Stimulus act, cleantech, and IP: Reaping benefits without giving away the farm

Cleantech companies, facing the frozen credit markets and an unfavorable venture financing environment, are turning to a new source of funds—the American Recovery and Reinvestment Act. But how to access those funds and deal with government regulations is another story. 

The Recovery Act appropriates $800 billion intended to stimulate the U.S. economy's recovery, including projects to support the development of renewable energy and energy efficiency technologies (see DOE sets aside $300M for autos, solar, carbon capture and Cleantech investment drops but stimulus funds soar in 1Q09). While the Recovery Act provides significant funding opportunities, there are strings attached.

Many companies with little or no experience in federal government-funded projects will be able to exploit opportunities made possible by the Recovery Act. Such companies may not be familiar with the myriad of rules and regulations once they receive federal funds. A common pitfall for federal money first-timers is a lack of appreciation for the intellectual property (IP) rights they may surrender to the federal government. There are IP issues that recipients of federal funds—such as contractors and grant recipients—must consider, and steps companies can take to protect their interests, while still exploiting funding opportunities made possible by the Recovery Act (see U.S. offers $790M to next-gen biofuels and Smart grid could be early winner in U.S. stimulus package).

When the government acquires goods or services that may result in the transfer of a contractor's or grant recipient's IP, federal statutes and regulations provide for a default assignment of rights. The determination of IP rights is dependent on the nature of the data and whether it was produced at governmental or private expense. Federal regulations allow the government to negotiate for rights that differ from the default assignments of the regulations. The regulations fall into two general categories: regulations that relate to patent rights and those that relate to "rights in data."

Patent regulations

The Bayh-Dole Act created a uniform patent policy among federal agencies that fund research, enabling businesses and nonprofit organizations, including universities, to retain titles to inventions made under federally-funded research programs. The act only applies in situations where the government has clearly funded the research that led to an invention. In addition, the act applies only to patentable IP, as opposed to copyrightable property, such as computer source code.

Federal Acquisition Regulation (FAR) implements the Bayh-Dole Act statutory scheme for patents developed under government acquisition contracts. FAR is a contract clause that should be inserted into any contract between the government and a private actor that develops IP for the government. The government, in most cases, grants all contractors the title to patents developed, in whole or in part, using federal funds, in exchange for royalty-free use by, or on behalf of, the government.

Data regulations and the 'rights in data' clause

The "rights in data" clause generally covers the following: computer databases; computer software; computer software documentation; data; form, fit, and function data; and technical data. FAR specifically defines each of these terms. For example, "computer database" or "database" refers to a collection of recorded information in a form capable of, and for the purpose of being stored in, processed, and operated on by a computer. "Data" describes recorded information, regardless of form or the media on which it may be recorded, and includes technical data and computer software. The term does not include information incidental to contract administration, such as financial, administrative, cost, pricing, or management information. The term "technical data" means recorded information—regardless of the form or the method of the recording—of a scientific or technical nature, including computer databases and computer software documentation. "Technical data" does not include computer software or financial, administrative, cost or pricing, management data, or other information incidental to contract administration, but does include recorded information of a scientific or technical nature included in computer databases.

The "rights in data" clause generally provides for three levels of ownership related to government contracting. The spectrum of rights (from the government's perspective) includes unlimited rights, limited rights, and restricted rights. "Unlimited rights" refers to the rights of the government to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit others to do so. "Limited rights" is defined as the rights of the government in limited rights data as set forth in a limited rights notice. The term "limited rights data" means data, other than computer software, which embodies trade secrets or is commercial or financial and confidential or privileged, to the extent that such data pertains to items, components, or processes developed at private expense, including minor modifications. "Restricted rights" refers to the rights of the government in restricted computer software, as set forth in the restricted rights notice, or as otherwise may be provided in a collateral agreement made part of a contract. The term "restricted computer software" means computer software developed at private expense and that is a trade secret, is commercial or financial and confidential or privileged, or is copyrighted computer software.

Limited and restricted rights notices

While the federal government generally has unlimited rights in data first produced in the performance of a government contract, a contractor may assert copyright protection (against third parties) and affix the applicable copyright notices. For data not first produced in the performance of this contract, a contractor delivering such data must provide a notice to the government that both identifies the data and provides the government with limited or restricted rights. The notices must be placed on materials, or information or materials containing intellectual property that contractors wish to protect, and must state exactly what rights accrue to the government with regard to particular types of data.

Best practices for government contractors

First-time contractors and grant recipients should be aware that when federal government agencies think it would be beneficial to share a contractor's or a grant recipient's IP with other parties, the government may use a failure to make proper use of data-rights notices as the basis for disclosing IP to third parties.

Contractors and grant recipients should observe the following best practices:

• Be sure to patent any inventions, or otherwise register other types of IP as appropriate, created during the performance of a government contract.
• Take appropriate care to ensure that you are providing only material expressly requested in the contract.
• Always mark proprietary materials.
• Always document which materials, data, software, etc., were developed at private expense.

This overview can hopefully help cleantech companies to protect their IP during their first forays into the federal contracting and federal grant application process.

Sergio Garcia is a partner based in the San Francisco and Silicon Valley offices of Reed Smith, where he advises on venture capital investments, strategic transactions and M&As, and is a member of the firm’s recovery & infrastructure task force. Steve Tibbets is an attorney in Reed Smith’s Washington, D.C., office with experience counseling government contractors in various aspects of regulatory compliance under Federal Acquisition Regulation.

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