An Intellectual Property Checklist For Doing Business With The Government

In case you haven't noticed, the value of intellectual property has been on the rise. Intellectual property, or IP, has even become the core asset of many companies, due in large part to the recent stabilization and strengthening of the patent laws. For virtually every company today, IP is a valuable asset. If your company does business with government, either Federal, state, or local, or wants to do business with government, you must take special care of your IP assets.

Standard contract clauses require you to give or license at least some of your IP to the government. You typically must give a so-called "government purpose" license for your IP. Because government does much of its work through contractors, this "government purpose" license can result in a situation where you can virtually give your IP to your competitors for follow-on or related work. The rules of the road here are variable and complex. If you don't know them, you could strike a bad deal. If you are not careful after you obtain a contract, you may give up all your IP.

This article will summarize the basic rules relating to IP and government ownership of IP, focusing on the Federal system. A twelve-point checklist of issues will be provided that you should consider to get good IP provisions in your contracts, to properly protect your IP developed in your government business, and to use your IP rights to obtain follow-on business.

IP generally consists of patents, trademarks, copyrights, and trade secrets. Anyone who develops a new, useful, and nonobvious invention may obtain a patent. The U.S. Patent and Trademark Office examines every application for compliance with the statutory requirements to determine whether a patent will be granted. The successful applicant can expect to wait several years for the grant of the patent. Trademark rights are associated with any "mark" or other designation of source or origin. Trademark rights are protected by state law and by a Federal registration system. Again, the U.S. Patent and Trademark Office examines all Federal trademark applications for compliance with the statutory requirements to determine whether a registration will be granted. Copyright protection is typically associated with books, works of art, and computer software, and is available for virtually every such work fixed into a tangible medium. The formal registration of your copyrights with the U.S. Copyright Office is inexpensive and usually advisable. Registration is not required unless enforcement is imminent, however. Trade secrets cover a wide variety of subject matter, from computer source code, to proprietary test data, to customer lists. The various state laws generally provide for statutory framework for protection of trade secrets. No registration is required for trade secrets, but sloppy procedures for handling your secrets can void legal protection.

In Federal government contracting, patent rights are treated under the Bayh-Dole Act of 1980. Trademarks, copyrights, and trade secrets are generally managed under the numerous rules relating to "data rights." Prior to 1980, patent rights developed under a government contract were traditionally viewed as being owned by the Federal government and freely given to the public since the underlying work was taxpayer funded. The Bayh-Dole Act was enacted to promote the development of government-sponsored inventions into commercial products. Today, the Bayh-Dole Act allows a contractor to retain ownership of the inventions made under contract. The Bayh-Dole Act also gives the Federal government a variety of rights to meet its needs, and to protect against the nonuse or unreasonable use of inventions by contractors. A few of the significant provisions of the Bayh-Dole Act will be summarized.

Section 202 of title 35 United States Code provides that funding agreements include the general right that firms may elect title to an invention made under government contract. The contractor is required to disclose the invention to the funding agency within a reasonable amount of time. Failure to disclose the invention can result in the Federal government obtaining title to your invention. Concerning foreign patent rights, a failure to properly and timely file foreign patent applications can also result in the Federal government obtaining title in those countries where the failure occurs. Importantly, Section 202 further provides that the Federal government "shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or to have practiced for or on behalf of the United States any subject invention throughout the world." Besides the Federal government, the inventor (presumably an employee of the contractor) may have rights also in federally funded inventions. If a contractor fails to elect title in an invention, the inventor may request that he retain the patent rights.

March-in rights are covered in 35 USC 203 and allow the Federal government to unilaterally take patent rights from the contractor, even though properly elected and procured, in the event that the contractor has not sufficiently developed the invention, or in the event that certain governmental interests are triggered. In summary, march-in rights may be exercised if the contractor fails to take reasonable, effective steps to achieve practical application of the invention. In addition, march-in rights may be exercised to support health and safety issues, or a requirement for public use, or in the event of a violation of the preferences for United States industry noted above under Section 204. The contractor has substantial procedural rights in the event that a "march-in" is attempted.

Section 204 prevents the contractor from "grant[ing] an exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention . . . will be substantially manufactured in the United States." Although little precedent is available on this provision, a contractor may presumably grant nonexclusive licenses, and freely sell or assign the technology.

As mentioned above, the concept of data rights generally covers your non-patent IP (trademarks, copyrights, and trade secrets). In a typical situation, your data rights will be given to the government in one of several forms: unlimited government purpose, or limited. Data rights apply to important company assets, such as proprietary computer software, product designs, and know-how. For those contracts giving unlimited rights, the Federal government can expectedly do as it wishes with your IP. Government purpose data rights clauses are obviously narrower, and provide more protection for your IP. With unlimited rights, the Federal government has the right to publish the specifications of a product you developed. It is important to carefully consider what information and deliverables you will be providing.

If you do business with government, or want to do business with government, here is a list of twelve issues for you to consider:

1. Before entering into an agreement, put your IP in order - consult your patent lawyer to clearly understand and identify your existing IP. Complete and file all patents for your existing technology prior to start of negotiations.

2. Understand what IP and data rights will be developed during the contract - in some cases, it may be appropriate to specify what will be developed by your company, and to identify your existing IP and data.

3. Fully understand the standard contract provisions - these can be confusing, and your opening position must take into account your current IP portfolio, and the rights you need in the IP that you expect to be developed. Be aware of special rules that may apply - for example DOD, NASA and DOE treat IP and data rights differently.

4. During discussions, emphasize the importance of IP and data - alert the contract officer to your existing rights, and make sure you communicate your view on what is likely developed under the contract.

5. After award, follow the rules in your contract - make sure the patent prosecution attorneys are fully aware of the IP contract provisions, as well as the scope of your existing rights and what is likely developed under the contract.

6. Disclose your inventions to the government early - obtain regular disclosures from technical staff on the status of their inventions made.

7. Comply with the Patent Law "statutory bar" requirements - U.S. Patent laws require the filing of an application no later than one year from the first offer for sale of the invention or public use of the invention. In some cases, the "offer for sale" can be as early as the beginning of negotiation.

8. Be alert for inventions that are not developed on government funds - properly account for the underlying work to prevent confusion, which may cloud the title to your IP.

9. Mark your proprietary documentation - use appropriate legends in your proprietary documents exchanged with the government. Failure to follow the rules can result in loss of protection of your data rights.

10. Correct any oversight in IP compliance as soon as discovered - contracting officers are much more likely to accept late disclosures if corrected promptly. Correction is much more difficult after a dispute arises.

11. Use your rights to compete for follow-on business - instruct your patent lawyers to seek protection in areas of likely future interest. Consider informing your competitors of your rights, and at least mark your products and literature with your patent numbers.

12. Closely monitor the competition for infringement - follow the progress of related or follow-on work by your competitors. Appropriately investigate and notify if infringement is suspected.

Doing business with the government can be rewarding in today's business climate. The Bayh-Dole act allows you to retain ownership of the IP that you create to strengthen your portfolio. This checklist will provide a good start to getting and staying on track to protect and maximize your IP rights.

Published February 1, 2004.