[Federal Register Volume 85, Number 245 (Monday, December 21, 2020)]
[Rules and Regulations]
[Pages 82917-82923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27049]


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DEPARTMENT OF COMMERCE

Patent and Trademark Office

37 CFR Part 1

[Docket No. PTO-P-2019-0009]
RIN 0651-AD33


Small Entity Government Use License Exception

AGENCY: United States Patent and Trademark Office, Department of 
Commerce.

ACTION: Final rule.

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SUMMARY: The United States Patent and Trademark Office (USPTO or 
Office) 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 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.

DATES: Effective date: This final rule is effective on January 20, 
2021.

FOR FURTHER INFORMATION CONTACT: James Engel, Senior Legal Advisor, 
Office of Patent Legal Administration, by phone at 571-272-7725, or by 
email at <a href="/cdn-cgi/l/email-protection#0a406b676f79244f646d6f664a7f797a7e65246d657c"><span class="__cf_email__" data-cfemail="a2e8c3cfc7d18ce7ccc5c7cee2d7d1d2d6cd8cc5cdd4">[email protected]</span></a>; or Marina Lamm, Patent Attorney, Office 
of Policy and International Affairs, by phone at 571-272-5905, or by 
email at <a href="/cdn-cgi/l/email-protection#2d604c5f44434c03614c40406d585e5d5942034a425b"><span class="__cf_email__" data-cfemail="fbb69a8992959ad5b79a9696bb8e888b8f94d59c948d">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: The USPTO is amending the rules of practice 
in patent cases at 37 CFR 1.27 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, so as to 
support independent inventors, small business concerns, and nonprofit 
organizations in filing patent applications. 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--in section 1.27(a)(4)(i)--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 pursuant 
to a rights determination under Executive Order (E.O.) 10096. The 
Office is amending the regulations to specify that this exception 
applies to the use license reserved to the Federal Government when a 
Federal employee, including an employee of a Federal laboratory, is 
allowed, under 15 U.S.C. 3710d(a), to retain title to the workplace 
invention. The Office is also expanding the exception to cover a 
government use license to a Federal agency arising from an inventor's 
retention of rights under 35 U.S.C. 202(d), when the inventor is

[[Page 82918]]

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--in section 1.27(a)(4)(ii)--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,'' as those terms are defined in 35 U.S.C. 201(b) and (c), 
when the contractor elects to retain title to a subject invention. It 
was brought to the USPTO's attention that much uncertainty existed as 
to whether the paragraph (a)(4)(ii) exception applies in cases in which 
there is a Federal employee co-inventor. In response, this rule amends 
37 CFR 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.
    Cooperative research and development agreements (CRADAs) are 
another important tool to promote collaboration between Federal 
agencies and non-Federal parties, including those qualified as small 
entities. In support of research consistent with the mission of the 
Federal ``laboratory'' as that term is defined in 15 U.S.C. 
3710a(d)(2), under CRADAs, the Government, through its laboratories, 
provides personnel, facilities, equipment, intellectual property, or 
other resources, except for funds to non-Federal parties, and the non-
Federal parties provide their own resources, which may include funds, 
for the collaborative activities. 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 discussed above with respect to Federal funding agreements and 
Government employee inventions. It was reported that some small 
businesses and nonprofit organizations were hesitant to enter into 
CRADAs with the Federal Government because, prior to this rulemaking, 
they would have automatically lost their small entity status and would 
have to pay full patent fees (undiscounted patent fees) as a result of 
granting the government use license or the Government's interest in a 
joint invention. In response to these concerns, and in order to 
encourage small business and nonprofit organization collaborating 
parties to take the initiative for filing and prosecuting patent 
applications for their inventions at no expense to the Government, this 
rule expands the exceptions in 37 CFR 1.27(a)(4) by adding a new 
section, 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. This 
expansion of the government use license exception, as it pertains to 
federally supported research, is consistent with the President's 
``Return on Investment Initiative,'' as it applies to transferring 
technology to the private sector that originated from federally funded 
research or non-funded research performed at a Federal agency 
laboratory. See NIST Special Publication 1234 titled ``Return on 
Investment Initiative for Unleashing American Innovation'' (April 
2019).
    Background: The Patent and Trademark Law Amendments Act, Public Law 
96-517, 94 Stat. 3015 (Dec. 12, 1980)--commonly referred to as the 
Bayh-Dole Act--added chapter 18 (sections 200 et seq.) to 35 U.S.C. to 
``encourage maximum participation . . . in federally supported research 
and development efforts'' (35 U.S.C. 200) by giving small businesses 
and nonprofit organizations the ability to elect to retain title to 
their inventions made under Federal funding agreements. For more than 
35 years prior to this rulemaking, the USPTO has provided the 
exception--now at 37 CFR 1.27(a)(4)(ii)--for Bayh-Dole Act government 
use licenses under 35 U.S.C. 202(c)(4). Similar to the Bayh-Dole Act, 
the Stevenson-Wydler Technology Innovation Act of 1980, Public Law 96-
480, 94 Stat. 2311 (Oct. 21, 1980), as amended by the Federal 
Technology Transfer Act of 1986, Public Law 99-502, 100 Stat. 1785 
(Oct. 20, 1986) (FTTA), seeks to promote development and utilization of 
technologies made with Federal support. Unlike the Bayh-Dole Act, 
whereby support is in the form of Federal funding, the FTTA, among 
other things, authorized CRADAs as the basis for research collaboration 
between Federal agencies and private sector businesses and 
organizations, including small business concerns and nonprofit 
organizations. Unlike 35 U.S.C. 202(c)(4) government use licenses, the 
patent rules did not previously provide an exception for government use 
licenses reserved to the Government under CRADAs in exchange for the 
small business concern or nonprofit organization's retention of 
ownership rights to its invention made during research at the 
partnering Federal laboratory. In response to feedback from Federal 
agencies concerning the importance of the small entity discount to 
promote collaboration with small businesses and nonprofit organizations 
and technology transfer efforts of Federal agencies and laboratories, 
the USPTO is revising the patent rules to

