Federal Agencies Continue Investment in Private Sector Research and Development

By: Joyce Tong Oelrich , Zohra Tejani

In December 2022, the U.S. Government Accountability Office (GAO) reported on federal research and development (R&D) spending focused on emerging technologies to further economic growth and national security. The U.S. federal government’s investment over the past 10 years has grown steadily since 2016 to about $180 billion in fiscal year 2021. In the current economic environment, the U.S. federal government continues to spend heavily in R&D with companies. Funding is coming from a variety of agencies supporting innumerable technology research, development, testing and prototyping initiatives. The programs in scope for the GAO report reflect a subset of public sector R&D programs available.

Government agencies, such as the Department of Defense (DOD) and Department of Health and Human Services (HHS), primarily support R&D funding, accounting for about 80% of fiscal year 2021 expenditures. Other agencies, such as the Department of Energy (DOE), National Aeronautics and Space Administration (NASA) and National Science Foundation (NSF), also contributed significant funding. In addition, multiagency initiatives work together toward key goals that are important to the nation but too complex and broad for a single agency. These initiatives are the Networking and Information Technology Research and Development (NITRD) program, National Nanotechnology Initiative (NNI), National Quantum Initiative (NQI) and U.S. Global Change Research Program (USGCRP). NITRD now has over 60 agency members, and together these initiatives account for $14 billion, or 9% of the total R&D budget.

Of the $180 billion spent in 2021, industry received $52 billion, or 29% of the total, compared to 21% going to universities and 36% to federal agencies. Universities tend to receive more for basic and applied research, while industry receives funding for development and use-inspired research with the purpose of new or improved technology, particularly in the defense sector.

Implications and Key Takeaways for Startups

  1. U.S. Federal Government Money Is Available: Startups, even those with significant institutional investment, could qualify for a Small Business Innovation Research (SBIR) contract or the Small Business Tech Transfer (STTR) program, both overseen by the Small Business Administration (SBA). Under these programs, agencies award concept and prototype development agreements to qualifying small businesses.
  2. Know the Landscape: Understanding the requirements of each program is critical. Be aware of the appropriate standards for security, foreign ownership and control, ethics and any geographic restrictions (i.e., inside or outside of the U.S.). Select the initiatives where innovation may provide the most impact; often a tangential research area for your current technological development may resonate most with the government. Finally, recognize that the government may only publish a broad request for proposals with no technical specifications; emphasize how your technology can impact or address a future need.
  3. Protect Your Intellectual Property (IP): U.S. federal government money is “free,” but often it comes with strings. Unmarked or unprotected IP results in the government receiving a worldwide, fully paid, non-exclusive license right to the IP developed under the contract with the right to sublicense. Companies should lay a proper foundation, protecting all IP before, during and after the proposal process and, of course, during the negotiation of the funding agreement. Work with specialists to document all pre-conceived IP, and segregate, if needed, U.S. federal government funds from private funding.

We recommend working with experienced legal counsel to help you navigate these potential opportunities. If you have any questions, please reach out to the authors of this alert.


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