Developing Your Technology and Business through a CRADA

The BRAC-mandated expansion of the missions of Fort Meade and Aberdeen Proving Ground presents technology companies numerous opportunities to expand their own businesses. And Cooperative Research and Development Agreements - CRADAs – can be a valuable tool in exploiting those prospects.

In its simplest form, a CRADA is a technology transfer tool made possible by the Federal Technology Transfer Act of 1986 (“FTTA”). Technically, it is a contractual relationship between private industry, a state or local government or a university (each, a “partnering party”), and a federal research laboratory for the joint development of a specific deliverable or general research.

Under the terms of a CRADA, a lab is permitted to provide personnel, services, facilities, equipment and intellectual property, but no funds. The partnering party (e.g., a technology company) brings the same resources as well as the funding.

Any federal research laboratory (a facility where research, development or engineering is performed by federal government employees) may enter into a CRADA if the work is consistent with the mission of the agency running the lab. APG hosts two such labs: Aberdeen Test Center and Army Research Laboratory - Aberdeen Proving Ground Site. A comprehensive list of these laboratories and their missions is maintained at www.federallabs.org.

Initiating a CRADA

Potential partnering parties can initiate a CRADA to incorporate federally-owned technology into a new or existing commercial product. As mandated by the FTTA, small businesses and businesses located in the U.S. that agree to manufacture any products resulting from the CRADA in the U.S. are given special consideration by federal labs. Additionally, a lab may seek out CRADA partners to commercialize its technology or gain access to the technical or financial resources of a partnering party.

All CRADAs share certain features. Each CRADA identifies the resources each party must provide and how any intellectual property will be owned and/or licensed (discussed below). It also sets forth the key legal terms, such as the length of term (which can vary from a month to several years), dispute resolution, warranty, and indemnification. The lab will typically disclaim all warranties related to performance of any research, and require the partnering party to indemnify the lab for damages resulting from the partnering party’s commercialization of any resultant inventions. CRADAs are not subject to the Federal Acquisition Regulation.

Protecting Your Intellectual Property

Because a CRADA is a technology transfer, the most important provisions in a CRADA relate to intellectual property.

A partnering party may license a lab-owned invention created before the CRADA if the invention is within the scope of the CRADA for reasonable compensation when appropriate. A lab may also license or assign any inventions created by the lab while performing work under the CRADA to the partnering party. In exchange for an assignment of ownership, the lab will retain a worldwide, non-exclusive, non-transferable, irrevocable, paid-up license to the invention.

If the lab assigns invention ownership rights or grants an exclusive license to the partnering party, the lab is entitled to certain rarely exercised “march in” rights that permit the lab to grant a license to use the invention to a third party in limited circumstances. These circumstances include a determination by the federal government that such a license is necessary to meet health or safety needs or public use requirements according to applicable federal regulations. Another circumstance is the failure of the partnering party, under the CRADA, to comply with the requirement that it manufacture the products embodying the invention in the United States.

If the partnering party makes an invention under the CRADA, the partnering party owns the invention, and the lab will receive a worldwide, non-exclusive, non-transferable, irrevocable, paid-up license for governmental purposes only.

Trade secrets and confidential information disclosed by the partnering party under the CRADA are protected from disclosure by the lab. Additionally, any information developed in the course of the CRADA is considered a trade secret, and confidential information may be protected from disclosure for up to five years after development.

Summary

CRADAs, like all tech transfer agreements, are complicated arrangements. While the assistance of counsel is strongly recommended, following are five key points for a contractor to keep in mind when negotiating a CRADA:
1. Do the necessary due diligence. Before negotiating a CRADA, a contractor needs to be sure the government has the technology that the contractor thinks it does. Understanding the technology upfront can save a contractor from disappointment with a CRADA that may have been months in the formation.
2. Identify each party’s intellectual property upfront in the CRADA. This will help ensure there is no confusion at a later date as to which party owns what intellectual property.
3. Understand the licensing scenario being created through the CRADA. If a contractor’s intellectual property will be shared by the government with the contractor’s competitors at a later date, the contractor needs to consider the impact this may have on its business.
4. Know when to step away from CRADA negotiations. Because entering into a poorly drafted CRADA can adversely impact a contractor’s business, a contractor should be prepared to walk if the deal is not meeting the contractor’s needs.
5. Consider whether the long term goals of commercialization and/or research are reflected in the agreed-upon CRADA.

- Brad Aaron