Intellectual Property in Government Contracts Training

When thinking about intellectual property in government contracts, most people immediately think about this topic – software and technical data.  When dealing with software and data, the focus is on who has the right to use the data and software. The contractor will always own the software and data. The government has the right to use it according to the rights allocations granted. Rights are generally determined based on who funded the data or software developed or delivered in the performance of the contract.

Restricted Rights in Computer Software

The government has restricted rights in all non-commercial computer software required to be delivered or otherwise provided under the contract that was developed exclusively at private expense. [6] Like technical data, the government can request the contractor grant it additional rights to the computer software. Further negotiations can take place. It is up to the contractor whether or not it wants to have those negotiations.

The government may use restricted computer software:

• On one computer at a time unless the contract allows for use on more.
• On a backup computer.
• For archival or safekeeping purposes.
• To make modifications.
• To transfer to another agency as long as the software is deleted from the original computer.
• For emergency repair and overhaul.
• For evaluation by a foreign government.
• By support service contractors.

The government may disclose restricted computer software outside the government for:

• Emergency repair and overhaul.
• Evaluation by a foreign government.
• Use by support service contractors.

Marking Requirements

Technical data does have to be marked like computer software. There are different markings for technical data compared to computer software. The markings will differ between the FAR and the DFARS.  The markings must be conspicuous and legible. There should be no shortcuts and every page should be marked accordingly. Portion control should be exercised, and only confidential information should be marked. This will help strengthen the argument for the information that is truly confidential. Electronic markings are important too.

Subcontracting Obligations

When non-commercial technical data or computer software is required to be delivered by a contractor using the standard DFARS clauses or the FAR clause, the contractor shall flow those clauses down to its subcontractors without alteration. Contractors and higher-tier subcontractors cannot use their power to award a subcontract as economic leverage to obtain rights in that subcontractor’s data or software. However, they can acquire those rights if they offer separate consideration.

Commercial Items

Commercial technical data and software are exempt from most of the data rights requirements for non-commercial items and software. When dealing with commercial items, the government receives unlimited rights in any technical data pertaining to items or processes that were developed exclusively with government funds.

Copyright Assertions

The contractor is generally permitted to assert copyright to the extent the data is being published in a professional journal or the like. Any other assertion of copyright requires the contracting officer’s permission.

Protecting Contractor Intellectual Property Rights

The best way contractors can protect their data rights is to document them. Contractors should have good recordkeeping. Contractors are responsible for maintaining records to establish who paid for what technical data. If technical data was developed with federal funding, document the source and when. If the technical data was funded by others or developed internally (for example, background IP), keep records of that as well.

The treatment of technical data rights under the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS) diverges significantly, leading to different implications for contractors working with civilian agencies versus the Department of Defense (DoD). Be sure you know which body of law governs the intellectual property in your contracts.  Here’s a breakdown of the key distinctions:

1. Licensing Approach:

• FAR: Employs a “withholding” model. Contractors are not obligated to deliver technical data with limited rights unless specifically required by the contract. If delivery is not mandated, the contractor can withhold the data and provide form, fit, and function (FFF) data instead. This approach allows contractors to retain greater control over their proprietary information.
• DFARS: Adopts a “deliver subject to a restrictive license” approach. Contractors must deliver technical data even if marked with limited or restricted rights legends. The government’s use of the data is then limited by the specific license granted. This approach ensures the government receives necessary data but with limitations on its use.

2. Types of Licenses:

FAR: Recognizes unlimited rights, limited rights, and restricted rights for computer software. Government purpose rights are not applicable under the FAR.

DFARS: Includes unlimited rights, government purpose rights, limited rights, and specifically negotiated license rights. The inclusion of government purpose rights, which applies to technical data developed with mixed funding, provides a more nuanced approach for DoD acquisitions.

3. Commercial Item Treatment:

FAR: Emphasizes acquiring only technical data customarily provided to the public for commercial items. The contractor’s customary commercial license generally applies to technical data. There is no specific FAR clause addressing commercial technical data, relying on the broader principles of commercial item acquisition.

