The High-touch Legal Services® Blog • For Startup Companies

If your small technology company provides products or processes that might interest the U.S. government, you should know about the Small Business Innovation Research (SBIR) program.

The objective of SBIR is to provide qualified small businesses with opportunities to propose innovative ideas that meet the specific research and development needs of the federal government.

Eleven federal departments participate. These include, for example, the Departments of Defense (including the various armed forces), Education and Transportation.

While there is some variation among departments, SBIR generally is a three-phase process:

• Phase I – Technology feasibility is determined and contracts are valued up to $100,000, lasting from six to nine months.
• Phase II (awarded to successful Phase I contract winners) – The necessary R&D is accomplished to produce a well-defined product/process. These awards typically span 2 years to accomplish the primary research effort and are valued up to $750,000.
• Phase III – Commercialization of a Phase II project result using private sector or federal agency (non-SBIR) funding.

Here are a few tips based on my experience helping clients with SBIR projects:

1. While the government retains broad rights to use the technology, the small business concern retains rights to sell the technology commercially.
2. Successful small businesses often work with large companies as subcontractors to add heft to the project team and increase the likelihood that a proposal will be accepted.
3. The fact that a small business has worked with a large company in Phase I does not necessarily mean that the same large company must be used in subsequent phases.
4. Because the small business is the prime contractor, it has substantial leverage in negotiating terms with the large company that it might not have in other circumstances. So, for example, if the large company makes demands about co-ownership of or other rights to Phase III intellectual property during Phase I, the small business can respond, “There is no guarantee that the project will get to Phase III or that we will even be working together, so let’s just focus on Phase I right now.” The implicit threat: If you are too difficult, we will work with someone else.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.