Six Essential Tips for Understanding Intellectual Property Rights Under Government Contracts

In celebration of the release of the 6th Edition of the Government Contracts Compliance Handbook, we are sharing six essential tips for understanding intellectual property (IP) rights in government contracts. Contractors navigating federal procurement must understand how IP is created, owned, and licensed under government agreements. The failure to properly manage IP rights can lead to the unintended loss of ownership, competitive disadvantages, or disputes with the government over licensing terms. These six tips will help contractors protect their innovations while remaining compliant with government regulations.  

1. Understand the Government’s Interest in Intellectual Property  

One of the biggest misconceptions in government contracting is that the government automatically owns all IP developed under a federal contract. In reality, contractors typically retain ownership of their IP, while the government acquires license rights to use that IP. The level of government rights depends on the funding source for development:   

- Privately funded: The contractor retains ownership and can often impose limited or restricted rights on the government’s use.   

- Government funded: The government generally acquires unlimited rights, meaning it can use, modify, reproduce, and share the IP freely for legitimate government purposes.   

- Mixed funding: The government may receive government-purpose rights (GPR), allowing use for federal purposes but restricting commercial exploitation.   

Understanding these distinctions ensures that contractors can properly allocate their IP rights and avoid unintended government claims over their proprietary innovations.   

2. Distinguish Between Technical Data and Computer Software Rights  

Intellectual property in government contracts is typically classified as either technical data or computer software. These two categories have distinct regulatory frameworks and rights allocations:   

- Technical Data: Covers recorded scientific or technical information (e.g., engineering drawings, specifications, or manuals). FAR and DFARS regulations dictate the level of rights the government receives based on funding sources.   

- Computer Software: Includes source code, object code, algorithms, and related design materials. Government rights depend on whether the software was developed at private expense, government expense, or with mixed funding. 

For contractors developing software or proprietary designs, careful classification and documentation of funding sources are critical in determining the government’s rights to use and share their IP.   

3. Properly Mark and Assert Data Rights to Prevent Loss of Ownership

One of the biggest risks contractors face in government contracting is the failure to mark and assert their data rights properly. If a contractor delivers technical data or software without restrictive legends, the government may assume it has unlimited rights—even if the data was developed at private expense. To prevent this:   

- Use correct restrictive legends (e.g., Limited Rights, Restricted Rights, Government Purpose Rights) on all deliverables at the lowest segregable component level.   

- Submit a carefully reviewed and validated data rights assertions table during contract negotiations to identify proprietary information contained within contract deliverables.   

- Ensure that all subcontractors and suppliers also follow marking procedures to prevent unintended government access to proprietary data.   

Properly asserting and marking IP preserves contractors’ rights and prevents the government from inadvertently distributing proprietary information to competitors.   

4. Know Your Rights Under the Bayh-Dole Act for Patents

For contractors working on federally funded research and development (R&D) projects, the Bayh-Dole Act governs patent ownership and licensing. Under Bayh-Dole:   

- Contractors retain ownership of inventions created under federal funding but must grant the government a nonexclusive, royalty-free license to use the patent.   

- Contractors must disclose inventions to the government and elect title within a specified period.   

- The government has march-in rights, meaning it can require the contractor to license the patent to third parties if the contractor fails to commercialize the invention.   

Failure to follow Bayh-Dole compliance requirements can result in the government taking ownership of the patent. Contractors must have strong internal policies for tracking inventions, filing patents, and ensuring compliance with reporting requirements.   

5. Address Intellectual Property Clauses in Subcontracts and Teaming Agreements  

Many government contractors rely on subcontractors and teaming partners to deliver goods and services. However, failing to address IP rights in subcontracts can lead to ownership disputes and compliance issues. Best practices include:   

- Clearly defining who owns the IP developed under the subcontract.   

- Ensuring subcontractor data rights assertions align with prime contract obligations.   

- Requiring subcontractors to properly mark proprietary data to prevent loss of rights.   

In cases where a subcontractor challenges the government’s use of technical data, the subcontractor (not the prime) is responsible for asserting and defending its rights. Government contractors must ensure that their IP rights flow down to subcontractors to avoid disputes or inadvertent government claims.   

6. Prepare for Government Challenges to IP Assertions

The government has the right to challenge a contractor’s data rights assertions if it believes the contractor improperly restricted access to IP contained within contract deliverables. These challenges can arise at any time during contract administration and must be handled carefully. To protect their rights, contractors should:   

- Maintain detailed records of development costs to prove private or mixed funding sources.   

- Respond promptly to pre-challenge requests from contracting officers.   

- Understand that formal challenges may result in litigation before the Boards of Contract Appeals or the Court of Federal Claims.   

If a contractor fails to defend its data rights, the government may assume unlimited rights, allowing it to freely distribute proprietary information. Being proactive in documenting and asserting rights is essential to protecting valuable IP.   

Navigating intellectual property rights in government contracts requires a strategic approach to ownership, licensing, and compliance. By following these six essential tips, contractors can preserve their proprietary technology, avoid disputes, and protect their competitive advantage in the federal marketplace.   

These insights, derived from the 6th Edition of the Government Contracts Compliance Handbook, reflect our firm’s commitment to helping contractors navigate complex IP challenges. For tailored legal guidance on IP rights, data rights assertions, or government contract compliance, our elite government contracts practice group is ready to assist.