Intellectual Property Rights and Accounting in SBIR / STTR Grants by Martensen IP

Writing and implementing an effective SBIR intellectual property strategy requires an understanding of the legal landscape. It also requires the execution of sound accounting and business practices.

Colorado Springs, CO, December 19, 2021 (GLOBE NEWSWIRE) – The Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) programs (collectively hereafter referred to as SBIR) directly target innovative small businesses to participate in projects funded by the federal government. Research and development. The SBIR program, established in the Small Business Innovation Development Act, requires agencies with significant R&D activities to set aside funds for small business innovation efforts.I

Since its inception, the program has consistently exceeded expectations, resulting in continued growth and funding. SBIR grants take advantage of the well-known fact that the majority of innovation occurs in small firms, not large ones. And, the more than $ 50 billion in taxpayer dollars given to small businesses was pumped back into the economy with a return of over 22: 1.

3 phases of SBIR

SBIRs are divided into three phases. Simply put, in Phase I, the government pays the company to deliver a concept that addresses a government need or problem. In phase II, the government likes the concept and provides money to develop a prototype (proof of concept). Finally, in phase III, the government engages with the small business and purchases additional products.

It seems natural to expect that in return for an SBIR grant, the government will gain something in return. This is because the government obtains rights to innovations fostered by such a grant, but an SBIR effort is different from a similar transaction in the commercial sector.

In the commercial sector, the party that funds research and development usually owns all of the intellectual property (IP) rights. SBIR programs are, on the other hand, designed to enhance the value and support the success of the underlying innovative small business. Therefore, intellectual property developed by a small business under an SBIR grant remains the property of that business. The government obtains a license for the technology, but the license is limited, and by law the government is required to award phase III (to the holder of the rights to the SBIR data) to the extent possible.

Precious exclusivity in SBIR rights

This is where the rubber meets the road. As the government obtains certain rights to the data, the small business becomes the only preferred source for the delivery of products incorporating this technology for a substantial period of time. This exclusivity is the reason why SBIR rights are highly valued in the government market.

SBIR grants provide the contract holder with rights to SBIR data. First, recognize that SBIR data rights are distinct from patent rights. A patent protects innovative ideas, concepts, designs or methods that are inventive. Data rights protect the disclosure of recorded and written technical information. They are a fusion of copyright and trade secret protection.

The government’s ability to release SBIR data is severely limited as data disclosed in a patent becomes common knowledge. Publishing SBIR data in a patent terminates the government’s nondisclosure obligation, which can be problematic if a company pursues both government and commercial contracts.

A product in which the technology is easily reversed once it is placed in the public domain is arguably better protected by a patent. In the commercial market, patents can offer a competitive advantage. A product in which innovation is difficult to grasp even holding the product in your hand is best left as a trade secret i.e. SBIR data right. But recognize that SBIR data rights don’t make sense in the commercial market.

Development of an intellectual property plan

A critical first step in planning for intellectual property is knowing your market and the rules that apply best. Aspirations to commercialize (or finance) a product developed under an SBIR grant may require a patent search. Yet patent disclosure can terminate rights to SBIR data, making it easier for the government to take the innovation and hand it over to a competitor.

Remember that patents granted to government funded “submitted inventions” cannot be opposed to the government. While the government recognizes the contributions of innovative small businesses, it also likes the stability and reach of large businesses. From a government perspective, a startup, despite its advanced technology, may not exist in five years, may be unable to scale up production, or may have growing pains that make delivery questionable. As lucrative as Phase III can be, it also comes with risks for those who are not properly prepared.

Each agency (DoD, HHS, DOE, DOA, NASA, etc.) manages its own SBIR program.I And while each agency provides its own regulations regarding intellectual property rights, a major distinction is found between grants issued by defense agencies and SBIR awards provided by civilian agencies.

Civilian agencies define SBIR data, and indeed all of their intellectual property rights, when executing a contract.iii The regulation goes on to say that the government must have limited rights to SBIR data and restricted rights to software first generated as part of the contract fulfillment.iv

In contrast, defense agencies typically allocate intellectual property rights on the basis of funding. In the world of DoD, the more the government pays, the more rights it gets. That is, except for SBIR data rights. Here, the DoD is aligned with the civil concept of data rights, focusing on performance rather than funding.

The importance of monitoring deliverables and funding

As a company progresses through the SBIR process, identifying and drafting deliverables “generated” under the contract and tracking (allocation) of government funds used in this generation becomes increasingly critical. Determining which projects or technologies are privately funded or designed or put into practice with private funds versus government funds can paint very different futures. Have systems in place to track expenses, workflow, invoicing, etc. becomes more and more important.

Writing and implementing an effective SBIR intellectual property strategy requires an understanding of the legal landscape. It also requires the execution of sound accounting and business practices. To paraphrase Benjamin Franklin: Not planning is a plan that fails.


I Small Business Innovation Development Act 1982 (PL 97-219). The STTR program was created by the Small Business Research and Development Enhancement Act of 1992 (PL 102-564) to facilitate the commercialization of university and federal R&D by small businesses.

I A full set of analyzes of US government regulations is available at

iii FAR 52.227-20

iv FAR 52.227-14 states that “This data… will not… be used for manufacturing purposes or disclosed outside of government. “This computer software … may not be used, reproduced or disclosed by the government …”

About Martensen IP
At the intersection of business, law and technology, Martensen understands the tools of intellectual property. Martensen knows the business of intellectual property. We understand the tech market, especially when government is a client, and we know how to plan, assess, and adjust. Patents, trademarks, copyrights, trade secrets, licenses are our tools.


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