Overview
This section establishes strict limitations and procedural safeguards preventing the government from requiring small businesses or nonprofit organizations to license their background patent rights (intellectual property not developed under the contract) to third parties.
Key Rules
- General Prohibition: Contracts with small businesses or nonprofits cannot include provisions for mandatory third-party licensing of background patents unless specific, high-level criteria are met.
- Non-Delegable Authority: Only the agency head may approve a justification for such licensing; this authority cannot be passed down to subordinate officials.
- Required Criteria for Exception: The agency head must determine that licensing is necessary both to practice a "subject invention" (or work object) and to achieve its practical application.
- Due Process Requirements: Any determination must be made "on the record" following an opportunity for a formal hearing.
- Notification and Appeal: The agency must notify the contractor via certified or registered mail, and the contractor has a 60-day window from that notification to seek judicial review.
Practical Implications
- IP Protection: This regulation serves as a significant shield for small businesses and nonprofits, ensuring their pre-existing proprietary technology is not involuntarily shared with competitors as a condition of government work.
- High Administrative Bar: Because the requirement involves a non-delegable agency head signature and a formal hearing, forced licensing of background rights is extremely rare in practice and reserved for critical mission needs.