An Awardees Guide to SBIR IP

Understanding the IP risks SBIR introduces and how to mitigate those risks

Goals of This Guide

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.

Who We Are

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Eric Blatt is an IP attorney at Rothwell, Figg, Ernst & Manbeck in Washington DC. Eric advises clients on the intersection of patent law and SBIR data rights. Eric prepares and prosecutes patent applications, litigates high-stakes infringement lawsuits in federal courts and before the Patent Trial and Appeal Board, and he advises on intellectual property transactions. Eric spoke at the 2017 and 2019 SBIR National Conferences on IP strategy for SBIR awardees, and he is a member of the Intellectual Property Committee for the Small Business Technology Council, which is a trade association that focuses on SBIR issues. Eric worked as a patent examiner at the US Patent and Trademark Office before entering private practice. He holds law and engineering degrees from Northwestern University and Duke University.

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Geoff Orazem is the founder of Eastern Foundry (an incubator for government technology companies) and FedScout (a mobile app and platform to make the government market more accessible). Geoff is a frequent speaker and educator on government innovation, funding, and SBIR. Before entering the government market, Geoff was an Engagement Manager with McKinsey & Co and started his career in the Marine Corps. Geoff holds a law degree from Harvard.

Before You Begin

Startups guide to SBIR (Aug 27).001

Pursuing an SBIR is a business decision first and a legal decision second.  If you wan to understand the SBIR program and how to integrate it into your business plan see our Startup's Guide to SBIR

HERE

Glossary

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.

Executive Summary (IP Strategy for SBIR Awardees in Six Bullets)

  • Many aspects of IP planning do not change at all if you receive SBIR funding. But SBIR awardees do some things differently than other companiesnamely, 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 seriouslyespecially where the cost of preparedness is relatively low.

Download the IP Guide

1604687830635
Kevin Schreck
CEO Elevate IT

We let IP fears get in the way of going after an SBIR and now after winning one and performing on it I realize we shouldn't have let that get in the way. In hindsight, there were at least a few that we didn't go after that we probably should have. 

What This Guide is Not

We want to be very clear about what this guide is not:

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 plannot the other way around. 

We wrote this guide to shed light on the IP issues out therenot 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.  

IP Basics

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 answerwhether you’re an SBIR awardee or not. So let’s start with the big picture. Then, we’ll talk about SBIR-specific issues.

Why securing IP rights is important

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.

What IP rights can’t do

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.

What, exactly, are “IP rights”

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.

IP Rights: An Example

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 thingit 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 patentnot the engine itselfgives 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 contractnot the engine itselfthat gives you this right.

 

IP issues for SBIR awardees

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 tobut ultimately different thanother startups.

What’s the same for SBIR awardees

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

What’s different for SBIR awardees

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.

IP Risks Faced by SBIR Awardees

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.

Graphics for planning doc.001-2

 

IP Protection Tools

Legal tools to mitigate IP risks

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: 
    • 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.

 

  Patent (on privately funded tech) Patent (on gov’t-funded tech) SBIR Data Rights NDA Trade Secret

General definition

A legal recognition that you own a piece of technology (developed using private money) and can prevent other people from using that technology.

A legal recognition that you own a piece of technology (developed using gov’t money) and can prevent other people from using that technology. 

A binding promise by the gov’t limiting what it will do with data you provide. This includes a promise that the gov’t will not share your data externally (e.g., with your competitors). 

An agreement between you and someone else (e.g. another company) that information shared between the two will be kept secret.

