Understanding Data Rights & Intellectual Property in Government Contracting
Tim Kelly, Chief of Staff at Decisive Point, explains how you can protect your startup’s intellectual property
Protecting your startup’s intellectual property, whether it’s software code, product design, or data collections is one of the most critical responsibilities of a founder or management team. You’ve worked hard to put your idea to work — and you’ve been careful to take steps such as filing patent applications, trademarks, and using NDAs in discussions with potential investors and partners.
But what changes when you’re doing business with the government, especially the Department of Defense?
It’s true that many aspects of the federal marketplace differ from the commercial markets, and it’s not just the customer. Doing business with the government entails certain predetermined terms and ground rules in substantive areas. One of these standardized aspects is IP, and understanding how to navigate the government market’s IP structures as a startup will position your company for success.
Most IP provisions of government contracts are drafted and implemented by law, and applicable across a range of contracting vehicles. These clauses vary depending on the contracting agency, as well as the agency’s expectation of how it will use the technical data or software developed under the contract. The most common are found in the government-wide Federal Acquisition Regulation (FAR) 52.227–14 and in the Defense Federal Acquisition Regulation Supplement (DFARS) 252.227 that applies to Defense customers.
Although there are subtle differences in IP protections for research and development (R&D) contracts and larger programs of record, the most important focus for startups is the IP governance in smaller-dollar R&D contracts. This includes the Small Business Innovation and Research (SBIR) and Small Business Technology Transfer (STTR) programs, as well as Other Transaction Authority (OTA) and similar agile contracting efforts. These programs are unique because they combine both technology development through government funding, as well as the commercialization of that technology within the government itself.
As a result, the most important consideration for startups is the distinction between data and technology that will be developed during a contract, and similar material that your company created through private dollars and before engaging with the government. This distinction has a significant impact on the government’s ability to use potential IP, and your startup’s ability to maximize value. With this distinction in mind, the government’s standard use rights can be broken down into three categories including:
- Unlimited rights
- Limited and restricted rights
- Government-purpose rights
Unsurprisingly, unlimited rights gives the government the ability to use the technical data or software used and generated under the contract as it chooses. This includes distributing the potential IP beyond the government as a whole and vesting use rights in the material to third parties. Generally, the government only receives unlimited rights when your startup develops the material as part of contract performance for civilian agencies under the FAR, or when the material is developed exclusively with government funds in the DoD under the regulations of the DFARS.
It’s also key to recognize the rights given to the government customer when your startup developed IP in-house. The government gains both limited rights in technical data (recorded information like databases, logs, or designs) and similar “restricted rights” in software where the material has been developed by your startup independently or via private funding. In civilian agencies subject to the FAR, the material must not have been developed in performance of the contract. Under these limited rights, the government has the ability to reproduce technical data and use the material only within the government, but that still means outside of the agency or department you initially contracted with. If your contract involves software or tech, the parallel restricted rights allow the government to use it within the government, yet only through one end-user at a time unless the underlying agreement says otherwise.
For startups and early-stage companies, the most likely contract scenario involves a mixture of materials developed in-house and materials that will be generated through government funding. When your technical data or computer software has been developed with mixed government and contractor funds, the government generally receives “government purpose” rights. These government purpose rights allow the government to use the material and authorize third parties to use the material, as long as it’s for the government’s purposes. An example of government purpose rights in action could involve the Air Force contracting with a startup to develop a projectment management software tailored to help managers more effectively coordinate supply logistics. The Air Force may then allow a separate contractor assisting a Navy program management unit to use the software in fulfilling their separate contract in support of the Navy unit.
For off-the-shelf solutions (OTS) involving the delivery of technology or services that the government has deemed commercial and not involving R&D, the government generally receives the same license as any other commercial consumer. On these contracts, the government acts more like your standard enterprise customer, but still retains certain representations and warranties unique to the government that may nullify provisions of your typical commercial license.
So what does this all mean for your startup and your technology?
First, understand how your work plan or contract type with the government will affect your IP protections. By pursuing an R&D arrangement, you accept that to some extent you are giving rights to the government to use IP in some way. By identifying the materials you are bringing to the table that you have developed privately, and recognizing those that will be developed with the government, you can preemptively assert rights and mark proprietary information. You can also adapt your work plan to use R&D funding to support aspects of your startup’s roadmap that you are comfortable affording some rights to the government on. By being strategic, you can manage risk and maximize the value of your contract to develop your startup’s product.
When you are on a contract, meticulous record keeping is your best friend. By maintaining clear and frequent records of your development progress, invoicing, expenses, and time on the project, you can more easily assert your IP rights if an issue arises down the road. Good recordkeeping will give you and the government a clear picture of where material came from, how it was developed, and what kind of rights are associated with it.
What’s the bottom line?
Government R&D funding and small business programs are an invaluable opportunity for startups and emerging technology companies. The non-dilutive funding that is available provides a strong foundation for growth and a solid entrance point to the federal market. But being aware of the intellectual property protections, rights, and regulations that apply to these contracts is key, and understanding how to navigate the landscape will allow you and your team to maximize the value of working with the government.
Timothy Kelly is the Chief of Staff at Decisive Point. He previously served in the Office of Federal Procurement Policy and the Intellectual Property Enforcement Coordinator’s Office at the White House. Tim is a member of the District of Columbia Bar and sits on the Committee on National Security.
