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  1. Scenario: Company A is a design agent and owns a vessel design (Company A's Intellectual Property) that has not been built and that Company B is interested in proposing as it's solution for an anticipated DoD opportunity as a prospective prime contractor. Company A has no patent, and has not filed for a patent for said vessel design, but is requiring Company B to enter into a license agreement including royalty payments to use Company A's vessel design based on a percentage of the price for each vessel constructed and sold to the Government. I am assuming the contract, or CLINs, under which the vessels will be constructed will be fixed price incentive, which may have some bearing on what clauses and provisions may be included in the solicitation concerning. It is my understanding that license agreements with royalty payment terms for the use of a design that has no design patent do exist, but it is not clear to me if the Government would deem such royalty payments to be proper and deem the associated costs to the prime contractor to be allowable if there is no patent. FAR 31.205-37 seems to only address royalties in the context of when there is a patent. FAR 27.202 mostly refers royalties in the context of when there is a patent. So the question is, would the royalties paid to Company A by Company B be deemed proper and the costs deemed allowable despite there being no patent for the vessel design?
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