Small Entity Government Use License Exception, 6476-6482 [2020-01687]

Agencies

• DEPARTMENT OF COMMERCE
• Patent and Trademark Office

[Federal Register Volume 85, Number 24 (Wednesday, February 5, 2020)]
[Proposed Rules]
[Pages 6476-6482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01687]


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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, Commerce.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The United States Patent and Trademark Office (USPTO or 
Office) is proposing to amend 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. The proposed rule change is 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.

DATES: Comments must be received by March 23, 2020 to ensure 
consideration.

ADDRESSES: The USPTO prefers that comments be submitted via electronic 
mail message to [email protected]. Written comments also may be 
submitted by mail to Mail Stop Comments-Patents, Commissioner for 
Patents, P.O. Box 1450, Alexandria, VA 22313-1450, marked to the 
attention of James Engel, Senior Legal Advisor, Office of Patent Legal 
Administration. Comments may also be sent by electronic mail message 
via the Federal eRulemaking Portal at https://www.regulations.gov. See 
the Federal eRulemaking Portal website for additional instructions on 
providing comments via the Federal eRulemaking Portal. All comments 
submitted directly to the USPTO or provided on the Federal eRulemaking 
Portal should include the docket number (PTO-P-2019-0009).
    Although comments may be submitted by postal mail, the Office 
prefers to receive comments by electronic mail message over the 
internet because the Office may easily share such comments with the 
public. Electronic comments are preferred to be submitted in plain 
text, but also may be submitted in portable document format or DOC file 
format. Comments not submitted electronically should be submitted on 
paper in a format that facilitates convenient digital scanning into 
portable document format.
    The comments will be available for public inspection on the USPTO's 
website at https://www.uspto.gov, on the Federal eRulemaking Portal, 
and at the Office of the Commissioner for Patents, Office of Patent 
Legal Administration, 600 Dulany Street, Alexandria, VA 22314. Because 
comments will be made available for public inspection, information that 
is not desired to be made public, such as an address or phone number, 
should not be included.

[[Page 6477]]


FOR FURTHER INFORMATION CONTACT: James Engel, Senior Legal Advisor, 
Office of Patent Legal Administration, by phone: (571) 272-7725, or 
email: [email protected] and Marina Lamm, Patent Attorney, Office 
of Policy and International Affairs, by phone: (571) 272-5905, or 
email: [email protected].

SUPPLEMENTARY INFORMATION: The USPTO proposes to amend 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 
regulations at 37 CFR 1.27 currently have two basic exceptions--at 
paragraphs (a)(4)(i) and (ii)--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)--is for 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 10096. The Office is 
proposing to amend the regulations to specify that this exception 
applies to the government use license under 15 U.S.C. 3710d(a) a 
Federal employee, including an employee of a Federal laboratory, is 
obligated to grant if he/she is allowed to retain title to the 
workplace invention. It also proposes to expand 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), where 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 
patents 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 is otherwise qualified 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 is otherwise 
qualified 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 
has been brought to the USPTO's attention that much uncertainty exists 
as to whether the paragraph (a)(4)(ii) exception applies in cases where 
there is a Federal employee co-inventor. In response, this rule 
proposes to amend 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) 
would be 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) would still apply. This is considered 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, 
provide 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 are hesitant to enter into 
CRADAs with the Federal Government because, under the current rules, 
they would automatically lose their small entity status and would have 
to pay 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 proposes to expand the exceptions 
in 37 CFR 1.27(a)(4) to add a new section 1.27(a)(4)(iii) that would 
cover 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 title 35 of 
the United States Code to ``encourage maximum participation . . . in 
federally supported research and development

[[Page 6478]]

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 thirty-five years 
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 have never provided 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 proposing to revise the patent rules to add a government 
use license exception that applies to small entities which 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.''
    Currently, the patent rules provide a government use license 
exception only for such licenses arising under 35 U.S.C. 202(c)(4). The 
proposed change to 37 CFR 1.27(a)(4) would add 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 rights to a subject invention made by the collaborating party or 
employee of the collaborating party. The proposed change would add 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 current exception for the government 
use license under 35 U.S.C. 202(c)(4), it has been reported to the 
USPTO that small business firms and nonprofit organizations have become 
increasingly concerned that contributions of Federal employees in joint 
inventions could eliminate their entitlement to small entity status. In 
response, the current section 1.27(a)(4)(ii) exception--the so-called 
``federal licensing safe harbor provision''--is proposed to be 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 chapter 18 of title 35, which include a government use 
license. As proposed to be amended, the section 1.27(a)(4)(ii) 
exception would 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 proposed new paragraph (A) of section 1.27(a)(4)(ii) 
which would apply 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''.
    Regarding the proposed new section 1.27(a)(4)(iii), which would 
apply to government use licenses arising under a CRADA where the small 
entity retains all ownership rights, paragraph (B) would be included to 
cover situations where the government 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) would 
apply to government use licenses arising in situations where 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) would be treated similar to 
how consolidation of rights to a contractor under the Bayh-Dole Act 
provision of 35 U.S.C. 202(e)(1) are treated under 37 CFR 1.27(a)(4) as 
proposed to be amended. All the exceptions under 37 CFR 1.27(a)(4)(i) 
through (iii) would 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 proposed to be added to specify that 
regardless of