DFARS: Includes a specific clause, DFARS 252.227-7015, for commercial technical data. While the government’s rights are generally analogous to limited rights for commercial technical data, DFARS 252.227-7013 applies if any portion of the commercial item was developed with government funding.

4. Marking Requirements:

FAR: Requires the use of specific legends for limited rights and restricted rights data. However, the FAR offers flexibility in how these markings are applied, without mandating a specific form or document.

DFARS: Employs more formalized marking requirements, including the use of disclosure tables.  These tables require contractors to provide detailed information about the technical data being furnished with restrictions.

5. Challenge Procedures:

FAR: Provides a more general process for challenging unauthorized markings. The contracting officer has the authority to return the data, cancel the markings, or ignore them. The recourse for contractors is limited, primarily through the boards of contract appeals or the Court of Federal Claims.

DFARS: Establishes a formalized “validation process” for challenging restrictive markings. This process involves a structured exchange of information between the contractor and the government, ultimately culminating in a validation determination. This formalized approach aims to ensure a more thorough review of disputed markings.

In conclusion, navigating technical data rights in government contracting demands a nuanced understanding of the distinctions between the FAR and DFARS. Contractors must carefully consider the specific regulations governing their contracts, the type of license being granted, and the implications for the protection of their proprietary information. Failure to adhere to the appropriate regulations and marking requirements can have significant consequences, including the unintended release of valuable technical data.

The Bayh-Dole Act is a federal law that allows small businesses and non-profit organizations to retain title to inventions they create using federal funding. The Act was passed in 1980 and has been credited with helping to increase the commercialization of federally funded research.  It lives at the core of intellectual property in government contracts.

Before the Bayh-Dole Act, the government typically owned the inventions created by researchers using federal funds. This made it difficult for businesses and non-profits to commercialize these inventions.

The Bayh-Dole Act changed this by giving contractors and subcontractors the right to elect to retain title to inventions they create under government contracts, allowing them to commercialize and receive royalties from the invention.

Subject Inventions

The Bayh-Dole Act defines a subject invention as any invention of the contractor that was:

• Conceived or first actually reduced to practice in the performance of work under a funding agreement.
• Patentable (meeting the requirements of patent eligibility, utility, novelty, and non-obviousness).
• Of the contractor (i.e., the contractor is an inventor).

The Act does not define “manufactured substantially”. Virtually no agency has provided guidance.

Requirements for Contractors

Under the Bayh-Dole Act, contractors that elect to retain title to a subject invention have certain obligations, including:

• Disclosing the invention to the government.
• Electing title to the invention within two years of disclosure to the contracting officer (CO), although this may be extended by the CO or shortened to preserve novelty.
• Securing rights from the inventor to have title to elect to retain.
• Filing for patent protection (except for research tools).
• Seeking commercial development of the technology.
• Meeting certain obligations establishing the government’s rights.
• Fulfilling reporting requirements.
• Using reasonable efforts to attract licenses from small businesses.
• Requiring U.S. manufacture of products and services if the invention/patent is exclusively licensed.
• If a non-profit, sharing profits with the inventor and using other net royalties to support science or education.

Rights of the Government

Under the Bayh-Dole Act, if a contractor elects to retain title to a subject invention, the government receives:

• A nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced the invention for government purposes worldwide.
• The right to sublicense the invention under international treaties or agreements.
• The right to obtain title to the invention if the contractor fails to disclose or elect title to the subject invention within the specified timeframes, elects not to retain title, or fails to file patent applications in certain countries.
• The right to require the contractor to grant a license to a responsible applicant if necessary because effective steps to achieve practical application have not been taken to alleviate health or safety needs not being satisfied, to meet requirements for public use not being satisfied, or preference for U.S. Industry was not given. This is known as March-in rights.  The government has never needed to exercise its march-in-rights – the mere threat of exercise is usually sufficient.

