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Suggested Citation:"I. INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2017. Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies. Washington, DC: The National Academies Press. doi: 10.17226/24693.
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Suggested Citation:"I. INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2017. Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies. Washington, DC: The National Academies Press. doi: 10.17226/24693.
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Suggested Citation:"I. INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2017. Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies. Washington, DC: The National Academies Press. doi: 10.17226/24693.
×
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Suggested Citation:"I. INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2017. Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies. Washington, DC: The National Academies Press. doi: 10.17226/24693.
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Suggested Citation:"I. INTRODUCTION." National Academies of Sciences, Engineering, and Medicine. 2017. Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies. Washington, DC: The National Academies Press. doi: 10.17226/24693.
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3PRIMER ON PATENTABILITY AND USE OF IDEAS DEVELOPED BY CONTRACTORS PERFORMING WORK FOR STATE AND FEDERAL TRANSPORTATION AND LOCAL PLANNING AGENCIES By Timothy R. Wyatt I. INTRODUCTION A. Purpose of Digest The United States patent system, which provides qualified inventors with a limited monopoly to an invention, has a number of implications for federal, state, and local transportation agencies. For example, contractors who develop inventions with the use of federal funds are typically allowed to patent the inventions, but the federal government retains a license to use the invention, or to have another contractor use the patented invention on behalf of the federal government. This statutory framework allows federal agencies to directly fund an invention, and then later hire different contrac- tors to use or improve the invention, without paying royalties to the original contractor, who may have patented the invention. Furthermore, even when the federal government does not own a license to a particular invention, the federal government can authorize its contractors to use patented inventions, and the patent owner’s only remedy is to seek a reasonable royalty in the United States Court of Federal Claims, as the federal contractor is immu- nized from infringement claims. Different schemes apply to state and local trans- portation agencies, which may be authorized to obtain patent protection for inventions developed by their contractors or employees. Where federal grant funds are used in the performance of a state or local contract, the federal scheme probably applies— granting patent rights to the contractor and a nontransferable license to the federal government. However, there are unique considerations when an invention is made on a federally funded state trans- portation agency contract, because it is the state transportation agency (rather than the federal fund- ing agency) who has contracted with the inventor, and the contracting state transportation agency may be more likely than the federal funding agency to need a license for its other contractors to use or improve the invention on behalf of the state trans- portation agency. The fact that the federal govern- ment obtains a license to use an invention does not mean that the invention can be used royalty-free on future federally funded projects by the state trans- portation agency whose contractor invented it, or by other state transportation agencies. Furthermore, unlike federal agencies, state and local agencies do not have the ability to authorize infringing use by their contractors. As a result, contractors for state transportation agencies are vulnerable to infringe- ment lawsuits by patent owners, even as the state transportation agency itself is immune from suit. This report summarizes patent law as it applies to federal, state, and local transportation and plan- ning agencies. The remainder of this Introduction provides an overview of the U.S. patent system with a focus on statutes that apply to the patentability of inventions by government contractors and use of contractor inventions for or on behalf of the govern- ment. The remainder of the report addresses how these and other legal provisions influence the patentability and use of contractor inventions on government contracts, which will vary depending on funding source and contracting agency. B. Statutory Scheme 1. U.S. Constitution The federal government’s authority with regard to patents stems from the U.S. Constitution itself. The Constitution confers on Congress the exclusive power “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”1 Thus, under the Constitution, a patent may confer upon an inven- tor an exclusive interest (or monopoly) in a useful invention for a limited time. In return for the incen- tive of the limited monopoly, the inventor is expected to fully disclose the invention so that it may be freely practiced by the public after the patent term expires, consistent with the constitutional requirement to promote progress.2 This provision of the Constitution 1 U.S. Const. art. I, § 8, cl. 8. 2 Anderson’s-Black Rock, Inc. v. Pavement Salvage Co., 396 U.S. 57, 61, 90 S. Ct. 305, 308, 24 L. Ed. 2d 258, 265 (1969) (citing Graham v. John Deere Co., 383 U.S. 1, 6 (1966)).

