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The Auditor Strikes Back: Patent Costs Get an Update

As we reported in October, the Defense Contract Audit Agency (“DCAA”) Contract Audit Manual (“CAM”) was recently updated. One of the thirteen areas of cost updated related to patent costs. This topic is covered in Chapter 52 of the CAM, with the new version being separated into three key topics:

  • 52-1, Allowability of Patent Costs
  • 52-2, Patent Rights – Ownership by the Contractor and the Allowability of Associated Patent Costs
  • 52-3, Special Requirements for Nonprofit Organizations

Previously, the DCAA CAM addressed patent costs in Chapter 7-700, which was less than three pages in length on treatment of patent costs for allowability purposes. The revision is not much longer at around five pages; however, there are a few key changes.

The allowability of patent costs is based primarily on two parts within the Federal Acquisition Regulation (“FAR”). The first, FAR 31.205-30, states that the following are allowable for patent costs:

(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 relating to patent matters are also considered allowable under the FAR, but FAR 31.205-47 clarifies that patent infringement litigations are considered an unallowable cost unless included in a contract clause.

One of the key changes in Chapter 52 stems from the Bayh-Dole Act, which gives contractors the opportunity to retain ownership of federal funded inventions. Patent rights for contractors are elaborated on in FAR 52.227-11(d)(2):

If the Contractor retains ownership of any subject invention, the Government shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice, or have practiced for or on its behalf, the subject invention throughout the world.

The last topic covered under CAM Chapter 52 relates to 37 CFR Chapter IV, Part 401. This section specifies that any profits or royalties received by nonprofit organizations will be used, after payment of expenses, to support scientific research or education.

Over the next few months, Cherry Bekaert’s Government Contractor Services Group will continue to provide information regarding the updated areas of cost within the CAM. If you have any questions, please do not hesitate to contact one of our experienced GovCon professionals for assistance.

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