Patent rights clause is broad in scope

Infotech and the Law | Legal Insights for Today's Market

Government contractors performing research, design or development work for the federal government no doubt are aware of the standard Federal Acquisition Regulation patent rights clause likely incorporated into their contracts. The clause, a Goliath in its potential reach, is filled with rights, obligations and subtleties.

One area often not appreciated is the breadth of the license granted to the government to patented or patentable inventions "made in the performance of work under the contract." They are the subject inventions to which the government gains rights under the clause.

The standard FAR patent clause provides that the contractor may retain ownership of any subject invention to the extent that the contractor complies with other requirements of the clause. In this case, the government obtains a paid-up, worldwide, nontransferable, irrevocable, nonexclusive license "to practice or have practiced for or on its behalf, the subject invention." The clause itself grants that license.

The definition of subject invention is broad, and courts construe the term to encompass inventions that do not appear to fall squarely within the express definition of the clause. The term "subject invention" means "any invention of the contractor made in performance of work under this contract." The term "made" is also defined to mean the conception of the invention or its "first actual reduction to practice."

Under those definitions, an invention that is conceived or first reduced to actual practice in the performance of work under the government contract is subject to the patent clause. As we said, the government has a license to practice those inventions.

Patents issued and patent application claims filed before the execution of a government contract cover inventions conceived before contract work commences. Thus, they do not qualify as subject inventions. However, each claim of a pending patent application is a distinct invention.

Thus, to the extent that new claims are added to a previously filed patent application or that continuation or divisional patent applications are filed after the government contract is signed, those claims could be covered by the definition of subject invention, at least in theory. Patent claims filed after the execution of a government contract that pertain to technology developed, improved or refined under that contract might well be considered subject inventions conceived in the performance of work under the contract. All patent claims filed or amended after the execution of the contract that relate to the work performed under that contract may have been conceived in performance of work under the contract.

Conception of an invention generally occurs when the inventor has "a definite idea of a complete and operative invention as it is thereafter to be reduced to practice." Conception is typically evidenced by drawings, engineering notebooks, notes, invention disclosures or other documents.

The definition of conception generally refers to all elements of an invention - that is, all elements of a patent claim. Thus, in the context of subject inventions and the license granted to the government to practice subject inventions, if some elements or components of an invention are conceived before contracting but others are conceived or crystallized during the contract, the claimed invention might be a subject invention and, therefore, subject to government license. In other words, if a significant feature of an otherwise privately developed invention is developed under a government contract, the government obtains a license to the invention.

If patented inventions are fully conceived before a government contract is executed, the government will still obtain a license under the patent rights clause if the invention is reduced to actual practice for the first time under a government contract. Actual reduction to practice occurs when it is established that the invention will perform its intended function beyond a probability of failure. That generally requires enough testing to establish that the invention works as claimed and can be used in the environment intended.

Although computer simulation testing might be sufficient in some cases, physical testing might be needed in others. When physical testing is first performed under a government contract and the testing reveals flaws in design that must be corrected before the invention can be demonstrated as operable, that testing likely will be the first actual reduction to practice, even when prior computer simulations arguably establish operability of the invention.

When an invention is reduced to a physical embodiment that demonstrates its capability to perform all the functions patented (e.g., a functioning prototype), it has been reduced to actual practice. However, a full-scale prototype is not necessary for a reduction to practice to occur; a functioning model might be sufficient.

Furthermore, a reduction to practice need not demonstrate perfection or that the invention is incapable of further improvement. If an invention is first reduced to actual practice before contracting with the government, minor adjustments made afterward may be considered mere "perfecting modifications."

A court ultimately found that the government obtained a license under nine patents because all elements of the claimed inventions were first reduced to actual practice under the contract. Only some elements had been reduced to practice prior to the government contract.

However, testing must demonstrate that the invention works under the conditions of its intended performance. If such testing to demonstrate the operability of all elements of the invention first occurs under a government contract, the government will obtain a license to the patented invention.

Although the government obtains licenses only to those inventions conceived by or first reduced to practice in performance of work under a government contract, the relationship of the invention to the government work performed need not be exact. For example, in one significant case, a government-sponsored research project funded a study on the effects of acceleration on the human body. Researchers obtained a patent on a crash helmet. The court ruled the government obtained a license to the crash-helmet patent because the invention "bore a close connection" or "a close and umbilical connection" to the government-funded research.

The close and umbilical connection test continues to be used to sweep inventions related to contract work that are conceived or reduced to practice during the performance of work under a government contract within the licensing provisions of the patent clause, even though the contract did not require the development of the technology or invention.

The court has summarized the government's license rights as follows: The federal government has the right to use ? royalty-free ? those ideas, improvements, discoveries and inventions crystallized during performance of the federal contract that have a close and umbilical relationship to the work and research funded by the United States.

In conclusion, the standard patent clause is potentially far more robust than it might first appear in terms of the scope of the covered subject inventions and in many other aspects. Gaining an appreciation for that scope is the first step in developing an overall intellectual property-protection strategy. Such a strategy might involve patent prosecution, a patent subject invention compliance program, documentation procedures, contract scope-of-work negotiations, license negotiations or simply avoiding certain federal contracts.

C. Joel Van Over (joel.vanover@pillsburylaw.com) is a partner in the government contracts practice at Pillsbury Winthrop Shaw Pittman LLP in McLean, Va.

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