Overview
FAR 27.202 establishes procedures for the reporting, evaluation, and adjustment of patent royalties to ensure the Government does not pay excessive, improper, or unnecessary charges. It specifically focuses on protecting the Government from paying for intellectual property rights it already owns or for royalties that a contractor includes in a price but never actually pays.
Key Rules
- Reporting Requirements: Under FAR 52.227-6, prospective contractors must disclose anticipated royalty payments in negotiated contracts where certified cost or pricing data are required.
- Patent Office Coordination: Contracting Officers (COs) are required to forward royalty information to their agency’s cognizant patent office for technical review before contract award.
- Government as Licensee: If the Government already holds a license for a patent involved in a solicitation, the CO must notify offerors of the license and royalty rate. This allows the Government to adjust price evaluations to ensure a level playing field between licensed and unlicensed offerors.
- Adjustment of Royalties: The Government will not pay royalties if it already holds a royalty-free license, if the rate exceeds the Government's existing license rate, or if the charge is otherwise improper.
- Refunds: In fixed-price contracts, the "Refund of Royalties" clause (FAR 52.227-9) allows the Government to recover any royalty costs that were included in the contract price but were not ultimately paid by the contractor.
Practical Implications
- Price Competitiveness: Offerors who own the patents required for a project, or who have lower licensing rates than the Government's existing licenses, may gain a competitive advantage during price evaluations.
- Administrative Diligence: Contractors must maintain accurate records of royalty obligations and payments, as the Government can demand a refund of any unpaid royalties even after the fixed price has been established.