Small Entity Errors After Patent Issuance: Validity Correction and Enforceability
Executive Summary: Paying small-entity fees when undiscounted fees were required does not automatically invalidate a U.S. patent, but the error can create correction obligations, financial exposure, and enforceability risks. The analysis begins with eligibility when the relevant fees were paid, particularly the issue fee and maintenance fees; an applicant’s status on the patent’s grant date alone does not establish that an earlier payment was improper. Good-faith errors may be corrected after issuance under 37 C.F.R. § 1.28(c) through the required itemization and deficiency payment, including errors in establishing small-entity status or reporting its loss. Although voluntary correction has no fixed initiation deadline, USPTO notices and requests to cure deficient submissions impose response deadlines that owners must observe. Deliberate misrepresentations may support inequitable conduct when the required materiality and specific intent to deceive are established, and paying the deficiency does not eliminate an otherwise supportable unenforceability claim. Separately, 35 U.S.C. § 41(j) authorizes a fine of at least three times the underpayment, in addition to the deficiency, unless the entity establishes good faith. Patent owners should therefore document eligibility, reassess status before issue and maintenance payments, promptly investigate discrepancies, and preserve evidence supporting both the original assertion and any corrective submission.
Introduction
A patent does not automatically become invalid because its owner paid small-entity fees when undiscounted fees were required. The USPTO provides a procedure for correcting good-faith errors, including errors discovered after issuance. Deliberate misrepresentations can nevertheless support a finding of inequitable conduct, and current law separately authorizes monetary penalties for false assertions of entitlement to reduced fees. Evaluating the consequences requires examining the applicant’s actual eligibility, the timing of the payments, and the circumstances surrounding the mistake. 37 C.F.R. § 1.28(c); 35 U.S.C. § 41(j).
These issues often arise when a business grows, enters a licensing agreement, or is acquired while an application is pending. A transaction may change fee eligibility without producing an immediate change in the prosecution team’s records. The error may surface only during a portfolio review, a later acquisition, or preparation for litigation. By then, the patent owner must determine both how to correct the payment history and whether the underlying conduct creates a broader enforcement problem.
The terminology matters. Patent invalidity and unenforceability are distinct legal consequences. Section 282 separately recognizes unenforceability and specified grounds of invalidity as defenses. In a case involving small-entity payments, the Federal Circuit expressly explained that inequitable conduct renders a patent unenforceable rather than invalid. A payment discrepancy therefore should not be described as automatically invalidating the patent. 35 U.S.C. § 282(b); Ulead Sys., Inc. v. Lex Comput. & Mgmt. Corp., 351 F.3d 1139, 1150 n.8 (Fed. Cir. 2003).
Determining Whether Small Entity Status Was Improper
The initial inquiry concerns eligibility. Small-entity status is available to qualifying individuals, small business concerns, and nonprofit organizations. For a business concern, the applicable size standard generally requires that the concern, including its affiliates, have no more than 500 employees. The affiliation analysis prevents an entity from qualifying merely because the immediate patent-holding subsidiary has a small headcount. 37 C.F.R. § 1.27(a); 13 C.F.R. § 121.802(a).
Rights in the invention also matter. An otherwise qualifying applicant may lose eligibility by assigning or licensing rights to an entity that does not qualify, or by becoming obligated to make such a transfer. A pending assignment’s formal execution or recordation therefore may not mark the first date on which eligibility was lost. The operative contract and the rights it creates require examination. 37 C.F.R. § 1.27(a)(1)–(3).
Eligibility must be assessed for the particular application or patent. Counsel should identify the relevant owners, licensees, and contractual obligations, then evaluate the parties under the applicable rules. A general assumption that a client is a startup or a small business does not resolve whether all parties holding rights in a particular invention qualify. See 37 C.F.R. § 1.27(f).
The inquiry must also be renewed for a continuing application. A continuation, divisional, continuation-in-part, or reissue requires its own assertion of small-entity status; the parent’s designation does not automatically carry forward. A family-wide payment review should therefore distinguish continued prosecution of an existing application from the filing of a new application claiming its benefit. 37 C.F.R. § 1.27(c)(4), (f).
