Anne Lanteigne
While performing a government contract, it is common for the contractor to make one or more inventions. Due to the nature of the work, invention-making occurs most frequently in research and development (R&D) contracts but can also happen in any contract under which the Government acquires products or services. For example, a new product or an improvement to an existing product may be developed, and/or a new process or tools to perform the required service may be devised. Each of these may be an “invention” which Federal Acquisition Regulation (FAR) 52.227-11 defines as “[A]ny invention or discovery that is or may be patentable or otherwise protectable under title 35 of the U.S. Code, …."
What is a subject invention?
An invention made by a contractor under a government contract is referred to as a “subject invention.” It must be reported to the Government following the procedure set out in the contract and within the time set for each step of the procedure. The failure to follow these steps and report in a timely manner may result in the contractor’s loss of any rights in the invention.
What is the subject invention reporting procedure?
To comply with the required reporting procedure, the contractor must first disclose in writing each subject invention to the Contracting Officer (CO). This must be done within two months after the inventor discloses it to the contractor personnel responsible for handling inventions. The invention disclosure to the CO should contain a detailed technical description of the invention, complete with any drawings, the identity(ies) of the inventor(s), and any statutory bar relating to the invention. The statutory bar refers to an act, such as public disclosure of the invention or sale or offer for sale of the invention, that starts the one-year period during which an application for a patent for that invention can be filed from which a patent may issue.
What is the Bayh-Dole Act?
The Bayh-Dole Act (Pub. L. 96-517, December 12, 1980) gives the contractor the option of retaining ownership of inventions made with government funding or assigning the ownership to the Government. Regardless of what the contractor decides about ownership, it must report the making of the invention to the Government. Typically, such reports are made to the Department of Defense (DoD) using DD Form 882. In block 5.d. of the form, the contractor can indicate ownership by electing to file a patent application on the subject invention. Suppose the contractor does not immediately indicate its ownership decision. In that case, it has two years from the date of invention reporting to notify the CO whether it elects ownership or not. If there is a statutory bar, however, the two years may be shortened to no later than 60 days before the end of the statutory bar period. If the contractor is a large business, then the period of election notification to the CO is eight months from invention reporting or no later than 60 days before the end of the statutory bar, whichever is earlier.
What happens if a contractor wants ownership of a subject invention?
If the contractor elects ownership, it must file a provisional or non-provisional patent application within one year after the election or before the end of the statutory period, whichever is earlier. If the contractor files a provisional application, they must either file a non-provisional application within ten months of the provisional filing or inform the CO of its decision not to file the non-provisional and assign ownership to the Government. The Government can then decide whether it would file a non-provisional application. The contractor may request the CO to extend the time for invention reporting, election, or filing. These requests are typically granted unless there is a reason to believe the extension would prejudice the Government’s interests. In any case, the party (whether the contractor or the Government) that prosecutes a patent application is responsible for the costs of the prosecution.
Suppose the contractor retains ownership of a subject invention. In that case, the Government is entitled to a nonexclusive, nontransferable, irrevocable, paid-up license to practice, or have practiced for or on its behalf, the subject invention throughout the world. The contractor is obliged to include in its patent application and any resulting patent the language attesting to such 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.”
In addition, the contractor has an obligation to make periodic reports to the CO on the utilization of a subject invention that it chose to own, including information about the status of development of the invention, date of the first commercial sale or use, gross royalties received, and other pertinent information the CO may request. If the contractor is a large business and fails to establish effective internal procedures for reporting inventions, fails to report subject inventions in a timely manner, or fails to make the periodic reports, the CO may, at any time before the final payment under the contract is made, withhold payment. Any such withholding cannot exceed $50,000 in total or five percent of the amount of the contract, whichever is less. The Government conducts a patent clearance as a part of contract close-out.
Suppose the Government determines the contractor has not taken reasonable steps toward the practical application of the subject invention that it chose to own, including alleviation of health or safety needs of the public and other requirements for public use. In that case, the Government may exercise its march-in rights to require the contractor to grant a non-exclusive, partially exclusive, or exclusive license in any field of use to a responsible license applicant upon reasonable terms. If the contractor refuses to grant such a license, the Government can march in and grant the license. However, the Government has rarely, if ever, exercised its march-in rights. Therefore, the risk of it is low but not non-existent.
What happens if a contractor does not want ownership of a subject invention?
If the contractor does not elect ownership of a subject invention, then it must assign the title to the Government if it requests such an assignment. The contractor must render all necessary assistance if the Government chooses to file a patent application on the invention. In some cases, instead of filing for a patent, the Government may make the invention disclosure public as long as there is no security issue involved, thereby creating a prior art against a future attempt by someone else to patent the same or similar invention. Even though the contractor has dibs on the ownership of a subject invention, if the contractor fails to disclose the invention or elect ownership in a timely manner and the CO makes a written request for the title, then the contractor is obligated to assign the title of ownership to the Government.
What happens if the Government owns the rights to a subject invention?
If the ownership is assigned to the Government, the contractor retains a non-exclusive, royalty-free, worldwide license to use the subject invention. However, suppose the assignment to the Government occurred because the contractor failed to comply with the requirement for timely disclosure of the subject invention. In that case, the contractor has no ownership and no license rights to the subject invention. So, it is crucial that the contractor complies with the reporting requirements in a timely manner. If a contractor determines a particular subject invention is not significant enough for it to spend a great deal of time or financial resources to prosecute patent applications, often the contractor will choose not to retain the title of ownership since they will still have a license to use the invention after the Government assumes the title. Small businesses with limited financial resources are prone to make such decisions. The contractor’s license extends to any domestic subsidiaries and affiliates within the corporate structure that the contractor is a part of. To the extent the contractor was legally obligated to do so at the contract award, the contractor has the right to grant sublicenses. The license is transferable only with the written approval of the Government, except when transferred to the successor of that part of the contractor’s business to which the invention pertains.
Ownership rights to subject inventions are complicated and need to follow a strict set of procedures. Therefore, it is highly advisable for a contractor with government contracts to establish and follow effective strategies to keep up with and timely report subject inventions to preserve their rights under the Bayh-Dole Act.
The Government Contracting and Intellectual Property attorneys at Whitcomb Selinsky, PC are experts in subject inventions and the options for contractors to establish ownership or assign ownership to the Government. We will help you navigate the necessary procedures and timelines to protect your rights. Contact us today to find out how we can help safeguard your inventions.
