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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: November 15, 2000

FROM: Barry McVay, CPCM

SUBJECT: Department of Energy Acquisition Regulation (DEAR); Patent Regulations Relating to Management and Operating Contracts

SOURCE: Federal Register, November 15, 2000, Vol. 65, No. 221, page 68932

AGENCIES: Department of Energy (DOE)

ACTION: Interim Final Rule

SYNOPSIS: DOE is amending the DEAR Part 927, Patents, Data, and Copyrights, and Part 970, DOE Management and Operating Contracts, to improve the patent coverage relating to management and operating (M&O) contracts.

EDITOR'S NOTE: The DEAR is available on the Internet at http://www.pr.doe/dear.html.

DATES: The interim final rule is effective November 15, 2000. Comments on the interim final rule should be submitted by January 16, 2001.

ADDRESSES: Comments (3 copies) should be addressed to Robert M. Webb, U.S. Department of Energy, Office of Procurement and Assistance Management, 1000 Independence Avenue, SW, Washington, DC 20585.

FOR FURTHER INFORMATION CONTACT: Robert M. Webb, 202-586-8264.

SUPPLEMENTAL INFORMATION: DOE last revised its patent regulations covering M&O contracts in 1995 by creating two patent rights clauses: DEAR 970.5204-71, Patent Rights -- Nonprofit Management and Operating Contractors, for nonprofit contractors; and DEAR 970.5204-72, Patent Rights -- Profit-Making Nonprofit Management and Operating Contractors, for profit-making contractors. It has become apparent that the clauses could be designed to deal with the realities of performance under DOE M&O contracts more effectively. Also, the clauses needed to be modified to reflect additional statutory requirements and the special treatment of exceptional circumstances in defense related activities. This interim final rule revises the clauses to accomplish these aims, and rewrites the clauses in "plain language."

This interim final rule replaces those two clauses with three clauses: DEAR 970.5204-101, Patent Rights -- Management and Operating Contracts, Nonprofit Organization or Small Business Firm Contractor, for nonprofit contractors or small business firms with technology transfer authority; DEAR 970.5204-102, Patent Rights -- Management and Operating Contracts, For-Profit Contractor, Non-Technology Transfer, for profit-making contractors where their contracts do not provide for technology transfer responsibilities, or the contract is for the operation of a DOE facility primarily dedicated to naval nuclear propulsion or weapons related programs; and DEAR 970.5204-103, Patent Rights -- Management and Operating Contracts, For-Profit Contractor, Advance Class Waiver, for large profit-making contractors where their contracts provide for technology transfer activities.

• DEAR 970.5204-101 must be inserted into M&O contracts with educational institutions or nonprofit organizations because they "are beneficiaries of Bayh-Dole Act, including the paramount right of the contractor to elect to retain title to inventions conceived or first actually reduced to practice in performance of work under the contract, except in DOE-exempted areas of technology or in operation of DOE facilities primarily dedicated to naval nuclear propulsion or weapons related programs" (paragraph (a) of DEAR 970.2704, Patent Rights Clause Provisions for Management and Operating Contractors).
  
  
• DEAR 970.5204-102 gives DOE "title to inventions conceived or first actually reduced to practice in the course of or under an M&O contract, and does not contemplate an advance class waiver of government rights in inventions, or participation by the contractor in technology transfer activities" (DEAR 970.2704(b)(1)). DEAR 970.5204-102 does not include many of the provisions DEAR 970.5204-101 and DEAR 970.5204-103 related to the filing of patent applications by the contractor, the granting of rights in inventions by the contractor to third parties, and conditions allowing the government to grant licenses to third parties in inventions retained by the contractor ("march-in rights"). However, the contractor does have the right to request a license or foreign patent rights in inventions made under the contract, and may petition for a waiver of government rights in identified inventions. "Any instrument granting rights in inventions made under a contract governed by patent rights clause 970.5204-102 must include these additional provisions within its terms and conditions" (DEAR 9780.2704(b)(2)).
  
  
• The terms of DEAR 970.5204-103 reflect DOE's probable issuance of an advance waiver under which large profit-making M&O contractors with a technology transfer mission will receive title to inventions. The individual class waiver that is likely to be granted may cause the actual terms of the patent clause to vary from those in DEAR 970.5204-103, which is considered to be a "model."

In addition, this interim final rule adds the following to DEAR Part 970:

• DEAR 970.5204-94, Authorization and Consent, which must be used instead of FAR 52.227-1, Authorization and Consent. DEAR 970.5204-94 is a modification of FAR 52.227-1 in that it allows a contractor to request, and DOE to authorize, copying copyrighted work. Also, DEAR 970.5204-94 is required to be "flowed down" to subcontracts valued at $25,000 or more, as opposed to the $100,000 simplified acquisition threshold specified in FAR 52.227-1.
  
  
• DEAR 970.5204-95, Notice and Assistance Regarding Patent and Copyright Infringement, which must be used instead of FAR 52.227-2, Notice and Assistance Regarding Patent and Copyright Infringement. DEAR 970.5204-95 is required to be "flowed down" to subcontracts valued at $25,000 or more, as opposed to the $100,000 simplified acquisition threshold specified in FAR 52.227-2.
  
  
• DEAR 970.5204-96, Patent Indemnity -- Subcontracts, which requires the M&O contractor to obtain indemnification of the government from its subcontractors, would usually be used instead of FAR 52.227-3, which requires the contractor to indemnify the government. "However, if there is a question, such as when the mission of the contractor involves production, the contracting officer must consult with local patent counsel and use the clause where appropriate" (paragraph (b) of DEAR 970.2702-3, Patent Indemnity).
  
  
• DEAR 970.5204-97, Royalty Information, and DEAR 970.5204-98, Refund of Royalties, which must be used instead of FAR 52.227-6, Royalty Information, and FAR 52.227-9, Refund of Royalties, respectively. DEAR 970.5204-98 requires the M&O contractor to provide to DOE information bearing on any royalty proposed to be paid after contract award. FAR 52.227-9 does not foresee long term contracting with the variety of royalty activities that DOE is currently experiencing under its M&O contracts.
  
  
• DEAR 970.5204-100, Notice of Right to Request Patent Waiver, gives M&O contractors "the right to request a waiver of all or any part of the rights of the United States in inventions conceived or first actually reduced to practice in performance of the contract, in advance of or within 30 days after the effective date of contracting." However, "contractors that are domestic small businesses and domestic nonprofit organizations may not need a waiver and will have included in their contracts a patent clause reflecting their right to elect title to subject inventions pursuant to the Bayh-Dole Act..." Therefore, this notice is addressed to large for-profit contractors that have either DEAR 970.5204-102 or DEAR 970.5204-103 in their contracts.

Additionally, the prescriptions for patent-related provisions and clauses are added as DEAR 970.2702, Patent Related Clauses (replacing DEAR 970.2704, Patent Clauses); DEAR 970.2701, General, is rewritten in "plain language"; DEAR 970.2703, Purposes of Patent Rights Clauses, replaces DEAR 970.2703, Technology Transfer; and DEAR 970.2704, Patent Rights Clause Provisions for Management and Operating Contractors, provides additional guidance on the use of the M&O patent rights provisions and clauses.

Finally, a paragraph (c) is added DEAR 927.303, Contract Clauses, to make sure that the facilities license contained in the three M&O patent clauses is used in appropriate contracts not subject to DEAR Part 970 ("any contract that has as a purpose the design, construction, operation, or management integration of a collection of contracts for the same purpose, of a Government-owned research, development, demonstration or production facility...").

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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