Small Entity Government Use License Exception: Amendment of the Rules of Practice in Patent Cases

January 4, 2021

The USPTO is amending the rules of practice in patent cases to clarify and expand exceptions to the rule pertaining to government use licenses and their effect on small entity status for purposes of paying reduced patent fees. The USPTO explained that the rule change is designed to support independent inventors, small business concerns, and nonprofit organizations in filing patent applications and to encourage collaboration with the Federal Government by expanding the opportunities to qualify for the small entity patent fees discount for inventions made during the course of federally funded or federally supported research.

This final rule becomes effective on January 20, 2021.

The government use license exceptions in this rulemaking are the only exceptions to the general rule that every party holding rights to an invention must qualify as a small entity under 37 CFR 1.27 in order for small entity status to be claimed in a patent application.

The first exception covers a government use license that a Federal employee inventor is obligated to grant if he/she is allowed to retain title to the workplace invention. This exception applies to the use license reserved to the Federal Government when a Federal employee is allowed to retain title to the workplace invention. The exception intends to cover a government use license to a Federal agency, when the inventor is the employee of a small business or nonprofit organization contractor performing research under a funding agreement with the Federal agency, and the government use license is equivalent to that specified in 35 U.S.C. 202(c)(4).

Retention of rights by the inventor under 35 U.S.C. 202(d) becomes possible when the contractor performing research under a Federal funding agreement does not elect to retain title to the invention, and the Federal agency is not interested in pursuing the patent rights either. Provided the Federal agency receives no more than the government use license and there is no other interest in the invention held by a party not qualifying as a small entity, the inventor who otherwise qualifies for small entity status is not prohibited from claiming small entity status as a result of retaining rights under 35 U.S.C. 202(d), to his or her invention.

The second exception provides that a small business concern or nonprofit organization, which otherwise qualifies as a small entity for purposes of paying reduced patent fees under 37 CFR 1.27, is not disqualified as a small entity because of a license to a Federal agency pursuant to 35 U.S.C. 202(c)(4). Section 202(c)(4) reserves to the Federal agency a government use license in any invention made by a ‘‘contractor’’ (e.g., small business concern or nonprofit organization) pursuant to activities under a ‘‘funding agreement’’ (35 U.S.C. 201(b)/(c)), when the contractor elects to retain title to a subject invention. Much uncertainty existed as to whether the paragraph 37 CFR 1.27(a)(4)(ii) exception applies in cases in which there is a Federal employee co-inventor. In response, this rule amends section 1.27(a)(4)(ii) to refer to 35 U.S.C. 202(e)(1), which permits the Federal agency, in the case of a Federal employee co-inventor, to ‘‘license or assign whatever rights it may acquire in the subject invention to the nonprofit organization, small business firm, or non-Federal inventor . . . .’’ Section 1.27(a)(4)(ii) is being clarified to explicitly state that when the Federal agency takes action under 35 U.S.C. 202(e)(1) to place all ownership rights with the contractor, leaving to the Federal agency only the government use license under 35 U.S.C. 202(c)(4), the exception under section 1.27(a)(4)(ii) still applies.  “This is appropriate, given that a small entity contractor joint owner of a patent has the right to ‘make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners’’’ pursuant to 35 U.S.C. 262. Furthermore, Federal agency action to assign rights under 35 U.S.C. 202(e)(1) leaves to the Federal agency only the government use license, which is what the Federal agency would have acquired had there been no Federal employee co-inventor.

The revised rule also provides a third exception for government use licenses for inventions made under a cooperative research and development agreement (CRADA) by a small entity with a federal agency. A CRADA may stipulate that the collaborating party assumes responsibility for the filing and prosecution of a patent application directed to a joint invention made under the CRADA and retains title to such invention, with the goal of achieving the practical application of technology advancements through commercialization. The Federal law providing for CRADAs (15 U.S.C. 3710a) reserves an obligatory government use license in exchange for ownership rights retained by the collaborating party much the same way as with respect to Federal funding agreements and Government employee inventions. This rule adds a new section, 37 CFR 1.27(a)(4)(iii), that covers government use licenses that arise in certain situations when an otherwise qualifying small entity retains ownership rights to its invention made under a CRADA.

With respect to ‘‘small business concerns’’ and ‘‘nonprofit organizations,’’ as defined in 37 CFR 1.27(a)(2) and (3), there are generally two types of agreements into which they enter with the Federal Government that are pertinent to this rulemaking: (1) Federal funding agreements under the Bayh-Dole Act (35 U.S.C. 201(b)), and (2) CRADAs (15 U.S.C. 3710a). Both of the agreements require a government use license to be granted to the Federal Government by the entity or person retaining title to an invention made under such agreements. The regulations at section 1.27(a)(4)(ii) continue to provide an exception for Bayh-Dole Act government use licenses under 35 U.S.C. 202(c)(4). To clarify that exception, new paragraphs (A) and (B) are added to section 1.27(a)(4)(ii). Paragraph 1.27(a)(4)(ii)(A) applies to the situation in which the invention under a Federal funding agreement was made solely by employees of the small business concern or nonprofit organization. Paragraph 1.27(a)(4)(ii)(B) addresses situations in which there is a Federal employee co-inventor.

Prior to this rulemaking, unlike to 35 U.S.C. 202(c)(4) government use licenses, the patent rules did not provide an exception for use licenses reserved to the Government under a CRADA in exchange for small business concern or nonprofit organization’s retention of ownership rights to its invention made during research at the Federal laboratory. The rule change provides an additional exception, in a new section 1.27(a)(4)(iii), for government use licenses for inventions made by small entities under a CRADA in situations under 15 U.S.C. 3710a(b)(2) and 3710a(b)(3)(D), wherein the small entity retains title to the invention.

37 CFR 1.28 (a refund request based on the later establishment of small entity status) is clarified in view of the amendments. 37 CFR 1.29 is amended to clarify that the government use license exceptions under 37 CFR 1.27(a)(4) do not apply for purposes of micro entity status qualification.