Reporting Requirements

Inventions and patents developed under the Bayh-Dole Act must be reported to the government through iEdison, an electronic data system used by over 30 federal agencies. iEdison is managed by the National Institutes of Health (NIH). Representatives from federally funded institutions can register online with a password and access all their institution’s records. iEdison also sends electronic reminders to institutions about upcoming reporting deadlines.

Subcontracting

The Bayh-Dole Act applies to inventions created by subcontractors as well. The contractor is required to flow down the patent rights clause to all subcontractors, regardless of tier, for experimental, developmental, or research work. The subcontractor retains all rights provided for the contractor, and the contractor cannot obtain rights in the subcontractor’s subject inventions as part of the consideration for awarding the subcontract.  However, subcontractors and higher-tier contractors can negotiate separate agreements for rights to inventions.

Significance of the Bayh-Dole Act

The Bayh-Dole Act has been a significant factor in the growth of the U.S. technology industry. The Act has allowed businesses and non-profits to commercialize a wide range of inventions, including:

• New drugs
• Medical devices
• Software
• Agricultural products

When thinking about intellectual property in government contracts, most people think about technical data rights, and rights in software.  However, the U.S. Government purchases a lot of patentable technology, and wants to make sure that technology is both commercialized, and available for its own use.

A patent grants an inventor the right to exclude others from making, using, or selling their invention for a period of 20 years. Patents are publicly available through the United States Patent and Trademark Office (USPTO). While others can see how an invention is made, they cannot copy or make the invention without the patent holder’s permission.  In government contracting, patent rights are addressed by the Bayh-Dole Act, which promotes the commercialization of new and non-obvious developments. The Act ensures that the government can obtain licenses to use inventions developed under government contracts.

There are two main categories of inventions in government contracts: background inventions and subject inventions.

Background Inventions

Background inventions are those conceived or reduced to practice before a government contract, or are otherwise not related to the contract work. The government does not have rights in background inventions. However, a contractor may grant the government rights to use background inventions in their proposal. If this is the case, the contractor should explicitly state the rights granted beyond the implied license for deliverables. There is no prescribed format for listing background inventions, but contractors should follow any formatting instructions provided in the solicitation.

Subject Inventions

Subject inventions, on the other hand, are inventions that are conceived or first actually reduced to practice during the performance of a government contract. The Bayh-Dole Act applies to subject inventions, and allows the contractor to elect title to the invention.

If a contractor elects title to a subject invention, the government receives a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention. This is sometimes called a “Bayh-Dole license.” The government also has the right to sublicense the invention to foreign governments under international treaties or agreements.

If the contractor does not elect title, either intentionally or unintentionally, the government obtains title to the invention. However, even if the contractor does not elect title, it may still retain a license to use the invention.

Contractor Obligations for Subject Inventions

Contractors have several obligations regarding subject inventions, including:

• Disclosure: The contractor must disclose the invention to the government within two months of the inventor disclosing it to the contractor. Failure to disclose could result in the government obtaining title to the invention.
• Election of Title: The contractor must elect title within two years of disclosing the invention to the government.
• Filing a Patent Application: The contractor must file a patent application before novelty is destroyed if they elect title. The application must note the government’s financial contribution to the invention.
• Invention Surveillance: The contractor must provide ongoing reports on the status of the patent application and the utilization of the invention.

Subcontractor Rights and Obligations

The Bayh-Dole Act mandates that patent rights clauses be flowed down to subcontracts at all levels. The obligations related to subject inventions are always between the government and the subcontractor, not the prime contractor and subcontractor. Prime contractors cannot use their position to acquire rights in inventions created by their subcontractors. Subcontractors have the right to provide information about their inventions directly to the government. The DFARS explicitly grants subcontractors the same patent rights as prime contractors in defense contracts.

