Infotech and the Law: No such thing as a harmless clause in fed contracts

Jonathan Cain

Government contracts contain so much standard wording that contractors, particularly small and mid-sized contractors, sometimes conclude it's just so much boilerplate and of little significance.

Occasionally, however, a case is decided that illustrates just how dangerous it can be to casually assume that contract boilerplate wording is meaningless. This is especially true for the patent rights clause describing the government's rights to inventions developed by contractors while working on government-funded projects. Contractors ignore the requirements of this clause at their peril.

Take the case decided by the Armed Services Board of Contract Appeals earlier this year, in which the board affirmed the decision of an Army contracting officer to require an 8(a) contractor to convey its rights in a valuable patent to the United States under the patent rights clause in the contract.

The contractor had failed to fully disclose the invention to the contracting officer within two months, as required by the "short form" patent rights clause in the contract.

Before this, the contract appeals board had not reported a decision requiring a contractor to convey its patents rights to the government since 1985. The fact that the patent rights clauses are inconsistently enforced is well-known in the contractor community, and reporting "no inventions" on periodic reports required under the clause is commonplace. The failure to make the required disclosures in this case cost the contractor valuable rights.

Contractors need to realize that the government's right to assert ownership does not require that the contractor intentionally deceive the government. Inadvertent failure to report inventions through simple carelessness or faulty contract administration has the same result.

Often, contractors do not clearly understand when the obligation arises to disclose an invention to the government. The patent rights clauses require the disclosure, in a form sufficiently detailed to convey a clear understanding of the nature, purpose and operation of the invention. The disclosure must be made within two months of the time the inventor reveals the invention to the contractor.

Inventions conceived of in the performance of the contract must be disclosed. An invention is conceived of when the inventor has a definite idea of the invention with all of its essential attributes.

The clause encourages timely reporting by offering the contractor rights to exploit patents developed using government funds. The contractor has the right to a nonexclusive, royalty-free license throughout the world for reported inventions that the government elects to acquire.

But it also contains a sharp stick for failing to comply with the reporting requirements. Forfeiture of a contractor's rights to ownership of an invention may be a severe penalty for failing to make a timely disclosure, but it is clearly the result that the law requires.

Congress made clear its intent that untimely disclosure or nondisclosure of inventions developed in the performance of government contracts should be conveyed to the government.

The patent rights clause is only one of many often disregarded as harmless boilerplate. But it has stark and enduring consequences when it is breached. The lesson for contractors: Don't assume that any clause in a government contract is harmless.

 

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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