Today we are finishing up our discussion of patents, royalties, and related costs. Essentially, if patents are required by your contract, you can claim the costs. If you must go out and pay royalties to support your contract, you can claim the royalty costs as an expense.
Because patents and royalties are often contentious areas between contractors and the Government, FAR 31.109(h) lists royalties and other costs for use of patents as an example for which advance agreements may be particularly important. Advance agreements are used when the reasonableness, the allocability, and the allowability under the specific cost principles (i.e. FAR 31.205) are difficult to determine. To avoid possible subsequent disallowance or dispute, contractors and the Government are encouraged to seek an advance agreement on how such costs will be treated. This effectively takes the auditor our the the determination process.
FAR 31.205-47, costs related to legal and other proceedings, is also relevant to our discussion on patent/royalty costs. The cost of patent infringement litigation are unallowable (unless, of course, provided for in the contract). This means that the Government is happy to use your patents but it will not pay to help defend those patents. I guess the logic here is that there is no adverse consequence to the Government when someone violates a contractor's patent rights.
The final aspect of this subject we want to highlight is the requirement to document your costs. Many costs related to patents fall under the broad category of professional and consultant service costs (FAR 31.205-33). That cost principle requires specific documentation to support the allowability; consulting agreement, invoice, and work product (or evidence of services rendered). Be sure that when you claim costs associated with patents, you also maintain the basic documentation required by this cost principle.
Showing posts with label patent costs. Show all posts
Showing posts with label patent costs. Show all posts
Wednesday, August 1, 2012
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:
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.
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:
- Costs of preparing invention disclosures, reports, and other documents.
- Costs for searching the art to the extent necessary to make the invention disclosures
- 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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