Patents, Practice Notes

Small Entity

THE BIG IMPLICATIONS OF SMALL-ENTITY FILING – What you should know before deciding on your filing strategy

Companies with 50 employees or fewer are eligible to pay lower patent fees in Canada. This can bring small companies a lot of bottom-line relief. But if you qualify as a small company, it’s a good idea to weigh the long-term pros and cons before you decide how to file.

The benefits…

The reduced fees for small companies — half of the standard fees — increase access to the patent system. The savings can add up enormously over the life of a patent. The money saved can be reinvested into R&D, marketing, whatever else the company needs to compete and grow.

…and the pitfalls

During the lifetime of a patent, an entity’s status can change. A company may have 45 employees when it files originally and 55 a few years later. Or it may license its patent to a much larger company. In either case, the original entity status changes and the regular fees must be paid.

The risk is not updating the entity status and losing the patent. That’s what happened in the 2001 Dutch Industries decision, which prompted many to rethink the wisdom of claiming small entity status in the first place. With Dutch Industries, a small entity paid reduced fees for a patent, then licensed the patent to a larger company. The entity status was not updated at the Patent Office, so reduced fees continued to be paid. While the Patent Office provides one year to rectify this kind of problem, the deadline in this case came and went, and even though the applicant subsequently paid extra fees to make up the difference, the court considered the patent application to have been abandoned.

A new wrinkle

The decision was appealed to the Federal Court of Appeal, which decided entity status is determined when a patent application is first applied for and does not change over its life.

The implications of that decision are twofold. First, patentees and applicants no longer have to continually monitor and update the entity status of their patent over its lifetime. At the same time, it means that if entity status is incorrect at filing, there is no way to change it later. If an applicant claims small entity status at the date of patent filing and later finds out this is incorrect, the error cannot be fixed.

All of this makes it crucial to ensure that the entity status is correct at filing. Out of an abundance of caution, it is advisable to simply claim large entity status and avoid the issues around small-entity filing altogether.

 

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