Unpaid Royalties Included in Government Contracts

Generally, royalties on a patent or amortization of the cost of purchasing a patent or patent rights necessary for the proper performance of a contract and applicable to contract products or processes are allowable.  There are some exceptions however when royalty costs are unallowable. For example, if the Government has a license or the right to a free use of the patent, the costs are unallowable. Sometimes there are situations where the patent has been adjudicated to be invalid, or  has been administratively determined to be invalid. The Government is not going to pay for royalties on invalid patents of course. Same goes for patents considered to be unenforceable or expired patents.

Source: PNWC’s Government Contracting Update: Unpaid Royalties Included in Government Contracts