The United States has long been the world’s principal purchaser of (a) research and development services, (b) the products generated by the R&D, and (c) the intellectual property relating to that R&D. Historically, Government-funded R&D has evoked images of an omnipresent, overly intrusive, audit-fixated purchaser bent on levying a host of required terms and conditions on the seller, many of which are wholly unrelated to the underlying R&D and are designed solely to advance socio-economic policies and preferences. For these (and other) reasons, companies, particularly new and emerging companies, are often reluctant to accept federal funding to advance their privately conceived and privately developed ideas.
In response to this market perception, the Government has developed a menu of devices – outside of the standard “Government Contract” – through which it has sought both to attract broader participation in the R&D process and to increase its access to the benefits of R&D that might otherwise be unavailable to it. Principal among these devices are cooperative agreements, CRADAs, and “Other Transactions.” This article briefly describes these alternative R&D vehicles and the principal differences between them and the more traditional “procurement contract.”
1. Cooperative Agreements and Grants
In general, because they are not procurement contracts, cooperative agreements are subject to far fewer risk-creating provisions than procurement contracts. Enabling program legislation, however, often imposes unique restrictions and limitations. The particular coverage of each cooperative agreement must therefore be reviewed to assure that an unusual risk-creating provision has not been included.
While cooperative agreements are not subject to the vast array of socio-economic programs applicable to procurement contracts, the expenditure of federal funds associated with them does subject them to a number of potentially significant laws, e.g., (a) the “Byrd Amendment,” which prohibits the use of contract related funds to pay any person to influence or attempt to influence executive or legislative decision-making in connection with the award of a contract, grant, or cooperative agreement; (b) the Anti-Kickback Act of 1986; (c) the Service Contract Act; (d) the Drug-Free Workplace Act; (e) the Clean Air Act; and (f) the Equal Employment Opportunity Act. Unlike procurement contracts, cooperative agreements are not subject to the mandatory dispute resolution provision of procurement contracts and customarily include an ad hoc provision involving the internal, informal resolution of the dispute between the parties.
Many agencies have adopted regulations requiring that costs incurred by for-profit organizations under cooperative agreements be “allowable” under the cost principles set forth in the procurement contract regulation. In those instances, the cooperative agreement will make reference to the appropriate regulation under a clause entitled “Costs,” “Allowable Costs” or some other similar designation, sometimes in the “Payment” provision. Accordingly, cooperative agreements involving any significant federal funds will include some form of Government audit right to assure that only “allowable costs” have been charged to the agreement.
Rights to inventions that are conceived or actually reduced to practice under a cooperative agreement (so called “subject inventions”) are subject to the same allocation of rights law that applies to procurement contracts — the Bayh-Dole Act. Except for NASA and the nuclear weapons programs of the DOE, Bayh-Dale, as implemented by executive orders, permits the contractor to take title to “subject inventions.” The Government is allocated a non?transferable, royalty-free, paid-up, non-exclusive license to practice the invention and to have it practiced on its behalf for Government purposes. There are a number of problems under this coverage for many private organizations, for example:
Inventions must be reported to the agency and a patent application must be filed, a problem for many commercial companies that prefer not to file for patents to avoid the disclosures inherent in the application process, including the potential for disclosing pre-existing trade secrets related to the invention. In addition, the disclosure to the Government is likely obtainable by a competitor under The Freedom of Information Act (“FOIA’);
NASA’s and DOE’s enabling legislation require that those agencies take title to “subject inventions, “ with a royalty free, non-exclusive license allocated to the contractor. Although both agencies are permitted to waive title and, generally the agencies do waive their right to title, that result cannot be guaranteed;
DOE also takes the position that its enabling legislation entitles it to a royalty free license to certain background patents necessary to practice the subject inventions;
The Government can require a contractor to license an invention to another entity or to deliver title to the Government if the contractor fails to exploit the invention within a reasonable time (so called “March – In Rights”);
Neither the contractor nor its licensee may grant an exclusive license “to use or sell any subject intention in the United States” unless the licensee agrees that any product embodying the invention will be manufactured substantially in the United States; and
A DOE contractor agrees that that any product embodying the invention will be manufactured substantially in the United States
A private organization should also assume that the Government will, at a minimum, obtain a non-exclusive, royalty-free license in unpatented, intellectual property, including software, “first produced” under the cooperative agreement. This license permits the Government to obtain, use, reproduce, and publish the intellectual property and software for United States Government purposes and to authorize others (including competitors) to do so as well, for similar purposes. Indeed, some agencies incorporate into the cooperative agreement the standard basic intellectual property rights clause prescribed in applicable regulation for procurement contracts.