Protection if a competitor gets ahold of your information through improper means

Who you can sue

Anyone using your patented technology, including the government

Anyone using your patented techexcept the gov’t and people authorized by the gov’t 

The gov’t

Counterparties to the NDA

People who misappropriate your trade secrets

What you can sue them for

Infringement of your patent

Infringement of your patent

Breach of contract re: SBIR data

Disclosure or use of confidential information in a way that breaches the NDA

Misappropriating your trade secrets

Protection gaps


 

Infringers can argue that they do not infringe or that your patent is invalid

You cannot sue the gov’t or people authorized by the gov’t who are using your IP

Infringers can argue that they do not infringe or that your patent is invalid

Binds only the gov’t 

Binds only the counterparty 

You have a claim only if someone misappropriates your trade secrets

 

 

Once your product is public (e.g., you’re selling it), these three tools do not provide remedies if your competitors reverse engineer and copy your tech

Protection Period

20 years

20 years

20 years

 Negotiable

As long as secret is kept / people cannot reverse engineer

What you need to do to secure the IP right

File patent application

 

Persuade Patent Office to allow the patent

File patent application

 

Persuade Patent Office to allow the patent

 

Comply with Bayh-Dole Reporting Requirements

SBIR data rights are automatically part of your SBIR award, but you have to properly mark the documents you share to activate those rights

Sign an NDA with the counterparty

Take reasonable steps to maintain secrecy

Cost

Typically, 4k–20k to file

Typically, 0k–15k to negotiate with USPTO

Typically, 4k–20k to file

Typically, 0k–15k to negotiate with USPTO

 

Low (need to properly mark) 

You can find form NDAs online for free

To minimize the risk of loopholes, you can also hire an attorney to draft an NDA (~0.5k-5k).

The cost of keeping your data secret

Which tools address which risks

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 (on privately funded tech) Patent (on gov’t-funded tech) SBIR Data Rights NDA Trade Secret

Government Based Risks

Gov’t gives your data to your competitors, buys from them YES   YES    
Gov’t uses your tech to manufacture its own products YES   YES    
Gov’t uses your software without paying you YES  

YES, If SBIR is with DOD.*

Otherwise No

   

Gov’t gives your prototype to your competitors, buys from them

YES   Probably no,
but uncertain
   
Risks Based on Everyone Else Your competitors copy or independently develop your tech and sell it to gov’t YES        
Your competitors copy or independently develop your tech and sell it to commercial customers YES YES      
Prospective partner or former employee takes your tech and sells it to gov’t YES     YES YES
Prospective partner or former employee takes your tech and sells it to commercial customers YES YES   YES YES

 

*DOD’s SBIR data rights provisions prevent the government from using SBIR-developed software on more than one computer, which generally makes the software useful only for evaluation purposes. Other agencies do not limit the use of SBIR-developed software in this way.

Patents (Details)

What, exactly, is a patent

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 inventioneven if you patent it. 

How gov’t funding affects your patent rights

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.

 

  Bayh-Dole Act

What inventions are covered

The Bayh-Dole Act sets out the government’s rights in “subject inventions,” which are defined as: “any invention of the contractor conceived or first actually reduced to practice in the performance of work under a funding agreement.” 35 U.S.C. § 201(e).

This means that a technology will likely be subject to the Bayh-Dole act if it is an “invention” and if: 

  • You first came up with it using SBIR funds; or
  • You built your first working example of it with SBIR funds.

A technology is an “invention” under the Bayh-Dole act if it “is or may be patentable.” It can sometimes be difficult to say whether something “is or may be patentable.” If in doubt, speak to a lawyer.

Reporting requirements

If you develop an invention with SBIR funds, you should comply with the Bayh-Dole Act’s reporting requirements. If you don’t, you can lose the rights to the invention. 

The full list of reporting requirements can be found here. We provide a summary below.  

  • Disclose your inventions: Disclose “subject inventions” (i.e., gov’t-funded inventions) to the government within two months after the inventor discloses it in writing to the person at your company who is responsible for patent matters. 
  • Decide if you want to own the invention: Tell the government, in writing, whether you will retain title within two years of disclosure to the Federal agency. This deadline can be accelerated in the event that the technology has been disclosed publicly. 
  • Take steps to patent the invention: File an initial patent application within one year after election of title (deadline can be earlier if there has been a public disclosure). There are also deadlines for filing foreign patent applications and non-provisional US patent applications (if your initial patent application was provisional).
  • Maintain: If requested by the government, submit annual utilization reports.

