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Intellectual Property and the Government Contractor

Posted by Mike Anderson on Fri, Aug 02, 2013 @ 05:00 AM

Strategizing and protecting your IP rights is crucial to companies, especially within industries that are highly technical.  The government understands this, especially for small business, and has designed regulations to help the company do this when research and/or development is funded by either a government grant or contract.  Government awards have the advantage of providing a company with access to federal funding for (a) research and development work relating to new technology, and (b) further work leading to the commercialization of that new technology for use by the government or the private sector.  Government awardees can retain a significant portion of their IP rights during this process, but only by adhering to various statutes and regulations.   In addition to protecting their own IP rights, awardees must be prepared to defend themselves against infringement claims that may be brought by other companies as a result of work performed under government awards.  This issue often occurs when the government awards a contract to one of two competitors and the other company alleges that carrying out the contract necessarily violates its IP rights.  In addition, Title 28, Sections 1498(a) and (b), provides for the filing of a patent or copyright infringement action against the United States in the U.S. Court of Federal Claims for allegedly infringing acts by the government or by its contractors or subcontractors during the performance of work under a federal contract.    Because government contracts often incorporate indemnification provisions, contractors may be liable to indemnify the United States for damages suffered as a result of allegations of infringement by others.   The Federal Acquisition Regulation has several provisions that relate to such IP disputes.

The general policy of the United States, which is reflected in these laws, is to allow contractors to retain ownership rights in IP that is developed with federal funding as long as the government obtains a nonexclusive, paid-up license to use such IP.   This policy is based on the rationale that a contractor is better positioned to commercialize a new technology than the federal government.   

The disposition of patent rights in inventions made with federal funding for small businesses and nonprofit organizations is governed by Chapter 18 of Title 35 (35 U.S.C. §§ 200-212).The main provisions of Chapter 18 can be summarized as follows:

  • Nonprofit organizations and small businesses may elect to retain title to subject inventions, provided that the funding agreement may indicate otherwise in certain circumstances (35 U.S.C. § 202[a]). For purposes of these provisions, “subject inventions” are defined as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement” (35 U.S.C. § 201[e]) and “funding agreement” is defined broadly as any contract, grant or cooperative agreement entered into between any federal agency and the contractor for the performance of experimental, developmental, or research work. 35 U.S.C. § 201(b);
  • The government retains a nonexclusive, non-transferable, irrevocable, paid-up license to practice the invention for or on behalf of the United States throughout the world. 35 U.S.C. § 202(c)(4).

 

  • Duties of the contractor include disclosure of the existence of each “subject invention” to the government, election to take title to the invention, and prosecution of the patent application for the invention. The funding agreement may  also require the contractor to report on the real world utilization of the invention. Failure to observe these duties may result in the title to the invention vesting with the government. 35 U.S.C. § 202(c).

 

  • The federal government retains “march-in” rights to force the contractor to grant a non-exclusive or exclusive license to others in a particular field of use if the contractor is not taking reasonable steps to achieve the practical application of the invention in the field of use or for public health or safety reasons. 35 U.S.C. § 203(a).

 

  • U.S. industries are promoted throughout Chapter 18, for example, in the granting of title to invention rights (Section 202[a][i]), the manufacture of subject inventions (Section 204) and in the licensing of inventions owned by the federal government (Section 209[b]).

 

I think these regulations make it fairly clear that without a specific strategy, the small business can easily either “forget” to do something or just plain not know their rights and subsequently loose them.   By hiring a professional, experienced consultant, the company can not only develop a strategy but the consultant can help the company implement the strategy.  This will become extremely important in a commercialization effort and/or exit strategy for the owners of the business. 

Topics: government contractor, Intellectual Property, IP Rights, IP Strategy