2. Cooperative Research and Development Agreements (CRADAs)
CRADAs may be entered into only by a “federal laboratory.” Under a CRADA, a federal laboratory is permitted to contribute Government personnel, services, facilities, and equipment to a joint effort to develop new technologies, but it may not provide appropriated funds. Because CRADAs are (i) legislatively defined as distinct from contracts, grants, and cooperative agreements and, (ii) do not involve the payment of appropriated funds, they are subject to few mandatory rules and regulations. Summarized below are some of the more important provisions likely to be included in a CRADA. As before, however, individual agencies or laboratories sometimes include clauses that are not required, but can pose significant risk. Each CRADA must therefore be analyzed individually.
The enabling legislation for CRADAs does not require that they be awarded competitively — the issue is simply not addressed. The statute provides only that preference be given to (i) small businesses and (ii) U.S. businesses that agree to manufacture in the United States products embodying technology developed under the CRADA. In addition, foreign organizations from countries that permit United States agencies and organizations to enter into cooperative research and development agreements in those countries are given a preference over other foreign organizations.
There are few mandatory socio-economic laws or regulations applicable to CRADAs. Nevertheless, care should be taken to review each CRADA to determine whether non-mandatory clauses have been included to which an objection can legitimately be raised at the time of negotiation. Although CRADAs are not subject to the disputes resolution laws applicable to procurement contracts, most agencies have adopted informal disputes resolution procedures that can be categorized as similar to traditional ADR procedures. CRADAs from DOE laboratories often provide for various options, including mediation and court actions.
Since the payment of federal appropriated funds is not involved in CRADAs, the definition of “allowable” costs is irrelevant. Generally, it is the participant that contributes funds, if any funds are exchanged. Otherwise, the participants and federal workers perform the tasks allocated to each. The model DOE CRADA, however, does include an optional clause, entitled “Records for Accounting for Government Property,” that requires the participant to “represent” that its accounting system is in accordance with generally accepted accounting principles. However, with no funding being provided by the Government, audit rights under a CRADA, if any, generally relate to accounting for contributed Government property. Financial audit rights are generally not addressed.
The treatment of intellectual property under CRADAs is purposely left flexible. Coverage of intellectual property is divided generally between patentable inventions and other trade secrets. Intellectual property coverage among agencies and within agencies varies greatly. Some CRADAs appear to have been drafted by Government patent counsel and are extremely detailed; others are very general in their coverage. DOE, by far, has the most exhaustive treatment of intellectual property.
While not required to follow the standard Patent Rights Clause used in procurement contracts and cooperative agreements, the patent rights provisions found in model CRADAs substantially duplicate the obligations of that clause. The important difference is that the coverage is not statutorily required and, thus, may be altered through negotiations. The obligations the Government likely will seek include (i) invention disclosure and (ii) mandatory filing for a patent. DOE’s model CRADAs essentially mirror the procurement contract patent clause in all material respects, including (a) “march-in rights” when the contractor fails to exploit the invention and (b) the preference for United States manufacture of products incorporating the patented technology. Some agencies distinguish among inventions made solely by company personnel, laboratory personnel, and those made jointly. Generally, the company is allocated title or given the right to elect to take title only to the inventions of its own personnel. Title to inventions made jointly by contractor and Government personnel are generally jointly owned.
As with cooperative agreements, the clauses used in CRADAs to define rights to unpatented intellectual property and software vary widely and are often vague. One should assume that the Government will attempt to acquire a non-exclusive, royalty-free license to obtain, use, reproduce, and publish for Government purposes and to authorize others to do so, also for Government purposes, intellectual property and software “first produced” under the CRADA. Again, the proposed clauses are subject to negotiation.
Most CRADAs provide that pre-existing proprietary intellectual property software may be provided to participants in the CRADA, including the Government, with appropriate legends restricting further dissemination or use outside the purposes of the CRADA. CRADAs also provide that valuable intellectual property produced during the performance of the CRADA may be appropriately designated for protection. Based on this designation, the agency is permitted to withhold such data from general public disclosure for five years — including disclosure under FOIA.
3. Other Transactions
“Other Transactions” are a class of assistance agreements used by DOD, Department of Homeland Security (DHS), Department of Energy (DOE), National Aeronautics and Space Administration (NASA), and Department of Transportation (DOT) to facilitate basic, applied, and advanced research projects when the research is to be performed by a for-profit firm or by a consortium that includes for-profit firms (a separate form of “Other Transactions” covers development of prototypes; that form of agreement is not addressed in this document). Because Other Transactions are designed to attract for-profit firms that traditionally have not done business with the Federal Government, they avoid the regulatory framework imposed on procurement contracts. Other Transactions, however, do involve the expenditure of appropriated federal funds and are, thus, subject to greater regulation than CRADAs. In general, the terms of all provisions of an Other Transaction are considered negotiable, except for the Equal Opportunity clause.
