[Code of Federal Regulations] [Title 48, Volume 1] [Revised as of October 1, 2002] From the U.S. Government Printing Office via GPO Access [CITE: 48CFR31.205-37] [Page 607-608] TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM CHAPTER 1--FEDERAL ACQUISITION REGULATION PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents Subpart 31.2--Contracts With Commercial Organizations Sec. 31.205-37 Royalties and other costs for use of patents. (a) Royalties on a patent or amortization of the cost of purchasing a patent or patent rights necessary for the proper performance of the contract and applicable to contract products or processes are allowable unless-- (1) The Government has a license or the right to a free use of the patent; (2) The patent has been adjudicated to be invalid, or has been administratively determined to be invalid; (3) The patent is considered to be unenforceable; or (4) The patent is expired. (b) Care should be exercised in determining reasonableness when the royalties may have been arrived at as a result of less-than-arm's-length bargaining; e.g., royalties-- (1) Paid to persons, including corporations, affiliated with the contractor; (2) Paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Government contract would be awarded; or (3) Paid under an agreement entered into after the contract award. (c) In any case involving a patent formerly owned by the contractor, the [[Page 608]] royalty amount allowed should not exceed the cost which would have been allowed had the contractor retained title. (d) See 31.109 regarding advance agreements.