September 7, 2000
DO-00-032
MEMORANDUM
TO: Designated Agency Ethics Officials
FROM: F. Gary Davis
Acting Director
SUBJECT: Issuance of Memorandum by the Office of Legal Counsel
Concerning Application of 18 U.S.C. § 209 to Receipt of
Outside Royalty Payments by Employee-Inventors
On September 7, 2000, the Office of Legal Counsel (OLC),
Department of Justice, issued a Memorandum in response to a
question posed by the Office of Government Ethics (OGE) concerning
the application of 18 U.S.C. § 209 to the receipt of outside
royalties by employees who are permitted to retain or obtain title
to inventions developed as part of their official duties. A 1993
OLC Memorandum previously had concluded that section 209 did not
prohibit employee-inventors from sharing in a percentage of
royalties received by the Government from outside sources, where
the Government itself retained and licensed the patent rights,
pursuant to relevant provisions of the Federal Technology Transfer
Act of 1986 (FTTA); that opinion, however, did not address the
applicability of section 209 to royalties received by an employee-
inventor directly from an outside source where the Federal
Government had waived any interest in commercializing an invention
and permitted the employee personally to pursue any patent rights.
See 17 Op. O.L.C. 46 (1993) (1993 Memorandum). OLC now has
concluded that section 209 ordinarily does not preclude outside
royalty payments to employee-inventors who privately commercialize
inventions for which the Government has permitted them to obtain
patent rights.
Apart from issues specific to the Federal scheme for disposing
of intellectual property rights for workplace inventions, the new
Memorandum illustrates OLC's approach when there is a question as
to the presence of one particular element of section 209. As OLC
and OGE have noted on several occasions, section 209 can be viewed
as having four elements: (1) employee status; (2) receipt of salary
or any contribution to or supplementation of salary; (3) receipt of
such salary, contribution or supplementation from a non-Federal
source; (4) receipt of such salary, contribution or supplementation
as compensation for services as a Federal employee. OLC states
that the fourth element requires an "intentional, direct link"
between the outside compensation and the employee's Government
service. In some situations, however, intent to compensate for
Government services may not be obvious. In cases where it is not
otherwise clear that a particular payment is actually intended as
compensation for an employee's services to the Government, the
Memorandum articulates six factors that should be considered:
(1) whether there is a substantial relationship or pattern of
dealings between the agency and the payor; (2) whether the employee
is in a position to influence the Government on behalf of the
payor; (3) whether the expressed intent of the payor is to
compensate for Government service; (4) whether circumstances
indicate that the payment was motivated by a desire other than to
compensate the employee for her Government service; (5) whether
payments would also be made to non-Government employees; and
(6) whether payments would be distributed on a basis unrelated to
Government service. OGE advises that agency ethics officials
should consider these factors, none of which alone is necessarily
dispositive, when there is a question as to the presence of the
fourth element of section 209.
The new Memorandum also makes certain references to 18 U.S.C.
§ 208 that bear mentioning. First, the Memorandum states in
passing that the 1993 Memorandum found that section 208 did not
apply to payments made directly by the Government to an employee-
inventor, pursuant to section 7 of the FTTA, because such payments
are part of an employee's Federal employment benefits. Similarly,
the Memorandum notes that the 1993 Memorandum suggested that the
mere retention of patent rights by an employee, prior to any
licensing agreement, might not be viewed as a financial interest
under section 208, because such patent rights also are an integral
part of the employee benefit program established by the FTTA. We
want to point out, however, that certain aspects of this
section 208 analysis in the 1993 Memorandum have been superseded by
subsequent advice from OLC and by the regulatory exemption, in
5 C.F.R. § 2640.203(d), for interests derived from Federal
employment. See 60 Fed. Reg. 44706 (August 28, 1995) (discussing
1993 Memorandum and other authorities).
Second, the new Memorandum briefly discusses the possibility
of waivers, under section 208(b)(1), for employee-inventors whose
official duties continue to involve work on the same invention for
which they may have outside licensing agreements. From our
discussions with OLC, we understand that the Memorandum was not
intended either to foreclose or to encourage the issuance of
waivers in this type of situation. Rather, the purpose was only to
emphasize that any conflict of interest concerns in such situations
are adequately addressed by the safeguards of section 208,
including the criteria for granting waivers, as articulated in the
statute itself and in the implementing regulation, 5 C.F.R.
§ 2640.301.
A copy of the Memorandum is attached for your information.
Attachment