The Small Business Administration (SBA) has statutory authority to establish federal Government-wide policies to implement the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. SBA recently issued a significantly revised final SBIR/STTR Policy Directive, which is effective May 2, 2019. See 84 FR 12794. Below we highlight the major changes implemented in the revised policy directive.
Overview of the SBIR and STTR Programs
The statutory purpose of the SBIR program is to strengthen the role of small businesses in federally funded research and development. In particular, the aims of the program include: stimulating technological innovation; fostering and encouraging the participation of small businesses, especially small disadvantaged and women-owned businesses, in federal research; and increasing the commercialization of innovations derived from federal research and development, thereby increasing competition, productivity, and economic growth in the U.S. economy.
The STTR program shares these goals, yet also aims to stimulate partnerships between small businesses and research institutions with the purpose of commercializing innovative technologies, including those emerging from colleges and universities.
Both programs use a three-phased approach to projects, with an initial Phase I feasibility effort, a Phase II continuation of study, and a Phase III transition to commercialization efforts. Not all projects progress through all three phases, although that is the ultimate objective.
Each federal agency with an annual R&D budget of over $100 million must set aside some of its research dollars for SBIR and STTR program awards.
SBA’s Role in SBIR/STTR Program Oversight
The Small Business Act tasks the SBA with responsibility for issuing policies for the general conduct of the SBIR and STTR programs across the federal Government. Although agencies are able to tailor their SBIR/STTR programs to meet their individual needs, no agency may enact policies or procedures that contradict, weaken, or conflict with the SBA Policy Directive.
Major Changes Implemented Through the Revised SBA Policy Directive
On March 22, 2019, the SBA released the final version of a revised Policy Directive that has been several years in the making. The document combined the SBIR and STTR policies into a single Policy Directive. The most significant revisions and additions in the Policy Directive, particularly from the point of view of SBIR and STTR applicants, are as follows:
SBA made changes and clarifications to the definitions of SBIR and STTR Data Rights, the length of time for which small businesses retain data rights protections, and the nature of those protections.
SBA updated existing definitions and added new defined terms. SBA amended the definition of SBIR/STTR Data to clarify that it includes Technical Data and Computer Software. SBA also adopted a definition of Unlimited Rights that reflects a combination of the Federal Acquisition Regulation (FAR) and Department of Defense FAR Supplement (DFARS) definitions of the terms, but that does not go so far as to include a right to access all data subject to Unlimited Rights, as was initially proposed.
SBA also clarified the data rights given to both the small business performers and the Government in revised definitions of SBIR/STTR Computer Software Rights, SBIR/STTR Technical Data Rights, SBIR/STTR Data, SBIR/STTR Data Rights, and the SBIR/STTR Protection Period.
Under the current regime, SBIR/STTR awardees own any data generated in the performance of the SBIR/STTR contract or grant, and the awarding agency has the obligation to protect the awardees’ data rights for a minimum of four years, with automatic extension of rights protection through subsequent awards related to the original Phase I research. As a result, an SBIR/STTR awardee could extend its data rights for an indefinite period of time. However, this caused some confusion because of the difficulty of tracking follow-on awards. To address this concern and the related difficulties in substantiating the protection period for data rights, in its first proposed revision, the SBA suggested limiting the period of protection of SBIR and STTR Data Rights to 12 years from the initial award, after which time the Government would obtain Unlimited Rights in SBIR and STTR Data. Although this would provide the Government with certainty, small business commenters universally opposed this approach, stating that it was antithetical to the small business commercialization goals of the programs, and would create disincentives to program involvement.
