1. Selling Technology to the U.S. Government While Preserving IP Rights
Tech Transfer Speaker Series
Joseph Billings, Esquire | Montgomery County Department of Economic Development | October 8, 2014
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2. Common Forms of U.S. Government Contracts Used to Acquire Technology Products
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The process for procurement of goods and services is governed by the Federal Acquisition Regulation (FAR) and agency supplements such as the Defense FAR Supplement (DFARS). Agency’s technical office defines the agency “requirements”. The agency’s contracting office performs market research to determine private sector capabilities and interest.
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3. The agency procures an item:
As a “commercial item” or
As an item requiring significant development under government contract
This threshold determination directly affects the protection and allocation of intellectual property rights.

4. Commercial Item Sales
Commercial items are preferred. Now simpler than it was historically to sell commercial products to the government. The number of standard government contract clauses that apply commercial items have been significantly reduced. General Services Administration – Multiple Award Schedules Direct “commercial item” contracts with vendors or through prime contract with systems integrators who acquire commercial items through subcontractors with “commercial item” suppliers. FAR Part 12.

5. Commercial Item A “commercial item” is:
Any item, customarily used for non-governmental purposes, that has been sold, leased, or licensed to the general public or that has been offered for sale, lease, or license to the general public.
An item that evolved from a commercial item described above. For example, a new model of an existing commercial product, product upgrades, or a new version of a commercial software package.

6. Commercial Item (continued)
“An item that meets the description in the first bulleted paragraph, but with minor modification to meet government needs or modifications of the type normally done for commercial customers. For example, products that are customized commercially, and products with government unique modifications that do not change the item’s basic properties or function.
Any combination of items meeting this definition of a commercial item, if it is normally combined and sold commercially.
A service bought to support commercial items.
A service of a type offered and sold competitively in the commercial market at catalog or market prices.
Any item or service described in bulleted paragraphs 1 through 6 above, even though it is transferred between separate divisions of a contractor.
A non-developmental item, if the item was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple state and local governments.

7. Funding
Developed exclusively at private expense means development accomplished with costs charged to indirect cost pools, costs not allocated to a government contract, or any combination thereof.
(i) Private expense determinations should be made at the lowest practicable level.
Developed exclusively with government funds means development was not accomplished exclusively or partially at private expense.
Developed with mixed funding means development was accomplished partially with costs charged to indirect cost pools and/ or costs not allocated to a government contract, and partially with costs charged directly to a government contract.

8. Non-developmental item
Any previously developed item of supply used exclusively for government purposes by a Federal agency, a State or local government, or a foreign government.
Any item described in the preceding bullet that requires only minor modification or modifications of a type customarily available in the commercial marketplace.

9. Contracts for Developmental Items
Developmental items are:
Products that are to be uniquely designed and developed for a federal agency, or
A commercial product that is to be modified for a federal agency in a manner that does not fall within the above definition of a commercial item.
A standard government contract will be used to procure the item, including standard contract clauses.

10. Other Agreements
Certain federal agencies, most notably the Department of Defense, have statutory authority to award non-standard contracts that diverge from many of the standard federal contract clauses
These agreements usually involve significant technology products that the agency believes will not be available to it because:
A vendor is not a regular government contractor
The vendor will not make the product available to the government on standard contract terms, especially affecting intellectual property.

11. Treatment of Intellectual Property
FAR Part 27 sets policies, procedures, and contract clauses pertaining to intellectual property (IP) including rights in patents, data and software. DFARS Part 227 adds policy guidance for defense contracts. In general, under the FAR and DFARS, the government acquires certain rights in IP that is created in the performance of work under a government contract.

12. IP Rights Overview – Civilian
Generally, the government does not obtain greater intellectual property rights in the “commercial items” it procures than would a commercial customer. The standard commercial license is generally applicable.
For technologies/information that contractors develop or deliver under federal contracts, contractors are generally permitted to retain ownership (e.g., title) of the IP rights applicable to those items.
For such developed items, the agency receives only a nonexclusive license to use that IP – the scope of the license depends on the nature of the data, the relative source of funding for development, and negotiation between the parties.
In exceptional circumstances, the government can acquire IP ownership.