[[Page 82919]]

add a government use license exception that applies to small entities 
that make an invention under a CRADA with a Federal laboratory.
    The statutory provisions for CRADAs, similar to those for Federal 
funding agreements under the Bayh-Dole Act, reserve to the Federal 
Government use licenses for inventions made under a CRADA. 35 U.S.C. 
202(c)(4), which provides the Bayh-Dole Act version of the government 
use license, and the CRADA government use license found in 15 U.S.C. 
3710a(b)(2) and 3710a(b)(3)(D), are practically identical in scope. As 
set forth in 35 U.S.C. 202(c)(4):

    With respect to any invention in which the contractor elects 
rights, the Federal agency shall have a nonexclusive, 
nontransferable, irrevocable, paid-up license to practice or have 
practiced for or on behalf of the United States any subject 
invention throughout the world.

    Under the Bayh-Dole Act provisions, the awardee of Federal funding 
is called a ``contractor.'' Under the CRADA provisions of the FTTA, the 
term used for a participating non-Federal party is ``collaborating 
party.'' In addition, the CRADA government use license refers to ``the 
laboratory'' or ``the Government'' as the recipient, rather than ``the 
Federal agency.''
    The patent rules continue to provide a government use license 
exception for licenses arising under 35 U.S.C. 202(c)(4). Being added 
are exceptions for government use licenses that may arise under a CRADA 
pursuant to 15 U.S.C. 3710a(b)(2) or 3710a(b)(3)(D). Section 
3710a(b)(2) concerns the use license reserved to the Government for an 
invention made solely by employees of the collaborating party, and 
section 3710a(b)(3)(D) concerns the use license reserved to the 
Government when the laboratory waives ownership rights to a subject 
invention made by the collaborating party or an employee of the 
collaborating party. This rulemaking adds to 37 CFR 1.27 a new 
paragraph (a)(4)(iii) providing an additional exception for government 
use licenses under 15 U.S.C. 3710a(b)(2) and 3710a(b)(3)(D) for 
inventions made by small entities under a CRADA with a Federal 
laboratory.
    Further, with respect to the exception for the government use 
license under 35 U.S.C. 202(c)(4) as it existed prior to this 
rulemaking, it was reported to the USPTO that small business firms and 
nonprofit organizations had become increasingly concerned that 
contributions of Federal employees in joint inventions could eliminate 
their entitlement to small entity status. In response, the section 
1.27(a)(4)(ii) exception--the so-called ``federal licensing safe harbor 
provision''--is amended to clarify in a new paragraph (B) that the 
exception applies when there is a Federal employee co-inventor, and 
action is taken under 35 U.S.C. 202(e)(1) by the Federal agency. Under 
section 202(e)(1), the funding Federal agency may license or assign 
whatever rights the Federal agency acquired in the subject invention, 
made by the contractor with a Federal employee co-inventor, to the 
contractor, in accordance with the provisions of 35 U.S.C. chapter 18, 
which include a government use license. The section 1.27(a)(4)(ii) 
exception is amended to explicitly apply, under new paragraph (B), to 
such situations. When an employee of the small entity contractor and an 
employee of the Federal agency are co-inventors, the small entity 
contractor, by virtue of an assignment from the contractor employee or 
the employee's current obligation to assign, would still have an 
undivided ownership interest in the joint invention. The undivided 
interest to the joint owner is provided at 35 U.S.C. 262. The 
requirement for an assignment or a currently existing obligation to 
assign is set forth in Board of Trustees of Leland Stanford Junior 
University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011), where 
the Court held: ``[o]nly when an invention belongs to the contractor 
