FAR 27.306—Licensing background patent rights to third parties.
Plain-English Summary
FAR 27.306 limits when the Government may force a contractor to license its patent rights to third parties, but only in a narrow set of circumstances involving small business concerns and nonprofit organizations. The section specifically addresses provisions in contracts that would allow the Government to require third-party licensing of inventions owned by the contractor that are not subject inventions, and it sets out the approval and justification process the agency must follow before including or enforcing such a provision. It also explains the substantive findings the agency head must make: that third-party use is necessary to practice a subject invention or use a work object of the contract, and that the action is needed to achieve practical application of the subject invention or work object. In addition, the section requires a formal record, an opportunity for a hearing, notice by certified or registered mail, and a statement advising the contractor of the 60-day deadline to seek judicial review. In practice, this provision protects contractor-owned background inventions from compelled licensing except in exceptional cases, while preserving a limited Government tool to ensure that federally supported inventions or contract work can actually be used in the public interest.
Key Rules
Limited to small business and nonprofits
The restriction applies to contracts with small business concerns or nonprofit organizations. For those contractors, the Government generally may not include a clause allowing forced third-party licensing of contractor-owned inventions that are not subject inventions.
Written justification required
Before such a clause can be used, the agency head must approve and sign a written justification under paragraph (b). This is a high-level approval requirement, not something that can be handled at the contracting officer level.
No delegation of authority
The agency head may not delegate this authority. The decision must be made personally by the agency head, which underscores how exceptional and sensitive this remedy is.
Two substantive findings required
The agency head may act only if both findings are made: third-party use is necessary to practice a subject invention or use a work object of the contract, and the action is necessary to achieve practical application of the subject invention or work object.
Formal record and hearing
Any determination must be made on the record after an opportunity for a hearing. This means the contractor must have a chance to present its position before the agency finalizes the decision.
Certified or registered notice
The agency must notify the contractor of the determination by certified or registered mail. The notice must be formal and documented, not informal or oral.
Sixty-day judicial review window
The notice must state that the contractor must bring any action for judicial review within 60 days after notification. This creates a strict deadline that contractors must watch carefully.
Responsibilities
Agency Head
Personally review the matter, sign a written justification, and make the required findings before any contract provision can allow compelled third-party licensing. The agency head must ensure the determination is on the record and that the contractor had an opportunity for a hearing.
Contracting Officer
Ensure contract terms do not include an impermissible third-party licensing provision for covered contractors unless the required approval and justification exist. The contracting officer must also support proper notice and documentation if a determination is made.
Agency
Provide the contractor with notice by certified or registered mail, maintain the administrative record, and conduct the hearing process required before a determination is finalized.
Contractor
Monitor contract clauses affecting patent rights, participate in the hearing process, and if challenging the determination, file any judicial review action within 60 days after receiving notice.
Practical Implications
This section is a strong protection for small businesses and nonprofits against forced licensing of their own background inventions, so contractors should review patent-rights clauses carefully before award.
The Government can use this authority only in narrow circumstances, so agencies need a well-documented record showing both necessity and practical application; weak or unsupported findings are vulnerable to challenge.
Contractors should treat the certified or registered mail notice as a critical legal trigger because the 60-day judicial review period is short and likely unforgiving.
A common pitfall is confusing contractor-owned inventions that are not subject inventions with subject inventions; this section only addresses the former, even though the justification must relate to the latter or to a work object.
Because the agency head cannot delegate the decision, any attempt to rely on lower-level approval is a compliance risk and may invalidate the action.
Official Regulatory Text
(a) A contract with a small business concern or nonprofit organization shall not contain a provision allowing the Government to require the licensing to third parties of inventions owned by the contractor that are not subject inventions unless the agency head has approved and signed a written justification in accordance with paragraph (b) of this section. The agency head may not delegate this authority and may exercise the authority only if it is determined that the- (1) Use of the invention by others is necessary for the practice of a subject invention or for the use of a work object of the contract; and (2) Action is necessary to achieve the practical application of the subject invention or work object. (b) Any determination will be on the record after an opportunity for a hearing, and the agency shall notify the contractor of the determination by certified or registered mail. The notification shall include a statement that the contractor must bring any action for judicial review of the determination within 60 days after the notification.