SBIR DOD Contracts – Protecting Your Company’s Valuable Intellectual Property
The Small Business Innovation Research (SBIR) Program is designed to facilitate opportunities for small businesses to work with the Federal Government on research and development (R&D) projects. (Similarly, the Small Business Technology Transfer Program (STTR) facilitates public/private partnerships for R&D.) These programs are exceptional vehicles for bringing new technology to market.
SBIR contracts have significant benefits to a small business contractor because they allow the contractor to maintain proprietary rights in technical data developed in the course of performing the contract (“SBIR Data”). The value of these special SBIR Data rights to the contractor is they ensure that the Government or other competitors cannot use SBIR Data for commercial purposes or to produce future technical procurement specifications that diminish the rights (and thus business opportunities) of the small business that developed the SBIR Data. At the same time, SBIR Data rights provide the Government with the degree of access needed to evaluate the work and effectively utilize the results.
While contractors are permitted to exercise the right to protect SBIR Data, the right is not automatic. Under the Department of Defense (DOD) clause for SBIR technical data or software, DFARS 252.227-7018, in order for the contractor to protect its intellectual property the contractor must assert the applicable restriction: (a) in advance of development and (b) apply the required restrictive marking to the data prior to delivery. When in doubt, mark it!
Recently, DFARS 252.227-7018, was updated with important changes discussed below.
SBIR Data Protection
As part of the overall SBIR Program, 15 U.S.C. § 638(j)(2)(A) requires that small businesses under this program be permitted to “retain rights to data generated by the concern [contractor] in the performance of an SBIR award for a period of not less than 4 years.” SBIR Data rights are equivalent to limited rights in technical data and restricted rights in computer software. This requirement is implemented for the Department of Defense in DFARS 252.227-7018. (Note: Federal Acquisition Regulations applicable to civilian Government agencies have different rules than DOD.)
This nondisclosure obligation means that the government cannot compete technologies containing SBIR Data. Any such competition would mean disclosing the SBIR Data in solicitations, which the government cannot do. This nondisclosure obligation is accompanied by a Data Rights protection period.
In its Small Business Administration’s Policy Directive published in the Federal Register on April 2, 2019 (84 FR 12794), SBA changed the Data Rights protection period for both SBIR and STTR funding agreements to a uniform 20-year period that begins on the date of award. On March 17, 2020, the DOD issued Class Deviation 2020-O0007 to implement the SBA Directive. The Class Deviation requires DOD contracting officers to utilize the deviation’s language and publishes an updated DFARS 252.227-7018. This deviation (1) imposes a protection period of 20 years for SBIR Data (during which the Government has only SBIR data rights); (2) eliminates the possibility of extensions of SBIR Data Rights through follow-on awards; and (3) provides the Government with only Government Purpose Rights instead of Unlimited Rights after expiration of the protection period.
To get the most out of your company’s participation in the DOD program, it is important that you re-align your marking schedule to this new 20-year protection period for each award.
Protections for Previously Developed Private Contractor Data
Technical Data and Computer Software developed at private expense – prior to an SBIR Contract – and used in performing the SBIR contract is also afforded protections. DFARS 252.227-7018 permits the awardee to deliver its pre-existing data to the Government with less than unlimited rights. Thus, the awardee can deliver technical data pertaining to items, components, and processes developed exclusively with private funds outside the SBIR contract with limited rights and can deliver computer software developed exclusively with private funds outside the SBIR contract with restricted rights. DFARS 252.227-7018 allows a contractor to negotiate with the Government a tailored license in any data. However, the Government cannot accept less than limited rights in technical data or restricted rights in computer software.
Again, to protect the data or software the contractor must assert the applicable restriction in advance and apply the required restrictive marking to the data prior to delivery.
Protective SBIR Data Markings
Marking SBIR Data is critical to protecting it. Because the Government cannot disclose SBIR Data, a contractor’s competitors can obtain such data only if they purchase the technology (or acquire the contractor). When other larger firms seek access to SBIR technologies, they many times pay premiums in the marketplace solely to obtain access to these SBIR technologies. Marking and preserving SBIR Data is the first step to create enhanced value for a contractor and its SBIR technologies.
Marking SBIR Data and Contractor Data with the proper DFARS 252.227-7018 legend is key to a contractor protecting its data rights. Placing these legends on SBIR Data and Contractor Data provides notice to Government employees handling such data that they cannot disclose it. Failure to mark data properly can lead to disclosure by the Government with little to no recourse for the contractor. The exact markings legend set forth in in the clause must be used to obtain the SBIR rights and protections.
SBIR Data protection is a protection afforded SBIR small business firms. These protections apply to all phases of the SBIR. One of the most important of these protections is that the government cannot disclose SBIR Data outside of the government. The government receives a limited nonexclusive license, or right to use, SBIR Data, but such use cannot include disclosing it in any way. This nondisclosure obligation is accompanied by a protection period of 20 years from contract award.
When in doubt, the rule for your small businesses leadership and staff should be: (1) provide notice and (2) mark everything properly under the DFARS clause. The Oles Morrison SBIR Government Contracts law team stands ready to provide guidance to help protect your company’s proprietary assets.
Howard W. Roth, Partner
Michael J. Schmidt, Partner