[[Page 6479]]

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. In 
addition, a new introductory clause is proposed to be added to 37 CFR 
1.27(a)(4) which limits eligibility for any of the government use 
license exceptions to patent applications filed and prosecuted at no 
expense to the government (with the exception of any delivery 
expenses). To overcome any reluctance of research partners to take 
responsibility for seeking patent protection of the federally-supported 
inventions, the proposed new section 1.27(a)(4) introductory clause 
combined with proposed new paragraph (a)(4)(iv) should encourage small 
business concern and nonprofit organization contractors and 
collaborators to take the lead in seeking patent protection.
    Although the USPTO can provide for government use license 
exceptions for small entity status qualification, these exceptions 
cannot apply to micro entities. 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 they have assigned, 
granted, or conveyed a license or other ownership interest in the 
invention to an entity that exceeded the gross income limit (currently 
$189,537) 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 would run 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 would 
disqualify the applicant from micro entity status. For consistency, 
this would apply 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 proposed in order to explicitly reflect 
this.
    Discussion of Regulatory Changes: These rule changes would 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.
    The regulations currently at 37 CFR 1.27(a)(4)(i) provide an 
exception for a government use license resulting from a rights 
determination under Executive Order 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 proposed to be amended 
to acknowledge the regulations contained in 37 CFR part 501, which 
implement E.O. 10096. This would be accomplished 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 proposed to be 
amended, would remain in section 1.27(a)(4)(i) under a new paragraph 
(A). It is also proposed to add a new paragraph (B) 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, proposed paragraphs 
1.27(a)(4)(i)(A) and (B) would 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. It is also proposed to add to section 1.27(a)(4)(i) 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). This 
exception would be contingent upon the inventor meeting the criteria 
under 37 CFR 401.9 of an employee/inventor of a small business firm or 
nonprofit organization contractor. (37 CFR part 401 implements the 
provisions of the Bayh-Dole Act codified in 35 U.S.C. 200-212.) Thus, 
section 1.27(a)(4)(i), which applies to small entity ``persons'' as 
defined in 37 CFR 1.27(a)(1), is proposed to set forth three types of 
government use licenses which would not disqualify a patent applicant 
from claiming small entity status for purposes of paying reduced patent 
fees.
    The regulations currently at 37 CFR 1.27(a)(4)(ii) provide an 
exception for certain government use licenses granted by ``small 
business concerns'' and ``nonprofit organizations'' as defined in 37 
CFR 1.27(a)(2) and (a)(3). With respect to small business concerns and 
nonprofit organizations, there are generally two types of agreements 
they enter into with the Federal Government that are pertinent to 
section 1.27(a)(4)(ii) as proposed to be amended: (1) Federal funding 
agreements under the Bayh-Dole Act (as defined in 35 U.S.C. 201(b)), 
and (2) cooperative research and development agreements (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. Currently, section 1.27(a)(4)(ii) only provides an exception 
for Bayh-Dole Act government use licenses under 35 U.S.C. 202(c)(4). To 
clarify the current exception, new paragraphs (A) and (B) are proposed 
to be added to section 1.27(a)(4)(ii). Paragraph 1.27(a)(4)(ii)(A) 
would apply to the situation where the invention under federal funding 
agreement was made solely by employees of the small business concern or 
nonprofit organization. Paragraph 1.27(a)(4)(ii)(B) would address 
situations where there is a Federal employee co-inventor. The proposed 
rule change would provide an additional exception, reflected 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.
    A new introductory clause is proposed to be added to 37 CFR 
1.27(a)(4) to limit eligibility for any of the current and newly 
proposed government use license exceptions 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 proposed to be 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.
    Section 1.29 is proposed to be 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). 
The amendment would reflect that the statutory condition for a micro 
entity, specified at 35 U.S.C. 123(a)(4) cannot be met if an applicant, 
inventor or a joint inventor has made (or is obligated to make) a 
government use license for the invention for which patent protection is 
sought in the relevant patent application.
    Request for Public Comments: The USPTO invites interested persons 
and entities to participate in this rulemaking by submitting written 
comments, data, or views on the proposed regulations addressing 
exceptions to the rule pertaining to government use licenses