4is not self-executing, but rather establishes the boundaries within which Congress can enact patent legislation. In other words, a patent is not so much a constitutional right as a property interest that Congress is authorized to create. 2. Patent Act Congress first acted on its constitutional authority to provide patent protection in 1790 with the first Patent Act.3 The statutory rules governing patents have been revised several times over the years. Today’s patent laws were largely set in place with the Patent Act of 19524 (although there have been some substantive amendments that are discussed herein). Consistent with the constitutional language, the Patent Act of 1952 confers limited-time monopoly rights to the inventor of “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement”5 to a preexisting invention, subject to certain conditions discussed herein. Patents on such inventions are known as “utility patents,”6 and are the most impor- tant type of patent, the type of patent most relevant to transportation agencies, and the focus of this report.7 The term of utility patent protection is 20 years from the date of the patent application.8 During that term, the patent owner can exclude others from making, using, or selling the invention, or alternatively the patent owner may charge others for the privilege of practicing the invention. Once the inventor has applied for a patent, the application will be examined by the U.S. Patent and Trademark Office (USPTO) to consider whether the disclosed invention satisfies the constitutional and statutory requirements for a patent to issue.9 The requirements include: • Disclosure. Among the conditions for obtaining a patent is that the inventor must, in the specifica- tion contained within the patent application, dis- close the details of the invention “in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains…to make and use the invention.“10 In exchange for granting the limited-time monopoly, the USPTO thus requires that the invention become part of the public store of knowledge. This ensures that, once the patent term expires, other practitioners will be able to freely reproduce the invention. • Utility. The invention must be useful.11 An invention that offers no benefit to the public does not warrant patent protection. The invention must actually accomplish what is claimed in the specifica- tion that accompanies the patent application.12 The inventor must have actually reduced the invention to practice (i.e., created a physical rendition that works), further demonstrating that the invention accomplishes the claimed purpose.13 Requiring the inventor to demonstrate utility of the invention helps ensure that scientific principles are not patented (and thus not removed from the public domain).14 • Novelty. The invention must be new.15 Accord- ingly, the invention must not have been publicly disclosed or publicly sold prior to the patent appli- cation.16 For purposes of determining whether the invention was publicly disclosed prior to the inven- tion, the USPTO will consider the “prior art”— which includes information appearing “in a print- ed publication,”17 as well as preexisting patents or patent applications filed by others.18 There are lim- ited exceptions, such that public disclosures, made 1 year or less before the patent application, by the named inventor (or by another who obtained the 10 35 U.S.C. § 112(a) (2016). See also Highway Equip. Co., Inc. v. Cives Corp., 476 F. Supp. 2d 1079, 1090, 1103 (N.D. Iowa 2007) (limiting coverage of patent for highway equipment to the claims disclosed in the specification). 11 35 U.S.C. § 101 (2016). See also Structural Rubber Products Co. v. Park Rubber Co., 749 F.2d 707, 715 n.5 (Fed. Cir. 1984) (upholding validity of patent for mois- ture-proof traffic surface for highway–railroad crossings based on utility, novelty, and non-obviousness). 12 35 U.S.C. § 112 (2016). 13 Jamesbury Corp. v. Worcester Valve Co., 318 F. Supp. 1, 6 (D. Mass. 1970) (for purposes of the Patent Act, the term “‘invention’ comprises conception and reduction to practice.”), aff ’d, 443 F.2d 205 (1st Cir. 1971). 14 RoChelle CoopeR DReyfuss & RobeRta Rosenthal Kwall, IntelleCtual pRopeRty: tRaDemaRK, CopyRIght anD patent law 621 (Foundation Press 2d ed. 2004) (“the hurdle imposed by utility acts as another way to remove from the scope of patentability discoveries that are fun- damental building blocks of science.”). 15 35 U.S.C. §§ 101, 102(a) (2016). See also Kothmann Enters., Inc. v. Trinity Indus., Inc., 394 F. Supp. 2d 923, 974 (S.D. Tex. 2005) (denying summary judgment of invalidity for highway guardrail patent, where patent claims were novel and not anticipated by prior art). 16 35 U.S.C. § 102(a)(1) (2016). 17 Id. 18 35 U.S.C. § 102(d) (2016). 3 Patent Act of 1790, ch. 7, 1 Stat. 109–112 (Apr. 10, 1790). 4 Patent Act of 1952, Pub. L. No. 93-596, 66 Stat. 792 (Jul. 19, 1952) (codified at 35 U.S.C. §§ 1 et seq.). 5 35 U.S.C. § 101 (2016). 6 U.S. patent anD tRaDemaRK offICe, eleCtRonIC pRoD- uCts DIvIsIon, patent teChnology monItoRIng team, types of patents (Mar. 31, 2016) available at http://www. uspto.gov/web/offices/ac/ido/oeip/taf/patdesc.htm. 7 Patent protection is also available for new varieties of plants and for ornamental designs for manufactured goods. 35 U.S.C. §§ 161, 171 (2016). 8 35 U.S.C. § 154(a)(2) (2016). 9 35 U.S.C. § 131 (2016).

