Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies

Abstract

The U.S. patent system has a number of implications for federal, state, and local departments of transportation (DOTs) and other transportation agencies. For example, contractors who develop inventions with the use of federal funds are typically allowed to patent the inventions, but the federal government retains a license to use the invention, or to have another contractor use the patented invention on behalf of the federal government. This statutory framework allows federal transportation agencies to directly fund an invention, and then later hire different contractors to use or improve the invention, without paying royalties to the original contractor, who may have patented the invention. Furthermore, even when the federal government does not own a license to a particular invention, the federal government can authorize its contractors to use patented inventions, and the patent owner’s only remedy is to seek a reasonable royalty in the U.S. Court of Federal Claims, as the federal contractor is immunized from infringement claims. Different schemes apply to state and local DOTs, which may be authorized to obtain patent protection for inventions developed by their contractors or employees. Where federal grant funds are used in the performance of a state or local contract, the federal scheme probably applies — granting patent rights to the contractor and a nontransferable license to the federal government. However, there are unique considerations when an invention is made on a federally funded state DOT contract, because it is the state DOT (rather than the federal funding agency) who has contracted with the inventor, and the contracting state DOT may be more likely than the federal funding agency to need a license for its other contractors to use or improve the invention on behalf of the state DOT. The fact that the federal government obtains a license to use an invention does not mean that the invention can be used royalty-free on future federally funded projects by the state DOT whose contractor invented it, or by other state DOTs. Furthermore, unlike federal transportation agencies, state and local DOTs do not have the ability to authorize infringing use by their contractors. As a result, contractors for state DOTs are vulnerable to infringement lawsuits by patent owners, even as the state DOT itself is immune from suit. This article summarizes these and other patent law topics as they apply to federal, state, and local transportation agencies.