[[Page 6480]]

and their effect on small entity status for purposes of paying reduced 
patent fees, as discussed in the preamble. The USPTO has estimated the 
number of small entities that would be impacted by this proposed rule 
to be in the range of 750 to 1000, based on the number of active CRADAs 
reported for FY2015 and its projected growth. However, it is difficult 
to predict how many more entities would claim small entity status under 
the proposed regulations. Thus, the USPTO is interested in receiving 
comments from the public, particularly small businesses and non-profit 
organizations, about the number of additional entities that might claim 
small entity status because of this rule, as well as possible impacts 
on small entities who already qualify for small entity status for the 
purpose of paying reduced patent fees. The USPTO is especially 
interested in information related to estimates of the number of small 
entities that would qualify for small entity status once the rule is 
revised as proposed, as well as comments on any reasons why an entity 
would or would not claim small entity status under this rule.

Rulemaking Requirements

    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 (DC 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), does 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 has chosen to seek public comment 
before implementing the rule to benefit from the public's input.
    B. Regulatory Flexibility Act: Under the Regulatory Flexibility Act 
(RFA) (5 U.S.C. 601 et seq.), whenever an agency is required by 5 
U.S.C. 553 (or any other law) to publish a notice of proposed 
rulemaking (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. For the 
reasons set forth herein, the Senior Counsel for Regulatory and 
Legislative Affairs of the United States Patent and Trademark Office 
has certified to the Chief Counsel for Advocacy of the Small Business 
Administration that this rule will not have a significant economic 
impact on a substantial number of small entities. See 5 U.S.C. 605(b).
    The United States Patent and Trademark Office (USPTO) is proposing 
to amend 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. Currently, 
to be entitled to pay small entity patent fees, all parties holding 
rights in the invention must qualify for small entity status. There are 
two exceptions to this rule. Both 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 current 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 Executive Order 10096. This 
exception would continue to apply and is proposed to be clarified to 
apply to employees of Federal laboratories under 15 U.S.C. 3710d(a). 
The second current 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 agreement with a Federal agency. This 
exception is proposed to be expanded to cover the situations where 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 proposed change to the 
rule would also expand the second exception to address situations where 
there is a Federal employee co-inventor. It is further proposed to add 
a third exception to cover a government use license arising from an 
obligation under a cooperative research and development agreement 
(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 
proposed to be clarified. The proposed 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 would allow more entities to qualify for the small 
entity fee discount, wherein these entities may qualify for a 50% 
reduction in fees, resulting in a substantial cost savings to the 
entities. 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 proposed rule to be in 
the range of 750 to 1000, based on the number of active CRADAs reported 
for FY2015 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 
proposed rule has been determined to be not significant for purposes of 
Executive Order 12866 (Sept. 30, 1993).

[[Page 6481]]

    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 proposed rule; (2) tailored the proposed 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 on-line 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 proposed rule is not expected to be an 
Executive Order 13771 regulatory action because this proposed 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 
proposed 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 
United States Patent and Trademark Office 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 
proposed rule are not expected to result in an annual effect on the 
economy of 100 million dollars 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 proposed rule is not a ``major 
rule'' as defined in 5 U.S.C. 804(2).
    M. Unfunded Mandates Reform Act of 1995: The proposed 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 dollars (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 dollars 
(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: 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: 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 which involve the use of 
technical standards.
    P. Paperwork Reduction Act: 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 
proposed rule does not involve an information collection requirement 
that is subject to review by the 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 
displays a currently valid OMB control number.

List of Subjects for 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, the Office proposes to 
amend part 1 of title 37 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. Amend Sec.  1.27 to revise paragraph (a)(4) 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) 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

[[Page 6482]]

pursuant to 15 U.S.C. 3710d(a) allowing the inventor to retain title to 
the invention; or
    (C) a use license to a Federal agency resulting from retention of 
rights by the inventor under 35 U.S.C. 202(d), provided the conditions 
under Sec.  401.9 of this title for retention of rights by an inventor 
employed by a small business concern or nonprofit organization 
contractor are met, and the license is equivalent to the license the 
Federal agency would have received had the contractor elected to retain 
title.
    (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 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. Amend Sec.  1.29 to revise paragraphs (a)(1) and (d)(1) 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
* * * * *

    Dated: January 24, 2020.
Andrei Iancu,
Under Secretary of Commerce for Intellectual Property and Director of 
the United States Patent and Trademark Office.
[FR Doc. 2020-01687 Filed 2-4-20; 8:45 am]
 BILLING CODE 3510-16-P