Royalties and Other Costs for Use of Patents

Allowable or Unallowable: Allowable

Source: FAR

Royalties and Other Costs for Use of Patents

Allowable, but see FAR Summary below.

FAR 31

(a) Royalties on a patent or amortization of the cost of purchasing a patent or patent rights necessary for the proper performance of the contract and applicable to contract products or processes are allowable unless -

• (1) The Government has a license or the right to a free use of the patent;

• (2) The patent has been adjudicated to be invalid, or has been administratively determined to be invalid;

• (3) The patent is considered to be unenforceable; or

• (4) The patent is expired.

(b) Care should be exercised in determining reasonableness when the royalties may have been arrived at as a result of less-than-arm’s-length bargaining; e.g., royalties—

• (1) Paid to persons, including corporations, affiliated with the contractor;

• (2) Paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Government contract would be awarded; or

• (3) Paid under an agreement entered into after the contract award.

(c) In any case involving a patent formerly owned by the contractor, the royalty amount allowed should not exceed the cost which would have been allowed had the contractor retained title.

(d) See 31.109 regarding advance agreements.

FAR 15, Table 15-2 - Instructions for Submitting Cost/Price Proposals When Certified Cost or Pricing Data Are Required

The following is an excerpt from Table 15-2 as it relates to Royalties.

E. Royalties

If royalties exceed $1,500, you must provide the following information on a separate page for each separate royalty or license fee:

• (1) Name and address of licensor.

• (2) Date of license agreement.

• (3) Patent numbers.

• (4) Patent application serial numbers, or other basis on which the royalty is payable.

• (5) Brief description (including any part or model numbers of each contract item or component on which the royalty is payable)

• (6) Percentage or dollar rate of royalty per unit.

• (7) Unit price of contract item.

• (8) Number of units.

• (9) Total dollar amount of royalties.

• (10) If specifically requested by the Contracting Officer, a copy of the current license agreement and identification of applicable claims

of specific patents (see FAR 27.202 and 31.205-37).

52.227-6 Royalty Information

As prescribed in 27.202-5(a)(1), insert the following provision: ROYALTY INFORMATION (APR 1984)

(a) Cost or charges for royalties. When the response to this solicitation contains costs or charges for royalties otaling more than $250, the following information shall be included in the response relating to each separate item of royalty or license fee:

• (1) Name and address of licensor.
• (2) Date of license agreement.
• (3) Patent numbers, patent application serial numbers, or other basis on which the royalty is payable.
• (4) Brief description, including any part or model numbers of each contract item or component on which the royalty

is payable.

• (5) Percentage or dollar rate of royalty per unit.
• (6) Unit price of contract item.
• (7) Number of units.
• (8) Total dollar amount of royalties.

(b) Copies of current licenses. In addition, if specifically requested by the Contracting Officer before execution of the contract, the offeror shall furnish a copy of the current license agreement and an identification of applicable claims of specific patents.

Related Pages

FAR 52.227-6 - Royalty Information