The inception of the 2022 Chips and Science Act has been a significant driver in the allocation of federal funds towards the development of advanced technologies, including semiconductor manufacturing. Companies such as GlobalFoundries and Intel have already harnessed funds from the Chips Act to bolster their technological capabilities.
However, the attractiveness of federal funding comes with potential strings attached, especially the US government’s rights to “march in” and mandate the granting of licenses for federally funded intellectual property (IP) to third parties under certain conditions. These conditions include addressing public health emergencies, meeting federally prescribed public use requirements, or ensuring the practical application of funded IP, where its benefits can be accessed by the public on reasonable terms.
This scenario presents a risk to companies, as the enforcement of march-in rights could devalue IP that has been funded federally. The National Institute of Standards and Technology (NIST) recently called for public comments as it drafts guidance on the circumstances under which these rights might be exercised, signaling a potential increase in the government’s application of march-in rights.
NIST outlined scenarios to elucidate how companies might mitigate these risks. For example, a technology company that develops federally funded transceiver technology and refuses to license it to third-party manufacturers could face government intervention if it fails to assure adequate supply to meet market demands. Similarly, a biotechnology company holding an exclusive in-license for a federally funded patent but opting not to pursue a viable treatment could be compelled by the government to make its license non-exclusive.
To counter such risks, companies can implement several mitigation strategies:
- Practical Application: Ensure that development efforts lead to a practical application of the funded technology.
- Third-Party Contracts: Structure contracts with third parties to retain the ability to terminate rights and reallocate development if required.
- Manufacturing Location: Consider the necessity of manufacturing the technology within the US or seek a waiver to produce it elsewhere.
- IP Development and Protection: Document IP development funded federally and segregate it from non-federally funded technology to minimize impact.
- Due Diligence: Conduct rigorous due diligence when acquiring technology from third parties to ensure awareness of any federal funding implications and include provisions to handle potential march-in rights.
Given the potential economic ramifications, businesses must carefully evaluate the trade-offs of accepting federal funding and develop strategies to mitigate the risks associated with government march-in rights.
The original content, including detailed hypothetical scenarios, can be found in the analysis by David Bauer and Frank Azzopardi of Davis Polk and Wardwell, published by Bloomberg Law. Read more here.