We think that the SBIR program is a phenomenal funding source for new and established founders, but we’ve noticed that concerns and misconceptions about IP protections and risks keep a lot of founders from getting involved. 

Many investors also hesitate to invest in companies that have received SBIR funding for these same reasons. 

So, in the spirit of helping more people access the SBIR program more confidently, we wanted to provide a practical discussion of IP issues related to SBIR awards, explore common concerns, and make some pragmatic suggestions to help people decide whether SBIR is right for them.

SBIR/STTR: SBIR and STTR provide non-dilutive federal funding to companies developing technology.  The two programs have very similar IP risks and protections so when we use the term “SBIR'' in this guide please assume we also mean STTR unless specifically called out in the text.  However, if a company is pursuing STTR they will need to consider their IP strategy with their research partner as well as with the government.

Technology: Ideas and things that people create to make things work in new, better ways. Technology can include physical products or components, software code, manufacturing methods, ways to structure, analyze, or use information, and many other things. 

Intellectual property (IP) rights: Legal rights that can be used to control whether and how others can use a technology. It is important to note you do not automatically obtain IP rights by developing a technology. Often, you need to take affirmative steps, like filing a patent application. 

Intellectual property: A bundle of IP rights. For example, if you own 100 patents, those patents are your “intellectual property.”

IP protection tools: Legal constructs that have been created to protect people’s technology. Examples include:

• Patents: A document published by the government that provides its owner the right to exclude others from using a technology. If you create a new technology, you can file a patent application asking the government to recognize that the technology was your invention, and that you are entitled to exclude others from using it without your permission.
• NDA: A contract in which parties (typically two or more companies or people) agree to keep each other’s information confidential. The contract may also limit how the parties can use each other’s information. 
• SBIR data rights: Similar to an NDA, but between an SBIR awardee and the government. Limits what the government is allowed to do with technical data and software that you generate in the performance of an SBIR award. 
• Trade Secret: Secret information that provides its owner with a competitive advantage due to its secrecy. The law provides remedies if others improperly access and use your trade secrets. 

Privately-funded technology: Technology developed without using government (e.g., SBIR) funds.

Publicly-funded technology: Technology developed, in whole or in part, using government (e.g., SBIR) funds.

Invention: Technology that can be patented. There are a number of rules about what types of technology can be patented. For example, the technology needs to be new and nonobvious.

IP strategy: A plan to protect the long-term value of your technology. Typically, this will involve identifying risks through which others could obtain and use your technology without paying you, and making a plan to mitigate those risks. 

Technical data: Recorded information of a scientific or technical nature.

Computer software: A set of instructions, rules, or routines, recorded in a form that is capable of causing a computer to perform specified operations.

Marking data: Putting notices on the technical data and computer software you deliver to the government so that the government will know what it is allowed to do with the data. The government provides specific phrases that you should use. If you do not mark, the government assumes that it can do whatever it wants with the data.

• Many aspects of IP planning do not change at all if you receive SBIR funding. But SBIR awardees do some things differently than other companies—namely, they use government dollars to fund R&D, and they deliver technology to the government. This can introduce some extra factors to consider. 
• You are entitled to own IP rights in the technology you develop with SBIR funding. The government will also receive some rights. For example, the government automatically receives a license to use inventions developed with SBIR funding.  
• If you plan to sell your SBIR-funded technology only to commercial clients (i.e., you do not plan to sell to the government), accepting SBIR funding requires only modest changes to your IP plan. For example, you may need to file extra reports to secure patent rights, and you should mark the data you share with the government as SBIR data. From an IP perspective, everything else will pretty much stay the same. 
• SBIR awardees who plan to sell to the government should consider how they will preserve their IP rights. The most effective way to do this is by using SBIR data rights to limit what the government can do with the technology it receives. Patents may be an effective addition to SBIR data rights, depending on the circumstances. 
• It is possible to make some pretty significant mistakes if you do not know a couple basic rules. The big ones are:
• You need to properly mark your SBIR data; and
• You need to follow certain disclosure requirements for inventions you develop with SBIR funding. 

There are a lot more nuances to cover, but if you follow these rules, you will avoid the biggest landmines. 

