Monday, July 30, 2012

Patent Costs

The Patent cost principle (FAR 31.205-30) should be considered in conjunction with the cost principle on royalties and other costs for use of patents (FAR 31.205-37). FAR 31.205-30 deals with costs associated with filing and prosecuting a patent while 15.205-37 covers the cost of acquiring or using existing patents. Today we will be discussing the -30 clause and tomorrow we will pick up the -37 clause. Patent costs are also briefly discussed in FAR 31.205-47 and we will cover that restriction as well.

The first thing that contractors should be aware of is that patent costs, except for general counseling services discussed later, are only allowable when they are incurred as a requirement of a Government contract. This does not necessarily mean that such patents must be specifically called out for in the contract if one can establish by other means that the patent is necessary to perform the contract. Sometimes this can be a very difficult task.

Once contractors have established that a particular patent is a requirement under the contract, the costs must meet one of the following criteria:

  1. Costs of preparing invention disclosures, reports, and other documents.
  2. Costs for searching the art to the extent necessary to make the invention disclosures
  3. Other costs in connection with the filing and prosecution of a United States patent application where title or royalty-free license is to be conveyed to the Government.

General Counseling Services. General counseling services, even when not required by the contract, may be allowable. General counseling services are those relating to patent matters, such as advice on patent laws, regulations, clauses, and employee agreements. Other than those for general counseling services, patent costs not required by the contract are unallowable.

Many disputes arise as to whether legal costs are general in nature and are comprised of the tasks listed in the definition (e.g. advice on patent laws, regulations, clauses, and employee agreements). Contractors claiming such costs must be prepared to provide attorney work products to support the allowability.

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