5information from the inventor) will not be considered “prior art” and thus will not bar the inventor from obtaining a patent.19 • Non-obviousness. Even if the invention has not been “identically disclosed” in the prior art, a claimed invention does not warrant a patent “if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious…to a person having ordinary skill in the art to which the claimed invention pertains.”20 The non-obviousness require- ment expands the scope of prior art, recognizing that an invention could have been effectively disclosed by a combination of prior publications, patent applications, and patents, even if none of the docu- ments by themselves disclosed the invention.21 The non-obviousness requirement also prevents patents from issuing for very minor advances to existing technology. 3. Bayh–Dole Act The Patent Act of 1952 was supplemented in 1980 with the Patent and Trademark Law Amendments Act,22 commonly known as the “Bayh–Dole Act.” The primary purpose of the Bayh–Dole Act was to promote the commercialization and public availability of inven- tions made with federal funding, via the transfer of federally funded technology to the private sector.23 At the same time, the federal government wanted to ensure that it sufficiently preserved its interest in federally funded technology, so that the federal govern- ment could continue to use inventions that it funded.24 To accomplish those purposes, the legislation allocated patent rights and ownership of inventions made pursuant to federal funding agreements. Although the Constitution and Patent Act indi- cated that patent rights belong to the inventor, prior to the Bayh–Dole Act it was generally presumed that the federal government, rather than the inven- tor, took title to any invention made with federal funding.25 The Bayh–Dole Act, however, provides that nonprofit organizations (including universi- ties) and small businesses may “elect to retain title to any subject invention” made under a “funding agreement” with a federal agency.26 For purposes of the Bayh–Dole Act, a “funding agreement” includes any contract or grant for “experimental, develop- mental, or research work” entered into between a federal agency and a “contractor,” which is defined “as any person, small business firm, or nonprofit organization that is a party to a funding agree- ment.”27 The right to obtain title to inventions devel- oped with federal funding extends to subcontracts,28 so subcontractors not in privity with the federal government can also elect to retain title to their inventions developed in the performance of the funding agreement between the government and its prime contractor. In 1987, by executive order, the right to elect to retain title to federally funded patents was extended “to all contractors, regardless of size…in exchange for royalty-free use by or on behalf of the government.”29 In return for granting patent rights to inventors, under the Bayh–Dole Act the federal funding agency obtains “a nonexclusive, nontransferable, irrevoca- ble, paid-up license to practice or have practiced for or on behalf of the United States any subject inven- tion throughout the world.”30 As discussed further in Sections II.B and III.B infra, this means that where U.S. Department of Transportation (USDOT) funds are involved, and where there is an “experimental, developmental, or research” component to the work, the contractor will typically be able to pursue patent protection for any invention that results from the work. If a patent issues, the contractor may exclude 19 35 U.S.C. § 102(b)(1) (2016). 20 35 U.S.C. § 103 (2016). See also A.C. Aukerman Co. v. R.L. Chaides Const. Co., No. 88 CV 20704, slip op. at 7–9 (N.D. Cal. Sept. 13, 1993) (upholding validity of patent for concrete highway barriers as non-obvious). 21 See, e.g., Anderson’s Black Rock, Inc. v. Pavement Salvage Co., 396 U.S. 57, 90 S. Ct. 305, 24 L. Ed. 2d 258 (1969) (invalidating a patent for a combination of an asphalt paving machine with an element to heat adjacent asphalt and thus prevent cold joints, where both the asphalt paving machine and the device for heating adjacent asphalt were previously known in the paving industry). 22 Pub. L. No. 96-517, 94 Stat. 3105 (Dec. 12, 1980) (codified at 35 U.S.C. §§ 200–212). 