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Protecting Your IP Under Government Contracts, Part 1

by Jesse Erlich

It is evident that dealing with the government has many advantages; however, if certain rules and regulations are not followed, particularly those found in The Federal Acquisition Regulations (FARs), this procedure can also be hazardous. For example, a contractor or subcontractor may believe it is entitled to certain rights, both with respect to inventions as well as data, and yet by not following the appropriate procedures those rights may be lost.

In the coming months I will present through a series of blog posts a brief overview of intellectual property rights with respect to government contracts. However, it should not be relied upon as the sole source of information when entering such government contracts. It is highly recommended that prior to entering any government contract, or any contract for that matter, a lawyer familiar with such contracts be consulted for review of the contract prior to execution of the contract by the parties.

Let’s get started.

Part 1: Summary of Intellectual Property Protection under a Government Contract

Many companies have questioned whether a contract with the U.S. government is worthwhile. You bet it is, especially in the area of research, design or development, although procurement contracts may also be valuable since they are an excellent source of revenue! There is very little downside with respect to ownership of inventions, since if any inventions are made under the contract, the contractor or subcontractor has the right to retain ownership of the invention. In such a case the only rights the government would obtain if the contractor elects to retain title in the invention made under the contract, would be a nonexclusive, irrevocable, paid-up license for government use (confirmatory license).

In other words, the government has the right to use such an invention for governmental purposes. When it comes to technical data and software, the contractor or subcontractor also has some control of their use by the government. It should be noted that in most instances the terms “contractor” and “subcontractor” can be interchanged since most rights with respect to the government pertain to both the contractor and subcontractor independently of the other. Therefore, where the term “contractor” is used, the term “subcontractor” may also apply.

Is this royalty-free license a problem with respect to inventions made under a government contract?  Generally it is not as much as a concern as it seems, because under the Authorization and Consent clause of the Federal Acquisition Regulations (FAR) 52.227-1 the government has the right to use any patented invention it so desires for governmental purposes, and the owner of the patented invention, even if not made under a government contract, cannot enjoin the government from using such a patented invention. The recourse for the patent owner would be a suit against the government brought in the U.S. Court of Claims for patent infringement.

More specifically, the Authorization and Consent clause authorizes the government and consents to all use and manufacture, in performing a contract or subcontract at any tier, of any invention described in and covered by a United States patent. If the patent owner suffers a financial loss to another contractor using such an invention under a government contract, it would be the amount of royalty that the patent holder would have obtained if the patent holder was entitled to such a royalty.

With respect to those inventions made under a contract in which the contractor retains title, the contractor or subcontractor grants the government a confirmatory license for governmental use. The government contractor or subcontractor is not precluded from making a profit if such an invention covers a product procured by the government. However, since the government would not pay the contractor or subcontractor a royalty, the contractor or subcontractor could look at this as a discount to the government for receiving the procurement contract. Many companies are fearful of the government’s “march-in” rights; these march-in rights are addressed in later blog posts. Technical data and software may be presented to the government with unlimited, limited or restricted rights, and these limitations will also be discussed later in this article.

My approach to dealing with the government is one of openness and negotiation. In most instances the government is a reasonable partner, and since the government is not profit driven, a reasonable approach by the contractor is generally accepted by the government. Of course there are specific rules and regulations that oversee government contracts, and all negotiations must fall within the purview of these rules and regulations. By being forthright and honest with the government you will not run afoul of the law. Since the contract is not valid until signed, if the negotiations do not result in a contract that is to your liking, don’t enter the contract and walk away.

In my next post I will discuss some key definitions under a government contract.

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