does the Bayh-Dole Act come into play.'' Id. at 790. In addition, `` . 
. . unless there is an agreement to the contrary, an employer does not 
have rights in an invention `which is the original conception of the 
employee alone.' '' Id. at 786. Accordingly, when action is taken by 
the Federal agency under 35 U.S.C. 202(e)(1), the contractor could 
elect to retain full ownership rights. These ownership rights would be 
the same as those retained by a contractor under new paragraph (A) of 
section 1.27(a)(4)(ii), which applies when the subject invention was 
made solely by the small entity contractor employee(s). 35 U.S.C. 
202(e) refers to this as ``consolidating rights.''
    Consistent with the foregoing, this rule change clarifies that a 
use license under 35 U.S.C. 202(c)(4) resulting from a funding 
agreement with a Federal agency does not preclude claiming small entity 
status in the case of a Federal employee co-inventor when the Federal 
agency employing such co-inventor took action pursuant to 35 U.S.C. 
202(e)(1), to exclusively license or assign whatever rights currently 
held or that it may acquire in the subject invention to the small 
business concern or nonprofit organization, subject to the license 
under 35 U.S.C. 202(c)(4). This is set forth in new paragraph (B) of 
section 1.27(a)(4)(ii). Of course, claiming small entity status in such 
a case would also require that no other interest in the invention is 
held by a party not qualifying as a small entity. Thus, new paragraph 
(B) clarifies, but does not change, the applicability of section 
1.27(a)(4)(ii) in cases in which consolidation of rights to a small 
entity contractor has occurred under 35 U.S.C. 202(e)(1). This 
clarification is important, given that prior to this rulemaking, there 
may have been uncertainty as to whether the section 1.27(a)(4)(ii) 
exception could ever apply in cases in which there is a Federal 
employee co-inventor. Accordingly, notwithstanding the effective date 
of this rulemaking, for any small business concern or nonprofit 
organization contractor to which new paragraph (B) of section 
1.27(a)(4)(ii) applies, the three-month time period under 37 CFR 
1.28(a) for requesting a refund based on later establishment of small 
entity status is not affected by this rulemaking. This accounts for the 
possibility that a small business concern or nonprofit organization 
contractor, to which paragraph (B) of section 1.27(a)(4)(ii) applies, 
might have paid full fees within three months prior to the effective 
date of this rulemaking based on a misunderstanding of the 
applicability of section 1.27(a)(4)(ii) as it existed prior to this 
rulemaking. In that event, the small business concern or nonprofit 
organization qualifying as a small entity, by virtue of paragraph (B) 
of section 1.27(a)(4)(ii), could take advantage of the provisions under 
37 CFR 1.28(a) to obtain a refund based on later establishment of small 
entity status. A refund request under section 1.28(a) is really a 
request for a partial refund, since a section 1.28(a) refund is based 
on applying a discount subsequent to payment of the full fee.
    Section 1.28(a) requires that the request for a refund of the 
excess amount, and an accompanying assertion of small entity status, be 
``filed within three months of the date of timely payment of the full 
fee.'' Except for the three-month window of opportunity provided by 37 
CFR 1.28(a), the failure to establish status as a small entity in any 
application or patent prior to paying, or at the time of paying, any 
fee (1) precludes payment of the fee in the small entity amount, and 
(2) precludes a refund, pursuant to 37 CFR 1.26, of any portions of 
fees paid prior to establishing status as a small entity. Accordingly, 
any request for a refund under section 1.28(a) based on the clarifying 
effect of new paragraph (B) of