23 See Lonnie E. Griffith, Jr., Construction and Appli- cation of University and Small Business Patent Proce- dures Act of 1980 (Bayh–Dole Act) Relating to Patent Rights in Inventions Made With Federal Assistance Under 35 U.S.C.A. §§ 200 et seq., 68 A.L.R. feD. 2D 1, § 4 (2012); Michael S. Mireles, Jr., States as Innovation Sys- tem Laboratories: California, Patents, and Stem Cell Technology, 28 CaRDozo l. Rev. 1133, 1142 (2006); Diane M. Sidebottom, Intellectual Property in Federal Govern- ment Contracts: The Past, The Present, and One Possible Future, 33 pub. Cont. L.J. 63, 67 (2003). 24 35 U.S.C. § 200 (2016). 25 Mireles, supra note 23, at 1142; Sidebottom, supra note 23, at 66–67; Ashley J. Stevens, The Enactment of Bayh–Dole, 29 J. teCh. tRansfeR 93, 94 (2004); Rebecca S. Eisenberg, Public Research and Private Development: Pat- ents and Technology Transfer in Government-Sponsored Research, 82 va. l. Rev. 1663, 1673 (1996). 26 35 U.S.C. § 202(a) (2016). 27 35 U.S.C. § 201(b), (c) (2016). 28 35 U.S.C. § 201(b) (2016). 29 Facilitating Access to Science and Technology, Exec. Order No. 12,591 (Apr. 10, 1987), 52 Fed. Reg. 13, 414 (Apr. 22, 1987). 30 35 U.S.C. § 202(c)(4) (2016).

6anyone except the federal government from practicing the invention. Alternatively, the contractor may charge a royalty for use of the invention by others, except for use by or on behalf of the federal government.31 4. America Invents Act In 2011, Congress enacted the Leahy–Smith America Invents Act,32 which significantly modified U.S. patent law. The primary thrust of this legislation was to implement what is known as a “first-inventor- to-file” system, rather than the “first-to-invent” system that historically applied to U.S. patent law. The America Invents Act applies to patent applica- tions with an effective filing date on or after March 16, 2013.33 Under prior law, only the first inventor was enti- tled to a patent, so any prior art showing that the invention was known or used by others prior to its “invention” by the patent applicant would disqualify the applicant from obtaining a patent.34 However, there was effectively a 1-year “lookback” period in the Patent Act, so that print publication, public use, or sale of the invention within 1 year prior to the patent application would not bar the patent from issuing.35 The presumption would be that the inven- tion by the patent applicant preceded disclosures by others in the 1-year “lookback” period prior to the patent application. The America Invents Act recognizes that an inven- tion could be made independently by different inven- tors close in time, and thus provides that the first patent application describing the invention, which is either filed by or authorized by an inventor, is enti- tled to the patent.36 Prior knowledge or use of the invention by other inventors is no longer an absolute bar to the patent, where the other inventors fail to timely file a patent application. However, applicants will not be entitled to patent protection if it is deter- mined that the supposed “inventors” named in the application actually learned (or “derived”) the subject matter from the true inventors.37 Under the America Invents Act, public disclosure of an invention (e.g., print publication, public use, or sale) in the 1-year period immediately prior to filing a patent application will bar issuance of a patent, unless such public disclosure was made by the inventor named in the application (or by someone who obtained the disclosed subject matter from the named inventor).38 Therefore, the 1-year “lookback” period now only applies to public disclosures by the inventor named in the application, which eliminates the applicant’s ability to file a patent application within 1 year following public disclosure by others. Therefore, the America Invents Act both reduces and expands the scope of prior art that may be used to deny a patent application. Prior invention by others is no longer an absolute bar to a patent, but public disclosure by others within 1 year of the patent application will bar the patent. When analyz- ing earlier case law involving prior art defenses (e.g., novelty and obviousness), it is important to keep in mind that the standards for prior art have changed. Patent applications filed prior to the March 16, 2013, effective date of the America Invents