On April 3, 2019, the Small Business Association (SBA) released a revised Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program policy directive, which went into effect May 2, 2019 (the “New Policy”).1 This New Policy made important and drastic changes to Data Rights protections afforded to SBIR/STTR awarded small business companies. Government contractors should understand these major changes and consider the impact on company operations related to commercialization of intellectual property developed with government funding.
Old Policy – Four Years Plus Extensions
Prior to this New Policy, a small business (“Company”) had four years, from the date of deliverables, of Data Rights protections that could be continuously renewed/extended. During this time, the government was not able to use, modify, reproduce, release, perform, display or disclose any Data or Computer Software that was part of the Company’s research and development under a SBIR or STTR program.2 After the four years had ended (unless extended/renewed), the government would be granted a royalty-free license to use the Data or Computer Software, as well as authorize other third parties to use the Data or Computer Software on the government’s behalf for government purposes. Further, the government would be relieved of all prohibitions on disclosure and would assume no liability for the unauthorized use of such Data or Computer Software by third parties.3 Prior to the New Policy, the government was not authorized any right or use to the Data or Computer Software during the four-year period (or during any extended/renewed period). However, the government was granted Unlimited Rights to the Data or Computer Software at the end of the protection period.
New Policy – 20 Years with No Extensions
Under the New Policy, a Company now has 20 years, from the date of award of an SBIR or STTR funding agreement, of certain Data Rights protections.4 During this time, the government only has limited rights in its use of the Data or Computer Software. The major right is that the government has the ability to properly evaluate the technology. After the protection period, rather than obtaining Unlimited Rights under the old policy, the government now only obtains Government Purpose Rights to the Data and Computer Software. However, there are nuances associated with the data rights.
During the 20-year protection period, the government may use, modify, reproduce, perform, display, release or disclose the technical data (not computer software) internally within the government. However, it cannot use, release or disclose the data for procurement, manufacture or commercial purposes or release or disclose the technical data outside the government except where the Company has provided written permission or where the third party, to which the government intends to disclose the data, has entered into a non-disclosure agreement with the government. However, as before, the government still has the right to use a Company’s intellectual property, under certain circumstances, and give it to a third party, provided that it compensates the Company with a reasonable royalty.5
During the 20-year protection period, the government may use, modify, reproduce, release, perform, display or disclose the computer software internally within the government for use in government computers, for modification, adaptation or combination with other computer software, for archiving or backup and for distribution of a computer program to another government agency after notifying the Company of such distribution.
Similar to Technical Data, the government cannot release, disclose or permit access to the computer software for commercial, manufacturing or procurement purposes without the written permission of the Company unless the government has entered into a non-disclosure agreement with the third party.
Form, Fit & Function, OMIT and Unmarked Data
During the 20-year protection period, the government also receives Unlimited Rights in Form, Fit & Function Data, Operations, Maintenance, Installation or Training (OMIT) Data and unmarked SBIR/STTR Data.6 The New Policy provides guidance on required markings and gives the Company six months to correct any errors or marking omissions on its data. After six months, after delivering any data to the government, if the data is not marked, the government will obtain Unlimited Rights to the data. All data must be marked with the appropriate SBIR/STTR Data Rights legend or notice, in accordance with agency procedures.
After the Company receives an SBIR/STTR award, it is permitted to negotiate with the awarding government agency to modify licensing rights that the government obtains during the protection period. This must be done in a separate agreement and only after the SBIR/STTR award has been signed. In addition, this is a separate process for negotiated rights for a specific contract award to provide a deliverable to the government and that is supported by the Technical Data or Computer Software. Simply, the initial data rights do not limit the government to obtain additional data rights in a future government contract.
After the 20-Year Protection Period
After the 20-year protection period, the government obtains a royalty-free license to use and to authorize others to use on the government’s behalf the data for government purposes and the government is relieved of all prohibitions on disclosure and assumes no liability for unauthorized use of the data by third parties.7 However, the Department of Energy (DOE) is granted Unlimited Rights upon the expiration of the protection period for those technologies that fall within its statutory scope.8 Further, after the expiration of the protection period, the Company retains title and ownership of the Data and Computer Software, which such rights do not expire.