[[Page 82920]]

section 1.27(a)(4)(ii) would only be appropriate if filed within three 
months of payment of the full fee, notwithstanding the effective date 
of this final rule. Because section 1.27(a)(4)(iii) sets forth a new 
government use license exception not available prior to the effective 
date of this rulemaking, a refund under section 1.28(a) for later 
establishment of small entity status on the basis of the new section 
1.27(a)(4)(iii) exception could be obtained only for full patent fees 
that were timely paid on or after the effective date of this rulemaking 
and requested within three months of payment of the full fee.
    Regarding new section 1.27(a)(4)(iii), which applies to government 
use licenses arising under a CRADA where the small entity retains all 
ownership rights, paragraph (B) covers situations in which the Federal 
laboratory took action under 15 U.S.C. 3710a(b)(3)(D), to waive in 
whole any right of ownership the Government may have to the subject 
invention made by the small business concern or nonprofit organization. 
Paragraph (A) of section 1.27(a)(4)(iii) applies to government use 
licenses arising in situations in which the invention to which title is 
retained, was made solely by the employee of the small business concern 
or nonprofit organization. Thus, consolidation of rights to a small 
entity collaborating party, under the CRADA provision of 15 U.S.C. 
3710a(b)(3)(D), is treated similarly to the way in which consolidation 
of rights to a contractor, under the Bayh-Dole Act provision of 35 
U.S.C. 202(e)(1), is treated under 37 CFR 1.27(a)(4)(ii). All the 
exceptions under 37 CFR 1.27(a)(4)(i) through (iii) require that the 
Government or the Federal agency receive no more than the applicable 
government use license and that there is no other interest in the 
invention held by a party not qualifying as a small entity.
    New section 1.27(a)(4)(iv) is added to specify that regardless of 
whether a government use license exception applies, no refund under 37 
CFR 1.28(a) is available for any patent fee paid by the Government.
    When the exception at 37 CFR 1.27(a)(4) was originally promulgated, 
the basis for the exception, as it related to the obligatory license to 
the Federal government under 35 U.S.C. 202(c)(4), was ``to avoid 
frustrating the intent of Public Law 97-247 and Pub. L. 96-517 when 
taken together.'' See Revision of Patent Practice, 49 FR 548, Jan. 4, 
1984. (Pub. L. 97-247 was a 1982 appropriations act from which the 
small entity discount originated, and Public Law 96-517 is a reference 
to the Bayh-Dole Act of 1980.) No such basis exists for extending the 
government use license exceptions to the micro entity provisions. In 
addition, although the USPTO can provide for government use license 
exceptions for small entity status qualification, these exceptions 
cannot apply for purposes of qualifying as a micro entity on the gross 
income basis. The reason for this is that the statute authorizing micro 
entity patent fee discounts--35 U.S.C. 123(a)(4)--disqualifies an 
entity from micro entity status if it has assigned, granted, or 
conveyed a license or other ownership interest in the invention to an 
entity that exceeded the gross income limit (currently $206,109) in its 
previous calendar year's gross income. Because a ``gross national 
income'' is attributed to the United States each year, any government 
use license runs afoul of the 35 U.S.C. 123(a)(4) qualification 
requirement. Accordingly, a government use license may not disqualify 
an applicant from a small entity status, but does disqualify the 
applicant from micro entity status. This applies to micro entity status 
on the ``institution of higher education basis'' under section 1.29(d) 
as well as micro entity status on the ``gross income basis'' under 
section 1.29(a). A clarifying amendment to 37 CFR 1.29 is made in order 
to explicitly reflect this.
    Discussion of Regulatory Changes: These rule changes amend 37 CFR 
1.27(a)(4) to clarify and expand the 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 
properly claimed.
    A new introductory clause is added to 37 CFR 1.27(a)(4) to limit 
eligibility for each government use license exception to patent 
applications filed and prosecuted at no expense to the Government, with 
the exception of any expense taken to deliver the application and fees 
to the USPTO on behalf of the applicant. A new paragraph (a)(4)(iv) is 
added to 37 CFR 1.27 to specify that regardless of whether a government 
use license exception applies, no refund under 37 CFR 1.28(a) is 
available for any patent fee paid by the Government. To overcome any 
reluctance of research partners to take responsibility for seeking 
patent protection of federally supported inventions, the new section 
1.27(a)(4) introductory clause, combined with new paragraph (a)(4)(iv), 
should encourage small business concern and nonprofit organization 
contractors and collaborators to take the lead in seeking patent 
protection.
    The regulations at 37 CFR 1.27(a)(4)(i) have long provided an 
exception for a government use license resulting from a rights 
determination under E.O. 10096, wherein title to the invention is 
retained by a Federal employee-inventor (``a person'' as defined in 37 
CFR 1.27(a)(1)). That exception is being amended to acknowledge the 
regulations contained in 37 CFR part 501, which implement E.O. 10096. 
This is done by making reference in the rule to 37 CFR 501.6, which 
substantially incorporates the E.O. 10096 criteria for the 
determination of rights in and to any invention made by a Government 
employee. This exception, as amended by this rulemaking, remains in 
section 1.27(a)(4)(i) under a new paragraph (A). A new paragraph (B) is 
added to section 1.27(a)(4)(i), referring to 15 U.S.C. 3710d(a), which 
provides for disposal of title to an invention from the Federal agency 
to the Federal employee-inventor, as well as the conditions under which 
the employee obtains or retains title to the invention, subject to a 
government use license. Accordingly, paragraphs 1.27(a)(4)(i)(A) and 
(B) both relate to the government use license exception in the context 
of Federal employee-inventors who retain title to their work 
inventions, subject to a government use license. Also added to section 
1.27(a)(4)(i) is a new paragraph (C) for government use licenses to a 
Federal agency resulting from retention of rights by the inventor under 
35 U.S.C. 202(d), when a small business concern or nonprofit 
organization contractor does not elect to retain title to an invention 
made by its employee under a Federal funding agreement. 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. This exception is contingent upon the inventor meeting the 
conditions applicable under 37 CFR 401.9, to an employee/inventor of 
the small business firm or nonprofit organization contractor not 
electing to retain title. (37 CFR part 401 implements the provisions of 
the Bayh-Dole Act codified in 35 U.S.C. 200-212.) Compared to what was 
proposed in the February 5, 2020, notice of proposed rulemaking (NPRM) 
at 85 FR 6476, the language of new paragraph 1.27(a)(4)(i)(C) is 
changed for clarity. For example, a specific reference to the 35 U.S.C. 
202(c)(4) government use license was added, as well as the term 
``employee/inventor,'' which is the term