13. Patent Rights – Rights in Inventions and Patents
Patent rights refer to the government’s rights to “practice” an invention that is, or will be, protected by a U.S. patent.
A “subject invention” is an invention that is first “made” during the performance of a Government contract.
Generally, the contractor is permitted to retain title to the invention, and the government receives a nonexclusive license to use that invention for Government purposes.
While the granting of a license to the Government for a patent first made during performance of a Government contract is not negotiable in a FAR contract, the terms of that license may be negotiable.

14. Patent Rights – Rights in Inventions and Patents (continued)
A “background invention” is any invention – other than a subject invention – that is owned or licensed by the contractor, and that will be incorporated into contract deliverables.
The government’s license in subject inventions may not be adequate to fully utilize the product. Parties need to identify and agree upon what rights in applicable background inventions to the government may need.

15. Technical Data and Computer Software Rights
DFARS Subparts and establish a DoD – unique process for acquiring IP license rights governing technical data or computer software that is developed or delivered under a contract. In general, the contractor-developer retains title to the IP, and the Government receives a nonexclusive license to use, reproduce, modify, release, perform display, or disclose the data or software. The specific license depends on whether the technical data or computer software is noncommercial or commercial technology:

16. Technical Data and Computer Software Rights (continued)
For noncommercial technology, the DFARS defines a set of standard license categories that vary according to the parties’ relative financial investments in the development of the underlying technology. Specifically negotiated licenses are possible.
When acquiring commercial technologies, DoD normally receives only those deliverables and associated license rights that are customarily provided to the public. There is no DFARS clause prescribed for commercial computer software; the parties incorporate the negotiated license agreement into the contract.

17. Identification of Intellectual Property Restrictions and Related Issues
Many acquisitions involve a mix of commercial and noncommercial technologies. The contract should include provisions to cover both types of technologies and to clarify how they apply to the deliverables.
Key issues include:
Identification of IP restrictions and related issues,
Distinguishing IP deliverables from license rights,
Specifically negotiated license agreements, and
Markings and restrictive legends.
The DFARS prescribes certain mandatory pre- and post-award identification procedures to help ensure that key IP issues have been identified and resolved.

18. DFARS Mandatory Listing Requirements
DFARS includes a mandatory requirement for each contractor to identify in a list, all noncommercial technical data and computer software it plans to deliver with less-than-unlimited rights, and to assert specific restrictions on those deliverables.
Preaward List. DFARS requires prospective offerors to include the above list as part of the proposal. The Government may use the list during source selection to evaluate the impact of the identified restrictions.
Postaward List. The contractor’s ability to modify its assertions is limited to cases where a new assertion is based on new information or was inadvertently omitted from the postaward list, but would not have materially affected source selection. Data/software may not be delivered with restrictive markings unless identified on the lists.

19. Supplemental Intellectual Property Listings
The mandatory DFARS listing requirements covers only asserted restrictions on deliverable noncommercial technical data and computer software.
Commercial Computer Software and Commercial Technical Data. The absence of a particular data/software deliverable on the mandatory DFARS list may be because it is being offered with unlimited rights, or because it is commercial data/software.
Background Inventions. Even if all of the technical data and computer software is delivered with unlimited rights or Government purpose license rights (GPLR), these deliverables may include background inventions. The license rights granted under the DFARS clauses in technical data and computer software do not grant rights in any inventions incorporated into that data/software. Use a list of background inventions, which identify (1) the U.S. patent or patent application covering the invention, (2) the contract deliverables that incorporate the invention, and (3) the license rights that the contractor is willing to grant the government for the background invention.

20. Distinguishing Intellectual Property Deliverables from License Rights
“IP deliverables” refers to the contractual obligation to deliver IP having a predetermined content and format. The government may own the delivered physical medium on which the IP resides, but it generally will not own the IP rights. “License rights” refers to the government’s ability to use, reproduce, modify, and release the delivered IP.