• Thousands of companies have taken advantage of SBIR funding, so don’t let this guide scare you. Instead, consider it an introduction to the opportunities and risks on the horizon and a reminder to take IP seriously—especially where the cost of preparedness is relatively low.

A substitute for legal counsel: This document is not legal advice. While we try to demystify the SBIR program’s IP implications, we cannot discuss every permutation. So if you are serious about SBIR, then we highly recommend that you read this document to get a general orientation to the important concepts, then go talk to an IP lawyer with experience in SBIR who can help you think through your specific situation.

A substitute for business judgment: There can be a temptation to think that you should optimize your business plans around legal objectives. We think that this is generally a bad idea. For the most part, you should run your business the way that you think is best for growth and build your IP strategy to support your business plan—not the other way around. 

We wrote this guide to shed light on the IP issues out there—not to tell you what you have to do. You may want to incorporate some of these ideas into your strategic plan and ignore others. It’s your business.  

Yes, this is a guide on IP issues for companies interested in SBIR awards. And yes, there are some special rules that are specific to SBIR-funded technology. But the truth is that, for the vast majority of situations, applying general IP principles will get you to the right answer—whether you’re an SBIR awardee or not. So let’s start with the big picture. Then, we’ll talk about SBIR-specific issues.

This may sound obvious: you’ve invested time and effort into creating something, so of course you want to protect it. We get that. But protecting your IP can be expensive, and the time and money you’ve already put into building your tech is a sunk cost. So let’s start by explicitly stating the good reasons for securing IP rights:

• IP rights protect your future revenue: Imagine that you create an innovative product that customers like. You start selling it, someone sees you making money, they copy your product and launch their own version. Customers who would have bought your product buy theirs instead, costing your company money. If you have secured IP rights in your technology (e.g., by applying for patents), you may be able to stop them from selling their product and you may also be able to recover the profits that you lost due to their sales. 
• IP rights protect your future investability: You may want to get investor money to help grow your business. If investors think that your future revenue is at risk because your IP isn’t protected (per above), they may be less likely to invest in your company. On the other hand, if you have a strong IP portfolio, this can help boost your company’s value for investment.

• IP rights can facilitate partnerships: You may need to share information about your technology to successfully commercialize it. IP rights can reduce risk as you speak with investors, form commercial partnerships, gather feedback from customers, and showcase your technology in public forums.

This also may sound obvious but, like above, we’ve seen this enough times that we want to say this directly: 

• Unless someone is (or will be) willing to pay for a product that uses your technology, your IP rights in that technology have no value. 
• Securing IP rights will take time and money, but they won’t make customers want to buy your product and they won't make investors want to invest. 

We bring this up because we see people going to great lengths to secure IP rights before they’ve made a clear plan for how they are going to make money from their technology.  

Remember, your IP strategy supports your business plan, but (with some exceptions for R&D and licensing companies) it is generally NOT your business plan.

It can be tempting to think of the “technology” you develop and “your IP” as the same thing, and a lot of people use the terms interchangeably. Many people also think that because you developed the technology, you “own the IP.” While it’s common to talk this way, we think it can create confusion. So for the purposes of this guide, we will distinguish between the thing you created (the technology) and the rights you can use to control who uses that technology (IP rights). 

Here are the definitions we’ll use in this guide.

• Technology: Ideas and things that people create to make things work in new, better ways. Technology can include physical products or components, software code, manufacturing methods, ways to structure, analyze, or use information, and many other things. 
• Intellectual property (IP) rights: Legal rights that can be used to control whether and how others can use a technology*. In this guide, we’ll talk mostly about patents, SBIR data rights, NDAs, and trade secrets. 
• Intellectual property: A bundle of IP rights. For example, if you own 100 patents, those patents are your “intellectual property.”

Importantly, you can have any number of IP rights in a technology. For example, to protect a single piece of technology, you might use a combination of patents, SBIR data rights, NDAs, and trade secrets. Each of these IP rights would protect against different risks.

*Some IP rights protect things of value that are not technologies. For example, trademarks protect the value of your brands and product names. Since this guide is focused on SBIR-specific issues, and in particular, on protecting SBIR-funded technology, we will not touch on these types of IP rights, but you should certainly keep them in mind when you plan your IP strategy.