[[Page 82921]]

37 CFR 401.9 uses to refer to the contractor's employee. No new 
requirement is added to paragraph 1.27(a)(4)(i)(C) compared to the 
proposed requirements. Thus, section 1.27(a)(4)(i) continues to apply 
to small entity ``persons,'' as defined in 37 CFR 1.27(a)(1), and as 
amended by this rulemaking, sets forth three types of government use 
licenses that would not disqualify a patent applicant from claiming 
small entity status for purposes of paying reduced patent fees.
    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 (as defined in 35 U.S.C. 
201(b)), and (2) CRADAs, as provided for in 15 U.S.C. 3710a. Both of 
these 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 agreement. 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, the patent rules did not provide any 
exception for use licenses reserved to the Government under a CRADA. 
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.
    Section 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. The baseline small entity requirement 
under sections 1.29(a)(1) and (d)(1) cannot be met if qualification as 
a small entity under 37 CFR 1.27 depends on one of the government use 
license exceptions specified in 37 CFR 1.27(a)(4).

Response to Comments

    The USPTO published a notice proposing changes to 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, so as to support 
independent inventors, small business concerns, and nonprofit 
organizations in filing patent applications. See Small Entity 
Government Use License Exception, 85 FR 6476 (February 5, 2020). In 
response, the Office received two comments, one from a nonprofit 
association and one from an attorney, both of which fully endorsed the 
purpose and the content of the proposed changes. The Office thanks 
these commenters for their feedback.

