A Word to the Wise for Advanced Reactors Accepting DOE Money: DOE Enforces its IP Rights

by Hogan Lovells
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A recent headline in the energy trade press would not likely have caught the attention of the advanced nuclear industry: “Trump’s DOE punishes Obama-era solar success story.” A casual reader might quickly dismiss the story as indicative of a Trump Administration bias against renewable energy. The details reported in the story, however, convey a far different message—one that is great significance to the many advanced nuclear technology companies that are responding to DOE’s funding opportunity announcement for advanced nuclear development.

The E&E News article reports that a company by the name of 1366 Technologies accepted millions of dollars in DOE funding to develop a process to reduce the cost of producing silicon wafers. In return, it made certain commitments routinely required of recipients of DOE technology funding: to engage in substantial U.S. manufacture of the technology, to disclose to DOE patents produced with DOE financial assistance, to give DOE a royalty-free license for government use, and to give DOE so-called “march-in rights” to license the technology to others if the funding recipient fails to use the technology itself.

According to the published story, DOE has sought to enforce the commitment 1366 Technologies made to build its solar wafer manufacturing plant incorporating the DOE-funded technology in the U.S., specifically in upstate New York. Delays in obtaining a wholly separate DOE loan guarantee are said to account for a decision by 1366 to instead build its first plant in Asia. E&E News reports that DOE has responded with a submission to the United States Trade Representative suggesting that the failure to comply with the U.S. manufacture commitment should be weighed in considering a request by 1366 for exemption from the 30 percent tariff that generally applies to foreign manufacturers of solar panels. DOE is also reportedly evaluating its options with respect to 1366’s failure to disclose patents it filed while it was accepting DOE financial assistance. Under DOE intellectual property (IP) rules, the failure to make a required disclosure could result in a loss of rights in those patents.

This is not fairly characterized as an instance of the Trump Administration attacking the solar industry. Rather, it represents a continuation of the practice that the Obama Administration and others before it pursued (albeit with varying degrees of ardor) of ensuring that the American taxpayer gets the benefit of its bargain for assisting in the advancement of energy technologies. That funding is designed to advance U.S. competitiveness in energy technology and energy manufacturing. In DOE’s view, allowing the IP that results from the taxpayer investment to be shipped abroad for commercialization can defeat the purpose of the taxpayers’ investment. DOE’s views are supported by statute (in particular, this is the intent behind the Bayh Dole Act, 35 U.S.C. §§ 200 – 212).

This is why the advanced nuclear technology industry should be paying close attention to the 1366 case. The FOA for advanced nuclear technology puts great emphasis on the desire to rebuild U.S. nuclear manufacturing capability. DOE has recently announced its first round of awards under the FOA. Additional applicants have submitted in the second round, and many others are preparing to submit one or more applications over the five years that DOE has said the FOA will remain open. The FOA represents a great opportunity to make important advances in nuclear technology prowess and to restore the U.S. nuclear supply chain to its past pre-eminence. That is what DOE expressly seeks to do. Therefore, it is important to understand and to put in place a program to assure compliance with the “strings” that are attached to the DOE money.

More than 10 pages of the lengthy FOA are devoted to the applicable IP rules. The eyes of an enthusiastic applicant might easily glaze over when they get to those 10 pages, but that would be a mistake. The rules reflect the implementation of statutory requirements, and they are unique to government-funded IP. They may be unfamiliar to those schooled in standard IP rules and practices associated with filing for patent rights. The ultimate commercial success of developing a great new technology may depend on understanding the obligations, managing the risks, engaging with DOE candidly when unanticipated challenges arise, and of course internalizing what we all already know: there really is no free money.

Applicants for DOE funding worry a lot about the government royalty-free license and the march-in rights (which the government has never exercised). However, the story about 1366 Technologies shows that those who accept federal funding to develop their technologies should have far greater concern about meeting the commitments they make to manufacture the technology in the U.S. and to disclose the patents they develop with government funds. In our experience, DOE is open to discussion and negotiation, within the constraints of its statutory obligations. However, DOE has demonstrated its willingness to employ at least some of the powerful enforcement tools it has at its disposal to enforce those obligations if it concludes the circumstances warrant such action.

In short, it is important to understand and take seriously the substantial U.S. manufacture and patent disclosure obligations that come with a financial assistance, because DOE does.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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