legal aspects of federal technology investment & its potential … · 2017-08-31 · greenberg...

G R E E N B E R G T R A U R I G , L L P | A T T O R N E Y S A T L A W | W W W . G T L A W . C O M

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Legal Aspects of Federal

Technology Investment & Its

Potential Impact on Your

Business Plan

Paul. F. McQuade, Esq.| [email protected] | (202) 331-3187

Federal Technology InvestmentGreenberg Traurig, LLP | gtlaw.com

Fundamentals of the Federal R&D Bargain

> General “Public” Benefit

– Augmentation of Defense, Public Health, Food and Energy Supply, National Security

– Support of U.S. technical supremacy in a manner that does not violate WTO agreements

– Creation of U.S. Jobs

– Balance of Trade / International Commerce

– Development of particular applications of interest to the sponsoring federal agency (in most cases)

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The Federal R&D Bargain (cont’d)

> Private Contractor/Awardee Benefits

– IP ownership of Subject Inventions and commercialization rights

– Advancement of new or existing company technology without dilution of equity

– Support of scientific staffing and overhead between other chargeable projects

– Performance Experience and Opportunity for Further Government Work

– Keeping the lights on while waiting on revenue

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How the Bargain is Implemented

> Legal Framework

– Bayh-Dole Act (1980)

– Procurement Acquisition Regulations for R&D

FAR – Civilian Agencies such as HHS

DFARS – Department of Defense

– Federal Regulations and Agency Guidelines related to Grants, Cooperative Agreements, CRADAs and Other Transactions

– Miscellaneous Special Statutes and Programs

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How IP Rights Are Allocated

> The Government shall have a nonexclusive, irrevocable, fully paid-up license to practice any Subject Invention or “have it practiced” on its behalf throughout the world

> Unlimited Rights in Tech Data & Software developed

> “March-In” Rights - Government retains the right to add licensees if commercialization is inadequate (overall and in particular fields of use) (but don’t get excited – these are rarely asserted)

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Federal Technology InvestmentGreenberg Traurig, LLP | gtlaw.com 6

> March-In Rights under 35 U.S.C. § 203 can be (but rarely are) asserted if:

> 1. Contractor has not taken steps to achieve practical application;

> 2. Further licensing necessary to alleviate health or safety needs not reasonably satisfied by the contractor or its licensees;

> 3. Action is needed to meet requirements of public use, per regulations, which are not reasonably met by contractor or its licensee(s)


The Good News

> Federal dollars to research a new technology or advance or apply your existing technology;

> Title to IP vests in your company;

> No repayment obligations if you are commercially successful (discuss Taxol® and CRADA example);

> No equity stake in your company

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Is There Any Bad News ?

> Mostly it’s good news, but there are strategic, contract administration/compliance costs, and risk considerations:

> Strategic Considerations:

– What are you researching?

– Where is your market?

– Is the Government the likely customer of the finished product due to technology export or security classification controls?

– Examples, tanks and missile guidance systems for DoD; high efficiency auto for DOE; injectable neurotoxin treatments for DHS

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Strategic Considerations:

How big a share of the market is the USG ?

If the Govt is the entire market and likely the sole customer due to technology export or national security classification controls consider an IR&D solution in which you retain all rights (trade equity for the prospect of the world’s largest repeat customer).

If USG is not a likely customer, or a minor customer given the scope of opportunity, you may be willing to go toe-to-toe in price-based competition in the government market if the commercial space is yours.

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Contract Administration / Compliance

Requirements

1. Accounting Requirements

2. IP Compliance Requirements

3. Socio-Economic/Policy Requirements

4. U.S. Manufacturing Requirements

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1. Accounting Requirements

> General Concepts:

– Government accounting requirements differ from GAAP

Allowable” vs. “Unallowable” Costs

“Indirect”/“Facilities and Administrative” vs. “Direct” Costs

– Compensation Caps

10 U.S.C. § 2324(e)(1)(P); 41 U.S.C. §§ 1127, 4304(a)(16)

Compensation for Personal Services: FAR 31.205-6; DFARS 231.205-6; 2 CFR 200.430

– Government Audit Rights:

Preaward and Postaward Audits of Contracts

Record examination and review requirements: see for example FAR 52.215-2- Audit and Records– Negotiation

Audit of grants: for example OMB’s Uniform Guidance- Subpart F- Audit Requirements