Additional Changes Under the New Policy
• SBA clarified what rights are given to the Company, as well as what rights are given to the government by providing new definitions, including a change to the definition of intellectual property.
• SBA clarified the Phase III SBIR/STTR process by showing that subcontracts to a federal contract may constitute Phase III work.
• SBA emphasized the importance of the government using the Company for Phase III when the Company is capable and willing, rather than seeking it from a non-SBIR/STTR company.
• SBA clarified that regarding sole source awards, the government awarding agency must award any non-competitive contract to the Company if pursuing Phase III work with that Company.
• SBA changed the amount of Phase II awards to include up to three per Phase I.9
• SBA now states that a government agency cannot use investment of venture capital or from hedge funds or private equity firms as criteria for an SBIR/STTR award. While cost sharing or matching funds cannot be required for Phase I or Phase II, the government agency may require the Company to have matching funds for certain special awards.
The SBA’s New Policy will significantly impact the commercialization of technology developed utilizing government funding. Companies should assess data rights early in the solicitation and award process to ensure maximization of intellectual property protection. Further, after the development process is complete, the Company should ensure it continues to protect both the Company’s and government’s property rights via adherence to the contract or grant terms and the applicable regulations. Further, small businesses should fully understand and have a strategic plan as to intellectual property commercialization prior to entering into an agreement with the government.
- SBIR and STTR are U.S.-based programs focused on stimulating innovation by bringing together small U.S. businesses and federally funded research and development through federally funded grants and resources. Its focus is on commercializing new technologies.
- SBA defines Data as: “All recorded information, regardless of the form or method of recording or the media on which it may be recorded. The term does not include information incidental to contract or grant administration, such as financial, administrative, cost or pricing or management information.”
SBA defines Computer Software as: “Computer Programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, formulae, and related material that would enable the software to be reproduced, recreated, or recompiled. Computer Software does not include Computer Databases or Computer Software Documentation.”
SBA defines Technical Data as: “Recorded information, regardless of the form or method of the recording, of a scientific or technical nature (including Computer Software Documentation and Computer Databases). The term does not include Computer Software or financial, administrative, cost or pricing, or management information, or other data incidental to contract or grant administration. The term includes recorded Data of a scientific or technical nature that is included in Computer Databases.”
- SBIR/STTR Program Policy Directive, 84 FR 12794-01.
- SBIR/STTR Program Policy Directive, 84 FR 12794-01. Section 3. Definitions (h)(h)
- See e.g. FAR Section 27.201-1, showing that the sole remedy for patent or copyright infringement claims against the government is monetary damages and not injunctive relief, and that there is no direct cause of action against a third party where the third party received government authorization and consent for use of a company’s IP; See also, FAR Section 27.302 discussing a contractors right to elect title and government assignment of title.
- SBA defines Unlimited Rights as: “The Federal Government’s rights to use, modify, prepare derivative works, reproduce, release, perform, display, disclose, or distribute Data in whole or in part, in any manner and for any purpose whatsoever, and to have or authorize others to do so.”
SBA defines Form, Fit & Function Data as: “Data relating to items, components, or processes that are sufficient to enable physical and functional interchangeability, and data identifying source, size, configuration, mating and attachment characteristics, functional characteristics, and performance requirements. For Computer Software it means data identifying source, functional characteristics, and performance requirements, but specifically excludes the source code, algorithms, processes, formulas, and flow charts of the software.”
- SBA defines Government Purpose as: “Any activity in which the United States Government is a party, including cooperative agreements with international or multinational defense organizations or sales or transfers by the United States Government to foreign governments or international organizations. Government purposes include competitive procurement, but do not include the rights to use, modify, reproduce, release, perform, display, or disclose Technical Data or Computer Software for commercial purposes or authorize others to do so.”
- These authorities are the Atomic Energy Act of 1954, Public Law 83-703, 42 U.S.C. 2013(b); Energy Reorganization Act of 1974 (ERA), Public Law 93-438, 42 U.S.C. 5813(7); and the Department of Energy Organization Act of 1977 (DEOA), 42 U.S.C. 7112(5).
- See, SBIR/STTR Program Policy Directive, 84 FR 12794. Page 12810.
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