Allocation of rights in government-funded inventions

  You want to own the invention (you elect title)
You don’t care about the invention (you don’t elect title)

Your rights

You can apply for a patent. The patent can be enforced against anyone other than: (i) the gov’t; and (ii) people using the IP in the patent on behalf of the gov’t.

If you made the required disclosures you will be entitled to a “nonexclusive royalty-free license throughout the world in each subject invention.” 

If you do not timely disclose the invention (see reporting requirements), the gov’t is not required to give you a license.

The government’s rights

The gov’t receives a “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.” 35 U.S.C. § 202(c)(4).

The gov’t can apply for a patent.

Decoding the Government’s License:

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 thatassuming you do not have patents on privately-funded parts of your technology that overlap with the SBIR-funded inventionthe 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 (details)

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.

SBIR Data Rights - Rules and Definitions

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.

  SBIR Technical Data SBIR Computer Software

Definition

“Recorded information, regardless of the form or method of the recording, of a scientific or technical nature (including Computer Software Documentation and Computer Databases).” SBIR Policy Directive Section 3(pp). 

Must be developed or generated in the performance of an SBIR award.

“Computer Programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, formulae, and related material that would enable the software to be reproduced, recreated, or recompiled.” SBIR Policy Directive Section 3(i). 

Must be developed or generated in the performance of an SBIR award.

What you need to do to secure the IP right

Properly mark your SBIR data

Prevent the data from becoming public

What the gov’t is prohibited from doing

Gov’t may not use data for manufacturing purposes 

Generally, gov’t may not share data with people outside gov’t

  • Exceptions for emergency repair and overhaul and government support contractors

Generally, gov’t may not share software with people outside gov’t

  • Exceptions for emergency repair and overhaul, government support contractors, and contractors to diagnose and correct deficiencies or to combine with other software

DOD Only*

  • Gov’t may not access software on more than one computer
  • Gov’t may not make more than a minimum number of copies required for safekeeping (archive), backup, or modification purposes
What the gov’t is allowed to do

Gov’t may use, modify, reproduce, release, perform, display, or disclose within the gov’t

Gov’t may use, modify, reproduce, release, perform, display, or disclose within the gov’t

DOD Only* 

  • Gov’t may use the software, or modified versions of the software, with only one computer
Protection period

20 Years

*DOD uses a different definition for SBIR data rights in computer software than the other agencies. DOD’s definition is more favorable to SBIR awardees because it prevents the government from using the SBIR awardee’s software with more than one computer or sharing large numbers of copies of the software within the government. Takeaway: if your SBIR award is with DOD, the government will probably be restricted from effectively using your software internally for more than demo purposes. If your SBIR is from an agency other than DOD, the government can use the software you deliver without paying you.
1537208514306
Kevin Landtroop
Startup Mentor, Capital Factory

I constantly advise companies that SBIR Phase-II funding is a great way to offset venture capital to advance a product TRL, develop a new use case, or penetrate a new market. But it can all be for naught if companies don’t properly identify and mark their IP.

Examples of things that are and are not protected with SBIR data rights

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

Item Covered Notes and Implications
Written reports YES  
Tables of data YES  
Code YES  
Technical drawings YES  
Disclosures of “Subject Inventions” disclosed to be compliant with Bayh-Dole Uncertain

For SBIR awardees, “subject invention” disclosures often contain technical data developed or generated in the performance of an SBIR award. Our view is that this data should be entitled to SBIR data right protections. 


The Bayh-Dole Act, however, provides the government with a royalty-free license to practice or have practiced on its behalf the “subject invention” described in the disclosure. The government could take the position that its power to use the subject invention supersedes the restrictions imposed by the SBIR data rights provisions, and that it is therefore entitled to use the document disclosing a “subject invention” in ways that would otherwise be prohibited. 