Act may have been rejected for reasons that would not bar a patent after that date, and vice versa. Recognizing that an invention could have been made by another who never applied for a patent, the America Invents Act provides that prior inven- tors, who made “commercial use” of the invention at least 1 year before the patent applicant’s public disclosure of the invention, can continue to use the invention.39 This is a new defense to patent infringe- ment that was not historically available under U.S. patent law (since historically only the original inventor was entitled to the patent). “Commercial use” includes the “use of subject matter by a nonprofit research laboratory or other nonprofit entity, such as a university or hospital, for which the public is an intended beneficiary.”40 Conceiv- ably, prior use on a government transportation contract would qualify as “commercial use” for purposes of this new defense to an infringement claim. However, the defense based on prior commer- cial use can only “be asserted by the person who performed or directed the performance of the commercial use,” and that person’s right to continue to use the invention “shall not be licensed or assigned or transferred to another person.”41 This limitation could make it difficult for a transporta- tion agency to assert the commercial use defense if 31 Sidebottom, supra note 23, at 66–69. 32 Pub. L. No. 112–29, 125 Stat. 284 (Sep. 16, 2011). For an expanded discussion of the America Invents Act in the context of state transportation agencies, see Joe bRaDley et al., management guIDe to IntelleCtual pRopeRty foR state DepaRtments of tRanspoRtatIon 32–34 (NCHRP Report 799, Transportation Research Board of the National Academies of Science, Engineering, and Medi- cine, 2015). 33 Pub. L. No. 112–29, § 3(e)(3), 125 Stat. 284, 288 (Sep. 16, 2011). 34 35 U.S.C. § 102(a) (2010). 35 35 U.S.C. § 102(b) (2010). 36 35 U.S.C. § 102(a) (2016). 37 35 U.S.C. §§ 135, 291 (2016). 38 35 U.S.C. § 102(b) (2016). 39 35 U.S.C. § 273(a) (2016). 40 35 U.S.C. § 273(c)(2) (2016). 41 35 U.S.C. § 273(e) (2016).

7technology used by the transportation agency is later patented by another, which may encourage transportation agencies to pursue patent protec- tion for technology used on a government transpor- tation contract. The America Invents Act also changed the historical requirement that patent applications be made by the inventor. This was partly in response to Stanford University v. Roche Molecular Systems, Inc.,42 in which the U.S. Supreme Court clarified that the Bayh–Dole Act did not take patent rights away from the individual employees of contractors participating in federal funding agreements. The Court concluded that, if the inventor did not expressly assign her patent rights to her employer (i.e., the contractor or subcontractor), even if the inventor was contractually obligated to assign those patent rights, then the contractor would not obtain patent rights to the federally funded inven- tions under the Bayh–Dole Act until its employee (the inventor) actually assigned her patent rights to the contractor. By the same logic, the federal government might not obtain a license to federally funded inventions, where the inventor/employee failed to expressly assign her patent rights to the contractor/employer, because it was the contractor (not the individual inventor) who was obligated to grant a license to the federal government under the Bayh–Dole Act. However, as a result of the America Invents Act, either the contractor (the inventor’s employer) or the federal funding agency can pursue patent protection, pursuant to the Bayh–Dole Act, as long as the inventor “is under an obligation to assign the invention.”43 According to some commen- tators, the America Invents Act reinforces the presumption in the Bayh–Dole Act that the contrac- tor/employer, not the inventor/employee, has the right of first refusal to own patented inventions developed under federal contracts.44 5. State Statutes The allocation of patent rights for inventions made by contractors for state transportation agen- cies varies widely from state to state. In most states, if the situation has been addressed by the state legislature at all, state legislation tends to provide that the state takes title to inventions developed by its