Your SBIR Phase proposal and how (or by whom) your IP is crafted might grant the government more rights than intended. Learn how specific language and developmental approaches can jeopardize your intellectual property and future commercialization efforts.
The Hidden Risk in Government Contracts
Securing a Phase II or III SBIR award is a significant achievement. However, many companies unknowingly jeopardize their intellectual property (IP) rights through the language used in their proposals and how they produce their deliverables. What seems like standard, or "boilerplate" text can inadvertently grant the government extensive rights, potentially diminish the value of your innovations, and deter future investors or acquirers. And managing risk using 1099s or independent contractors can lead to a loss of control of future opportunities.
Understanding Government IP Rights
In government contracts, the rights the government obtains to IP depend largely on prior assertions of your rights, what you have agreed to deliver, and the specific terms outlined in the contract. The primary categories of government rights include:
Unlimited rights. The government can use, disclose, reproduce, and distribute technical data or software in any manner and for any purpose. This typically applies when the government fully funds development (DoD) or development was accomplished in performance of the contract (non-DoD)*.
Government purpose rights. The government can use, disclose, reproduce, and distribute the technical data or software within the government without restriction and can share it with other contractors but only for government purposes. This applies when development is funded by a mix of government and private funds under defense contracts (DoD).
Limited/Restricted rights. The government can use the technical data or software within the government but cannot disclose it to third parties without permission. This usually applies when the development is entirely funded at private expense (DoD) or developed not in performance of the contract. (non-DoD)
SBIR data rights. Under a SBIR/STTR award, the government gains limited and restricted rights in the data and software delivered. These rights last for 20 years, after which the government’s rights become unlimited.
The Proposal Becomes the Contract
A critical aspect often overlooked is that the proposal you submit can become an integral part of the contract. Terms and descriptions used in the proposal are often incorporated by reference or copied directly into the contract, making them legally binding. Simply put, the government contract usually accepts exactly what is offered.
Common Pitfalls in Proposal Language
Overly broad descriptions. Providing detailed technical data without appropriate restrictions can lead to unintended rights being granted.
Lack of proper markings. Failing to assert and mark proprietary information correctly can result in the government assuming broader rights than intended.
Inconsistent terminology. All the words used in a proposal should be selected carefully, but in the world of IP certain terms are particularly important. Government rights in IP are tied to the use of these words. Using terms like "develop" or "create" in a proposal without understanding their contractual implications can be detrimental. Recognize that Phase III refers to work that derives from, extends, or completes an effort made under prior SBIR/STTR Funding Agreements. Matching prior terminology on prior SBIR/STTR grants on a Phase III proposal ensures IP rights are maintained.
Subcontractor Missteps
A common mistake is taking steps to minimize cost that increases risk. Small companies are typically cash-poor. To be efficient, hirings are minimized, and contractual help is maximized. Resources are engaged on an “as needed” basis, and independent contractors and 1099s are common. The government, however, looks at independent contractors and 1099s differently. From the government’s perspective, an independent contractor or 1099 is a subcontractor, and a subcontractor, not the prime, possesses (owns) the IP. Lacking correct wording in everyone’s working agreement, the company may not actually control the IP. And the government may be looking at awarding a Phase III contract to your independent contractor, not you.
Best Practices for Protecting Your IP
- Engage IP counsel. Consult with an IP attorney experienced in government contracts early in the process.
- Use precise language. Clearly define what will be delivered and under what terms. Avoid ambiguous language that can be misinterpreted.
- Properly mark proprietary information. Ensure all proprietary data is appropriately marked to indicate restricted rights.
- Understand funding implications. Be aware of how the source of funding and the statement of work affects the government's rights to your IP.
- Correct oversights. Research and development is an iterative process. The assertion of rights retained by the company should be as well. Mechanisms exist to submit, revise, and correct IP assertions within a reasonable period once the error or omission has been recognized. Change orders, extensions, and expansions of prior contracts also provide the means to reassert IP rights or rectify shortcomings in a prior submission.
- Negotiate. The government operates under very rigid rules and regulations. However, they are often open to alternative proposals if they are presented properly. When the three general categories of IP rights do not fit a particular project, a specially negotiated license can be established, forming a win-win for both parties.
Safeguard Your Innovation
The language used in your SBIR proposal and worker agreements is not just a formality; it's a critical component that can define the future of your intellectual property and the value of your company. By understanding the implications and taking proactive steps, you can protect your innovations and maintain their commercial value.
Ready To Ensure Your IP Is Protected?
Schedule a free 30-minute consultation with our experienced IP attorneys to review your proposal and safeguard your intellectual property rights.
Martensen specializes in intellectual property (IP) strategies for the identification, protection, and monetization of IP, particularly with respect to government contracts, providing deep expertise in SBIR/STTR programs, defense tech, and dual-use commercialization.
*Federal Acquisition Regulation (FAR) and Department of Defense Federal Acquisition Regulation Supplement (DFARS) govern non-DoD and DoD rights, respectively.