PGI 227.675-2: Review of agreements.

(a) In reviewing foreign license and technical assistance agreements between primary and second sources, the Department concerned must, insofar as its interests are involved, indicate whether the agreement meets the requirements of sections 124.07-124.10 of the ITAR (see PGI 227.675-1) or in what respects the agreement is deficient. Paragraphs (b) through (g) of this subsection provide general guidance.

(b) When the Government will likely purchase from the second source the supplies or services involved in the agreement, or that Foreign Military Financing Program funds will be provided for the procurement of the supplies or services, the following guidance applies:

(1) If the agreement specifies a reduction in charges thereunder, with respect to purchases by or for the Government or by others with funds derived through the Foreign Military Financing Program or otherwise through the Government, in recognition of the Government’s rights in patents and data, the Department, before indicating its approval, concerned should evaluate the amount of the reduction to determine whether the amount is fair and reasonable in the circumstances.

(2) If the agreement does not specify any reduction in charges or otherwise fails to give recognition to the Government’s rights in the patents or data involved, approval should be conditioned upon amendment of the agreement to reflect a reduction, evaluated by the Department concerned as acceptable to the Government, in any charge thereunder with respect to purchases made by or for the Government or by others with funds derived through the Foreign Military Financing Program or otherwise through the Government, in accordance with section 124.10 of the International Traffic in Arms Regulations.

(3) If the agreement provides that no charge is to be made to the second source for data or patent rights to the extent of the Government’s rights, the Department concerned should evaluate the acceptability of the provision before indicating its approval.

(4) If circumstances do not permit the evaluation called for in (b) (1), (2), or (3) of this subsection, follow the guidance in (c) of this subsection.

(c) When the Government will unlikely purchase from the second source the supplies or services involved in the agreement nor that Foreign Military Financing Program funds will be provided for the purchase of the supplies or services, then the following guidance applies:

(1) If the agreement provides for charges to the second source for data or patent rights, fulfill the requirements of section 124.10 insofar as the Department of Defense is concerned if:

(i) The agreement requires the second source to advise the primary source when the second source has knowledge of any purchase made or to be made from the second source by or for the Government or by others with funds derived through the Foreign Military Financing Program or otherwise through the Government;

(ii) The primary source separately agrees with the Government that upon such advice to the primary source from the second source or from the Government or otherwise as to any such a purchase or prospective purchase, the primary source will negotiate with the Department concerned an appropriate reduction in its charges to the second source in recognition of any Government rights in patents or data; and

(iii) The agreement between the primary and second sources further provides that in the event of any such purchase and resulting reduction in charges, the second source should pass on this reduction to the Government by giving the Government a corresponding reduction in the purchase price of the article or service.

(2) If the agreement provides that no charge is to be made to the second source for data or patent rights to the extent to which the Government has rights, the Department concerned should—

(i) Evaluate the acceptability of the provision before indicating its approval; or

(ii) Explicitly condition its approval on the right to evaluate the acceptability of the provision at a later time.

(d) When there is a technical assistance agreement between the primary source and the Government related to the agreement between the primary and second sources that is under review, the latter agreement must reflect the arrangements contemplated with respect thereto by the Government’s technical assistance agreement with the primary source.

(e) Every agreement must provide that any license rights transferred under the agreement are subject to existing rights of the Government.

(f)(1) In connection with every agreement referred to in (b) of this section, a request should be made to the primary source—

(i) To identify the patents, data, and other technical assistance to be provided to the second source by the primary source or any of its subcontractors,

(ii) To identify any such patents and data in which, to the knowledge of the primary source, the Government may have rights, and

(iii) To segregate the charges made to the second source for each such category or item of patents, data, and other technical assistance.

(2) Reviewing personnel should verify this information or, where the primary source does not furnish it, obtain such information from Governmental sources so far as practicable.

(g) The Department concerned should make clear that its approval of any agreement does not necessarily recognize the propriety of the charges or the amounts thereof, nor constitute approval of any of the business arrangements in the agreement, unless the Department expressly intends by its approval to commit itself to the fairness and reasonableness of a particular charge or charges. In any event, a disclaimer should be made to charges or business terms not affecting any purchase made by or for the Government or by others with funds derived through the Foreign Military Financing Program or otherwise through the Government.