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Has COVID-19 Made You a Government Contractor? What You Need to Know About IP Rights

April 13, 2020

As the federal government seeks innovative solutions from a broader group of suppliers to respond to the coronavirus (COVID-19) pandemic, new or nontraditional contractors will want to familiarize themselves with the intellectual property rights associated with different contracting vehicles and circumstances.

In response to the heightened need for diagnostics, treatments, medical devices, and supplies during the COVID-19 pandemic, many private companies are newly looking at US government contracts and other types of agreements that leverage technology to provide critical items and services. New contractors will likely be unfamiliar with the regulatory requirements that apply to government contracts, particularly when it comes to the company’s intellectual property (IP). To the extent that these contracts involve advances to or incorporation of existing technology or the development and research into new technology, new contractors will want to be sensitive to rights concerning their IP so that they do not convey greater rights to the government than they intend.

GOVERNMENT CONTRACT IP TERMS

The contract clauses prescribed by Federal Acquisition Regulation (FAR) Part 27 and Defense Federal Acquisition Regulation Supplement (DFARS) Part 227 create a framework for IP ownership and use in the context of federal government contracting.

In many government contracts, two broad IP definitions are important to keep in mind: Subject Inventions and Technical Data. Subject Inventions are typically any invention or discovery that is or may be patentable and that was either conceived under the contract or first reduced to practice under the contract.[1] Technical Data includes more than mere analytical results. It means recorded information, regardless of the form or the media on which it may be recorded.[2] It can include databases, computer programs, software including source code and documentation, as well as detailed manufacturing or process data. It does not include information incidental to contract administration, such as financial or management information. Understanding the scope of these definitions and how they are applied in the contracts can be critical to maintaining your proprietary IP beyond the term of the agreement.

Generally, in contracts for experimental, developmental, or research work, the mandatory patent rights FAR clause provides include strict written disclosure deadlines that contractors must follow to avoid potentially losing their patent rights to the government. These include that the contractor must 1) disclose in writing to the Contracting Officer any invention of the contractor made in the performance of work under the contract (a “subject invention”) within two months after the inventor discloses it to the contractor’s personnel responsible for patent matters (for US Department of Defense, or DoD, contracts, the earlier of that two-month period or six months from when the contractor first becomes aware the subject invention has been made); 2) opt in writing whether or not to elect to retain title of the subject invention within two years of disclosure to the agency; and 3) file the patent application within one year from election or earlier if necessary after a publication, on sale, or public use.[3] If the contractor fails to elect to retain ownership to the subject invention or file the patent application within the specified times or elects not to retain ownership, it must assign title to that invention to the government upon request.[4] While this rarely happens in practice, it is a government right in the event of missed patent reporting deadlines for inventions developed with government funds under FAR-based contracts. When the contractor decides to retain ownership of the subject invention, then the contractor must provide the government a nonexclusive, nontransferable, irrevocable, paid-up license in the subject invention throughout the world.[5]

Contracts that require data to be produced, furnished, or acquired under the contract contain FAR (or DFARS) data rights clauses that provide to the government unlimited, limited/restricted, or government purpose rights in that data.[6] Generally, the scope of the agency’s rights depends on whether the data was developed exclusively at government expense, with mixed public/private funding, or entirely at private expense.[7] It is critical to contractors wishing to retain those IP rights created before or during government contracts to identify early which of these categories of funding applies to the created IP. Contractors must mark data with restrictive legends (using language prescribed in the regulations) before delivering such data to the government to assert the category of rights that apply to the data,[8] or in some cases should not deliver pre-existing Technical Data. Technical Data that is unmarked is deemed to be furnished to the government with unlimited rights.[9] Unlimited rights means the government has the right to use the data, disclose the data, reproduce the data, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit other parties to also do so.[10]

COMMERCIAL ITEMS CONTRACTS

Many of the products and services that contractors will be providing to the government in response to the COVID-19 crisis are the same products and services they offer or sell to nongovernmental customers. These products and services are known as “commercial items.” On March 27, 2020, the Defense Contract Management Agency (DCMA) issued a class Commercial Item Determination (CID) to identify specific products and services needed by DoD to respond to the COVID-19 pandemic. The items listed in the class CID (including certain surgical masks, disinfectant cleaners, and ventilators, as well as efforts associated with R&D or procurement of FDA-approved vaccines or antiviral medications), were deemed to meet the requirements of the “commercial item” definition in FAR Subpart 2.101, meaning that their acquisition is subject to the more streamlined acquisition procedures in FAR Part 12.

As a result of the DCMA class determination, many new contractors responding to the current health crisis will be supplying products and services to the government under commercial items contracts, which generally aspire to replicate the conditions in the commercial marketplace. For commercial items, FAR Part 12 states that no patent rights clause is required and that in most circumstances, the government will acquire the rights in data customarily provided to the public.[11]

To the extent contractors create patentable inventions during the course of their production of items designated as “commercial items,” those inventions would be retained by the company (assuming that the company has taken the necessary steps to secure those rights from its employees, contractors, and collaboration partners who created those rights).