contractors or employees.45 In some states, the state transportation agency is specifically autho- rized by statute to secure patents.46 Typically, if state transportation agencies are authorized to secure patents, title to the patent will be held by a nontransportation agency (such as an economic development or technology transfer office).47 However, the trend at the state level is in the direction toward a Bayh–Dole model, where contrac- tors have the right to obtain title to inventions devel- oped under state contract (with the state retaining a license to use the invention). The California Council on Science and Technology Intellectual Property Study Group and the New York State Science and Technology Law Center have proposed policies for their respective states that are similar to the Bayh–Dole Act, but would retain stronger rights for the state government.48 For example, under those proposed approaches, the state would retain not just an unlimited license to use patented technology developed by the contractor, as well as march-in rights should the technology not be effectively commercialized by the contractor, but the state (under these proposals) could also receive a portion of the revenues from any royalty that the contractor charges nonstate actors for the use of the patent. The Bayh–Dole model—granting patent rights to government contractors while preserving a govern- ment-purpose license—has become widely accepted and adopted by a number of state and local govern- ment bodies.49 In the absence of any specific state law or policy, the Bayh–Dole model may be persuasive authority suggesting a presumption in favor of contractor patent rights (with a license retained by the state transportation agency), where inventions are made on state transportation agency contracts. 42 563 U.S. 776 (2011). 43 35 U.S.C. §§ 115(d)(2)(B), 118 (2016). 44 James G. McEwen, Protecting Valuable IP in the Government Contracting Process in a Turbulent Procure- ment Market, in tRenDs In goveRnment ContRaCtIng: leaDIng lawyeRs on ComplyIng wIth ContRaCtual RequIRements, managIng potentIal RIsKs, anD oveRCom- Ing eConomIC Challenges (InsIDe the mInDs) (Thomas Reuters/Aspatore, 2012). 45 See, e.g., oKla. stat. tit. 74, § 85.60 (2016) (providing that the State takes title to “patented property” developed by its contractors); Conn. gen. stat. § 4 61a (2016) (provid- ing that the State takes title to inventions made by its employees); N.M. stat. § 57–3C–3 (2016) (“Inventions, inno- vations, works of authorship and their associated materials that are developed by a state employee…within the scope of his employment or when using state-owned or state-con- trolled facilities or equipment are the property of the state.”). 46 See, e.g., fla. stat. § 334.049 (2016); tex. tRansp. CoDe ann. § 201.205 (2016). 47 See, e.g., oKla. stat. tit. 74, § 85.60 (2016) (authoriz- ing “the Office of Management and Enterprise Services [to] be the exclusive agency to negotiate and contract for the retention of patents and copyrights on material and property developed through state contracts”). 48 Mireles, supra note 23, at 1183–86. 49 James G. McEwen, Sean O’Connor, John E. McCarthy Jr. & Susan Warshaw Ebner, The Impact of Stanford v. Roche on Technology Licensing under Bayh–Dole, pRoCuRement lawyeR, Winter 2012, at 5 n.3 (2012).

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Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies Get This Book
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TRB's National Cooperative Highway Research Program (NCHRP) Legal Research Digest 73: Primer on Patentability and Use of Ideas Developed by Contractors Performing Work for State and Federal Transportation and Local Planning Agencies summarizes federal and state patent laws and then reviews the similarities and differences between the two. It also discusses and distinguishes patentability issues concerning inventions by contractors for federal contracts, federally funded state and local government contracts, and state and local government contracts sourced by state and local funds. The balance of the digest is dedicated to a thorough review of patent infringement on state and local government contracts and defenses in the performance of these contracts.

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