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Small Entities Just Got Bigger

February 06, 2024

On January 1, 2024, Canada updated the definition of a small entity to one that employs fewer than 100 employees from one that employs 50 employees or less. This update may now allow more companies to qualify for small entity status and begin paying small entity fees. Small entity status is assessed at the time the patent application is filed or the national phase entry date for a PCT application. For example, if a company employed 10 people at the filing date or the national phase entry date, and then expanded to 200 people five years later, it would still qualify as a small entity. However, a small entity in Canada is still defined more narrowly compared to the United States where small entities include a small business, including affiliates, having no more than 500 employees.

The small entity fees offer a discount of more than 50% compared to the standard fees, as the adjustments on January 1, 2024, primarily affected the standard fees. However, the risks associated with incorrectly claiming small entity status may be too significant to justify the cost savings. An improper “small entity” claim can result in an invalid patent. Therefore, the decision to claim small entity status should not be taken lightly. 

A small entity is defined in sections 44(2) and 112(2) of the Patent Rules as follows:

On the filing date or, in the case of a PCT application on the national phase entry date, the Applicant is an entity that has fewer than 100 employees or is a university, other than:

(i) an entity that is controlled directly or indirectly by an entity, other than a university, that has 100 employees or more, or

(ii) an entity that has transferred or licensed, or has an obligation other than a contingent obligation to transfer or license, any right or interest in a claimed invention to an entity, other than a university, that has 100 employees or more.

There are a number of open questions regarding the scope of this definition. For example, it is not clear whether employees that are on leave are to be included in assessing the number of employees. Further, it is not clear whether sale of a software license to a large entity would be considered to be a license of a right in the invention to a large entity that would defeat a small entity claim by the licensor. By way of further example, it is not clear whether the grant of a general security agreement to a large entity would be considered to be a contingent obligation or a transfer of rights.

Despite the uncertainties surrounding the definition of a small entity, it may currently be beneficial for an applicant to claim small entity status due to the updated definition and the steeper discounts compared to the standard fees.