Let’s say you come up with a new kind of engine. So, there’s an actual physical engine in your lab with some new feature or function that makes it better. The engine is a thing—it is not an IP right. You own that prototype engine, so if someone steals it, you can take them to court. But owning the object itself doesn’t inherently give you ownership of the thinking behind that engine, the right to keep other people from building that engine, or the right to force other people to keep quiet about that engine.  

Now let’s say you file a patent application for the new engine design. When the patent issues (i.e., is approved), the government gives you the right to exclude others from making the same engine. The patent—not the engine itself—gives you IP rights. 

Similarly, say you developed the engine in partnership with another company and before you started working, you both signed an NDA. If the other company shares information about the engine that is covered by the NDA, you can sue them. But it is the NDA contract—not the engine itself—that gives you this right.

Most SBIR awardees are technology-focused startups looking to grow. So, if you already have an IP strategy, we have good news for you: winning an SBIR probably won’t require you to change your plans too much (especially if you are less interested in selling the technology to the government).

With that said, SBIR awardees do certain things that most other companies do not. Most notably, they use government dollars to fund their R&D, and they deliver data and prototypes to the government. The government also gives special data protections to SBIR awardees that it does not give to other companies. As a result, SBIR awardees face an IP outlook that is similar to—but ultimately different than—other startups.

For SBIR awardees, as for everyone else, IP rights: 

• Are there to protect your future revenue
• Are there to protect your investability
• Don’t create government or commercial demand for your product
• Won’t, on their own, make investors interested in you

And, like everyone else, SBIR awardees use IP rights to:

• Prevent others from using their technology
• Keep their technology secret

From an IP perspective, there are two main ways that SBIR awardees differ from other technology-focused startups. 

• SBIR awardees deliver data and prototypes to the government. This raises the questions:
  • What can the government do with your data?
  • What can it do with your prototypes?
• SBIR awardees use government dollars to fund their R&D. This raises the question:
  • What rights does the government receive in your inventions?

Here are the basic rules:

• You have the right to own the data and inventions you develop with SBIR funds: You can obtain patents on the inventions you develop with SBIR funding, and, with some exceptions for sensitive information, you can generally do what you want with the data you develop. 

• The government automatically gets a license in your SBIR-funded inventions: The government will be allowed to use your SBIR-funded inventions without paying you. It can also have other companies use your SBIR-funded inventions on its behalf.

• The government cannot externally share properly marked SBIR data: The government promises that it will not share the data you generate in the performance of the SBIR award with your competitors. The government also promises that it will not use your data in certain ways, such as to manufacture a competitive solution. 

• The government makes no promises to keep your prototypes confidential: The government believes that it should generally refrain from sharing your prototypes with your competitors. But the government does not promise that it will refrain from doing so. 

There are important caveats and exceptions to these basic rules that we will go into below.

SBIR awardees face two categories of IP risks: risks introduced by working with the government, and risks from everyone else. As we’ll discuss below, there are tools that you can use to deal with these risks. But first, we think it’s helpful to give you a framework for why those tools exist.

Now that we have a sense for the risks let's consider how to protect yourself. Generally, there are four tools that you might consider:

• Patents - Generally, provides the right to exclude others from using a technology. For our purposes, there are two important types of patents: 
• Patents on privately-funded tech; and
• Patents on publicly-funded tech (more info on this distinction in “How gov’t funding affects your patent rights”)
• SBIR data rights - Generally, prevents the government from externally sharing your properly marked data (e.g., with your competitors). 

• NDAs  - Generally, prevents a party from disclosing confidential information you provide.

• Trade secrets - Generally, provides remedies against others who improperly obtain and use valuable information that is secret (e.g., information about your technology).

Each of these tools provide different rights, and you’ll need to do different things to secure each type of right. To help you get oriented to the tools here is a quick comparison between them.

So now that we have a sense for the risks and the tools, let’s connect them. In the table below, “YES” means that the IP tool can be effective in mitigating the risk. If the box is empty, the tool generally does not address that particular need.

