(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. (1) The Government has a license or the right to a free use of the patent;
2. (2) The patent has been adjudicated to be invalid, or has been administratively determined to be invalid;
3. (3) The patent is considered to be unenforceable; or
4. (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. (1) Paid to persons, including corporations, affiliated with the contractor;
2. (2) Paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Government contract would be awarded; or
3. (3) Paid under an agreement entered into after the contract award.