Patenting Considerations for SBIR Awardees

Rothwell, Figg, Ernst & Manbeck, P.C.

Awardees of funding from the Small Business Innovative Research (“SBIR”) program face unique strategic questions as they plan their intellectual property development. Like all companies, SBIR awardees must decide whether to file patent applications on their technical developments, and they must also decide when in the R&D cycle to file those patent applications. In making these decisions, SBIR awardees may benefit by considering certain additional factors that do not pertain to other companies.

From an intellectual property perspective, the SBIR program is situated at the intersection of the following four bodies of law:

  1. Patent law – in general, provides you with rights and remedies to exclude others from practicing your patented inventions;
  2. SBIR data rights provisions – in general, provides you with rights and remedies against the government if it improperly shares your properly marked SBIR data;
  3. Trade secret law – in general, provides you with rights and remedies against others who misappropriate your trade secrets; and
  4. The Bayh-Dole Act – in general, imposes certain requirements on companies that receive federal funding for research and development.

Each of these bodies of law informs whether and when SBIR awardees should file patent applications or, in the alternative, rely on secrecy to protect their technology.

For many companies, including SBIR awardees, patenting tends to be preferred to secrecy in situations where: (i) the technology is likely to be patentable; (ii) it will be possible to tell whether others are infringing the patented technology; and (iii) the technology is sufficiently high-value to justify the expense of patenting. This is because patenting, unlike secrecy, provides remedies against others who reverse engineer or independently develop your technology. In other words, if you are concerned that competitors may observe and reverse engineer your technology, patenting may be an effective protection approach. And, because the first inventor to file a patent application disclosing an invention is generally entitled to its rights, it is often advisable to file a patent application early in the development process—even if you have not developed a prototype or actual product—and, importantly, before you publish or share information relating to the technology with others.

For SBIR awardees, this calculus can be complicated by the Bayh-Dole Act and SBIR data rights provisions—particularly if the federal government is a primary customer for your technology (for example, defense contractors may fall in this category).

The Bayh-Dole Act imposes a number of requirements on companies that receive federal funding for research and development, and SBIR awardees should consult with a qualified attorney to ensure that they are complying with its requirements. Two provisions are of particular importance for SBIR awardees to consider as they plan their intellectual property strategies. First, the Bayh-Dole Act requires recipients of federal funding to disclose “subject inventions” to the government, make a written election as to whether they will retain title, and, if the recipient elects to retain title, timely file a patent application or risk forfeiture of the rights to those inventions. 35 U.S.C. § 202(c)(1)-(3). “Subject invention” is defined as “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” 35 U.S.C. § 201(e). Second, the Bayh-Dole Act provides the government a royalty-free license to practice or have practiced on its behalf any subject inventions. 35 U.S.C. § 202(c)(4).

SBIR data rights, meanwhile, generally prohibit the government from externally disclosing properly marked data developed in the performance of an SBIR award. Specifically, the government is prohibited for a period of 20 years from externally sharing this information for procurement, manufacturing, or commercial purposes, but there are other limited purposes for which the government can share the protected information. See SBIR Policy Directive, 84 Fed. Reg. 12794, 12846 (April 2, 2019).

The combination of these rules has a number of practical implications.

First, SBIR awardees who wish to patent an invention that was conceived or first reduced to practice in the performance of the SBIR award should timely disclose the invention, elect title, and file a patent application in accordance with the provisions of the Bayh-Dole Act and any applicable terms in a funding agreement. Failure to do so can result in forfeiture of the rights to the patent(s) on the invention.

Second, for companies that are interested in selling primarily to the government, SBIR data rights may be more effective in preventing the government from sharing your technology with your competitors than are patents directed to “subject inventions.” This is because an issued patent or published patent application is public information as to which any nondisclosure obligations may be relinquished, and, if the patent is directed to a “subject invention,” the government is entitled to have the patented technology practiced on its behalf. 35 U.S.C. § 202(c)(4); see also 37 C.F.R. § 401.14. The government is prohibited, however, from sharing nonpublic, properly marked SBIR data for procurement, manufacturing, or commercial purposes within the 20-year protection period. SBIR Policy Directive, 84 Fed. Reg. at 12846. For a more detailed discussion of the interaction between patents and SBIR data rights, please see our intellectual property guide for SBIR awardees.

Third, to maximize your rights, you may wish to take steps to partition the inventions you develop at private expense from those that are conceived or first reduced to practice in the performance of an SBIR award. For example, you may consider filing a patent application before you submit an SBIR proposal or begin work under an SBIR award so that you can demonstrate that the disclosed technology was not conceived with government funding (this may also beneficially reduce the risk that technical information in your SBIR proposal will become public and be treated as prior art against your patent applications). You may also consider reducing to practice the technology for the first time outside the scope of the SBIR award—such as by reducing the technology to practice before beginning work under the SBIR award, or by using only private funds for this effort. Together, these steps may reduce the likelihood that your privately developed technologies will be treated as “subject inventions” as to which the government is entitled to a royalty-free license.

Fourth, if you plan to sell to the government, consider speaking to an attorney about the intersection of SBIR data rights and the Bayh-Dole Act before reporting SBIR technical data to the government as a “subject invention.” If you conclude that the SBIR technical data does, in fact, constitute a “subject invention,” you may also consider speaking to your attorney about whether to file the patent application with a nonpublication request so that the SBIR data rights protection period may be extended until the patent issues.

SBIR can be an excellent opportunity for emerging companies to obtain needed research and development funding without diluting equity. SBIR awardees should, however, be aware of the rules that pertain to technologies developed using SBIR funding, and they should take these rules into account as they plan their intellectual property strategies.

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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