FAR and DFARS › FAR Part 31: Contract Cost Principles and Procedures › Subpart 31.2
FAR 31.205-37 Royalties and other costs for use of patents.
The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.
In plain English
This section explains when royalty payments or patent purchase amortization costs are allowable under a Government contract. It matters because it tells contractors which patent-related costs can be reimbursed and warns that royalties from related-party or non-arm's-length deals get extra scrutiny.
Applies to: Contractors claiming royalty or patent amortization costs on Government contracts
Key terms: royalties · amortization · allowable · arm's-length bargaining · advance agreements
Written by AI from this section's text. A guide, not legal advice: the text below rules.
The text
(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) The Government has a license or the right to a free use of the patent;
(2) The patent has been adjudicated to be invalid, or has been administratively determined to be invalid;
(3) The patent is considered to be unenforceable; or
(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) Paid to persons, including corporations, affiliated with the contractor;
(2) Paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Government contract would be awarded; or
(3) Paid under an agreement entered into after the contract award.
(c) In any case involving a patent formerly owned by the contractor, the royalty amount allowed should not exceed the cost which would have been allowed had the contractor retained title.
(d) See 31.109 regarding advance agreements.
Sections it refers to
- 31.109 Advance agreements.
← 31.205-36 Rental costs. · 31.205-38 Selling costs. →
Rule changes for FAR Part 31
- Federal Acquisition Regulation; Technical Amendments ↗ · final rule 2024-04-22 · effective 2024-05-22
Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.