iap11048Government procurement in the United States is the process by which the Federal Government of the United States acquires goods, services (notably construction), and interests in real property. Contracts for Government procurement usually involve appropriated funds spent on supplies, services, and interests in real property by and for the use of the Federal Government through purchase or lease, whether the supplies, services, or interests are already in existence or must be created, developed, demonstrated, and evaluated. See 48 C.F.R. § 2.101 (“Acquisition” defined, as to goods and services only). Federal Government contracting has the same legal elements as contracting between private parties: a lawful purpose, competent contracting parties, an offer, an acceptance that complies with the terms of the offer, mutuality of obligation, and consideration. However, Federal contracts are much more heavily regulated, subject to volumes of statutes dealing with Federal contracts and the Federal contracting process, mostly in Titles 10, 31, 40, and 41 of the United States Code.

Private parties entering into a contract with one another (i.e., commercial contracts) are much freer to establish a broad range of contract terms by mutual consent than a private party entering into a contract with the Federal Government. Each private party represents its own interests and can obligate itself in any lawful manner. Federal Government contracts allow for the creation of contract terms by mutual consent of the parties, but many areas addressed by mutual consent in commercial contracts are controlled by law in Federal contracts and legally require use of prescribed provisions and clauses. In commercial contracting, where one or both parties may be represented by agents whose authority is controlled by the law of agency, the agent is usually allowed to form a contract only with reference to accepted notions of commercial reasonableness and perhaps a few unique statutes that apply. In Federal Government contracting, specific regulatory authority is required for the Government’s agent to enter into the contract, and that agent’s bargaining authority is strictly controlled by statutes and regulations reflecting national policy choices and prudential limitations on the right of Federal employees to obligate Federal funds. By contrast, in commercial contracting, the law allows each side to rely on the other’s authority to make a binding contract on mutually agreeable terms. Of course, there are many nuances to commercial contracting, but, generally speaking, the law favors the creation of commercial contracts by a variety of agents in order to facilitate business.

The Federal government spends billions across the U.S. on intellectual property procurement through the licensing and purchasing of customized source and object codes as well as technology research and development. Additionally, hundreds of millions of dollars were spent nationally procuring off-the-shelf software. Although the private sector now spends more than the federal government overall on technology, no single company can match the $143 billion in the 2008 federal purchasing pipeline for technology.

Innovative companies recognize the opportunities the U. S. government provides to reach new markets and increase revenue. But this collaboration is often characterized by unique legal nuances and complexities when it comes to protecting your IP. For example, your proprietary information might be inadvertently released through the Freedom of Information Act. To protect yourself, you need a firm with experience, a firm that knows the current law, has participated in its evolution over the course of four decades, and understands where red tape may stall progress.

HULSEYIP has represented and worked with many federal agencies and departments—including virtually every federal research funding agency. Understanding the intricacies involved in government contracting agreements is essential when negotiating with the government. Our experience and expertise enable us to identify opportunities and challenges quickly and efficiently.

As research and development expenditures soar, public–private research has become an increasingly attractive vehicle for funding innovative research. HULSEYIP can help protect your interests as you obtain grants or work with national laboratories and funding agencies to research innovative solutions.

Unfortunately, many technology companies avoid government contracting because of the perceived risk that a lucrative deal could turn into an expensive liability. This is a valid concern when it comes to intellectual property. More than once, a contractor has failed to follow the terms of the Federal Acquisition Regulations and, as a result, lost valuable intellectual property assets and trade secrets. We have seen situations where vendors failed to provide proper notice or improperly marked data to such an extent that their trade secrets and confidential information rights were waived. The government then was able to disclose the information to the public and re-use the trade secrets with other vendors.

The concern is one that can be managed. Thus, federal contracting can be rewarding financially if one understands the complex and relatively rigid procedures and rules used by the federal government. The federal government has immense volumes of procurement regulations and specific processes for various types of procurements.

The federal government has a reputation for being inflexible and over-reaching by demanding that contractors give up basic intellectual property rights commonly retained in the private sector. For example, if a contractor fails to commercialize a patent developed from federally-funded research, the government can exercise what is known as march-in rights and grant a license to a third party to use the patent without the permission or involvement of the contractor. Fortunately, the federal government has never exercised its march-in rights. But that does not mean it never will.

Managing your intellectual property under a federal government contract can be difficult. Fortunately, a basic understanding of the key questions related to intellectual property issues will provide important assurances that your contract will be a more lucrative enterprise than a liability.

The government generally respects a contractor’s need to protect its intellectual property.

First, the amount of government funding for the project helps to determine the degree of its interest. Second, the purpose of the procurement often determines whether the government will acquire any special intellectual property rights.

Finally, what protections does a company have if the government breaches its agreement regarding the use of intellectual property? The typical private-sector license terms related to venue, controlling law, or arbitration normally do not apply to government contracts. Instead, contractors must take a series of steps. First, informal dispute resolution must be pursued with the contracting officer. Second, if that fails, the contractor can seek redress in the Court of Federal Claims or utilize arbitration through the government’s civilian or defense Boards of Contract Appeals. The contractor can seek not only actual damages, but also some consequential damages such as lost profits and, in the event of especially egregious government actions, other statutory damages such as legal expenses and penalties.