To our knowledge, this question has never been decided by a court or addressed in agency guidance.

Prototypes and Samples Probably no SBIR data rights are limited to recorded information. The SBIR policy directive discouragesbut stops short of prohibitingagencies from sharing your prototypes.
Information shared orally (e.g., in a demo or a phone call) Probably no SBIR data rights are limited to recorded information, so they do not cover your conversations. The government personnel you speak with probably will not share the information you share with them. But to be safe, consider keeping conversations sufficiently high level that it wouldn’t be a big problem if bits and pieces found their way to your competitors.

How Patents and SBIR Data Rights Interact

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.

Nondisclosure Agreements (NDAs) (details)

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. 

  NDAs* SBIR Data Rights
Promise to keep identified documents and data confidential

Yes, for as long as the NDA specifies

Yes, for 20 years
What is covered

Anything specified in the NDA: Data, writings, conversations, whatever the parties want

Many NDAs require that information be designated confidential so everyone knows it is not to be disclosed

Only recorded information

 

That information has to have a specific marking to identify that it is covered

On what basis can you sue You can sue the counterparty if it breaches the NDA You can sue the government if it breaches the SBIR Data Rights terms
Enforceable if the information is made public No (usually). Data that becomes public is not protected under many NDAs. No.

* NDAs can be written however the parties want, so any given NDA might look very different than what’s in this chart.

Trade Secrets (details)

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.

Pragmatic Ways to Protect Your Technology

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. 

Mark your SBIR data.

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.

Consider what you share with the government.

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.

Things you HAVE to share

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.

A Perspective on the Federal Market

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 neednot 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. 

1517598380604
Michael Kunkler
President: New Course Strategies

I’ve helped over 125 companies with their SBIRs and I haven't had any clients with IP issues, not a one, not yet.  This is truly win-win regarding IP rights.  The government gets restricted access to the IP improvements (not the core IP created with private funding) and the Small Business gets 100% unfettered rights to use the government-funded development for commercial purposes.  This is as non-dilutive of development funding a company can receive. 

Putting it All Together: Tips for Protecting Your Technology

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. 

Pre-Award Stage

Here are some suggestions to consider before you start work under your SBIR award.
 
Maintain good “IP Hygiene:”
  • 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).
Know your market planning: Determine whether you are targeting the commercial market, the government market, or both.
 
Have a point of view on government IP rights: If you want to sell to the government, make a plan for what IP rights you are willing to give the government.
  • 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.
Consider filing a patent on your privately funded tech (that will be part of your SBIR solution) before starting your SBIR. This will help prevent a future claim by the government about how it was funded. It will also provide protection in case your technology finds its way into your competitor’s hands (e.g., if the government shares your prototypes).

Performance Stage

Once you start work under the SBIR award, you will begin delivering data to the government and using government dollars to fund your R&D, so there will be some new IP considerations. 
 
Maintain good “IP Hygiene.”
  • 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.  
Don’t over-share: Deliver to the government what you agreed to deliver, but don’t share extra information unless there is a good reason. 

Secure your code: Secure any code on the prototypes you deliver to the government so that it cannot be extracted if a competitor obtains the prototype.
 
Track your progress: Maintaining internal work logs that distinguish between product features and tech development funded with Gov vs. private funds. In order to properly assert IP rights against the Gov, you may have to show your work. Companies will typically be continuously developing and deploying a product for commercial customers, and some of those upgrades will make their way into the Gov version as well and having a paper-trail will help you establish whether the government has IP rights.
 
Report inventions: Report any SBIR-funded inventions per Bayh-Dole Act. 
 
Comply with deadlines: If you want to obtain patent rights in the inventions, comply with the prescribed deadlines for patent filings and utilization reports.
 
