SMALL ENTITY STATUS IN INDIAN PATENT SYSTEM
Introduction to small entity status in light of Patent Rules, 2014
On February 28, 2014, the Indian Patent Office (IPO) notified the Patents (Amendment) Rules, 2014 (“Rules”). The amended rules came into effect from February 28, 2014.
In this new set of rules, one of the important changes was the introduction of Small Entity category for applicants. According to the newly introduced rules, a new category of the applicant, called the small entity, was introduced, and a new set of official fees was fixed.
The criterion for “small entity” has been elaborated in the amended rules. In this respect, a new Form 28 was also introduced in the Patents Rules, 2014 which can be accessed here.
Definition of small entity
As per rule 2 of the Patent Rules, 2014, “small entity” means,
In case of an enterprise engaged in the manufacture or production of goods, an enterprise where the investment in plant and machinery does not exceed the limit specified for a medium enterprise under clause (a) of sub-section (1) of section 7 of the Micro, Small and Medium Enterprise Development Act, 2006 (27 of 2006); and
In case of an enterprise engaged in providing or rendering of services, an enterprise where the investment is not more than the limit specified for a medium enterprise under clause (b) of sub-section (1) of section 7 of the Micro, Small and Medium Enterprise Development Act, 2006.
Accordingly, the rule 2 referred to sections (7) (1) (a) and (b) of the MSME Act for reference. Therefore, reading both the statutes in unison, the following definition of small entity was derived:-
- Where the applicant company is a manufacturing company: An applicant company who is engaged in the manufacture or production of goods pertaining to any industry and which has an investment limit over 10 crores (approx. USD 1,497,000)
- Where the applicant company is in service sector: An applicant company who is engaged in providing or rendering services should not have an investment limit over Rupees 5 crores (approx. USD 748,500).
In the format for newly introduced Form 28, the applicant company is required to submit necessary documents as evidence for being claimed as a small entity.
Evidences required for claiming small entity status
- Applicants who have nationality of India-
To claim the small entity status, the applicant Indian company is required to furnish evidence of registration under the Micro, Small and Medium Enterprise Development Act, 2006. In light of this, applicants wishing to claim small entity status need to register under the MSMED Act, 2006 and obtain an MSME registration certificate. This evidence of registration is basically a memorandum which has to be submitted to the District Industries Centre within whose jurisdiction the said enterprise is located.
- Applicants who are not Indians (Foreign entities) –
Unfortunately, the Form 28 notified by the Patent Office merely stated that a foreign applicant company is required to furnish some documents, but, does not specify the description of such documents. This has resulted in a dilemma among the various stake holders about how to meet the requirements, especially considering that an irregular or invalid meeting of this formality may invoke provisions of section 142 (3) of the Indian patent act.
In practice, however, it has been noticed that the foreign applicant may submit any of the following documents in order to meet the small entity requirement. These documents are:-
a) Latest balance sheet of the company, and/ or
b) A copy of the annual report.
However, it should be noted that in case these documents are in non-English language, an English translation thereof along with a certificate from the translator about the correctness of the translation is also required to be affixed.
Issues in claiming small entity status
Even though the introduction of small entity status for applicants has provided a lower fees structure in the government official fees for the companies which qualify as small entity, there are still few hurdles and challenges that these applicants face in claiming small entity status. Since it has been some time that this new system is in place, these challenges are becoming more apparent. Few of the challenges are listed as below:
For Domestic Indian applicant companies-
- Difficulty in MSME certification – As per the MSME Act, an applicant is required to mandatorily have an MSME registration to avail the fees reduction. Even though the procedure for MSME registration is not complex and most of the procedure has become highly simplified after the introduction Udyog aadhar, it has been noted many a times that the process is time consuming and often protracted.
This leads to unnecessary delays for a patent applicant, who is racing against time in order to file his/ her patent at the earliest. The problem exaggerates, since a domestic Indian applicant has no other option but to get the MSME certification.
To solve this problem, the patent office should look into accepting other evidences, such as balance sheets, annual reports, ROC reporting, and the like, especially when the patent office accepts these proofs for foreign applicants.
For Foreign applicants-
- No evidences mentioned for foreign clients-
It has been observed that the biggest issue in claiming small entity status for foreign applicant is the lack of clarity about the documents required as evidence. The documents that the foreign applicants are submitted is based on the here say of the patent office.
- Translation issues (adding costs)-
This is one of the other major challenges faced by foreign entities who desire to claim themselves as “small entity” while filing a patent application in India. Consider a scenario, wherein the applicant belongs to a foreign country, say Japan, which is a non-English country. In such a case, the Japanese applicant is required to pay high translation costs for translating the necessary documents (balance sheets/ annual reports) into English, which is the official language of our patent office. Ironically, the cost of these translations would be higher than the costs that an applicant could save by availing small entity benefits.
In addition to the above, there is another challenge faced by the applicants claiming as Small Entity. In the new Patent Rules, 2014, in original Rule 7, a new sub-rule 3A is introduced which is quoted as below:
Rule 7(3A): In case an application processed by a small entity is fully or partly transferred to a person other than a natural person (except a small entity), the difference, if any, in the scale of fee(s) between the fee(s) charged from a small entity and the fee(s) chargeable from the person other than a natural person (except a small entity) in the same matter shall be paid by the new applicant with the request for transfer.
This rule is applicable for scenarios when the status of small entity changes from small to large during the course of prosecution i.e. when the small entity assigns its patent application to a large entity. By interpreting the above rule, it is understood that the difference in fee should be paid on the basis of the status of new applicant. However, it is still unclear as to what will happen when the small entity loses its own status from small to large entity after filing the Patent application in India. There may be situations when a small entity exceeds the limit criteria (for MSME) of investment after filing the patent application in India. In such cases, a clarification is still required on fee structure for every stage in patent prosecution.
Concluding on our discussion, it is advised that the applicants should remain cautious while claiming as a small entity. The applicants must fulfil the requirements as specified in the respective rules. Indian applicants must provide evidence such as an MSME certificate and foreign applicants must provide balance sheets/copy of annual reports, if they want to be claimed as small entity and enjoy the benefits thereto. It is highly suggested and recommended to consult a patent attorney for the best advice on how to meet the small entity criteria, especially considering that an irregular or invalid meeting of this formality may invoke provisions of section 142 (3) of the Indian patent act.
 Section 142 – Fees
(3) Where a fee is payable in respect of the filing of a document at the patent office, the fee shall be paid along with the document or within the prescribed time and the document shall be deemed not to have been filed at the office if the fee has not been paid within such time.