Infringement

If the government or a contractor uses a patent without permission, the patent owner can sue the government in the US Court of Federal Claims.  The Authorization and Consent Clause, included in most government contracts, gives the government and its contractors the right to use any patented invention embodied in the deliverables under the contract. The clause also consents to the government being sued for patent infringement. However, contractors who exceed the scope of the clause may lose this protection and could be subject to injunctions, treble damages, or attorney fees. Additionally, the government can require contractors to indemnify it for patent infringement suits if the contractor exceeds the scope of the Authorization and Consent Clause.

It is important for contractors to understand the complexities of patent rights in government contracting. Properly identifying and disclosing inventions, electing title, and diligently meeting reporting requirements can help contractors maximize their patent protection and commercialization opportunities while fulfilling their contractual obligations.

Copyright is a less-considered facet of intellectual property in government contracts.  When a contractor is working with the federal government, handling copyrights is one of the more difficult parts of government contracting. This response will cover how copyrights are addressed in government contracts.

For data first produced in performance of the contract, the contractor needs permission from the Contracting Officer (CO) before asserting copyright on any data. The CO will generally approve this request unless:

• The data consists of a report stating official views of the agency policy
• The data intended for copyright is primarily for internal use in the agency
• The data is of the type that the agency disseminates publicly and doesn’t want to give you the copyright on it for that reason
• The government determines that contractor control of the distribution of the data is inappropriate

Another exemption is for articles based on data that’s published in academic, technical, or scientific journals. Generally, it is hard to assert copyright in these situations because the government can utilize the “right to publish” exemption to prevent you from asserting copyright. Alternate IV of the copyright clause provides blanket approval for assertions of copyright in data, which is prescribed for use in all contracts for basic or applied research performed solely by colleges and universities. However, Alternate IV shall not be used in maintenance and operation contracts or contracts with colleges and universities if the contract is to develop software for public dissemination.

Data not first produced in the performance of the contract may not be delivered by the contractor without either acquiring for or granting the government a copyright license equivalent to the copyright license the contractor has, or obtaining the CO’s permission to do otherwise. For data first produced in the performance of the contract (except computer software), the contractor grants to the government a paid-up, nonexclusive, irrevocable, worldwide license to reproduce, prepare derivative works, distribute to the public, perform publicly and display publicly by or on behalf of the government. For computer software, the government’s license is the same as with data except it does not include the right to distribute to the public. Agencies can modify these licenses.

When the government has a specific need to control the distribution of copyrighted works or the copyright, the DFARS clause 252.227-7017 is used. This clause applies to works first created, generated, or produced and required to be delivered under the contract, including:

• Literary, musical, choreographic, or dramatic compositions
• Pictorial, graphic, or sculptural compositions
• Motion pictures and other audiovisual compositions
• Sound recordings
• Computer databases
• Software documentation
• Software

Under DFARS 252.227-7017, the government obtains unlimited rights in special works, and copyright is assigned to the government, meaning the contractor cannot reuse the special work without a license from the government. The analogous FAR clause is 52.227-17.

DFARS 252.227-7021 applies to existing works to be acquired without modification. This includes:

• Literary, musical, choreographic, or dramatic compositions
• Pictorial, graphic, or sculptural compositions
• Motion pictures and other audiovisual compositions
• Sound recordings

This excludes financial reports, cost analyses, and other information incidental to contract administration. This clause is used when the government will acquire existing works, without modification, and needs to be able to prepare derivative works or to publicly perform/display the works . The government gets a non-exclusive, paid-up license throughout the world to distribute, perform, display, and authorize others to do the same, but the contractor retains ownership of the work and the copyright. The analogous FAR clause is 52.227-18.

As with all aspects of government contracting, FAR and DFARS clauses are key to understanding the practical management of intellectual property in government contracts.  When the government contracts with a prime contractor, the prime contractor will often subcontract portions of the work to other companies. The terms of the subcontract will determine the relationship between the prime contractor and the subcontractor, but federal law, including the Federal Acquisition Regulations (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), will also affect this relationship.

The FAR contains the basic acquisition regulations for the federal government, while the DFARS supplements the FAR with regulations specific to the Department of Defense. Both the FAR and DFARS contain clauses addressing intellectual property (IP) and data rights, and these clauses may be flowed down to subcontracts. The flow down requirement generally means that prime contractors are required to include certain clauses from their prime contracts in their subcontracts.