Rulemaking Considerations

    A. Administrative Procedure Act: The changes in this rulemaking 
involve rules of agency practice and procedure, and/or interpretive 
rules. See Perez v. Mortg. Bankers Ass'n, 135 S. Ct. 1199, 1204 (2015) 
(Interpretive rules ``advise the public of the agency's construction of 
the statutes and rules which it administers.'' (citation and internal 
quotation marks omitted)); Nat'l Org. of Veterans' Advocates v. Sec'y 
of Veterans Affairs, 260 F.3d 1365, 1375 (Fed. Cir. 2001) (Rule that 
clarifies interpretation of a statute is interpretive.); Bachow 
Commc'ns Inc. v. FCC, 237 F.3d 683, 690 (D.C. Cir. 2001) (Rules 
governing an application process are procedural under the 
Administrative Procedure Act.); Inova Alexandria Hosp. v. Shalala, 244 
F.3d 342, 350 (4th Cir. 2001) (Rules for handling appeals were 
procedural where they did not change the substantive standard for 
reviewing claims.).
    Accordingly, prior notice and opportunity for public comment for 
the changes in this rulemaking are not required pursuant to 5 U.S.C. 
553(b) or (c), or any other law. See Perez, 135 S. Ct. at 1206 (Notice 
and comment procedures are required neither when an agency ``issue[s] 
an initial interpretive rule'' nor ``when it amends or repeals that 
interpretive rule.''); Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336-
37 (Fed. Cir. 2008) (stating that 5 U.S.C. 553, and thus 35 U.S.C. 
2(b)(2)(B), do not require notice and comment rulemaking for 
``interpretative rules, general statements of policy, or rules of 
agency organization, procedure, or practice'' (quoting 5 U.S.C. 
553(b)(A))). However, the Office chose to seek public comment before 
implementing the rule to benefit from the public's input.
    B. Regulatory Flexibility Act: Under the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.), whenever an agency is required by 5 U.S.C. 553 
(or any other law) to publish an NPRM, the agency must prepare and make 
available for public comment an Initial Regulatory Flexibility 
Analysis, unless the agency certifies under 5 U.S.C. 605(b) that the 
proposed rule, if implemented, will not have a significant economic 
impact on a substantial number of small entities. 5 U.S.C. 603, 605. 
The Senior Counsel for Regulatory and Legislative Affairs in the Office 
of General Law of the USPTO certified to the Chief Counsel for Advocacy 
of the Small Business Administration that the NPRM will not have a 
significant economic impact on a substantial number of small entities. 
See 5 U.S.C. 605(b). For the reasons set forth herein, the Senior 
Counsel for Regulatory and Legislative Affairs in the Office of General 
Law of the USPTO has certified to the Chief Counsel for Advocacy of the 
Small Business Administration that this final rule will not have a 
significant economic impact on a substantial number of small entities.
    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, so as to support independent inventors, small 
business concerns, and nonprofit organizations in filing patent 
applications. To be entitled to pay small entity patent fees, all 
parties holding rights in the invention must qualify for small entity 
status. Prior to this rulemaking, there were two exceptions to this 
rule, both of which continue to apply, as clarified and expanded by 
this rulemaking. Both these exceptions relate to government use 
licenses granted under the law by independent inventors, small business 
concerns, or nonprofit organizations otherwise qualifying as a small 
entity, where such entities retain title to their inventions. The first 
exception applies when an inventor employed by the Federal Government 
has an obligation to grant the government use license in the workplace 
invention in which the inventor obtains title pursuant to a rights 
determination under E.O. 10096. This exception continues to apply and 
is amended to clarify that it applies to employees of Federal 
laboratories under 15 U.S.C. 3710d(a). The second exception applies 
when the government use license in the Government-funded invention is 
an obligation (pursuant to 35 U.S.C. 202(c)(4)) under a funding

[[Page 82922]]

