Triple Trouble: Navigating the USPTO’s Penalties for False Small and Micro Entity Status Claims

The United States Patent and Trademark Office (USPTO) recently implemented an enforcement system targeting false claims of small or micro entity status. This development is particularly relevant for patent applicants, patent owners, and practitioners, as the consequences for noncompliance are clearly defined and can be severe. In this post, we provide a detailed overview of the requirements for claiming small and micro entity status, explain the mechanics of the penalty system, and offer practical guidance for compliance.

Background: Small Entity and Micro Entity Status

Small Entity Status

To qualify for small entity status, an entity must meet the following criteria:

• The entity must be a person, a small business concern (including affiliates and having no more than 500 employees), or a nonprofit organization (an institution of higher education), anywhere in the world.

• The entity must not have assigned, granted, conveyed, or licensed the invention, or be legally obligated to do so, to any party that does not qualify as a small entity.

Small entity status is governed by 37 CFR §1.27 and is further detailed in the Manual of Patent Examining Procedure (MPEP) §§509.02-03. Small entity status entitles the applicant to a 60% discount on most patent-related fees.

Micro Entity Status

An entity that qualifies for small entity status may also be eligible for micro entity status if each inventor, applicant, or patent owner meets the following additional criteria: 

• Have been named an inventor on no more than four previously filed nonprovisional patent applications (the application filing limit).  The five-application threshold is cumulative across an inventor’s entire filing history, although applications assigned to a former employer are excluded under 35 U.S.C.  §123(b).

• Have had an income for the previous calendar year that does not exceed the gross income limit ($241,830 in 2024, with this figure adjusted annually).

• Not have assigned, granted, conveyed, or licensed the invention, or be legally obligated to do so, to any entity whose income exceeds the gross income limit.

Even if all the criteria above are not met, an applicant or owner may also qualify for micro entity status if it has received the majority of its income from employment by a U.S. institution of higher education, or has assigned, granted, or conveyed, or is legally obligated to do so, a patent ownership interest to such an institution. Micro entity status entitles the applicant to an 80% discount on most patent-related fees.

All applicants must conduct a reasonable inquiry under the circumstances before asserting or certifying small or micro entity status, as mandated by 37 CFR §11.18(b)(2).

The Penalty System for False Status Claims

Statutory Authority and Rationale

Division W of the Consolidated Appropriations Act of 2023 enacted the Unleashing American Innovators Act of 2022 and amended Title 35 of the United States Code to provide for penalties for false assertions and certifications of small or micro entity status under 35 U.S.C.  § §41(j) and 123(f). In December 2023, Public Law 118-151 further amended Title 35 to provide good faith exceptions to the 35 U.S.C.  § §41(j) and 123(f) statutory penalty system.  As a result, 35 U.S.C. §§41(j) and 123(f) require the USPTO to assess a fine of not less than three times the amount an entity failed to appropriately pay the USPTO, when the entity is found to have falsely made an assertion or certification of small or micro entity status that resulted in the payment of a fee in an entitled reduced amount, unless the entity establishes that the assertion or certification was made in good faith.

How the Penalty System Works

USPTO Review
At its discretion, the USPTO may review any entity status claim to ensure compliance. For example, the Office may verify whether an applicant exceeded the limit of five nonprovisional applications for micro entity status.

Combined Notice and Order
If a preliminary determination is made that a false assertion or certification resulted in underpayment, the USPTO will issue a combined notice of payment deficiency and order to show cause to the correspondence address of record. The combined notice will set forth the USPTO’s basis for its preliminary determination and provide a response period of two months, extendible under 37 CFR §1.136(a), to give the entity notice and an opportunity to respond. 

Response Options
The entity may respond in one of three ways:

1. The assertion or certification was not falsely made:

• A reply must be submitted that includes an explanation supported by sufficient evidence to rebut the preliminary determination.

  • Relying on a previously submitted assertion or certification, or providing a reassertion or recertification, is not satisfactory.

2.. The assertion or certification was falsely made, but was made in good faith:

• Provide an itemization of the total deficiency owed;

• Include payment for the total deficiency; and

• Include an explanation supported by sufficient evidence that the assertion or certification was made in good faith.  

3. The assertion or certification was falsely made and a good-faith explanation is not submitted:

• Provide an itemization of the total deficiency owed;

• Include payment for the total deficiency; and

• Offer to pay any fine once assessed.

Final Determination

The USPTO will evaluate a response to the combined notice and order or wait until the expiration of the period for response, and issue a subsequent notice that will contain a final determination of whether the application included a false assertion or certification.  This notice will also state the fine amount, if any, being assessed. 

The fine becomes a debt to the U.S. government and must be paid even if the application is abandoned or the patent expires. Nonpayment can result in further sanctions, including termination of proceedings.

Additional Impact

Prosecution Delays
When a combined notice and order is issued, the USPTO removes the application from examination pending resolution. The USPTO will not return the application to examination until both the fee deficiency and fine are resolved. 

If the USPTO issues a final determination that the application contained a false assertion or certification that resulted in the payment of at least one fee in an unentitled reduced amount, this will impact the patent term adjustment (PTA) for the application. 

Professional Conduct
Practitioners may face sanctions under the USPTO Rules of Professional Conduct for improper conduct related to status claims.

Applicability

The penalty system applies to fee payments made at reduced rates on or after December 29, 2022, regardless of the application’s filing date.

Final Thoughts

The USPTO’s  penalty system for false small and micro entity status claims marks a significant shift in the agency’s fee compliance and applicant accountability approach. Patent applicants and their counsel must diligently conduct reasonable inquiries before asserting entitlement to reduced fees and should maintain thorough records supporting such claims. The consequences of noncompliance—triple fee penalties, prosecution delays, and potential professional discipline—underscore the importance of accuracy and transparency in all dealings with the USPTO.

As the agency continues to refine its procedures and enforcement practices, practitioners should stay informed and proactive in their compliance efforts. This development protects the USPTO’s fee structure and promotes fairness and integrity across the patent system—a goal shared by all stakeholders in the innovation ecosystem.

This post was written by Lisa Mueller.