I’ve been involved in creating Intellectual Property (IP) in the US Government contractor space my whole career. IP is an extraordinarily complex and nuanced field that is further convoluted when you’re talking about the US Government as a customer and user. Mike Martensen is my go-to resource on this intersection for the past 12 or so years. Not only is Mike a skilled patent IP attorney but his previous life as an Air Force Academy graduate and Pilot gives him a unique perspective when the customer is Defense Department. Applying standard IP practices in FAR based projects can be a huge mistake. Looking at IP from a pure contract and FAR (Federal Acquisition Regulations) perspective can also be a big, missed opportunity. Mike has made a career out of marrying up the expertise from both sides of that coin to become an expert on defense technology protection and all that goes with it.
A strong IP strategy and process can greatly enhance a company’s enterprise value if done correctly. This provides that differentiation that buyers of companies look for. I often see that people think just having IP provides that differentiation. Not really. Have you protected it correctly? Do you have a detailed vision of how you plan to move these technologies forward with the Defense Department as a highly regulated partner? Do you have a plan that strikes a thought-out balance between yours and the USG’s rights? Does this plan have legs? Have you inadvertently introduced risk, but are missing some of the data rights provisions in your contract or the Federal Acquisition Regulations (FAR)?
I’ve asked Mike to join us for a quick view on what he’s seeing in the market today.
Jay : Mike, I know there is a big intersection between product-based work and services when working with the Defense Department. This can lead to a broad confusion for owners of small companies as they navigate their Intellectual Property strategy. Are you seeing this uncertainty as you interact with your clients?
Mike : Yes, indeed Jay. Developing and executing a sound IP strategy when engaging with the US Government is challenging. President Eisenhower once remarked when serving as the Commander of Allied forces in WWII that, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Understanding the IP landscape when dealing with the US Government is a key component in not only developing an effective strategy, but also how to adjust that strategy when the unforeseen is encountered. An effective strategy begins with understanding whether a company is selling a product to the government or a service. While that sounds simple, the lines are often blurred. Often, at government expense, companies develop technology core to their identity. US Government contracting rules allow the contractor to retain the title to later “commercialize” that technology despite the fact that it was, in many cases, entirely paid for by the US Government. This is exactly the opposite of what normally occurs in the commercial sector. While it may appear that the company is developing, and thereafter selling a product, it is really preforming and getting paid for a service. Revenues are not generated based on the products sold, but rather tasks to develop or maintain the product. So, on one hand you have to treat the relationship as a work for hire, while on the other hand you have to consider the Intellectual Property as something the company needs to protect. Companies with a sound understanding of the rules can leverage this distinction to their advantage and later sell true “products” with higher margins that are entirely their own in both the commercial and government marketplace. Unfortunately, they can just as easily find themselves losing a support or follow-on contract and end up with little on which to exist.
Jay : What are some concepts or processes that you advise people on regarding this challenge?
Mike: It is no secret that innovative companies thrive by offering cutting edge solutions to challenging problems. By using insights gained through “services” like contracts, companies can work to independently develop and own a particular area or piece of technology. Through an understanding of the expanse and limits of data rights claimed by the government, a contractor can pave a path for success. Patents are one means of doing so but they too have their limits. Data rights, with respect to government contracting, is a hybrid concept of copyright and trade secret protection. Those rights are very specific to a particular implementation. These three concepts work in concert to enhance a contractor’s competitive advantage. Patents are tied to realized functionality of a concept. A patent on an innovation can be gained without providing any rights to the government if it is first reduced to practice solely at private expense, such as in a lab. Note that this working copy does not need to be a marketable copy. For example, the first workable microwave oven was the size of a small room. Then, if the government pays for a working copy, the contractor can provide unlimited data rights while remaining in control of the functionality. Foresight such as this leads to winning follow-on contracts and remaining competitive in a changing market. Trademarks complete the picture. Branding is just as important in the government sector as in commercial markets. Despite all the rules and regulations, the government is comprised of people. Marketing and brand recognition works.
Jay : I know timing is critically important when it comes to these types of protections. Things you do every day, that seem innocuous, like publishing an article on your technology or signing a contract without identifying your data rights wishes, can come back to haunt you later. Can you talk a bit about some common mistakes we should try to avoid on these fronts? Also, any closing thoughts on types of things companies should engage someone like yourself on that may not be obvious to them? I know you see a lot of situations, AFTER the horse is out of the barn.
Mike: The practice of law is murky at best, and there are very few bright line tests. One key exception lies squarely in the field of intellectual property. In the United States, and in the United States only, an innovator (be it an individual or a company) can no longer seek to patent a concept if it has been publicly disclosed or offered for sale for more than one year. This one-year grace period only exists in the United States. If your innovation falls into the realm of a trade secret, any disclosure eliminates your ability to stop others from using the same technology. It’s impossible to put the genie back in the bottle. Contractors are lulled into a sense of security when dealing with the Government. The government often places security protocols and classification requirements on proposals, and contractors assume that since the work is “confidential” or for “official use only” is it not publicly disclosed. Wrong. These steps are the Government’s acts protecting the Government’s secrets, not the other way around. From the perspective of IP, a disclosure of an innovation to the US Government is a public disclosure, no different than an inventor discussing their product with Costco, Walmart, or General Electric. Proposals, even when submitted under terms of confidentially, can also be problematic since often a successful proposal finds its way into a contract which soon becomes publicly available. And supporting a “service contract” by enticing the government with new innovations before taking the proper steps to secure IP rights in those innovations can perpetuate low margins. These small oversights can destroy a company’s intellectual property rights and ultimately diminish valuation. This is why it’s important to establish a culture of IP protection and awareness.
Companies who envision their future success as being linked to innovation, and solving technical problems with technical solutions, engage individuals like myself and those at our firm. They do so early on so that we can work to establish that awareness of IP I mentioned above, and formulate an effective strategy with the understanding that it’s going to change. Just like any plan. IP, especially in the government marketplace, is a chess game.
Jay : Good thoughts Mike! I know these are complex topics, and we were only able to hit the tip of the iceberg. Knowing that there is an iceberg is often half the battle though. There are many avenues of education for those companies trying to navigate the choppy waters of Federally funded IP without making a huge enterprise value mistake! One of them I would encourage, is reaching out to Mike. I have collaborated with him for many years, and you can find his contact info is below. This is one area where I fully believe you need a specialist instead of a general-purpose counsel.
More about Mike Martensen:
Prior to becoming a patent and intellectual property (IP) attorney that specializes in the junction of IP and government contracts, Mike Martensen was a fighter pilot for the United States Air Force where he was selected over his peers as an operations officer. Mike went on to graduate with Cum Laude Honors from Duke University Law School while maintaining his ties to the Airforce, where he studied intellectual property. This led him into a dynamic career working in Silicon Valley and Colorado Springs as a patent attorney at top law firms like SNR (now Denton) and Hogan Lovells. He launched his own company, Martensen IP, in 2005 where he centered his focus on intellectual property projection. Mike has drafted over 300 patent applications to date and has been responsible for attaining more than 250 patents surrounding everything from software and computing transmitters to aircraft construction and firearm systems and even temporary shelters and sleep-inducing systems. To learn more about Mike, or to contact him, visit his website at https://www.martensenip.com/ or his LinkedIn profile.