Hey Government Award Recipients, Don't Miss the Point!

The consequence for failing to disclose inventions conceived or reduced to practice with government money, or for failing to timely elect title to, or timely file patent applications covering those inventions, is that the government can request title to the invention and corresponding patent. See 10 CFR 784-12(d)(1)-(3) and 48 CFR 52.227-11(d)(1)(i) and (ii).

I recently had an email exchange with a company CEO who wrote,

I have been doing this for 20 years now and have not had any problems in this regard, though I have heard “rumors” that this can be an issue. Do you have any relevant evidence that this actually ever happens? I have never heard of a case where the funding agency lays claim to a technology.

That CEO’s point was well taken in that the probability of the government requesting title is low. (See Campbell Plastics Eng’g & Mfg., Inc. v. Brownlee, 389 F.3d 1243 (Fed. Cir. 2004) and L‑3 Communications Corporation v. Jaxon Engineering & Maintenance, Inc., 125 F. Supp. 3d 1155 (D. Colo. 2015) for examples of where it has happened).

BUT THAT CEO MISSED THE POINT! The question that his company should have been asking is not “will the Government claim title to my invention” but rather, “will the prospective investor or buyer of my company believe the government can”. The value of your company’s IP, and thus the value of your company, is adversely affected not just by the probability of a government title claim, but by the possibility of such a claim. The government’s right to claim title to your government-funded IP is created by federal regulation. So if you fail to comply with your obligations regarding inventions created through your Government Grant, the cloud over that IP exists by law. You can’t argue that it’s not there; it is. You can only argue how small the cloud may or may not be. And in my experience, company buyers and investors always check to see whether there is a title cloud over the Company IP they are buying or deciding to invest in. Those buyers and investors are never satisfied by the following retort uttered by the seller of a company who has just discovered, or been informed of, the existence of the cloud over their government-funded IP: “Yes, but the government probably won’t exercise its right to claim title.” When that statement is given by a company CEO, the buyer hears an acknowledgement that the patent clause funding provisions of the grant were not complied with and not remedied after the fact, that a cloud over the title to the company IP exists, and that the asking price for the company is too high or the investment opportunity has added risk.

Here is the point you don’t want to miss; all-capped so you won’t:

THE PEOPLE YOU ARE TRYING TO SATISFY BY COMPLYING WITH THE GOVERNMENT GRANT PROVISIONS RELATING TO INVENTIONS AND IP IS NOT THE GOVERNMENT, WHICH DOES NOT WANT YOUR TECHNOLOGY (they want you to have it and commercialize it). RATHER THE PEOPLE YOU ARE TRYING TO SATISFY BY COMPILING WITH THOSE INVENTION-RELATED PROVISIONS IS THE UNKNOWN FUTURE BUYER OF, OR INVESTOR IN, THE COMPANY, WHICH DOES WANT YOUR TECHNOLOGY, . . . FOR THE LOWEST PRICE THAT THEY CAN GET IT.

*David Fonda is the founder of R&D LEGAL SOLUTIONS, a consulting and legal services company that caters to the legal needs of research and development companies by Identifying and remedying non-compliance of grant recipient obligations, creating policies and procedures to facilitate protection of the various kinds of IP and Data unique to R&D companies, drafting, negotiating and reviewing contracts and agreements specific to R&D companies, drafting patent, trademark and copyright applications, and corresponding office action responses, managing IP Portfolios, and providing flat fee part-time general counsel services. See www.rdlegalsolutions.com for more information.