United States: Contractor Invention Reporting Requirements Enforced: Federal Government Empowered to Take Title to Invention

The federal government typically obtains a paid-up license in inventions conceived or first actually reduced to practice in the performance of federally-funded contracts. Almost all of these contracts contain time-sensitive reporting clauses with respect to these inventions. Violation of the reporting clauses empowers the federal government not only to obtain a paid-up license, but also to take title to the invention. In practice, breach of the reporting requirement often goes unnoticed by both the contractor and the government.

While it is not apparent how often the government exercises its power to take title in an invention where reporting clauses are not adhered to strictly, it is now apparent that the federal courts will uphold the government’s right to take title in such an invention, even in the absence of any harm resulting from the reporting delay. Those parties engaged in work under federally-funded contracts may well be advised to devote more attention to strict adherence to invention reporting requirements.

On November 10, 2004, the Court of Appeals for the Federal Circuit ("Federal Circuit") upheld an Armed Services Board of Contract Appeals ("Board") decision that a contractor that failed to meet the invention reporting requirements of government research and development contract, was no longer entitled to ownership of a patent for an invention developed during the course of the government contract. Campbell Plastics Engineering & Mfg., Inc. v. Acting Secretary of the Army, No. 03-1512 (Fed. Cir. November 10, 2004) ("Campbell"). Though Campbell addresses patent reporting requirements under the Federal Acquisition Regulation (FAR), similar requirements (and risks) can be found under federal regulations imposed on small businesses and nonprofit organizations such as universities. See 37 CFR 400 et seq.

Campbell Plastics entered into a contract with the United States Army to develop components of an aircrew protective mask. Campbell at 2. The contract included Federal Acquisition Regulation ("FAR") 52.227-11 "Patent Rights-Retention by the Contractor (Short Form)" and Defense Federal Acquisition Regulation Supplement ("DFARS") 252.227-7039 "Patents – Reporting of Subject Inventions." Id. Additionally, the contract required Campbell to submit all reports regarding subject inventions on a DD Form 882 "Report of Inventions and Subcontracts." Id. Campbell Plastics submitted numerous DD Form 882s during the contract. Each report specifically stated that there were no subject inventions. However, Campbell Plastics did inform the Army through progress reports, drawings and other channels of their technical progress with regard to the development the mask. Campbell at 3-5.

In August of 1997, Campbell Plastics sought patent counsel regarding the invention addressed to the use of sonic welding in the mask. On October 9, 1997, a patent application was filed for the invention. Campbell at 5. The patent application issued as a patent on April 20, 1999 and Campbell Plastics notified the Army in writing of the patent on April 28, 1999. Id.

The Federal Circuit stated that defining a contractor's obligation to disclose a subject invention pursuant to FAR 52.227-11 "Patent Rights-Retention by the Contractor (Short Form)" presented a matter of first impression for the court. Campbell at 7. The court recognized that through various Acts, Congress intended that government contractors be allowed to elect to retain title in subject inventions, i.e., inventions first conceived or reduced to practice in performance of the work under a government contract, while leaving the government with a paid-up license to practice the subject invention. Campbell at 7-8. In return for this ability to elect title, Congress requires that government contracts contain certain FAR and DFARS provisions to ensure that the government is kept apprised of potential subject inventions by the contractor, such that the government may retain title in such subject inventions and protect the government's rights therein, should the contractor elect not to protect those rights. Campbell at 8.

In this case, the Federal Circuit found that the FAR, DFARS, and other contract clauses included in the contract were "clear and unambiguous." Id. Campbell Plastics first disclosed the invention to patent counsel in August of 1997. According to the contract requirements, Campbell Pla stics should have at least disclosed the invention on a DD Form 882 by October 1997. Campbell at 10-11. The Federal Circuit was not persuaded by Campbell Plastics contentions that reporting requirements were met through other reporting channels, such as periodic submissions of technical progress reports, drawings and the like. Campbell at 11. The court stated, "we think the contract requirement if a single, easily identifiable form on which to disclose inventions is sound and needs to be strictly enforced." Campbell at 11.

The Federal Circuit also reviewed the Board's finding with respect to whether the government abused its discretion in deciding to demand title in this case. Campbell at 13. More specifically, FAR 52.227-11(d) specifies when the government "may" obtain title in the subject invention. Campbell Plastics argued that the government abused its discretion by demanding title in circumstances where the government allegedly suffered no harm. The Federal Circuit was not convinced and upheld the Board's conclusion that the government had not abused its discretion in demanding title to the subject invention, holding particularly "that harm to the government is not a requirement for the [government] to insist on forfeiture and remain within the bounds of sound discretion." Campbell at 14.

Heretofore, the government has rarely sought to demand title in patents for subject inventions where the reporting or other contractual requirements were not specifically met, especially in those cases where the patent reflects the government's paid-up license to practice the invention. This case appears to clearly state that the Federal Circuit will strictly enforce contractual requirements, at the very least with respect to the invention reporting requirements, such that violation of such requirements could result in a forfeiture of title and loss of rights in contractor patents. Though this case addressed specific contractual requirements, the tenor of the case is clear - where the government contract requirements are unambiguous, they will be strictly enforced.