There was a piece last week in The American Spectator that argues that the 1998 SCOTUS decision Clinton v City of New York is the worst supreme court decision ever. That decision said that the line-item veto was unconstitutional. The author argues that by forcing the president to either approve or veto the Congressional spending bill in its entirety – a veto resulting in a shut-down of the federal government – all sorts of junk that would never get enacted otherwise now gets thrown into the spending bill. If what happened with patent legislation last week is any indication, the author seems to have a point.
Tucked into the spending bill that Joe Biden signed into law on December 29 were several amendments that change 35 U.S.C., which is where most of the statutory language governing patents is found. (Hat tip to Scott Nielsen for the link; search for the word “unleashing” to find the relevant part.) The amendment with the most immediate effect was the change in fees for small entity and micro entity patent applicants. If you’re already familiar with small and micro entity fees, skip ahead a few paragraphs. If not, keep reading.
Small entity fees have been around since before I started working in patents in 1995; these were meant to give small companies a break when seeking (or to remove a disincentive to seeking) patent protection, and provided a 50% reduction on certain PTO fees, most notably filing, search, examination, extension of time, and maintenance fees. Micro entity fees are a newer creature, the result of the 2011 “America Invents Act”, and these have hitherto reduced certain fees by 75%, but there are more requirements to qualify for micro entity status than there are to qualify for small entity status.
Both micro entity and small entity status are asserted by the applicant/patentee at certain times in the lifetime of an application or patent (upon initial filing, upon payment of the issue fee, and upon payment of each maintenance fee), and normally the status is not something the PTO checks or even has the wherewithal to check. Nevertheless, I’ve never filed an application for someone claiming microentity status, and I know other practitioners who are in the same situation: we think that the cost of verifying entitlement to microentity status (in attorney time) outweighs the additional 25% fee reduction over the 50% small entity reduction. Micro entity status is thus an example of a nice idea that’s poorly implemented.
Small entity status, on the other hand, is easier to verify, because the way in which “small entity” is defined is fairly straightforward: if the application or patent is owned by an entity that has 500 or more employees, or there’s an obligation to assign to such an entity, then the applicant/patentee isn’t entitled to claim small entity status.
If one makes a good faith mistake in claiming small entity status, hitherto the remedy has been straightforward: you pay the difference in the fees that were due in accordance with the fee schedule in effect on the day you make the correction in entity status. So if, for example, you paid a $500 fee at the small entity rate, and a week later discover that it should have been $1000, you pay the $500 difference. If a fee increase or decrease went into effect between when the fee was originally paid and the difference paid, that difference will be in accordance with what the new fee is.
Of course, if the patent is valuable, and at some point the patentee corrects a payment that was mistakenly made at the small entity (or micro entity) rate, then in litigation the defendant will make an issue out of the applicant/patentee’s good faith, thus adding cost to the litigation…which is why practitioners try to avoid making such mistakes in the first place. This is also why, in situations in which the determination of small entity status is more complicated, some applicants may elect to pay full fare, to keep this issue off the table. Nevertheless, if the good faith in making fee payment at the reduced rate is demonstrable, then the mistake per se in claiming small entity status is not fatal, and fee-wise, there’s no penalty.
In contrast, deliberately paying the reduced fee to which one is not entitled is fraud, and, once discovered, it leads to one result: an invalid patent. And yes, there have been cases where people tried to pull a fast one on the PTO and later got caught. Bye bye, patent.
This brings us to last week’s statutory amendments. Among other things, they increase the small entity fee reduction to 60% of the normal fee and the micro entity reduction to 80% of the normal fee (viz. qualifying applicants/patentees now pay only 40% or 20% of the relevant fees). But now there’s a catch if you incorrectly assert entitlement to fee reduction:
Penalty for False Assertions.--In addition to any other penalty available under law, an entity that is found to have falsely asserted entitlement to a fee reduction under this section shall be subject to a fine, to be determined by the Director, the amount of which shall be not less than 3 times the amount that the entity failed to pay as a result of the false assertion, whether the Director discovers the false assertion before or after the date on which a patent has been issued.
What’s meant here by “false assertions”? Off the top of my head, I can think of at least two ways to read this, one of which definitely is wrong.
Let’s start with the way it could be read, but shouldn’t: it shouldn’t be read as saying that a willful false assertion of entitlement to fee reduction (viz. small or micro entity status) is subject to a penalty, because such a willful false statement constitutes fraud, and the result of fraud until now has been invalidation of the patent. What’s the point in the PTO saying to a patentee, “You deliberately paid a fee a reduced rate to which you weren’t entitled, so now your patent is invalid, and please pay us $$$ to keep you invalid patent invalid”?
So unless the amended statute means to say that fraud is now ok – and I don’t see any court buying into such a statutory construction – the new statutory language must be referring to cases of inadvertent false statements.
That means that now there’s a financial penalty for a mistaken good-faith payment of a small or micro entity fee. If you paid it incorrectly, then that mistake is going to cost you at least three times the amount that you didn’t pay at the time. If we’re talking, say, the third maintenance fee, that’s several thousand dollars.
Since an applicant or patentee only needs to certify small or micro entity status at certain points in the life of a patent, I suspect that as a result of the amendments, more applicants/patentees than before who discover they have inadvertently paid the wrong fee will not immediately seek to pay the correct amount – which will now entail a significant penalty – but will simply wait until the next time they need update their status, and at that time pay the fee at the higher rate. The PTO will be none the wiser.
Which makes me wonder just what the sponsor of this particular bill thought s/he was going to accomplish with it.