(a) Patent and copyright costs.

1. (1) The following costs related to securing patents and copyrights are allowable:

   1. (i) Costs of preparing disclosures, reports, and other documents required by the Federal award and of searching the art to the extent necessary to make such disclosures;
   2. (ii) Costs of preparing documents and any other patent costs in connection with the filing and prosecution of a United States patent application where the Federal Government requires that a title or a royalty-free license be conveyed to the Federal Government; and
   3. (iii) General counseling services relating to patent and copyright matters, such as advice on patent and copyright laws, regulations, clauses, and employee intellectual property agreements (See § 200.459).

2. (2) The following costs related to securing patents and copyrights are unallowable:

   1. (i) Costs of preparing disclosures, reports, and other documents and of searching the art to make disclosures not required by the Federal award;
   2. (ii) Costs in connection with filing and prosecuting any foreign patent application, or any United States patent application, where the Federal award does not require conveying title or a royalty-free license to the Federal Government.

(b) Royalties and other costs for the use of patents and copyrights.

1. (1) Royalties on a patent or copyright or amortization of the cost of acquiring by purchase a copyright, patent, or rights thereto, necessary for the proper performance of the Federal award are allowable unless:

   1. (i) The Federal Government already has a license or the right to free use of the patent or copyright.
   2. (ii) The patent or copyright has been adjudicated to be invalid or administratively determined to be invalid.
   3. (iii) The patent or copyright is considered to be unenforceable.
   4. (iv) The patent or copyright is expired.

2. (2) Special care should be exercised in determining reasonableness when the royalties may have been obtained as a result of less-than-arm's-length bargaining, such as:

   1. (i) Royalties paid to persons, including corporations, affiliated with the recipient or subrecipient.
   2. (ii) Royalties paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Federal award would be made.
   3. (iii) Royalties paid under an agreement entered into after a Federal award is made to a recipient or subrecipient.
3. (3) In any case involving a patent or copyright formerly owned by the recipient or subrecipient, the amount of royalty allowed must not exceed the cost which would have been allowed had the recipient or subrecipient retained ownership.