Though the same development activity under a contract may give rise to both a subject invention and to technical data or computer software where the government may obtain rights, these two forms of intellectual property rights are very distinct under the regulations.  The patent rights and data rights license rights are contained under different clauses. Contractors should be aware there are different disclosure rules and marking requirements under patent rights and data rights clauses.  If these requirements are not recognized contractors risk losing either its right to patent title or license or its ability to assert limited or restricted rights for items that were developed at private expense prior to a government contract.

 

• Disclosure

The rights the government obtains to a subject invention depends first on the nature and timing of the contractor’s disclosure.  If a company first conceives or reduces to practice an invention under a government contract then it must disclose it to the government promptly in accordance with the contract requirements. If it makes this disclosure, then the company may elect to keep title to the patent with the government getting a “Government purpose” license in the invention.

The disclosure requirements are spelled out in the patent rights clauses identified above.  For those companies not small business or nonprofits, FAR 52.227-12 (now DFARS 252-227-7038) requires the contractor to initially disclose the invention to the CO within 2 months after the inventor discloses in writing to contractor personnel or within 6 months after contractor becomes aware of the invention, whichever occurs earlier. The two month trigger assumes someone either within the organization or outside (e.g. external patent counsel) is responsible for patent matters.  If not, the 6 month period applies by default.

The nature of the disclosure is in the form of a “written report” identifying the contract under which the invention was made, the inventor and technical details sufficient to convey “a clear understanding…of the nature, purpose, operation, and physical, chemical, biological or electrical characteristics of the invention.” Additionally, the disclosure must identify and describe any publication, sale or public use of the invention.

DOD has a standard form – DD Form 882 – that should be used under Defense contracts and subcontracts but it should be clear that whatever format is used, the requirements apply to all government contracts.  Having a reporting process is important not just for reporting sake, whether or not a patent is taken out, but it largely determines whether an item, component, process or software was developed at private or public expense at the lowest practical component level because that becomes the touchstone for limiting or restricting government rights in technical data and computer software.

If a contractor discloses an invention but elects not to retain title the contractor still will retain a license to the patent. However if it fails to disclose and if the government acts within 60 days after learning of the contractor’s failure to disclose, then it looses all rights to the invention and receives no license. The prudent course is for a contractor concerned about its patent rights to disclose all inventions, realizing the FAR definition applies to inventions that “may” be patentable.  Stated differently, when in doubt about whether an invention is patentable, disclose it. However, the result of a development effort is plainly not an invention and hence need not be disclosed unless it is protectable as a trade secret. There is one caveat to these principles – if the government is the only market for the invention and there is not likely to be any commercial application, then a patent arguably has little value to the contractor since the government in all circumstances will have at least a very generous license.

• Election to Retain Title

Following disclosure requirements the next step is for the contractor to elect to retain title or not. Under the patent clause we have been discussing, this election must occur within 8 months of the initial disclosure (either the 2 month or 6 month disclosure) and is often made by companies at the time of initial disclosure. Even if it declines to take title the contractor will still retain a “nonexclusive, royalty free license throughout the world” in each invention This license extends to the contractor’s domestic subsidiaries and affiliates and includes the right to grant sublicenses.  However, it is not transferable without the approval of the agency except as part of a corporate succession. The government may obtain titled notwithstanding a contractor’s election if the company fails to file an initial patent application, in the United States, within one year of election or fails to file for foreign patents within 10 months of the initial US patent application. The government may also obtain title if the contractor “decides not to continue the prosecution of any application for, to pay the maintenance fees on or defend” a patent on an invention.

• Continuing Obligations

In addition to the disclosure and election requirements, the FAR requires contactors to file continuing reports.  For example, the clause applying to non-small businesses requires (1) interim reports every 12 months form the date of contract listing the subject inventions (2) a final report, within 3 months after completion of the contract work, listing all subject inventions and listing all subcontracts at any tier level containing a patent rights clause and (3) periodic reports on utilization of a subject invention or efforts at obtaining utilization that are made by the contractor or its licensees or assignees. In addition, if it elects title, the contractor must file patent applications and pay for maintenance fees.  In the event the contractor fails to do so, the government may take title although the contractor made a proper disclosure but it will still retain a broad license.

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To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

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