The Issue Fee Payment Date Matters
The statement that an applicant was a large entity “at grant” can obscure the event that controls the payment analysis. Once small-entity status has been properly established, § 1.27(g)(1) permits continued payment of reduced fees without regard to a change in status until the issue fee or a maintenance fee is due. The applicant must make a new determination of entitlement at those points. 37 C.F.R. § 1.27(g)(1).
Consider a company that properly establishes small-entity status when filing an application and later loses eligibility during prosecution. The regulation may still permit intervening prosecution fees at the small-entity rate. When the issue fee is paid, however, the applicant must reassess eligibility and report the loss of entitlement. An audit should distinguish payments authorized by this continuing-status rule from payments that were actually deficient. See U.S. Patent & Trademark Off., Manual of Patent Examining Procedure § 509.03(b)(I) [hereinafter MPEP].
The sequence changes the result. Suppose the applicant qualifies when it pays the issue fee on June 1, a transaction first causes loss of eligibility on June 15, and the patent issues on July 7. Applying § 1.27(g), the later change ordinarily does not retroactively make the June 1 payment improper. If the disqualifying transaction or obligation instead arose on May 15, the applicant could not properly rely on small-entity status for the June 1 issue-fee payment. The transaction’s legal effect, rather than its announcement date alone, controls that factual inquiry. See 37 C.F.R. § 1.27(a), (g).
Notification is also a separate requirement. The rule requires notice of lost entitlement before or when paying the first issue or maintenance fee due after the loss. Simply paying the undiscounted amount does not constitute the required notification. Counsel should confirm both the fee and the status entry when preparing the issue-fee response or arranging a maintenance payment. 37 C.F.R. § 1.27(g)(2).
Correcting a Good Faith Error After Issuance
Section 1.28(c) addresses both small-entity status established in error and an erroneous failure to notify the Office that entitlement had been lost. When the status assertion and reduced payments were made in good faith, the error is excused upon compliance with the rule’s submission, itemization, and deficiency-payment requirements. The regulation expressly applies to an application or an issued patent. 37 C.F.R. § 1.28(c).
DH Technology directly addresses an incorrectly reduced issue-fee payment. The district court had concluded that the patent lapsed and that the time for correcting the underpayment had expired. The Federal Circuit rejected that approach, holding that § 1.28(c) governs the timing of correction of an erroneously paid small-entity issue fee. The court explained that the provision imposed no fixed correction deadline, while remanding for consideration of the alleged fraud. It did not determine that the applicant’s conduct was necessarily innocent. DH Tech., Inc. v. Synergystex Int’l, Inc., 154 F.3d 1333, 1342–43 (Fed. Cir. 1998).
The same corrective framework extends to maintenance-fee underpayments made in good faith under small-entity status that had been established, including status established in error or retained after eligibility was lost. In Ulead, the Federal Circuit applied § 1.28(c) and recognized the effect of the USPTO’s acceptance of the deficiency payment. An ordinary failure to pay a maintenance fee and an erroneous reduced payment under the small-entity rules therefore require different procedural analyses. Ulead, 351 F.3d at 1148–50; MPEP § 2550.
A reduced maintenance payment made without establishing small-entity status presents a different procedural issue and may result in expiration if the full payment or an appropriate written assertion is not timely supplied. Status established in error must therefore be distinguished from status never established. MPEP § 509.03(b)(IV).
The absence of a fixed deadline for initiating voluntary correction under § 1.28(c) gives owners a means to correct older errors. Owners should nevertheless investigate and correct an identified error promptly, while relevant records and the responsible personnel remain available. Delay can complicate the reconstruction of the facts and allow further payments to be made using an inaccurate status designation.
The separate refund procedure under § 1.28(a) requires both the assertion of small-entity status and the refund request to be filed within three months after timely payment of the full fee. That period does not govern correction of an underpayment under § 1.28(c). 37 C.F.R. § 1.28(a), (b)(1), (c).
