On November 7, 2014, the U.S. Small Business Administration (SBA) issued an Advanced Notice seeking comments on potential revisions to policies governing the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs, which facilitate the commercialization of technology through small business entrepreneurship.  The Programs require certain federal agencies to reserve a minimum percentage of their budgets to fund research and development activities that have potential commercial applications.  The government’s initial investment under the Programs is relatively minimal, but participants are able to secure increased funding through three successive phases of development, eventually resulting in the commercialization of a technology with non-Program funds.  The Programs encourage sustained development of a technology by requiring that first-, second-, and third-phase awards generally be made to the same concern, and by establishing broad protections for data produced in the performance of an award.  The SBA is specifically seeking comments on potential revisions to its policies with respect to these two key features of the Programs.

Although the U.S. Court of Appeals for the Federal Circuit found in Night Vision Corp. v. United States that successive awards to the same concern were not absolutely required under the Programs’ previous statutory authorization, the most recent reauthorization of the Programs continues to emphasize that federal agencies and prime contractors—to the greatest extent practicable—are required to issue third-phase awards relating to a Program technology to the concern that developed the technology.  As recognized by the Advanced Notice, however, this requirement is unclear with respect to whether a preference for a particular concern can be shown in a competitive solicitation, as well as with respect to how prime contractors are expected to show a preference for Program participants.  The Advanced Notice also highlights the potential for disagreement over whether a procurement should be treated as a third-phase award based on a connection to a Program technology.  In order to facilitate the SBA’s clarification of these outstanding issues, the Advanced Notice seeks comments on a number of open questions, including whether an agency has any alternatives to issuing a sole source award when implementing the third-phase of a technology’s development and whether an agency can provide Program participants with a preference in a full and open competition.

The Advanced Notice also highlights that the Programs’ protection of data rights may not be operating as intended.  Under the Programs, the government is restricted from disclosing data produced under a first-, second-, or third-phase award for a period of at least four years. Notwithstanding this restriction, the SBA has received reports that the government may be incorporating data developed under Program awards into procurement specifications, resulting in a disclosure of the data to a Program participant’s competitors, and that reverse engineering may be resulting in the effective disclosure of protected data.  As evidenced by the U.S. Court of Federal Claims’ opinion in Night Vision Corp. v. United States, which describes circumstances in which the government in a follow-on, competitive acquisition had authorized the inspection of a prototype developed by a Program participant, agencies may look for ways around data protections.  As a result, the SBA is seeking comments on potential clarifications of the scope of data protections provided under the Programs, including the extent to which the government has the right to access, review, and evaluate protected data and the government’s ability to use data after the expiration of a protection period.

Although a recent U.S. Government Accountability Office report indicates that a lack of complete information makes it difficult to assess the effectiveness of the Programs, funding from the Programs has led to the successful commercialization of a number of technologies.  Small businesses that depend on Program funding, and large contractors that may ultimately be asked to facilitate the commercialization of a Program technology, should be aware of the uncertainties identified in the Advanced Notice and be sure that they understand the impact of any future changes to the SBA’s policies.

Comments on the Advanced Notice are due on or before January 6, 2015.