The primary administrative restrictions on the use of Other Transactions are (i) the research performed may not duplicate a research effort being conducted under another form of agreement (i.e., a procurement contract), (ii) the Government can contribute no more funds to the effort than the total funds of all other participants unless the Secretary or Administrator of the Agency determines that the 50% limit is not “practicable” (a determination that id frequently made) and (iii) the agreement may be utilized only when a contract, grant, or cooperative agreement is not feasible. Types of activities often covered by Other Transaction Agreements include:
1. Parallel or coordinated research agreements with arrangements to share results;
2. Consortia agreements with multiple parties (including universities and not-for profit companies) that join together to perform research as a consortium;
3. Joint funding arrangements to finance third-party research;
4. Bailment agreements involving access to Government owned equipment, test facilities, or other specialized assets typically with a sharing of research or test results; and
5. Arrangements that involve the agency provision of services (such as transportation services on an experimental space launch vehicle, experimental car vehicle, or experimental sea vehicle).
Generally, Other Transactions incorporate more regulatory clauses than CRADAs, but fewer clauses than cooperative agreements. In addition, DOD has recently attempted to make the agreements more flexible and attractive to non-traditional Federal Government contractors.
Other Transactions are subject to a very limited number of socio-economic clauses. The primary statutes applicable to Other Transactions are the Service Contract Act, the Walsh-Healy Act (to the extent a product is produced), the Fair Labor Standards Act, and the Equal Employment Opportunity Act. The disputes resolution clause included in DOD’s typical Other Transaction Agreement provides that the parties must attempt to resolve disputes through discussion and mutual agreement. If those efforts fail, an appeal to senior executives of DARPA and the contractor (or consortium) is specified. If resolution cannot be achieved at that level, the dispute can be filed in writing with the Director of DARPA. While the decision of the Director of DARPA is stated to be “final,” judicial review of performance disputes should be available at the Court of Federal Claims.
If federal funds (as opposed to assets or personnel) are to be provided, the Other Transaction Agreement is structured so that fixed payments are made for specified achievements (“milestones”) — regardless of the cost of the achievement. As a result, commercial organizations do not have to establish costly accounting systems and do not need to concern themselves with “allowable costs.”
The company will, however, need to have in place an accounting system adequate to demonstrate compliance with the funding commitment made by the company. An accounting system compliant with generally accepted accounting principles is all that is required. The company must also maintain adequate records to account for its funding contribution, and generally those records must be maintained for three years after the expiration of the agreement. Auditors must be provided “sufficient records and information to ensure full accountability for all funding” under the agreement.
A primary objective of the Other Transactions assistance vehicle is to provide flexibility in the contract document. Nowhere is this flexibility more important than in the allocation of intellectual property made in the course of Other Transaction research. Various procurement laws that largely dictate the intellectual property coverage for procurement contracts and cooperative agreements do not apply to Other Transactions. The agencies are free to negotiate unique intellectual property coverage for each Other Transaction agreement. Although “model” agreements often contain provisions based, in large measure, on procurement contract paradigms, it is important to understand that the “model” agreement language is subject to negotiation and need not be accepted.
The terms of the model patent rights clause can often be altered to provide for:
· Delayed disclosure of inventions.
· Delayed filing of the patent application (if possible under patent law).
· The maintenance of the invention as a “trade secret” rather than seeking patent protection.
· Limiting the United States license to a specific Government purpose or to a particular agency or program.
As with the patent rights clause, the clauses contained in DOD’s standard Other Transaction Agreements likely will reflect an allocation of non-patentable intellectual property, including software, similar to that required for procurement contracts. Again, however, no law requires such treatment and some proposed agreements contain unique provisions. These provisions, obviously, must be carefully reviewed.
The Other Transaction Agreement also likely will contain a clause restricting foreign access to technology (for a period of years). Under this clause, transfer of the technology (including “know-how”) developed under the agreement may not be sold or transferred to foreign firms or institutions. This clause is required by law and cannot be altered. Foreign affiliates, however, are generally not denied access.
It is possible to engage in “Government Contracting” without the “full immersion” often required by traditional Government contracts. Cooperative agreements, CRADAs and Other Transactions all provide opportunities for access to federal dollars or to ongoing federal research activities without the vast array of terms and conditions relating to audits and socio-economic objectives that seem daunting, to many who are inexperienced in the field. And — while their flexibility in terms of preserving one’s intellectual property is not unlimited — they typically do provide some incremental advantages in this area over the traditional contract vehicle. These agreements, however, because of the statutory flexibility, must be reviewed carefully. It is not uncommon for a draft agreement proposed by an agency to be more confiscatory of intellectual property rights than a standard procurement contract.
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