How does a security interest affect small entity status?
A security interest in a patent or patent application generally does not affect small entity status unless it is defaulted upon. According to 37 CFR 1.27(a)(5):
A security interest does not involve an obligation to transfer rights in the invention for the purposes of paragraphs (a)(1) through (a)(3) of this section unless the security interest is defaulted upon.
This means that an applicant or patentee can take out a loan secured by rights in a patent application or patent without losing small entity status, even if the lender is a large entity. However, if the loan is defaulted upon and the security interest is enforced, resulting in a transfer of rights to a non-small entity, the small entity status would be lost.
In such cases, the USPTO must be notified of the loss of entitlement to small entity status prior to or at the time of paying the earliest of the issue fee or any maintenance fee due after the date on which small entity status is no longer appropriate.
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