When an Error Threatens Enforceability
The correction procedure depends on good faith. Section 1.27(h) treats deliberately deceptive efforts to establish small-entity status or pay reduced fees as fraud practiced or attempted on the Office. In Nilssen, the Federal Circuit sustained findings of unenforceability involving improper small-entity payments after licensing arrangements with a large entity. The decision relied on findings concerning deceptive intent and the credibility of the patentee’s explanations. It also confirmed that misconduct during maintenance-fee proceedings can create an enforceability problem after the patent has issued. 37 C.F.R. § 1.27(h); Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1231–33 (Fed. Cir. 2007).
Nilssen predates the en banc decision in Therasense, which supplies the governing framework for inequitable conduct. The accused infringer must establish materiality and specific intent to deceive by clear and convincing evidence. Negligence, including an assertion that the applicant should have known better, does not establish the required intent. When intent is inferred from circumstantial evidence, deception must be the single most reasonable inference. Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290–91 (Fed. Cir. 2011) (en banc).
Materiality requires its own analysis. Therasense generally requires but-for materiality, while recognizing an exception for affirmative egregious misconduct, such as submission of an unmistakably false affidavit. The mere fact that a fee was underpaid does not complete that analysis. Id. at 1291–93.
The Federal Circuit applied this framework to small-entity status in Outside the Box. The district court had found inequitable conduct based on an agreement involving a distributor that did not qualify as a small entity. The Federal Circuit reversed because the record did not establish specific intent to deceive. It expressly declined to decide whether a false assertion of small-entity status was per se material. The court recognized that good-faith errors can be remedied by paying the deficiency and that the record did not justify unenforceability. Outside the Box Innovations, LLC v. Travel Caddy, Inc., 695 F.3d 1285, 1294–95 (Fed. Cir. 2012).
That holding requires care on both sides of a dispute. An owner cannot treat every fee-status representation as categorically immaterial. An accused infringer cannot establish inequitable conduct merely by proving that undiscounted fees should have been paid. The circumstances of the assertion and the evidence concerning the responsible individuals remain central to the analysis. See id.
Correction also has limits. The USPTO’s acceptance of a deficiency payment corrects the payment error, but does not resolve an otherwise supportable claim of deliberate deception. Ulead explains that a patentee may face an inequitable-conduct challenge if it knowingly represents that an error qualifies for good-faith correction when that representation is false. An owner should therefore investigate the facts supporting correction rather than assume that payment alone settles every enforceability issue. Ulead, 351 F.3d at 1149–50.
Monetary Penalties and Current USPTO Practice
Section 41(j) creates a separate statutory consequence. An entity found to have falsely asserted entitlement to a fee reduction is subject to a fine of at least three times the amount it failed to pay, unless it shows that the assertion was made in good faith. Any assessed fine is payable in addition to the required deficiency payment. The statute applies whether the Office discovers the false assertion before or after patent issuance. This administrative inquiry differs from the judicial burden of proving inequitable conduct. An inability to establish the statutory good-faith defense does not itself prove every element of unenforceability. 35 U.S.C. § 41(j); Therasense, 649 F.3d at 1290–93.
The USPTO’s 2025 implementation notice states that these penalty provisions apply to improperly discounted fees paid on or after December 29, 2022, regardless of the application’s filing date. That limitation concerns the statutory penalty; it does not eliminate the need to correct earlier errors. The notice also explains that paying a deficiency after a fine has been assessed does not discharge the fine. U.S. Patent & Trademark Off., Statutory Penalties for False Assertions or Certifications of Small and Micro Entity Status, 1536 Off. Gaz. Pat. & Trademark Off. 204, 206 (July 8, 2025).
The absence of a fixed deadline for voluntary correction under § 1.28(c) does not eliminate the obligation to respond timely to a USPTO notice of payment deficiency and order to show cause. The Office’s announced procedure provides an initial two-month response period, extendible under § 1.136(a). U.S. Patent & Trademark Off., Statutory Penalties for False Assertions or Certifications of Small and Micro Entity Status, 1536 Off. Gaz. Pat. & Trademark Off. 204, 205 (July 8, 2025).
The Office’s current small-entity response form expressly warns that failure to itemize and pay the required deficiency will result in abandonment of the application or expiration of the patent. That stated consequence of noncompliance with the Office’s procedure is distinct from judicial invalidity or unenforceability. U.S. Patent & Trademark Off., Form PTO/SB/142, Response to Notice of Payment Deficiency & Show Cause Order—Options II & III 1–2 (rev. July 2026).
