The High-touch Legal Services® Blog • For Startup/Early-stage Companies

If your small technology company provides products or processes that might interest the U.S. government, you should know about the Small Business Innovation Research (SBIR) program.

The objective of SBIR is to provide qualified small businesses with opportunities to propose innovative ideas that meet the specific research and development needs of the federal government.

Eleven federal departments participate. These include, for example, the Departments of Defense (including the various armed forces), Education and Transportation.

While there is some variation among departments, SBIR generally is a three-phase process:

• Phase I – Technology feasibility is determined and contracts are valued up to $100,000, lasting from six to nine months.
• Phase II (awarded to successful Phase I contract winners) – The necessary R&D is accomplished to produce a well-defined product/process. These awards typically span 2 years to accomplish the primary research effort and are valued up to $750,000.
• Phase III – Commercialization of a Phase II project result using private sector or federal agency (non-SBIR) funding.

Here are a few tips based on my experience helping clients with SBIR projects:

1. While the government retains broad rights to use the technology, the small business concern retains rights to sell the technology commercially.
2. Successful small businesses often work with large companies as subcontractors to add heft to the project team and increase the likelihood that a proposal will be accepted.
3. The fact that a small business has worked with a large company in Phase I does not necessarily mean that the same large company must be used in subsequent phases.
4. Because the small business is the prime contractor, it has substantial leverage in negotiating terms with the large company that it might not have in other circumstances. So, for example, if the large company makes demands about co-ownership of or other rights to Phase III intellectual property during Phase I, the small business can respond, “There is no guarantee that the project will get to Phase III or that we will even be working together, so let’s just focus on Phase I right now.” The implicit threat: If you are too difficult, we will work with someone else.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

A start-up entrepreneur recently told me about the agreement he signed with the developer of his website. The agreement has what I consider, from the entrepreneur’s perspective, a most pernicious provision: Ownership of the website, and its intellectual property rights, does not pass from the developer to his client until the fee is paid in full.

I understand why developers like this type of provision: It gives them extra leverage to ensure that they are paid.

In my opinion, however, this type of provision is inappropriate, from the perspective of the developer’s client, for several reasons:

• If development extends over a long time, the client is deprived of ownership rights throughout that entire period.
• Sometimes a client has a legitimate dispute that justifies a reduction in payment – but the provision in question does not allow for this possibility.
• There are other, less-disruptive means that can protect the developer, such as the granting of a security interest.

So here is my advice to anyone who receives a website development, or other professional services, agreement with a “you don’t own it until you pay” provision:

• Negotiate that provision away, making sure that you own the deliverables, and all intellectual property rights in those deliverables, as soon as they are created.
• If the service provider will not agree to this change, find another provider.

Photo credit: Sufi Nawaz via stock.xchng

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

A couple of years ago I had one of my greatest thrills as an attorney.

My client owns several patents covering ways to improve the efficiency of certain types of lasers. We had succeeded in licensing a large company for one field of use. We were trying to sign up another company for a second field of use.

All business and legal issues had been resolved when, at the last minute, the licensee’s General Counsel demanded that my client convey, in addition to the patent license, certain broadly-defined rights to my client’s know-how. We refused, explaining that know-how never was part of the discussion, and if my client ever was interested in conveying know-how, it would come at a price. The parties then reached final agreement without the know-how provision.

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