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https://www.acquisition.gov/?q=/browse/far/52

http://www.ecfr.gov/cgi-bin/text-idx?node=sp2.1.200.f


1. Accounting Requirements Cont’d

> Examples of Cost Requirements/Guidelines:

– FAR Part 31- Contract Cost Principles and Procedures

– DFARS Part 231- Contract Cost Principles and Procedures

– NIH Grants Policy Statement- Cost Considerations

– OMB Uniform Guidance- Part E- Cost Principles

> Agency/Program specific cost terms may also be included in your particular grant contract or other transaction

> Cost accounting requirements may vary depending on the type of entity receiving the contract/grant (e.g., nonprofits, commercial organizations, educational institutions)

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https://www.acquisition.gov/?q=/browse/far/31

http://www.acq.osd.mil/dpap/dars/dfarspgi/current/

https://grants.nih.gov/grants/policy/nihgps/HTML5/section_7/7_cost_consideration.htm

http://www.ecfr.gov/cgi-bin/text-idx?SID=e424e4c69d92cb342f6c5ab321726c5d&mc=true&node=sp2.1.200.e&rgn=div6


2. Intellectual Property Compliance Issues

– System in place to recognize “Subject Inventions”

Conception -or- First Actual Reduction to Practice

– Report “Subject Inventions” in timely manner (60 days from receipt of IR usually)

– Timely Elect Title to Subject Inventions (at most 2 years after report, but sooner if regs require or statutory bar date is approaching)

– File patent application within 1 year of making election

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2. Intellectual Property Compliance (cont’d)

> Include a statement in the specification of your patent application:

> After filing, make periodic report on utilization of subject inventions. This assists the Govt in monitoring commercialization.

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“This invention was made with Government support under [identify contract/grant number] awarded by [identify agency]. The Government has certain rights in the invention.”


Consequences of Non-Compliance with IP

Requirements

> Failure to report a Subject Invention

> Failure to elect title in a timely manner

> Can result in the Government claiming title to patent AND in revocation of your company’s right to practice the invention it created

> Consider Campbell Plastics v. Brownlee, 389 F.3d 1243 (Fed. Cir. 2004)

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Consequences of Non-Compliance with IP

Requirements – Campbell Plastics

> Contractor did mention the invention in deliverables; however, contract required that a particular form be used and that it be submitted by a certain time.

> Net consequence: After years of involvement in the field, Govt took title to the patent and Contractor could no longer practice the patent on which its employees were listed inventors.

> Take Away: It is important to have the personnel or resources in place to ensure the program is being administered in compliance with requirements.

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3. Socio-Economic Policy Compliance

– Large number of clauses in contacts and grant awards directed at ethical behavior, equal opportunity, employment law

– Receipt of Federal funds obligates compliance, sometimes by threshold dollar amounts received

– Many contract requirements related to socio-economic policies are keyed to certain spending thresholds

– A sampling of socio-economic policies:

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3. Socio-Economic Policy Compliance (cont’d)

> Acquisition from Nonprofit Agencies Employing People who are Blind or Severely Disabled- FAR 8.7

> Affirmative Action Plans & Programs- FAR 22.804; 52.222-25

> Anti-Kickback Act- FAR 3.502; 22.403-2; 52.203-7; 52.222-10

> Balance of Payments Program- DFARS 225.75

> Buy American- 41 U.S.C. §§ 8301-05; E.O. 10582 as amended; FAR 25.2 (Construction Materials)

> Contract Work Hours & Safety Standards- FAR 22.3

> Contracts for Materials, Supplies, Articles, and Equipment Exceeding $15,0000- FAR 22.6

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> Convict Labor- FAR 22.2; 55.222-3

> Covenant Against Contingent Fees- FAR 3.4; 52.203-5

> Drug-Free Workplace- FAR 23.5

> Duty-free Entry for Qualifying Countries- FAR 52.225-8

> Encouraging Contractor Policies to Ban Text Messaging While Driving- E.O. 13513, FAR 23.11; 52.223-18

> Environmental and Energy Policies—such as:

– Energy and Water Efficiency and Renewable Energy- FAR 23.2

– Public Disclosure of Greenhouse Gas Emissions an Reduction Goals- FAR 52.223-22

– Sustainable Acquisition Policies- FAR 23.1

– Use of Recovered Materials and Biobased Products- FAR 23.1; 52.223-4

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> Equal Opportunity- E.O. 11246, as amended; FAR 52.222-26