Patent law is complex. Luckily, we only need to cover the basics to explain how patent law interacts with SBIR awards.

A patent is a document that is reviewed and then published by the government. It provides its owner the right to exclude others from practicing (specifically: making, using, selling, offering to sell, or importing) the invention defined in the patent’s claims. 

Here are the key facts about patents for purposes of this guide:

• Patents provide legal rights against anyone who uses your technology, including people who reverse engineer or independently develop your technology. 
• Your patent will eventually be published. This will happen either 18 months after filing or, if you submit a nonpublication request, when your patent issues.
• You can patent individual elements/pieces of your technology.
• Whether a patent is effective against the government depends on whether government money was used to develop the patented technology. 
• If you used only private funds to 1) come up with the technology and 2) build a working prototype for the first time, you can sue the government (and win money) if the government infringes your patent on that technology. 
• If an invention was developed using government (SBIR) money, the government will receive the right to use the invention—even if you patent it. 

You are allowed to own patents on the technology you develop with government (SBIR) funds. But the government receives a royalty-free license to use (or have other companies use on its behalf) the technology developed with SBIR funds. 

In practice, this means that patents on government-funded technology are good for preventing other companies from selling your technology to commercial customers. But they do little to prevent companies from selling your technology to the government, especially if the government wants a competitor to produce the tech.

The government’s rights to the inventions it funds are laid out in the Bayh-Dole Act. We provide a breakdown below, but the bottom line is that if you want to patent tech you created with SBIR money, you should follow the Bayh-Dole Act’s rules. They are a little cumbersome, but you can manage it.

If you aren’t a lawyer, the wording of the government’s license can be a bit confusing: “nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject invention throughout the world.” Here is what this means:

• Nonexclusive: This is good for you. This just says that the government’s license isn’t exclusive, so you can license the IP to other people.

• Nontransferable: This is also good for you. The government can’t transfer their license to someone else (e.g., a competitor).

• Irrevocable: You can’t decide to terminate the government’s license.

• Paid-up: You can’t charge the government for its license.

• To practice: This isn’t great for you. This says that the entire government can use the “subject invention” you’ve developed using SBIR money. The practical significance of this can vary. If you put all your SBIR data in the patent and you have no privately funded patents, the government’s license might allow it to build its own version of your tech. But that is rarely what happens in practice. 
• Have practiced for or on behalf: This is the scary one. This says that—assuming you do not have patents on privately-funded parts of your technology that overlap with the SBIR-funded invention—the government can hand your published patent document to another company and ask them to make what is described. But if you have privately-funded blocking patents, there will be less downside. 
• Throughout the world: This is less scary than it sounds. This just says that there are no geographic boundaries to the government’s license.

Bottom line, the government’s license can be significant if you are planning on selling to the government. See “How patents and SBIR data rights interact” below for more detail on how to maximize your rights with respect to the government market.

SBIR data rights are sort of like an NDA with the government. When you receive your SBIR award, the government makes a binding promise that it will not share your properly marked SBIR data, with your competitors or use it for manufacturing purposes. The government probably will not break its promise, but if it does, you can sue the government and obtain monetary damages.

Generally, SBIR data rights limit how the government can use and share the data you deliver. Specifically, SBIR data rights protect two types of data: technical data and computer software. The rules are a little different for each.

Here’s some more practical information about what is and is not covered by SBIR data rights. 

A key decision SBIR awardees need to make is whether and when to file patent applications on their technology. This decision can be particularly complicated when the technology is developed with SBIR funding. 

Generally, there are three ways to protect your technology:

• Patent it.
• Keep it secret. 
• Patent some aspects and keep others secret. 

Your technology likely has many different features and ideas. Some of these features may be suitable for patenting (e.g., if they are new and nonobvious), and others may not be (e.g., if they work pretty much the same way as other, earlier technologies worked). 

For any given feature where patenting might be an option, you’ll need to decide whether to try to patent it or whether to try to keep it secret. You cannot do both (for long) because your patent contains lots of technical information and it will eventually be published (either when it issues, or when you file if you do not file a nonpublication request). 

