Selling and developing products for the federal government is an important piece of many clients’ business and growth plans. How well the client’s intellectual property is protected may well mean the difference between success and failure in the highly competitive government market. To be most successful, clients must both maintain their current intellectual property, and protect future innovations.
Intellectual property protection under government contracts involves a complex and interwoven set of regulations, laws and contract terms. The rules and regulations are different depending upon whether the procuring agency is a civilian agency or the Department of Defense, whether the IP concerns technical data or computer software, and whether the product is a commercial or non-commercial item.
This article provides a high level overview of IP rights in technical data and computer software under government contracts, and gives practical tips to maximize and protect those IP rights.
Under the regulations, “technical data” means recorded information of a scientific or technical nature, regardless of the form or method of the recording. “Computer software” means the instructions that allow or cause a computer to perform a specific operation.
Another important concept is “commercial item.” An item is a commercial item if it is sold to the general public for a non-governmental purpose. As discussed below, with commercial items IP, the seller retains greater rights.
Basic IP Rights Allocation Scheme
The basic rights allocation is the client retains title, while the government gets license rights. What type of license the government gets, and what rights they have under the license are critical to your client’s success. There are three general types of license rights: unlimited rights, government purpose rights, and limited rights (called “restricted rights” for computer software).
Unlimited rights means the government has the right to do whatever it wants with the IP, including disclosing it to anyone, even competitors. Limited rights means the IP may not be disclosed outside of the government, including (the big limitation) to competitors who could use it to build the item at a lower price. Government purpose rights only exist in DOD procurements. Government purpose rights mean the DOD can use it for any purpose, including (the big one) providing it to competitors for the next reprocurement. For commercial items, the government gets whatever rights are typically given in a commercial transaction. If the government needs greater license rights than what is ordinarily provided they must negotiate for the rights, and pay for them.
How to Determine Government License Rights
The underlying premise to determine license rights is to follow the money. The greater the proportion of development funds the government provides, the greater the government license rights.
The government gets unlimited rights in IP that was developed exclusively with government funds.
Conversely, the government only gets limited rights in IP that was developed exclusively at private expense. “Private expense” is a term of art, and includes independent research and development funds that are reimbursable by the government.
For DOD procurements, the government gets government purpose rights in development that was done with mixed funding where the item is not produced under the contract.
Mixed funding occurs where both private funds and government funds are used for development.
Development expense determinations, and associated IP licensing, should be made at the “lowest practicable segregable level,” e.g. a subitem or subcomponent level, or a software subroutine for a specific function.
IP Strategies and Practitioner Tips
- Business-critical IP should be developed with private funds and provided with limited rights. An effective IP strategy should identify and segregate critical IP at the lowest practicable segregable level early in the development cycle, and develop it at private expense so it can be provided with limited rights.
- Where possible, the IP should be provided as a commercial item using standard commercial license rights.
- The client must keep accounting records and development logs or similar records to prove development at private expense.
- Additional system components developed for government requirements may be developed using government funds, and are provided with either unlimited or government purpose rights.
- In many cases it is possible to segregate critical IP and provide that with limited rights, while IP that has little commercial value by itself is provided with unlimited rights.
- Subcontractors are allowed to deliver IP directly to the government customer rather than through the prime contractor. Ensure a client’s valuable IP is not turned over to a future or current competitor who is a prime contractor, but deliver it straight to the government.
Many exceptions and variations apply to the general rules discussed here. As in any market, a comprehensive IP strategy is essential to be commercially successful selling to the government.
The author, Scott Williamson, is the managing attorney of Williamson Law Group, LLC (www.williamsonlawgroup.com). Scott is a registered patent attorney with significant experience structuring and negotiating IP rights under government contracts. Williamson Law Group, LLC focuses its practice on government contract matters. If you need assistance with any government contract matter, including IP rights, please contact Scott at email@example.com.