Subcontractors should be aware of how FAR and DFARS clauses may impact their rights to their technical data and computer software. For example, if a subcontractor develops technical data exclusively with government funds, the government will have unlimited rights to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly the data. However, if the subcontractor develops technical data exclusively at private expense, the government will only have limited rights to the data. This means that, for example, the government generally cannot use the data for manufacturing purposes or disclose the data outside the government without the contractor’s permission. The DFARS also provides for government purpose rights, which are broader than limited rights but narrower than unlimited rights. Government purpose rights allow the government to use, modify, reproduce, release, perform, display, or disclose technical data within the government, and in some instances, they allow the government to release the data outside the government.

Subcontractors should carefully review the terms of their subcontracts to make sure they understand what rights they are granting to the government and to the prime contractor. They may wish to negotiate specifically negotiated license rights with the prime contractor to further tailor the government’s rights to their technical data.

Because subcontractors do not have privity of contract with the government, they may not be able to directly enforce their rights against the government. However, both the FAR and DFARS contain provisions designed to protect the rights of subcontractors. For example, DFARS 227.7103-15 states that subcontractors have the same rights as the prime contractor, and both the FAR and DFARS prohibit prime contractors from using their ability to award subcontracts as economic leverage to acquire rights in a subcontractor’s data or software. This means that prime contractors cannot force subcontractors to grant them more rights than the government is entitled to under the prime contract.

Here are some key takeaways for subcontractors:

• Be aware of the FAR and DFARS clauses addressing intellectual property and data rights.
• Carefully review the terms of your subcontracts to make sure you understand the flow down requirements.
• Consider negotiating specifically negotiated license rights to tailor the government’s rights to your technical data.
• Be aware that you may not be able to directly enforce your rights against the government.
• If you have concerns about your rights, consult with an attorney.

Intellectual property in government contracts is handled differently between commercial and non-commercial government contracts.  When a contractor is developing technology for the government, the license rights are often determined by the source of funding and the type of item being acquired. If the government funds the development of the data or software, it generally receives unlimited rights to use, modify, reproduce, perform, display, release, or disclose the technical data in whole or in part, in any manner, and for any purpose whatsoever. If the government funds a portion of the development, but not all of it, the government purpose rights apply, which means that the government can use the technical data for any government purpose but cannot use it for commercial purposes. However, if the data or software is developed exclusively at the contractor’s expense, then the contractor can provide the government with limited or restricted rights, which give the government more limited rights to use the data or software .

Here’s a table summarizing the different types of licenses and how they apply to data and software in government contracts:

Commercial items are generally presumed to have been developed exclusively at private expense, and in these situations, contractors can typically use their customary commercial licenses to license their data or software to the government. This means that the government will have the same rights to use the data or software as any other commercial customer.

It’s important to note that even in situations where the government receives unlimited rights to technical data or computer software, the contractor still retains ownership of the data or software. The government is simply granted a license to use the data or software.

Here are some key considerations when it comes to protecting IP rights in government contracts:

• It’s critical to understand what rights the contractor has in its technical data to be used or provided in performing a government contract and what rights will be granted to the government.
• Contractors should carefully review the contract to make sure they understand the government’s rights to their data or software and take steps to protect their IP, such as by properly marking their data or software.
• Maintaining records of funding and technical developments is critical in order to prove the source of funding if there is a dispute later.
• Subcontractors have the same rights as the prime contractor when it comes to protecting their IP. They should ensure that their subcontracts clearly define the level of rights being licensed to the government and that the government and prime contractor have recognized these rights.

Overall, the government and contractors need to carefully consider the applicable regulations and their respective interests in order to strike a balance between the government’s need to access technology and the contractor’s need to protect its IP. By understanding the different types of licenses and how they apply to commercial and non-commercial items, contractors can better protect their IP rights and ensure that they are properly compensated for their work.