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  • Question

    Do you need to do a J&A to pay royalty payments?


    This is a great question, one I’m not sure we’ve received here at AAP before.

    Typically the need to make royalty payments in and of themselves does not require a Justification and Approval for other than full and open competition. That is because many patents are available for potential offerors to purchase a license or use fee if they are not the patent or IP owner.

    But the official answer is, of course, “it depends”.

    In most instances the need to make royalty payment(s) is either:

    1) Identified ahead of time as a result of market research, acquisition planning, and refining your requirement. Then communicated to potential offerors of the fact the licensed patent will be applicable to the prospective contract.  See FAR 27.202-2. Or

    2) Identified when the contractor proposes a cost element for the royalty in their offer.  Example: If certified cost or pricing data is needed, the existences of a royalty would be identified when offerors submit their proposal or offer to a request for offers and they include the royalty amount in their proposal.  See FAR 15.408(n)(2)(iii), Table 15.2, II Cost Elements, E. Royalties.

    In these instances a J&A is not needed because you are not limiting competition.

    However, if the patent or intellectual property required to complete the contract is only available from one or a limited number of contractors (e.g. the patent owner or a select licensee) and no other way exists to meet the government’s requirement; J&A might be needed.  In this instance you would follow the rules at FAR 6.302-1 and DFARS 206.302-1.  It would not be the fact you need to pay the royalty that leads you to completing a J&A, but the fact you have only one (or a limited number for DoD and NASA) of sources that can satisfy the agency requirement.

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