> Equal Opportunity for Veterans- FAR 22.13; 52.222-35

> Fair Labor Standards Act- FAR 52.222-44

> Fair Pay and Safe Workplaces*- E.O. 13673; FAR 22.20

> Government Contracting Programs for Small Businesses-https://www.sba.gov/contracting/government-contracting-programs

– 8(a) Business Development Program

– All Small Mentor-Protégé Program

– Historically Underutilized Business Zones (HUBZone) Program

– Service-Disabled Veteran-Owned Business

– Small Disadvantaged Businesses

– Women-Owned Small Business (WOSB)

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https://www.sba.gov/contracting/government-contracting-programs



> Gratuities Not Permitted- FAR 3.2; 52.203-3

> Hiring and Protection of Workers with Disabilities- FAR 22.14; 52.222-36

> Historically Black colleges and Universities and Minority Institutions- FAR 26.3; 52.226-2

> Officials Not to Benefit

> Other Equal Employment Opportunity Requirements

> Paid Sick Leave- E.O. 13706; FAR Interim Rule- 81 FR 91627

> Preference for U.S. Made Goods- ex. Buy American; Berry Amendment- 10 U.S.C. § 2533a

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> Prohibition on Segregated Facilities- FAR 52.222-21

> Service Contract Labor Standards- FAR 22.10

> Small Business Act- 15 U.S.C. § 631 et seq.

> Tax Delinquencies or Felony Convictions- FAR 9.104; 52.209-11

> Trade Agreements- FAR 25.4

> U.S.-Flag Transportation Preferences:

– Air Transportation by U.S.-Flag Carriers- FAR 47.4

– Ocean Transportation by U.S.-Flag Vessels- FAR 47.5

> Utilization of Indian Organizations, Indian-Owned Economic Enterprises, and Native Hawaiian Small Business Concerns- DFARS 252.226-7001

> Wage Rate Requirements (Construction) (formerly known as the Davis-Bacon Act)- FAR 22.403-1

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Consequences of Non-Compliance with Socio-

Economic Requirements

> OFCCP Audits

> Corrective Action Plans or Termination

> Negative Past Performance Evaluations Can Impact Future Work

> Flagrant Violations Can Result in Suspension and Debarment

> Inaccurate Certifications of Compliance Can Constitute False Statements and Related Invoicing Can Constitute False Claims

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Risk Management - Generally

> Commercial vs. Federal Non-Compliance (Breach vs. Host of Civil and Criminal Remedies)

> Statistically – Most Remedies Reserved for Egregious Offenders

> False Statements – 18 U.S.C. § 1001

> False Claims Act – 31 U.S.C. § 3729 et seq.

– Penalties up to $21,563/occurrence

– Each Invoice can be regarded as False Claim

– Suspension/Debarment if Guilty

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4. U.S. Manufacturing Preference

– 35 U.S.C. § 204(d) states: “…no small business firm or nonprofit organization which receives title to any subject invention and no assignee of any such … firm…or organization shall grant to any person the exclusive right to use or sell any subject invention in the United States unless such person agrees that any products embodying the subject invention will be manufactured substantially in the United States.”

– Waiver Procedures

See link for NIH waiver application: https://public.era.nih.gov/iedison/public/utilization/ManufacturingWaiver.jsp (It is typical of what agencies look for in considering waiver requests.)

– Need to communicate the requirement to exclusive licensees

– Agencies have occasionally been lax about this requirement, but should not be considered a rubber stamp on waiver requests*

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https://public.era.nih.gov/iedison/public/utilization/ManufacturingWaiver.jsp


4. Non-Compliance with U.S. Manufacturing

Requirements

> Flow Down Requirements – Impact on Exclusive Licensees/Assignees and Licensors

>U.S. Sales – at risk of exclusion– capital costs of foreign manufacturing

installations not recovered as anticipated if no access to U.S. market

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Conclusion

> Federal Technology Programs offer a great opportunity to advance both the public good and your company’s position in offering technologies to meet commercial needs

> Risks Can Be Managed Without Much Difficulty

> Compliance Plans and Programs are Readily Available and Not Expensive

> Some front end legal assistance can go a long way in avoiding future needs for advice in more pressing circumstances

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Thank You for Attending !

> Contact Info:

> Paul F. McQuadeGreenberg Traurig, LLP2101 L Street NW, 10th FloorWashington, DC 20037

Tel: 202-331-3187 directCell: 703-615-0507email: [email protected]

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legal aspects of federal technology investment & its potential … · 2017-08-31 · greenberg...

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