21. Intellectual Property Deliverables – Content, Format and Medium
The standard DFARS clauses that establish the rights in technical data or computer software generally do not specify delivery requirements. The contract should specify:
Content (e.g., level of detail or nature of information),
Recording/storage format (e.g., image files versus word processing format), and
Deliver/storage medium (e.g., paper, CD-ROM, or on-line access).

22. Options for Resolving Intellectual Property Deliverable Issues
Options for structuring mutually acceptable IP deliverable requirements:
Altering the form of content of the deliverable. E.g., the level of detail required might be reduced (e.g., requiring “form, fit, and function” data for detailed design data); or delivery might be required in a different format.
Establishing life-cycle maintenance/support agreements with the original contract-developer/supplier.
Utilizing deferred ordering under DFARS DoD can require delivery of any data/software that was generated for three years.
Utilizing deferred delivery procedures under DFARS This provision may apply to any data/software that is designed in the contract for two years.
Utilizing third-party escrow arrangements. The government may obtain delivery of the item if certain conditions occur. The parties negotiate the escrow period and the conditions under which the government can require delivery.

23. Specifically Negotiated License Agreements
The standard license rights may not adequately balance the parties’ interests.
The DoD suggests the following in negotiating a special license agreement:
If the negotiation involves commercial technologies, start with the license agreement customarily offered to the public
If the negotiation involves noncommercial technologies, start with the standard DFARS license most closely paralleling the relative funding of the parties.
For development primarily funded at private expense, start with limited or restricted rights and add the additional rights the government needs.
For development primarily funded at Government expense, start with Government Purpose License Rights and add limitations to preserve additional rights for the contractor-developer.

24. Specifically Negotiated License Agreements (continued)
Several general principles the government applies:
The government cannot accept less than limited rights in noncommercial technical data, the standard “7015 rights” in commercial technical data, or restricted rights in noncommercial computer software (without a waiver).
The license should identify specific deliverables or establish well-defined classes, categories, or types of deliverables; and the license should enumerate all restrictions on the government’s ability to use, reproduce, modify, release, perform, display, and disclose the licensed materials, and authorize others to engage in those activities.
The government’s license should be royalty-free, worldwide, irrevocable, and nonexclusive.

25. Markings and Restrictive Legends
Rights and obligations concerning restrictive markings or notices play a central role in many forms of IP. Restrictive markings are either required or permitted on all forms of technical data or computer software that is to be delivered to DoD. The specific format and content of these markings depends on whether the data or software is noncommercial or commercial.

26. Restrictive Markings on Non-commercial Data and Software
Restrictive markings are required for all noncommercial technical data and computer software being delivered with less-than-unlimited rights.
DFARS establishes specific procedures governing the placement of restrictive markings on deliverables.
A notice of copyright,
The Government Purpose License Rights legend,
The limited-rights legend,
The restricted-rights legend,
The special-license-rights legend, and
Pre-existing markings authorized under a previous government contract.
Any alterations of the prescribed content or format result in the marking being considered “nonconforming.

27. Restrictive Markings on Commercial Data and Software
For commercial technical data and computer software, the rules are more flexible. For commercial technical data, no prescribed legend. DFARS provides no liability for the release or disclosure of technical data not marked to indicate that data is subject to restrictions. While markings on commercial computer software are not addressed in DFARS, it is wise to mark software with copyright and proprietary information legends.

28. The General Rule
The general rule to follow when making a Data Rights determination in Government contracting is that the rights to data or software follow the money.

29. Quick Primer on 10 USC 2320
Describes three funding “pathways” and consequences as to use of Technical Data.
Relies on -7013, and clauses for Technical Data and Computer Software
- Funding Exclusively by the Government
• SBIR Funding per other laws
- Funding Exclusively by the Contractor
- Mixed Funding

30. Tech Data Rights Categories from the DFARS
Funding Exclusively by the Government Means Unlimited Rights
Mixed Funding Means Govt. Purpose License Rights
Funding Exclusively by the Contractor Means Limited/Restricted Rights
4. SBIR Rights

31. Administrative Disputes Process
Disputes process Contracting officer determination Appeals