agreement with a Federal agency. This exception is expanded to cover 
the situations in which a small business concern or nonprofit 
organization qualifying as a small entity does not elect to retain 
title to an invention made by its employee under a Federal funding 
agreement, and the Federal agency allows the inventor to retain title 
to the federally funded invention. In that case, a government use 
license (equivalent to that specified in 35 U.S.C. 202(c)(4)) is an 
obligation arising from the employee's retention of rights under 35 
U.S.C. 202(d). The second exception is also expanded to address 
situations in which there is a Federal employee co-inventor. Further, 
this rulemaking adds a third exception to cover a government use 
license arising from an obligation under a CRADA with a Federal agency 
pursuant to 15 U.S.C. 3710a(b). Regardless of whether any of the 
aforementioned exceptions apply, no refund is available for any patent 
fee paid by the Government. In addition, patent applications filed and 
prosecuted at Government expense will not be entitled to the small 
entity discount. Finally, the qualifications for the micro entity 
patent fee discount are clarified.
    The rule changes are designed to encourage persons, small 
businesses, and nonprofit organizations to collaborate with the Federal 
Government by providing an opportunity to qualify for the small entity 
patent fees discount for inventions made during the course of federally 
funded or federally supported research. Thus, this rule allows more 
entities to qualify for the small entity fee discount; these entities 
may qualify for a 50% reduction in fees, resulting in a substantial 
cost savings to them. Although the cost savings may be substantial, 
this rule is not expected to impact a large number of small entities. 
We estimate the number of small entities impacted by this rule to be in 
the range of 750 to 1,000, based on the number of active CRADAs 
reported for FY 2015 and its projected growth.
    These changes are procedural and are not expected to have a direct 
economic impact on small entities. For the reasons described above, 
this rule is not expected to have a significant economic impact on a 
substantial number of small entities.
    C. Executive Order 12866 (Regulatory Planning and Review): This 
rulemaking has been determined to be not significant for purposes of 
Executive Order 12866 (Sept. 30, 1993).
    D. Executive Order 13563 (Improving Regulation and Regulatory 
Review): The Office has complied with Executive Order 13563 (Jan. 18, 
2011). Specifically, the Office has, to the extent feasible and 
applicable: (1) Made a reasoned determination that the benefits justify 
the costs of the rule; (2) tailored the rule to impose the least burden 
on society consistent with obtaining the regulatory objectives; (3) 
selected a regulatory approach that maximizes net benefits; (4) 
specified performance objectives; (5) identified and assessed available 
alternatives; (6) involved the public in an open exchange of 
information and perspectives among experts in relevant disciplines, 
affected stakeholders in the private sector, and the public as a whole, 
and provided online access to the rulemaking docket; (7) attempted to 
promote coordination, simplification, and harmonization across 
Government agencies and identified goals designed to promote 
innovation; (8) considered approaches that reduce burdens and maintain 
flexibility and freedom of choice for the public; and (9) ensured the 
objectivity of scientific and technological information and processes.
    E. Executive Order 13771 (Reducing Regulation and Controlling 
Regulatory Costs): This rule is not an Executive Order 13771 regulatory 
action because this rule is not significant under Executive Order 12866 
(Jan. 30, 2017).
    F. Executive Order 13132 (Federalism): This rulemaking does not 
contain policies with federalism implications sufficient to warrant 
preparation of a Federalism Assessment under Executive Order 13132 
(Aug. 4, 1999).
    G. Executive Order 13175 (Tribal Consultation): This rulemaking 
will not: (1) Have substantial direct effects on one or more Indian 
tribes; (2) impose substantial direct compliance costs on Indian tribal 
governments; or (3) preempt tribal law. Therefore, a tribal summary 
impact statement is not required under Executive Order 13175 (Nov. 6, 
2000).
    H. Executive Order 13211 (Energy Effects): This rulemaking is not a 
significant energy action under Executive Order 13211 because this 
rulemaking is not likely to have a significant adverse effect on the 
supply, distribution, or use of energy. Therefore, a Statement of 
Energy Effects is not required under Executive Order 13211 (May 18, 
2001).
    I. Executive Order 12988 (Civil Justice Reform): This rulemaking 
meets applicable standards to minimize litigation, eliminate ambiguity, 
and reduce burden as set forth in sections 3(a) and 3(b)(2) of 
Executive Order 12988 (Feb. 5, 1996).
    J. Executive Order 13045 (Protection of Children): This rulemaking 
does not concern an environmental risk to health or safety that may 
disproportionately affect children under Executive Order 13045 (Apr. 
21, 1997).
    K. Executive Order 12630 (Taking of Private Property): This 
rulemaking will not affect a taking of private property or otherwise 
have taking implications under Executive Order 12630 (Mar. 15, 1988).
    L. Congressional Review Act: Under the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.), prior to issuing any final rule, the USPTO 
will submit a report containing the rule and other required information 
to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the Government 
Accountability Office. The changes in this rulemaking are not expected 
to result in an annual effect on the economy of $100 million or more, a 
major increase in costs or prices, or significant adverse effects on 
competition, employment, investment, productivity, innovation, or the 
ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets. Therefore, this 
rulemaking is not a ``major rule'' as defined in 5 U.S.C. 804(2).
    M. Unfunded Mandates Reform Act of 1995: The changes set forth in 
this rulemaking do not involve a Federal intergovernmental mandate that 
will result in the expenditure by State, local, and tribal governments, 
in the aggregate, of $100 million (as adjusted) or more in any one 
year, or a Federal private sector mandate that will result in the 
expenditure by the private sector of $100 million (as adjusted) or more 
in any one year, and will not significantly or uniquely affect small 
governments. Therefore, no actions are necessary under the provisions 
of the Unfunded Mandates Reform Act of 1995. See 2 U.S.C. 1501 et seq.
    N. National Environmental Policy Act of 1969: This rulemaking will 
not have any effect on the quality of the environment and is thus 
categorically excluded from review under the National Environmental 
Policy Act of 1969. See 42 U.S.C. 4321 et seq.
    O. National Technology Transfer and Advancement Act of 1995: The 
requirements of section 12(d) of the National Technology Transfer and 
Advancement Act of 1995 (15 U.S.C. 272 note) are not applicable because 
this rulemaking does not contain provisions that involve the use of 
technical standards.

[[Page 82923]]

    P. Paperwork Reduction Act of 1995: The Paperwork Reduction Act of 
1995 (44 U.S.C. 3501) requires that the Office consider the impact of 
paperwork and other information collection burdens imposed on the 
public. This rulemaking does not involve any new information collection 
requirements that are subject to review by the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
et seq.).
    Notwithstanding any other provision of law, no person is required 
to respond to, nor shall any person be subject to a penalty for failure 
to comply with, a collection of information subject to the requirements 
of the Paperwork Reduction Act unless that collection of information 
has a valid OMB control number.

