When working on a government contract, the contractor often produces one or more inventions. While research and development (R&D) contracts are more likely to involve invention-making, it can occur in any contract where the Government procures products or services. For example, this could involve the creation of a new product or enhancing an existing one, or developing a novel process or tools to carry out the required service. Under Federal Acquisition Regulation (FAR) 52.227-11, each such example can be classified as an "invention."
“[A]ny invention or discovery that is or may be patentable or otherwise protectable under title 35 of the U.S. Code, …."
Subject Invention
A contractor's invention under a government contract is known as a "subject invention." Reporting such to the federal government or federal agency is necessary, and the procedure and timeframe for each step in the reporting process under the contract must be complied with. Failure to adhere to these guidelines and report within the specified time could lead to the contractor losing any rights to the invention.
Subject Invention Reporting Procedure
To adhere to the mandatory reporting procedure, the contractor must first provide written notice of each subject invention to the Contracting Officer (CO). This must be done within two months of the inventor disclosing the invention to the contractor personnel handling invention-related matters. The disclosure should include a detailed technical description of the invention along with any relevant drawings, the name(s) of the inventor(s), and information about any statutory bar related to the invention. The term "statutory bar" refers to the expiration of the one-year period during which a patent application can be filed from which a patent can result. This period starts tolling from the time certain acts take place, such as informing the public about the invention or selling or offering it for sale.
Bayh-Dole Act
The Bayh-Dole Act (Pub. L. 96-517, December 12, 1980) grants the contractor the option to retain ownership of inventions made with government funding or assign the ownership to the Government. Regardless of the ownership decision, the contractor must report the creation of the invention to the Government. Typically, reports are submitted to the Department of Defense (DoD) by DD Form 882. The contractor can indicate ownership by selecting to file a patent application on the subject invention in block 5.d. of the form. If the contractor does not promptly decide on ownership, it still has two years from the date of invention disclosure to notify the CO of its decision. However, if there is a statutory bar, the period may be shortened to no later than 60 days before the end of the statutory bar period. If a large business is the contractor, the period for notifying the CO is eight months from the disclosure of the invention or no later than 60 days before the end of the statutory bar, whichever occurs earlier.
The Contractor Wants Ownership of the Subject Invention
Should the contractor elect ownership, they must submit a provisional or non-provisional patent application within a year of making the election or before the end of the statutory period, whichever occurs first. If the contractor files a provisional application, they have two options. One, they must file a non-provisional application within ten months of the provisional filing. Or, alternatively, inform the CO of their decision not to file the non-provisional and instead assign ownership to the Government. The Government may then determine whether to file a non-provisional application. The contractor may seek an extension of time for each step of invention reporting election or filing by making a request to the CO. Typically, these requests are approved, except when the extension might harm the Government’s interests. Regardless of which party (whether the contractor or the Government) prosecutes a patent application, the prosecuting party is responsible for the expenses involved in the prosecution. If the contractor chooses to keep ownership of a subject invention, the Government retains a nonexclusive, nontransferable, irrevocable, paid-up license to use the subject invention or have it used on its behalf worldwide. The contractor must include the following statement in its patent application and any subsequent patent acknowledging the Government's rights:
“This invention was made with Government support under [identify the contract] awarded by [identify the agency]. The Government has certain rights in this invention."
The contractor is also responsible for regularly reporting to the CO on utilizing any subject invention it chooses to retain ownership of. These reports should include information on the status of invention development, the date of first commercial sale or use, any gross royalties received, and other relevant information requested by the CO. If the contractor is a large business and fails to establish effective procedures for reporting inventions, submit timely reports, or make the periodic reports required, the CO may withhold payment before the final contract payment is made. This withholding cannot exceed $50,000 or five percent of the contract amount, whichever is less. As part of contract close-out, the Government conducts a patent clearance.
If the Government finds that the contractor has not taken adequate steps towards making practical use of the subject invention it chose to own, including addressing public health and safety needs, it may exercise its statutory march-in rights: that is, the Government may grant a license in a patent even though it does not own that patent. However, prior to the Government actually exercising its march-in rights, the Government gives the contractor an opportunity to grant an exclusive, non-exclusive, or partially exclusive license to a responsible license applicant. The license may be for any given field of use on fair and reasonable terms. If the contractor refuses to grant such a license, then the Government may step in and grant it themselves. However, to date, the Government has never exercised its march-in rights. So, the likelihood of it happening in the future is low but not impossible as the law is still on the books.
The Contractor Does NOT Want Ownership of the Subject Invention
If the contractor decides not to elect ownership of a subject invention, the Government has the right to request the contractor to assign the title to the Government. The contractor must provide any necessary assistance if the Government decides to file a patent application for the invention. In some cases, the Government may disclose the invention publicly rather than file for a patent, provided there are no security concerns. This disclosure would establish the invention as prior art, preventing anyone else from patenting the same or a similar invention in the future. Although the contractor initially has the option to retain ownership of the subject invention, if the contractor fails to disclose the invention or elect ownership in a timely manner and the CO requests ownership in writing, it must assign the title to the Government.
The Government Owns the Rights to the Subject Invention
If the Government is assigned ownership, the contractor will have a royalty-free, non-exclusive, worldwide license to use the subject invention. However, if the Government is assigned ownership due to the contractor's failure to timely disclose the invention, the contractor will have no license rights. Therefore, the contractor should try its utmost to comply with the reporting requirements on time.
If the contractor decides that a particular subject invention is not significant enough to invest a substantial amount of time or other resources in prosecuting a patent application, it may choose not to retain ownership. In this case, the contractor will still have a license to use the invention after the Government assumes ownership. This decision is more common among small businesses with limited financial resources.
If the contractor's corporate structure contains domestic subsidiaries or affiliates, the contractor's license will extend to them. Further, the contractor has the right to grant sublicenses to the extent it was already obligated to do so under other agreements at the time it received the contract award from the Government. The contractor’s license is transferable only with the written approval of the Government. However, if it is transferred to the successor of the part of the contractor's business to which the invention pertains, the Government’s permission is not required.
To protect their ownership rights to subject inventions under the Bayh-Dole Act, contractors with government contracts must develop and adhere to effective procedures for reporting and disclosing inventions in a timely manner.
Veterans Advocacy Law Group’s attorneys specializing in Government Contracting and Intellectual Property possess extensive knowledge in subject inventions, including the various options available to contractors for establishing or transferring ownership to the Government. We can guide you through the intricate procedures and critical timelines to safeguard your rights. Contact us today for assistance in protecting your inventions.