By: Nicole A. Palmer
Government grants and contracts offer a rich source of research funding for individuals, startups, and large corporations including public companies. Implementation programs, such as the Small Business Innovation Research (SBIR) program encourage small businesses to pursue commercialization and provide an attractive form of funding without dilution. Even venture capital-backed firms are now eligible to receive certain SBIR awards. Intellectual property (IP) considerations should be at the forefront throughout the proposal, award, and performance phases of government funded research to ensure competitive positioning.
As a preliminary matter, nondisclosure agreements (NDAs) should be used widely in discussions with third parties about your technology. Evidence of commercial interest can prove very helpful in the proposal process. Ideally, letters of intent from potential partners or customers may even be secured. NDAs should be in place at all times to safeguard your IP.
It is also important to have a good understanding of the IP landscape surrounding your technology. The government agencies are interested in understanding the context of your potential contribution. You also want to be able to clearly delineate between background IP (of your own or others) and IP developed under the grant or contract. This exercise will also facilitate any related due diligence by potential investors down the line.
Conducting an internal survey or audit to catalog your IP will help clarify and put structure around what you are bringing to the grant or contract. It will also get you thinking about the different “buckets” of available IP rights and what might be the most appropriate form of protection for different aspects of your technology. Consider all forms of protection including trademark, copyright, design patent, utility patent, and trade secret. If the government is likely to be your only customer, then securing patent protection may be less important. If a feature would be difficult to design around or it is unlikely that you would pursue patent enforcement, then perhaps trade secrets are of greater value. In an R&D relationship with the government, this framework may be useful with respect to various reporting and election requirements.
Once you know what you have, seriously consider securing protection on your background IP. Recent patent reform measures have already placed greater emphasis on filing early in a first-inventor-to-file system including an expanded universe of applicable prior art. This will also help in terms of delineation between pre- and post-award IP.
The Bayh-Dole Act governs IP arising from federal government-funded research and defines a subject invention as “any invention of a contractor that is conceived or first actually reduced to practice in the performance of work under a funding agreement.” There are caveats but an invention may be a subject invention even if the government money is not the sole source of funding.
Enacted in 1980, the Bayh-Dole Act represented a paradigm shift towards granting the government rights in, but not title to, subject inventions. The government has always been a major consumer of technology but was having difficulty attracting commercial licensors for its IP. This new policy was intended to promote greater utilization and commercialization of inventions, as well as university-industry collaboration, and small business participation in federally sponsored R&D while ensuring sufficient rights are retained to meet the government’s needs. It is implemented through various regulations, primarily the Federal Acquisition Regulations (FARs), with specific agencies (such as the Department of Defense (DoD)) also establishing supplemental regulations. Contracts and proposals generally itemize which provisions apply.
With respect to the relative rights of the government and its R&D contractor, contractors may generally elect to retain title to subject inventions. The regulations specify time limits and procedures for reporting subject inventions that may be patentable to the agency, and such provisions may be modified by contract. In turn, the contractor must take steps within a further specified timeframe (based largely on statutory deadlines) to file for protection on the subject invention. Periodic reporting on the status of subject inventions may also be required.
If the contractor elects to retain title, the government receives an irrevocable, worldwide, non-exclusive license for its royalty-free use. If the contractor has not properly disclosed a subject invention, does not elect to retain title, or fails to timely file a related patent application, the government can opt to acquire title to the invention, and the contractor receives only a revocable royalty-free license.
Controversial march-in rights, never exercised to date, allow an agency to unilaterally grant additional licenses to other reasonable applicants if it determines that a contractor is not diligently taking steps to achieve practical application of a subject invention.
The contractors have additional obligations including to actively promote and attempt to commercialize the subject invention, have certain written agreements with its employees, provide notice of the government’s rights in related patent applications, and to generally show a preference for U.S. industry such as in connection with manufacturing.
An authorization and consent clause is common in most government contracts and offers contractors an affirmative defense to patent infringement claims in using patented inventions for the government. In addition, the Bayh-Dole Act protects subcontractors by allowing prime contractors to acquire rights in subject inventions resulting from a subcontract, but only outside of the subcontract for some additional compensation.
Apart from subject inventions, rights associated with data (including all technical data, recorded information, and computer software) submitted by the contractor to the agency under contract may be particularly valuable and should be scrutinized. The title to such data vests with the contractor, and the government receives a license for its use. The nature of the license depends largely on when the item of data was developed and who paid for its development. Government funding generally results in broader government data rights.
Unlimited rights in data first produced in the performance of a contract are nonexclusive so the government can even use it for competitive procurement. Developed exclusively at private expense, the government gets limited rights (use within government only) in technical data, and restricted rights (use within government only with permissible disclosure to service contractors) in computer software. There is an additional category referred to as government purpose data rights associated with DoD contracts. The government will obtain unlimited data rights by default if the contractor does not carefully follow specified reporting and marking procedures. Pre-award, the contractor should explicitly identify all data to which unlimited rights do not apply.
Implementing an IP management system is essential for success in government funded research. The system should inform your documentation of invention disclosures, data cataloging, and decision-making around pursuing IP protection. In addition, it should inform your accounting principles as rights may vary widely depending on the applicability of government or private funding. The related reporting, election, and marking requirements are stringent. Maintaining an open dialogue and good relationship with the assigned agency officer can help you negotiate favorable terms which should be approached in a sophisticated manner based upon fully assessed needs.