Dual‑use startups often seek nondilutive funding through US government contracts, grants, cooperative agreements and “Other Transactions”. Such public funding can be a powerful growth catalyst, but it brings with it a distinct intellectual property (IP) regime that affects ownership, licensing and commercialization. This article outlines the core concepts early-stage companies should understand about the government’s rights in technical data and computer software, along with its rights in “subject inventions” made with federal funding.
Distinguishing ‘data’ from ‘inventions’
Government contracts draw a sharp line between data and inventions. Technical data and computer software concern works of authorship and information – drawings, specifications, test data, source code, object code, algorithms and related documentation. “Subject inventions” concern patentable discoveries conceived or first actually reduced to practice in the performance of a federal award. The data regime governs deliverables and government licenses in such deliverables and related information; the patent regime governs title to subject inventions and the government’s royalty‑free license in such inventions.
Government rights in technical data and computer software
The scope of government rights in technical data and software depends on what is being delivered, the funding source and whether the item is commercial or noncommercial. When the Department of Defense (DoD) purchases products and/or services that include noncommercial technical data and computer software, specialized Defense Federal Acquisition Regulation Supplement (DFARS) clauses allocate rights by category, commonly including:
- “Unlimited rights,” which allow the government to use, modify, reproduce, perform, display, release or disclose the data or software in any manner and for any purpose.
- “Government purpose rights,” which allow broad use within the government and by contractors for government purposes but restrict commercial release.
- “Limited rights” (for technical data) or “restricted rights” (for noncommercial software), which constrain release and use outside the government.
Special protections may apply for data developed exclusively at private expense, and for certain small business programs (for example, the Small Business Innovation Research (SBIR) program) that confer time‑limited protections on data generated under those awards.
For commercial products and software, the government typically acquires only the rights customarily provided to the public under the vendor’s standard commercial license, subject to certain federal requirements. This distinction between commercial and noncommercial is important – classifying your offering as commercial when supportable can materially narrow the license granted to the government.
To preserve a narrow allocation of government rights in technical data and software deliverables, companies must mark those deliverables with the exact legends prescribed by the governing contract clauses. Failure to mark correctly or on time can result in the government obtaining broader rights than intended. Contract Data Requirements Lists (CDRLs) or equivalent instruments control what must be delivered and in what form. Early negotiations should focus on limiting deliverables to what the government truly needs, deferring delivery where possible, separating proprietary background materials from new work and choosing formats that reduce exposure of crown‑jewel IP.
Dual‑use companies should also limit or remove, when possible, “deferred ordering” or “deferred delivery” terms that allow the government to order additional data later. Anticipate how subsequent orders could affect internal plans for commercialization or fundraising, and maintain a clear inventory of what was developed with private funding versus mixed or government funding to support future rights assertions.
Government rights in subject inventions (the Bayh‑Dole Act framework)
Under the Bayh‑Dole Act framework and its implementing clauses, small businesses can elect to retain title to inventions made with federal funding, provided they comply with procedural requirements. The government receives a nonexclusive, nontransferable, irrevocable, paid‑up license to practice the invention or have it practiced on the government’s behalf worldwide. The framework also includes “march‑in” rights that, in limited circumstances, permit the government to require licensing to third parties if specified conditions are met, such as failure to achieve practical application or unmet health or safety needs. There is also a prohibition on exclusive licensing of the subject invention for use or sale in the US, unless the licensee agrees that any products embodying the subject invention or produced through use of the subject invention will be “manufactured substantially in the United States.”
To retain title, contractors must disclose subject inventions to the government within required time frames, elect title within the specified period, file patent applications on schedule and include appropriate government support statements in filings. They must also implement invention reporting procedures, execute confirmatory instruments and flow down patent rights obligations to subcontractors/subrecipients. Failure to comply with these procedural steps can give the government the right to take title in the subject invention. Early‑stage companies should institute a lab‑to‑legal process that promptly captures potentially patentable outcomes, screens for federal funding ties and triggers disclosure and election workflows. Careful docketing of statutory bars, publication plans and foreign filing strategies must be aligned with the award’s timelines.
Practical structuring for dual‑use growth
A deliberate IP architecture can both protect commercial upside and satisfy government needs. Begin with budget and work‑share planning that segregates privately funded background IP from new, award‑funded development, and document funding sources at a granular level to support later rights assertions. Where appropriate, propose commercial solutions and licenses rather than noncommercial development, and scope deliverables to avoid unnecessary exposure of source code or proprietary manufacturing details. Use precise DFARS/Federal Acquisition Regulation (FAR) markings, and keep a clean chain of custody for all versions delivered to the government and shared with teaming partners.
For software, decide early whether deliverables can be limited to executable object code and interfaces, with technical data confined to user documentation and interface control documents, rather than full internal design disclosures. For hardware‑centric efforts, work to distinctively label and segregate form, fit and function data – often subject to broader rights – from proprietary know‑how and detailed manufacturing processes that may qualify for narrower rights.
In parallel, implement a Bayh‑Dole compliance program – employee agreements that assign inventions and require disclosure, internal invention disclosure forms keyed to contract award numbers, decision‑making criteria for title election, and a coordinated patent strategy that respects government contract reporting deadlines and domestic manufacturing preferences.
Finally, align contracting, engineering and fundraising narratives. Investors will diligence the company’s IP posture. Being able to identify and explain the government’s rights in specific technical data and software, which inventions are subject to government licenses, how long any special data protections last, and how you have preserved limitations on the government’s rights and commercialization options and value can materially reduce risk that investors and acquirors may perceive. With disciplined planning, early‑stage, dual‑use companies can leverage federal funding while maintaining control over critical IP and pathways to scale in both government and commercial markets.
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