Practitioners should also account for the Office’s current review procedures. An October 24, 2025 memorandum superseded MPEP language suggesting that entity-status claims ordinarily would not be questioned, expressly recognizing discretionary review of entitlement and the reasonableness of the applicant’s conduct. Memorandum from Brian E. Hanlon, Assistant Comm’r for Pats., to Patent Examining Corps, Advance Notice of Change to the MPEP with Respect to False Assertions or Certifications of Entity Status 1–2 (Oct. 24, 2025).
In its March 17, 2026 reminder, the USPTO reported that it had begun assessing fines and emphasized preserving evidence of the reasonable inquiry required by 37 C.F.R. § 11.18(b). Current advice should reflect that practice. Older judicial descriptions of the Office’s processing of deficiency payments do not establish that today’s USPTO will accept every good-faith explanation without inquiry. U.S. Patent & Trademark Off., Reminder: Conduct a Reasonable Inquiry Before Claiming Small or Micro Entity Status (Mar. 17, 2026).
Correcting the Record and Preserving the Evidence
A useful investigation begins with a chronology. Counsel should identify the original status assertion, the event that may have ended eligibility, the affected payments, and when the error was discovered. Agreements, corporate records, and communications with the people who authorized the payments can establish whether the problem arose from a mistaken eligibility assessment, a failure to report a later transaction, or conduct requiring closer scrutiny. The investigation should also identify related applications and patents affected by the same facts.
The fee audit should apply the continuing-status rule before calculating a deficiency. If status was properly established and eligibility later changed, some intervening prosecution payments may have remained authorized. For the payments actually made in error, the correction must identify each fee, the amount and date originally paid, the applicable current undiscounted amount, and the resulting deficiency. Each application or patent requires its own submission. MPEP § 509.03(b)(I), (IV).
The calculation generally uses the undiscounted fee in effect when the deficiency is paid in full, less the amount originally paid. It is therefore not necessarily the difference between the historical small-entity and large-entity rates. The regulation contains a special rule when the relevant fee decreased between the erroneous payment and correction: in that circumstance, it specifies a deficiency equal to the amount originally paid in error. Counsel should apply that provision rather than substitute a historical percentage calculation. MPEP § 509.03(b)(IV); 37 C.F.R. § 1.28(c)(2)(i).
A noncompliant deficiency submission can also trigger a separate response deadline. Under § 1.28(c)(3), the Office may require compliance within a one-month, nonextendable period to avoid return of the deficiency paper. That deadline concerns correction of a deficient submission; it is not a general deadline for initiating voluntary correction. 37 C.F.R. § 1.28(c)(3).
A compliant deficiency payment also operates as notification of loss of small-entity status. The owner should confirm the status recorded by the USPTO and coordinate future payments with any maintenance-fee service. Records supporting the original inquiry and the later correction should be retained, particularly because the Office may request an explanation and evidence of good faith. 37 C.F.R. § 1.28(d); U.S. Patent & Trademark Off., Reminder: Conduct a Reasonable Inquiry Before Claiming Small or Micro Entity Status (Mar. 17, 2026).
These procedures are equally useful in transactional and litigation diligence. A patent buyer can request the payment history and supporting eligibility records before closing. Counsel preparing to enforce a patent can investigate an unexplained status change before it becomes a contested issue. Neither inquiry requires assuming that an error occurred; both require enough information to evaluate the dates, rights, and decisions that determined the applicable fees.
Protecting Patent Value Through Accurate Fee Administration
The law provides a practical remedy for good-faith small-entity errors, including those discovered after issuance. Using that remedy requires an accurate account of eligibility and the payments actually affected. The prospect of inequitable conduct makes deliberate misrepresentations consequential, while current statutory penalties give the USPTO an independent means of addressing unsupported assertions. Patent owners can reduce these risks by documenting eligibility at filing, reassessing it for issue and maintenance payments, and ensuring that transactions affecting patent rights reach the people responsible for fee administration.
