OF HIGHER EDUCATION.—For purposes of this section, a micro entity shall include an applicant who certifies that—
(1) the applicant’s employer, from which the applicant obtains the majority of the applicant’s income, is an institution of higher education as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)); or
(2) the applicant has assigned, granted, conveyed, or is under an obligation by contract or law, to assign, grant, or convey, a license or other ownership interest in the particular applications to such an institution of higher education.

(e) DIRECTOR’S AUTHORITY.—In addition to the limits imposed by this section, the Director may, in the Director’s discretion, impose income limits, annual filing limits, or other limits on who may qualify as a micro entity pursuant to this section if the Director determines that such additional limits are reasonably necessary to avoid an undue impact on other patent applicants or owners or are otherwise reasonably necessary and appropriate. At least 3 months before any limits proposed to be imposed pursuant to this subsection take effect, the Director shall inform the Committee on the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate of any such proposed limits.

As explained in the Federal Register Notice, “the median household income for calendar year 2010 (the year most recently reported by the Bureau of the Census) was $49,445.” This means that the income limit specified in the statute and rules “is $148,335 for calendar year 2010.”

The Proposed Rules

The proposed rules are set forth in new 37 CFR § 1.29. They closely track § 123 and also borrow from current Small Entity procedures. Some key principles embodied in the proposed rules are outlined below:

Who Can Qualify As Micro Entity?

~ To conform with Congressional intent to address the needs of “a group of inventors who are even smaller [than small entities],” the proposed rules provide that only applicants who qualify as a Small Entity can qualify as a Micro Entity and only applications that qualify for Small Entity status can qualify for Micro Entity status.

~ The proposed rules interpret § 123 as creating two independent ways to qualify as a Micro Entity: under § 123(a) (small inventors who satisfy income limits) or under § 123(d) (inventors employed by a U.S. institution of higher learning or applications assigned/licensed to a U.S. institution of higher learning).

~ The commentary in the Federal Register Notice indicates that if an application names more than one applicant, each applicant must meet the requirements of either § 123(a) or § 123(d). Importantly, the Federal Register Notice states that where there is more than one applicant, the income level requirement in § 123(a)(3) applies to each applicant’s income separately. Similarly, if an applicant assigns or is obligated to assign the invention to more than one assignee, each assignee must meet the Micro Entity requirements (either by meeting the income limit specified in § 123(a)(4), or by being an institution of higher education under § 123(d)).

How Is Micro Entity status established?

~ Micro Entity status must be established by filing a Certificate before/simultaneously with a Micro Entity fee payment.

~ Micro Entity status must be established in each patent application (even divisional and continuation applications).

~ Micro Entity status must be verified each time a Micro Entity fee payment is made.

What happens when Micro Entity status is lost?

~ A Notification of a loss of entitlement to Micro Entity status must be filed before/simultaneously with paying any fee after Micro Entity status is lost. (Mere payment of a higher fee is not sufficient.)

~ If a Notification of a loss of entitlement to Micro Entity status is filed, a written assertion of Small Entity status is required to obtain Small Entity status.

~ Once a Notification of a loss of entitlement to Micro Entity status has been filed, a new Certification of entitlement to Micro Entity status is required to again obtain Micro Entity status.

What happens if Micro Entity status is claimed erroneously?

~ According to the proposed rules, any attempt to fraudulently establish Micro Entity status or fraudulently pay a Micro Entity fee shall be considered a fraud on the Patent Office.

~ If Micro Entity status is established in good faith but in error, or if notification of loss of Micro Entity status was not made through error, the error will be excused upon compliance with procedures similar to those currently available for Small Entity status.

When will Micro Entity fees be available?

Micro Entity fees will be available once the USPTO exercises its new fee-setting authority, and will apply to fees for filing, searching, examining, issuing, appealing, and maintaining a patent/application.

The USPTO’s Question

The Federal Register Notice highlights the use of the term “applicant” in the statute. According to the Federal Register Notice, as of the date of enactment, “applicant” was synonymous with “inventor.” However, as of September 16, 2012, an application can be filed by “a person to whom the inventor has assigned or is under an obligation to assign the invention,” or by “a person who otherwise shows sufficient proprietary interest in the matter” (on behalf of and as agent for the inventor). In view of this change in terminology, the USPTO invites public comment on whether any use of the term “applicant” in the Micro Entity definition should be replaced with the term “inventor.”

A Step Towards Clarification

Even though the proposed rules closely track the statutory language, I find that they clarify several important issues. I found the statute confusing as to whether § 123(a) and § 123(d) set forth independent ways to qualify for Micro Entity status, but the USPTO’s interpretation appears to be consistent with Congressional intent. I also found the statute confusing as to the treatment of applications with multiple inventors. Again, my initial impression is that the USPTO’s interpretation makes sense.  I also wondered whether the ability to qualify as a Micro Entity under § 123(d) by granting a license to an “institution of higher learning” might permit exploitation of the Micro Entity framework by applicants who otherwise would not qualify, but the USPTO’s requirement that all Micro Entities qualify as Small Entities may address my concerns.

One issue that remains confusing is how applicants will be able to establish that they satify the income level requirement (based on income “in the calendar year preceding the calendar year in which the applicable fee is being paid”) when the Census Bureau appears to be so far behind in publishing median household income data. The statute appears to permit qualification based on the median household income level “most recently reported by the Bureau of the Census,” but it is striking that as of mid-2012, the latest data available is from 2010.

As to the “applicant” question raised in the Federal Register Notice, my initial reaction is that “applicant” should mean “inventor” in all instances, but I need more time to think through possible scenarios before I will be ready to provide input on that issue.