1 Some Risks Associated With Research and Development Under Federal Government Contracts Charles R. “Rod” Marvin, Jr., Esq. Venable, LLP Washington, DC © 2007 Charles R. Marvin, Jr. Venable, LLP, Washington, DC

2 Agreements / Instruments Contracts Involving Research and Development Grants Cooperative Agreements Cooperative Research and Development Agreements “Other Transactions”

3 Statutes and Regulations Bayh-Dole Act Federal Acquisition Regulation and Agency Supplements (48 CFR) Department of Commerce Regulations (37 CFR)

4 The Issues What are some of the unique IP risks and issues arising when performing R&D under an agreement with the federal government? How can you mitigate those risks?

5 Basic Patent Rights Allocations Under Bayh-Dole Contractor may elect to take title to “subject inventions” Government receives license to practice “subject inventions,” and to allow others to practice subject inventions on its behalf, for Government purposes

6 What is a “Subject Invention” A Subject Invention is any invention that is conceived or actually reduced to practice in the performance of a government contract.

7 When is an invention conceived?  Sewall v. Walters, 21 F. 3d 411, 415 (Fed. Cir. 1994) (an invention is conceived when “a definite and permanent idea of an operative invention, including every feature of the invention sought to be patented, is known”).  Technitrol, Inc. v. United States, 440 F. 2d 1362 (Ct. Cl 1971) (invention, to be conceived, “must be capable of being converted to reality and reduced to practice”).

8 When is an invention actually reduced to practice?  Eastern Rotorcraft Corporation v. United States, 384 F. 2d 429, 431 (Ct. Cl. 1967) (“Actual reduction to practice occurs when the workability of an invention can be demonstrated [-] workability means that a physical form of the invention has been constructed which functions” to achieve its intended purpose).

9 When is an invention actually reduced to practice?  Cooper v. Goldfarb, 154 F. 3d 1321 (Fed. Cir. 1998) (“Actual reduction to practice requires proof that the inventor has constructed an embodiment [of an invention] or performed [an inventive] process... and determined that the invention would work for its intended purpose).

10 When is an invention actually reduced to practice? An invention has been “actually reduced to practice” when it has been demonstrated to persons of ordinary skill in the art that the invention will accomplish its intended function in its intended environment beyond a probability of failure.

11 Securing Rights in Subject Inventions Under the patent rights clauses, a contractor secures its rights in subject inventions by following the requirements of the applicable patent rights clause. Timely disclosure of subject inventions Timely election to take title

12 Risks, Limits and Issues Subject Invention Loss of Title Mandatory Government License Compulsory Patent License to Third Parties

13 Securing Rights in Subject Inventions By failing to follow the requirements of the applicable patent rights clause, a contractor can lose both its right to elect to take title to a subject invention as well as any right to practice the invention

14 Loss of Title Failure to comply with subject invention disclosure requirements Disclosure report to government required within 2 months after the date inventor discloses the invention in writing to the company 37 CFR § ; 48 CFR (FAR)

15 Loss of Title Failure to comply with subject invention disclosure requirements Disclosure report to government required within 2 months after the date inventor discloses the invention in writing to the company, or

16 Loss of Title Failure to comply with subject invention disclosure requirements (cont’d) Disclosure report to government required within 6 months after company becomes aware that a subject invention has been made (whichever is sooner) 48 CFR (FAR)

17 Loss of Title Government election to take title To be effective, the invention disclosure report must be made in the manner prescribed by the agency and contain the required information

18 Loss of Title Failure to elect to take title within time prescribed Must elect in writing to take title to subject invention within specific time period after disclosure 2 years (-11) / 8 months (-12) Time periods may be shortened by the agency under certain circumstances

19 Loss of Title Government election to take title If company fails to report invention or elect to take title within times prescribed, government may request title within 60 days after learning of failure to report or elect

20 Loss of Title Scope of remaining company interest Where government has elected to take title due to late disclosure or election, the company may be denied a license to practice the invention

21 Government License Automatic, compulsory grant Nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world

22 Compulsory License to Third Parties “March-in Rights” Bases for implementation Company has not taken reasonable steps to achieve practical application Necessary to alleviate health or safety needs

23 Compulsory License to Third Parties “March-in Rights” Bases for implementation Necessary to meet requirements for public use not reasonably met by company Breach of preference for US industry

24 Compulsory License to Third Parties “March-in Rights” Circumstances under which march-in has been requested or considered Cell-Pro Norvir Xalatran

25 Compulsory License to Third Parties Company’s nonexclusive license in government-owned subject inventions may be revoked or modified to achieve expeditious practical application in response to a request for an exclusive license under federal licensing regulations

26 Recommendations Analyze the specific terms governing the allocation of intellectual property rights in each agreement Determine the effect, if any, of those rights allocations upon the conduct or goals of the intended project

27 Recommendations If background inventions for the project were conceived or actually reduced to practice by the company during the term of any government agreement, determine whether a disclosure report was required, and if required, was made properly

28 Recommendations If disclosure reports for inventions related to the project were required but not made, ensure that the appropriate disclosure is made and the government election period lapses before relying upon ability to practice or license any such invention

29 Recommendations If the company has submitted a commercialization plan to the government covering the subject invention, ensure that the company is, and remains in compliance with that plan with respect to the relevant field of use

30 Recommendations Assess the effect of the government’s nonexclusive license under any background patent for a subject invention upon the commercial goals of the project

31 Conclusion When contemplating a project involving IP that will be or has been funded by the federal government, ensure that the rights that were or will be retained or obtained by the federal government are identified and that the effects of those rights are assessed and evaluated fully