OTHER TRANSACTIONS AUTHORITY

In recent years, nontraditional agreements negotiated under the government’s “Other Transaction Authority” have become popular for allowing the government to obtain some of the most cutting-edge technologies from commercial companies. In certain circumstances involving innovative research projects, the government and contractor enter into an OTA agreement (OTA) instead of a traditional FAR-based contract.[12] OTAs are binding agreements between government and industry or academia that are not contracts, grants, or cooperative agreements. OTAs allow the government more speed and flexibility to attract nontraditional contractors for cutting-edge projects, because they are not subject to the requirements of the FAR. As a result, although the FAR IP clauses generally serve as a starting point in discussions, the contractor can, and should, negotiate appropriate IP rights with the government for technology developed under an OTA.

Recently, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) amended the Public Health Service Act to expand the authority of the US Department of Health and Human Services (HHS)’s Biomedical Advanced Research and Development Authority (BARDA) to enter into OTAs expected to cost more than $100 million when there is a public health emergency.[13] The CARES Act also removed certain restrictions applicable to DoD OTAs for prototype projects when such projects are related to the national emergency for COVID-19.[14] Both of these measures will likely increase and expedite the award of OTAs in response to the COVID-19 pandemic, leading to more private companies and new players entering the government space.

One way that many companies become involved in OTAs is through a consortium of companies interested in working with the government within a given subject area. In fact, the White House Office of Science and Technology Policy, the US Department of Energy, and IBM recently established a COVID-19 High Performance Computing (HPC) Consortium inviting COVID-19-related research proposals.

When a consortium is created, the government executes the OTA directly with the consortium, which typically negotiates the terms and conditions for the members. Prospective members pay a fee and agree to the terms of the consortium. Once the consortium is established, the government solicits white papers from companies within the consortium and selects among those companies for project award and funding. Unless a company participates in the consortium from the beginning and requests a carve-out, the company will be bound to the IP terms established by the consortium at the outset. Careful consideration of those terms and the implementation of internal controls can be essential to retaining rights in technology that is created before or during an OTA sub-award under an OTA held by the consortium.

FINAL THOUGHTS AND GOOD HOUSEKEEPING TIPS

As new companies enter the government contracts space in response to the COVID-19 emergency, they should be cognizant of the different frameworks for IP rights and protection that may apply, particularly if they are providing products or services developed at private expense. In the developmental area, more flexible agreements like OTAs may offer better IP protection, as long as the contractor is assertive and establishes IP terms at the outset. Contractors should:

  • implement internal controls to ensure contract notice timelines are met and that ownership and license rights are not inadvertently transferred or disclosed;
  • prior to entering into the contract, inventory all company IP that may be used under the contract and identify the funding source and ownership expectation for that IP;
  • identify confidential information and trade secrets that may be useful or necessary for continued practice of technology developed under the contract and ensure that the contract appropriately controls and restricts the use and disclosure of that information;
  • identify potential innovations that may be created under the contract and consult a patent attorney about filing a provisional patent application on that subject matter prior to working under the contract;
  • carefully document whether subject inventions and technical data are developed under government-funded agreements or at private expense;
  • identify in advance the existing software and source code that may be used, advanced, or improved during the contract and take appropriate measures to protect that IP from unwanted copying or disclosure;
  • ensure that all employees and contractors working on the company’s behalf have executed appropriate confidentiality and IP ownership agreements and have been briefed on contractual IP terms;
  • to the extent your work under the contract involves collaboration with other entities, ensure that appropriate controls are in place to protect your rights in existing technology, jointly created technology, and confidentiality information of all involved parties; and
  • negotiate those terms that could impair the long-term ability of the company to fully exploit your rights in IP created prior to, during, and after the contract term.

CORONAVIRUS COVID-19 TASK FORCE

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts. One of our many resources includes a list of current known IP office closures and extensions around the world.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, Sheila A. Armstrong (Dallas/Washington, DC), Kenneth J. Davis (Philadelphia), and Katelyn M. Hilferty (Washington, DC), or any of the members of Morgan Lewis’s COVID-19 Intellectual Property Working Group or our government contracts team:

Intellectual Property

Chicago
Jason C. White

Philadelphia
Eric Kraeutler
Louis W. Beardell, Jr.
Kenneth J. Davis
Christopher I. Halliday

San Francisco
Christina A. MacDougall, Ph.D.

Silicon Valley
Dion M. Bregman
Andrew J. Gray IV

Washington, DC
Dana S. Gross
Jeffrey G. Killian, Ph.D.
Anita B. Polott

Wilmington
John V. Gorman

Government Contracts

Dallas
Sheila A. Armstrong

Washington, DC
Giovanna M. Cinelli
Brad Fagg
Katelyn M. Hilferty
Kenneth J. Nunnenkamp
Stephen E. Ruscus


[1] FAR 27.301.

[2] FAR 27.401; DFARS 252.227-7013.

[3] FAR 52.227-11; DFARS 252.227-7038

[4] Id.

[5] Id.

[6] FAR 52.227-14; DFARS 252.227-7103.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] FAR 12.211.

[12] 10 U.S.C. § 2371b. The government has other agreements in its arsenal such as grants and cooperative agreement among others. Those agreements are beyond the scope of this LawFlash.

[13] CARES Act § 3301; see also 42 U.S.C. §247d-7e.

[14] CARES Act § 13006; see also 10 U.S.C. 2371b.