In the final rule, SBA adopted a compromise approach. Although it appears the prior rule will apply to data rights developed under prior awards, for new awards SBA has established an approach that (1) eliminates the extension of SBIR/STTR Data Rights through any follow-on awards; (2) imposes a finite Protection Period of 20 years (as opposed to the original 12 years proposed); and (3) provides the Government not with Unlimited Rights, but with Government Purpose Rights, after expiration of the Protection Period. While most small business commenters objected to the notion of a Protection Period altogether, and preferred retention of the current approach, the SBA determined it was necessary to establish a firm deadline for achievement of commercialization of SBIR/STTR technology. The SBA decided that a 20-year protection period, with no opportunity for extensions, was a fair compromise that would preserve incentives for small businesses to enter the SBIR/STTR program, while at the same time providing the Government with an objective tracking measure and ensuring that those small businesses move toward commercialization quickly. The SBA also ultimately agreed that Unlimited Rights were not appropriate for most types of SBIR/STTR Data.[i] With Government Purpose Rights, the Government can use the data for its own purposes, and can provide the data to third parties for noncommercial purposes to assist the agencies in their evaluation and administration of SBIR/STTR programs, subject to the third parties’ signing appropriate non‑disclosure agreements. Under the final rule, the Government does obtain Unlimited Rights in Form, Fit, and Function Data (data required to enable functional performance and integration) and Operations, Maintenance, Installation, or Training Purposes (OMIT) Data (data needed for any of these purposes).
In addition, SBA clarified that during the 20-year Protection Period, the Government has some limited rights in SBIR/STTR Data, Computer Software, and Technical Data so as to enable agencies to evaluate the technology being developed and to administer their programs. These rights are akin to restricted or limited rights under the FAR and DFARS, and do not permit sharing with third parties.
SBA confirmed that the proper marking of SBIR and STTR Data is essential.
Although SBA agreed to provide the Government with only Government Purpose Rights (as opposed to Unlimited Rights) after expiration of the Protection Period, it clarified that this applies only to SBIR/STTR Data that is appropriately marked. If data is unmarked, the Government obtains Unlimited Rights in that data and can do essentially whatever it wants with that data, including providing it to third parties for commercialization purposes. SBA also established a firm six-month period during which the SBIR/STTR awardee can correct any marking errors and mark previously unmarked SBIR/STTR data. After that period, no corrections or additions are allowed. The consequences of not marking SBIR or STTR data are significant and a trap for the unwary (and unaware) small business.
SBA clarified the prohibition on awardees’ receipt of funding from multiple public sources for the same work.
Under the existing policy, SBIR/STTR recipients are prohibited from obtaining duplicate funding from federal sources for Essentially Equivalent Work — work similar to that funded under the SBIR/STTR funding agreement. SBA considered including work funded by State programs in this prohibition. Commenters overwhelmingly opposed this change. SBA ultimately agreed that the proposed change would limit sources of available research funding and confirmed that SBIR/STTR grantees may accept State supplemental funding for their SBIR/STTR projects.
SBIR/STTR awardees have expanded opportunities in connection with Phase III awards.
Consistent with the objectives of the statutes establishing the SBIR and STTR programs, agencies are required, to the greatest extent practical, to pursue Phase III work with the SBIR/STTR awardee that performed the earlier Phase I and II work. The new Policy Directive provides additional support for original SBIR/STTR performers by instructing that agencies must determine in advance whether a requirement or solicitation involves Phase III work and, if so, must first evaluate the practicality of a sole source award to a SBIR/STTR Phase I or II awardee. If award on a sole source basis is not possible, then the agency must document that fact, and consider whether there are any other ways to provide a preference to a Phase I or II awardee.
STTR awardees may now partner with more than one research institution.
Under prior rules, small businesses seeking STTR awards could partner with only one research institution. SBA has revised the Policy Directive to provide that small businesses now may partner with more than one research institution, so long as at least 30% of the work is performed by a single research institution, and the principal investigator is employed by either the small business or the primary research institution.
The new rules only apply prospectively.
Initially, SBA had proposed that the new rules would apply retroactively to existing SBIR/STTR grants and contracts. After several commenters expressed concern about retroactivity, particularly as pertains to the nature and length of the data rights protection period, SBA agreed that the Policy Directive will not apply to any funding agreements that pre-date the effective date of the notice, May 2, 2019. This raises significant questions about how firms will separate data developed under prior awards (which can be indefinitely extended under the prior rules) from new data that is subject to more limited protection.
In sum, the SBA’s new Policy Directive provides important guidance to agencies, and essential protections to SBIR/STTR awardees, that should further support SBIR and STTR programs and opportunities.
Should you have questions about the new Policy Directive or its implications, please contact us.
[i] A special exception was made for the Department of Energy (DoE), as SBA agreed with DoE’s argument that it has a statutory mandate to release and openly publish scientific and technical data. The exception allows DoE to obtain Unlimited Rights in SBIR/STTR Data generated from DoE SBIR/STTR funding agreements.