List of Subjects in 37 CFR Part 1

    Administrative practice and procedure, Biologics, Courts, Freedom 
of information, Inventions and patents, Reporting and recordkeeping 
requirements, Small businesses.

    For the reasons stated in the preamble, 37 CFR part 1 is amended as 
follows:

PART 1--RULES OF PRACTICE IN PATENT CASES

0
1. The authority citation for 37 CFR part 1 continues to read as 
follows:

    Authority:  35 U.S.C. 2(b)(2), unless otherwise noted.


0
2. Section 1.27 is amended by revising paragraph (a)(4) to read as 
follows:


Sec.  1.27   Definition of small entities and establishing status as a 
small entity to permit payment of small entity fees; when a 
determination of entitlement to small entity status and notification of 
loss of entitlement to small entity status are required; fraud on the 
Office.

    (a) * * *
    (4) Federal Government Use License Exceptions. In a patent 
application filed, prosecuted, and if patented, maintained at no 
expense to the Government, with the exception of any expense taken to 
deliver the application and fees to the Office on behalf of the 
applicant:
    (i) For persons under paragraph (a)(1) of this section, claiming 
small entity status is not prohibited by:
    (A) A use license to the Government resulting from a rights 
determination under Executive Order 10096 made in accordance with Sec.  
501.6 of this title;
    (B) A use license to the Government resulting from Federal agency 
action pursuant to 15 U.S.C. 3710d(a) allowing the Federal employee-
inventor to obtain or retain title to the invention; or
    (C) A use license to a Federal agency resulting from retention of 
rights under 35 U.S.C. 202(d) by an inventor employed by a small 
business concern or nonprofit organization contractor, provided the 
license is equivalent to the license under 35 U.S.C. 202(c)(4) the 
Federal agency would have received had the contractor elected to retain 
title, and all the conditions applicable under Sec.  401.9 of this 
title to an employee/inventor are met.
    (ii) For small business concerns and nonprofit organizations under 
paragraphs (a)(2) and (3) of this section, a use license to a Federal 
agency resulting from a funding agreement with that agency pursuant to 
35 U.S.C. 202(c)(4) does not preclude claiming small entity status, 
provided that:
    (A) The subject invention was made solely by employees of the small 
business concern or nonprofit organization; or
    (B) In the case of a Federal employee co-inventor, the Federal 
agency employing such co-inventor took action pursuant to 35 U.S.C. 
202(e)(1) to exclusively license or assign whatever rights currently 
held or that it may acquire in the subject invention to the small 
business concern or nonprofit organization, subject to the license 
under 35 U.S.C. 202(c)(4).
    (iii) For small business concerns and nonprofit organizations under 
paragraphs (a)(2) and (3) of this section that have collaborated with a 
Federal agency laboratory pursuant to a cooperative research and 
development agreement (CRADA) under 15 U.S.C. 3710a(a)(1), claiming 
small entity status is not prohibited by a use license to the 
Government pursuant to:
    (A) 15 U.S.C. 3710a(b)(2) that results from retaining title to an 
invention made solely by the employee of the small business concern or 
nonprofit organization; or
    (B) 15 U.S.C. 3710a(b)(3)(D), provided the laboratory has waived in 
whole any right of ownership the Government may have to the subject 
invention made by the small business concern or nonprofit organization, 
or has exclusively licensed whatever ownership rights the Government 
may acquire in the subject invention to the small business concern or 
nonprofit organization.
    (iv) Regardless of whether an exception under this paragraph (a)(4) 
applies, no refund under Sec.  1.28(a) is available for any patent fee 
paid by the Government.
* * * * *

0
3. Section 1.29 is amended by revising paragraphs (a)(1) and (d)(1) to 
read as follows:


Sec.  1.29   Micro entity status.

    (a) * * *
    (1) The applicant qualifies as a small entity as defined in Sec.  
1.27 without relying on a government use license exception under Sec.  
1.27(a)(4);
* * * * *
    (d) * * *
    (1) The applicant qualifies as a small entity as defined in Sec.  
1.27 without relying on a government use license exception under Sec.  
1.27(a)(4); and
* * * * *

Andrei Iancu,
Under Secretary of Commerce for Intellectual Property and Director of 
the United States Patent and Trademark Office.
[FR Doc. 2020-27049 Filed 12-18-20; 8:45 am]
BILLING CODE 3510-16-P


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