Patents are often a company's most important asset. Thus, when a company is contracting with the federal government, the contractor has to proceed with caution to avoid loss of patent rights. Government contracts can include various forms of patent and patent rights. If a contract is subject to a patent rights clause, the contractor must adhere to the Federal Acquisition Regulation to protect its patent rights. Essentially all government contracts are subject to a patent rights clause, except government contracts for construction work or architect-engineer services that involve only "standard types of construction" – a term that is defined in the FAR. See FAR 27.303(3).
A contract is subject to the patent rights clause if the contract is for "experimental, developmental, or research work" or if the contract is for construction work or architect-engineer services and has, as a purpose, the performance of experimental, developmental, or research work or tests and involves the design of a government facility or the design of novel structures, machines, products, materials, processes, or equipment. FAR 27.303(a)(1) and (2)(i)-(iii).
Patents and Patent Rights Defined
A patent affords a legal monopoly on an invention for 20 years from the date of filing or earliest priority date. That means that no one else can make, use, sell or reverse engineer a patented invention as long as the patent is valid in the country in which the patent is granted. However, a monopoly granted to an inventor by the patent laws is only as good as the inventor's ability to police the invention and to sue those who infringe.
For purposes of government contracts, an invention is defined as "any invention or discovery that is or may be patentable or otherwise protectable under [the Patent laws] or any novel variety of plant that is or may be protectable under the Plant Variety Protection Act". See FAR 27.301.
Federal Money Used to Invent a Patentable Invention
If an invention is conceived or built in performance of a government contract, the government will have some rights to the patentable technology. The government rights can range from a non-exclusive license to full ownership of the patent rights. The amount of patent rights depends on the amount of government funding involved and which agency provides the funding. Details concerning government contracts and patent rights are explained in the Bayh-Dole Act and the FAR.
Prior to 1980, the government typically took title to inventions that arose during performance of a government contract. Over time, Congress realized that this was a disincentive to the development of new technology because contractors could not commercialize and sell their inventions in the marketplace. This realization led to the Bayh-Dole Act of 1980. The Bayh-Dole Act gives non-profit organizations and small businesses the right to elect to retain title to inventions developed under federally funded contracts, grants or cooperative agreements. The government then acquires a nonexclusive, irrevocable, paid-up license. In 1983, a presidential memorandum extended this allocation of rights to large businesses and for-profit organizations.
The Bayh-Dole Act and the presidential memorandum forms the basis for the FAR's regulation of contractors' rights to retain title to inventions made in the performance of work under a government contract. The government obtains a broad license. There are statutory exceptions for contracts with the Department of Energy and NASA, which are required by statute to take title. However, these requirements can be and are often waived.
The FAR applies to all federal contracts. Provisions on patent rights are contained in FAR subparts 27.2 and 27.3 as well as 52.227-1 through 52.227-13. Defense Federal Acquisition Regulations Supplement (DFARS) applies to all Defense Department (DOD) contracts. DFARS follows FAR closely with minor supplementary provisions.
Government Contract Clauses
Patent rights clauses in a prime contract are most likely contained in Section I of the contract. Typically, only the part and sub-part citations to the relevant FAR and DFARS clauses are expressly contained in the contract. It is important for the contractor to review the referenced citations and definitions of terms used. Prime contracts and subcontracts may also incorporate by reference relevant FAR and DFARS clauses by specific clause number.
Patent clauses affect the patent rights in all prime contractors and subcontractors under a government contract. Again, FAR clauses are "flowed down" to all subcontractors, regardless of tier. The flow down allocates rights and obligations between the subcontractor and the government, not the subcontractor and the prime.
Patent Rights in Government Contracts
The government obtains certain "use rights" in inventions made by the contractor during the performance of work under the government contract. The rights that the government assumes depends on the nature and timing of the contractor's disclosure of the invention.
To retain its patent rights, the contractor must first disclose a subject invention to the contracting government agency, then elect to obtain title to the subject invention by notifying the government agency in writing and finally must file an initial patent application on the subject invention. The disclosure, election and filing all have time limits.
According to FAR 27.301 a "subject invention" is "any invention of the contractor conceived or first actually reduced to practice in the performance of work under a government contract". Achieving a subject invention initiates disclosure and election responsibilities for contractors.
The disclosure to the appropriate contracting officer must be in writing and must be sufficiently complete in technical detail to clearly convey understanding to the extent known at the time of the disclosure. The nature, purpose, operation and the physical, chemical, biological or electrical characteristics of the invention must be disclosed and described. The disclosure must also identify the applicable contract and the inventors.
Under any "subject invention," the government obtains at least a nonexclusive, nontransferable, irrevocable, global, paid-up, perpetual license to practice an invention for government purposes while the contractor owns the patent. This license may be broadened in a specific contract to provide the government with additional rights. The license may also be revoked or modified by the government to achieve expeditious practical application.
FAR 27.302(b)(1)-(4) describe narrow exceptions to Contractor's right to elect to retain title. A few of these exceptions include but are not limited to foreign companies, national security and contracts for government owned R&D or production facilities. Contracting with the federal government is like dealing with no other customer. Nowhere is this axiom more true than when it comes to patent rights. Contractors who do not understand how patent rights are addressed under government contracts are at grave risk of losing these rights. In the next issue, the second part of this article discusses how contractors can preserve their patent rights and the pitfalls they must avoid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.