SBIR data rights only protect non-public information. This means that once your patent publishes, its contents will not be protected by SBIR data rights (or other secrecy-based tools like trade secrets). Of course, you control the information you choose to put in your patent, so you can hold patent rights in some features of your technology and secrecy-based rights in other aspects of your technology. 

If you are focused only on commercial customers (i.e., you do not plan to sell to the government), patenting will generally be better than secrecy if you can answer “yes” to each of these three questions: 

• Is the technology sufficiently valuable to justify the expense of patenting (typically a patent costs $4k-35k)?
• Are others likely to copy or independently develop the technology (or something very similar)?
• Will you be able to detect whether someone else’s product uses your technology?

If you answered yes to all three of these questions, and you are not interested in selling to the government, you should talk to a lawyer about filing a patent application. 

If you are interested in selling to the government, the decision can be more complicated. For technology developed without using government money, the same three questions apply. If the answer to all three is “yes,” consider filing a patent application. 

But if the technology may have been developed with government (e.g., SBIR) funding, you’ll need to consider the Bayh-Dole Act. There are two important considerations:

• First, if the technology is a “subject invention,” you will be required under the terms of your SBIR award to disclose the “subject invention” to the government. If you do not, the consequences could be significant. The National Institute of Standards and Technology warns that failing to report a subject invention “would violate the terms of the funding agency's award, and could subject the contractor to legal action, the consequence of which could include debarment or loss of rights in the subject invention.” In practice, these negative outcomes are very rare, but the risk does exist. 
• Second, the Bayh-Dole Act can provide an incentive for SBIR awardees to conclude that their SBIR-funded technologies are not “subject inventions.” This is because the government receives a royalty-free license to use subject inventions, including by having the SBIR awardee’s competitors use the inventions to sell products back to the government. Conversely, if the technology were protected with SBIR data rights, the government would not be able to share the information with the SBIR awardee’s competitors. Thus, there are some cases where SBIR awardees will have better protection if they do not pursue the patenting path. 

Bottom line: Deciding what to patent is complicated, particularly where you are planning to sell SBIR-funded technology to the government. To get to the right answer, you need to have expertise in patent law, the Bayh-Dole Act, and SBIR data rights. If you are wrestling with this question, we highly recommend speaking with a lawyer who has knowledge in these areas. We wrote more about this topic here.

An NDA is a contract between two or more parties that says what the parties can and cannot do with information shared between them. The parties can structure an NDA however they choose, but most NDAs protect confidential information by prohibiting the parties from sharing the information with third parties. There may also be terms prohibiting the recipient from using the information in specific ways that are contrary to the disclosing party’s interests, such as by using the information to create competitive products. 

Chances are you’re already familiar with NDAs, which means we can use them as a helpful point of reference for understanding SBIR Data Rights.

Here’s some more practical information about what is and is not covered by SBIR data rights. 

A trade secret is information that confers a competitive advantage by virtue of its secrecy (for example the formula for Coca-Cola).

Trade secrecy allows you to sue people who misappropriate your trade secrets. For example, assuming you took reasonable steps to keep your technology secret, you may have a claim for trade secret misappropriation if: 

• A former employee took your files and launched a competitive product; 
• A prospective business partner broke off talks and used your technology in a way that is contrary to your agreements; or
• A competitor hacks you and incorporates your technology in their products.

So far, we have discussed legal methods for protecting the value of your technology. While these are important, one of the most powerful tools that you have at your disposal is simply using your common sense and being careful about what you disclose. If you don’t share something with the government, then the government can’t use it or share it. That being said there are a couple things you HAVE to share, and we’ll address those too. 

If you take only one thing away from this guide, let it be this: you must properly mark your SBIR data. 

The government is permitted to use unmarked data however it likes, and it can share unmarked data with whomever it likes. The SBIR Policy Directive provides a 6-month period in which you may request that an inadvertently omitted marking be added to your data. Beyond this 6-month period, the decision will be in the agency’s discretion.

Over the course of your SBIR award, you will need to submit reports, data, demos and prototypes. From an IP perspective, it is better to be judicious about what you send or share stuff with the government offices assigned to your SBIR. Talk to them, understand what they need, and just share that.  

Really, it's that easy. 