Get legal advice: If you develop technology related to your SBIR work that you think might be patentable, talk to a lawyer who has expertise in patent law, the Bayh-Dole Act, and SBIR data rights about whether this technology may be a subject invention. See “How patents and SBIR data rights interact” for more detail.

Example: A DOD SBIR Award for Software

Pre-Award Phase

Activity Example
Maintain good “IP Hygiene”
  • The Company signs NDAs with their subcontractor
  • The Company keeps their data secret
  • The Company asks its employees to sign invention assignment and confidentiality agreements
  • The Company marks its proposal as containing confidential information, using the appropriate legend
Determine whether you are targeting the commercial market, the government market, or both

The Company decides that DOD is its primary immediate customer, but it also intends to launch a commercial version of the technology in the next few years

Make a plan for what IP rights you are willing to give to the government. Since DOD is its primary immediate customer, the Company decides that it is important to ensure that the government cannot use its technology without paying.
Identify the technology you will build using SBIR money

The Company scopes out the contours of the software and decide that the major elements will be: 

  • A frontend/UI
  • Two analysis modules
  • A database
  • APIs to connect your software to two external data feeds
Inventory your pre-existing, non-SBIR funded, technology

The Company reviews its existing tech

Determine whether you will use any of the non-SBIR funded tech in your SBIR
  • The Company identifies that it already has an analysis module that can be modified to detect network penetration in the proposed cybersecurity solution
  • The Company also identifies that it has already built a frontend/UI that could be easily repurposed for this software
  • The Company will have to build the rest of the tech from scratch
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 using SBIR funds.

The Company decides that its pre-existing analysis module is inventive, and it does not want the government to receive a royalty-free license to use the invention. It builds a working model of the module before it starts work under the SBIR award, so that the technology will not become a “subject invention” under the Bayh-Dole Act.

Consider filing a patent on your privately funded tech (that will be part of your SBIR solution) before starting your SBIR. This will help prevent a future claim by the government about how it was funded. It will also provide protection in case your technology finds its way into your competitor’s hands (e.g., if the government shares your prototypes).

The Company files a patent application on the pre-existing analysis module before it starts work under the SBIR award.

 

Performance Stage

Activity Example
Make sure you are marking all technical data shared with the government Secrecy is important to them so they make sure that the technical data that they share with the government is not disclosed (that data would make it much easier for a competitor to catch-up) and they are careful to mark all shared data.
Deliver to the government what you agreed to deliver, but don’t share extra information unless there is a good reason.

They just share what is asked of them in the reports, demos, and software deliverables.

Secure any code on the prototypes you deliver to the government so that it cannot be extracted if a competitor obtains the prototype. The Company is asked to deliver software, but it is not asked to deliver physical prototypes. Its software deliverables are protected by SBIR data rights, and it does not need to worry about the government sharing its prototypes.
Log your work

Track your development and what is being funded with government v. private money

Report any SBIR-funded inventions per Bayh-Dole Act. If you want to obtain patent rights in the inventions, comply with the prescribed deadlines for patent filings and utilization reports.

During performance of the SBIR award, the Company develops a new way to analyze data to detect intruders. 

 

The Company believes that the new technology will be very valuable to commercial customers, and it wants to obtain a patent to prevent other companies from copying. 

 

The Company consults with a lawyer and concludes that the new technology is a subject invention under the Bayh Dole Act. The Company decides that it will be okay to give the government a royalty-free license to use this part of the technology because it is not usable without other parts of the technology that are protected with SBIR data rights and patents on technology developed solely with private funding. The government will therefore need to pay the Company if it wants a fully working solution. 

The company reports the new invention within two months, and it timely elects title and files a patent application. 

 

More SBIR and Government Market Resources

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Our resources section has everything you need to:

  • Understand the SBIR program
  • Explore the Government Contracting market
  • Get help registering your company
  • Master key GovCon topics

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