And if the government asks for information on tech that is not SBIR funded, you can push back. If they didn’t pay for it, you don’t have to deliver it. 

But please don’t have an adversarial relationship with your government customer.  At the end of the day, you may want to sell to them once your SBIR is complete, so don’t be a jerk to a future customer. Instead explain to them why you are concerned about privacy and protecting your IP. They are just trying to do their jobs, and 99% of the time, they will understand and find a solution that protects your interests but still allows them to perform appropriate project oversight.

Comply with the Bayh-Dole Act reporting requirements: You will need to decide whether any of the technology you develop under your SBIR award is a “subject invention,” and, if so, timely comply with the disclosure and reporting requirements discussed above in “How gov’t funding affects your patent rights.” 

If in doubt, talk to a lawyer.

Things you’ve agreed to share in your SBIR contract: When you apply for and win an SBIR, you agree to provide various reports and perhaps demos and prototypes to the government. You are obligated to deliver these things, so be sure you do.

Delivering data to the government can seem risky due to fears that the government will use your data to create competitive solutions. Many companies worry that if they hand over the blueprints to their tech under an SBIR award, they will miss out on a $450 billion dollar federal market. But let's explore that a bit, and figure out how significant this risk is. 

Lots of agencies fund SBIRs but DON’T buy SBIR funded products: If you received your SBIR from DOE, HHS, NSF, or USDA, we’ve got bad news. These agencies generally DO NOT buy SBIR-funded technology. The reason they have an SBIR program is to stimulate research into technologies that the energy, health and agricultural INDUSTRIES need—not what the agencies themselves need to buy.

The government is prohibited from externally sharing properly marked SBIR data: When the government wants a product, it generally needs to hire private companies to make it. The government has almost no manufacturing capability, and it also has limited coders for creating and modifying software. SBIR data rights prohibit the government from sharing your data with private companies, meaning the government would have a very difficult time if it wanted to use your data to create a competitive solution. 

The government is prohibited from using properly marked SBIR data for manufacturing: If you are building a physical product, we have good news: SBIR data rights also prohibit the government from using properly marked SBIR data for manufacturing. Voila. You are protected against the government using your data to create a competitive solution. 

The government has limited coders: The government does have some coders, but they’re insanely busy building in-house solutions for in-house needs. The chances that they are going to take and deploy your code are very low. And if your SBIR award is with DOD, the government can only use your software (or modified versions of your software) on one computer at a time. 

Bottom line: If you’re focused on the government market, the SBIR program provides strong protections that will help preserve the value of your technology. 

The protections are not completely airtight. The government has, on occasion, shared SBIR prototypes and asked other companies to make copies. And the government is permitted to have other companies use SBIR-funded “subject inventions” to make products on its behalf. But SBIR is one of the best ways to get your foot in the door with your government customer, and it also provides a very helpful non-dilutive source of funding. All considered, we think the benefits far outweigh the risks in most cases. 

We know this is a tremendous amount of information and that it can be pretty tricky, so here is our best effort at helping you put it all together into an action plan.

Let’s start by breaking down the SBIR process into two stages:

• A pre-award stage, in which you write and submit your proposal; and
• A performance stage, in which you do the things the government is paying you to do and, in many cases, deliver technical data and/or software and prototypes to the government. 

• Sign NDAs with anyone with whom you share confidential information.
• Use confidentiality agreements and invention assignment agreements with employees. 
• Keep your data secret.
• Mark your proposal as containing confidential information (see p. 186 of the SBIR Policy Directive for the Small Business Administration’s suggested legend).

• Inventory your pre-existing, non-SBIR funded, technology.
• Identify the technology you will build using SBIR money.
• Determine whether you will use any of the non-SBIR funded tech in your SBIR.
• If you do not want the government to be able to use an invention, consider drafting your SBIR proposal so that the invention will not be conceived of or first reduced to practice (e.g., by building a prototype) using SBIR funds.

• Same as in the pre-award stage, except that now, you also need to make sure you are marking all technical data and computer software you share with the government.
• If you make an error and forget to mark a document, request to have markings added. This should be done as soon as possible. If more than six months pass, the government will have discretion to deny your request.