Licensing VirnetX Technology and Federal Acquisition Regulations

 

Federal Acquisition Regulation FAR 52.227 (Intellectual Property (IP) / Data Rights and Technical Data Rights) regulates the acquisition of intellectual property by Federal agencies. Because of FAR 52.227, I believe that VirnetX is currently in a much better position in the licensing process than most investors realize. FirstNet is a federal program to establish a nationwide wireless broadband network that enables police, firefighters, emergency medical technicians, and other first responders to effectively communicate during emergencies. FirstNet is funded by congress at 2 billion (with up to 5 billion more available) and is scheduled to be deployed beginning in 2015. It is designed to provide secure and interoperable communications for first responders by leveraging the internet, wireless systems, and existing commercial capabilities as follows:

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  1. Public Safety - integrates inter-agency communications services for the first responders, reduces costs, and improves efficiency and response time.

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  1. Wireless operators - have the opportunity to participate; serve a critical US nationwide need; and increase their subscribers, usage, and commercial coverage.

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  1. Network & handset suppliers - have the opportunity to participate; serve a critical US nationwide need; and increase their network & handset product lines, sales volumes and revenues.

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  1. Application developers - have the opportunity to develop apps that increase our security and safety across the US; and increase their product lines, user bases and sales volumes.

 

FirstNet technical requirements are based on 3GPP release 10 and later specifications. Proposals are currently scheduled to be submitted in the 4th quarter of 2014. I believe that VirnetX licensed technology will be a major requirement for security in FirstNet based on these assumptions:

 

  1. Due to the size ($2-7 billion) and complexity of the program, contractor teams will be formed in 2013 to submit proposals. Each team will consist of a prime contractor (SAIC, Siemens, IBM, Ericsson, others) and have at least one or more wireless carriers, network and handset suppliers, mobile network operators, application developers, and other subcontractors.

 

  1. One of the responsibilities of the prime contractor is compliance with FAR 52.227 on intellectual property (IP) and the related FAR supplements of the government agency responsible for the contract (FCC).

 

  1. FAR 52.227 states that all intellectual property (IP) deliverables under the contract must be listed as segregated contract line items (CLINs) and priced separately. The prime contractor is required to do this and technology licensing with the individual subcontractors and/or suppliers is optional if the IP pricing is in the CLINs.

 

  1. Each prime contractor is free to propose the solutions that they believe will meet the FirstNet requirements. All of them could propose VirnetX technology and price the CLINs accordingly.

 

The takeaway message is as follows:

 

The VirnetX technology licensing in the FirstNet contract can be handled by the prime contractor by pricing all of the deliverables in CLINS using FRAND pricing. If the prime contractor is SAIC there is no need for separate licensing agreements with all of the other subcontractors because it will be handled under the FAR. The same would be true if Siemens is the prime. Any other prime who bids VirnetX technology would need to negotiate FRAND pricing. I believe the FirstNet CLINs would show the pricing for these types of VirnetX technologies:

 

  1. Secure domain name service. This could be either in licensing or in providing the secure domain name fileservers and maintaining the registry. Each secure domain (there will be potentially thousands) will have a dedicated Home Subscriber System (HSS) collection of fileservers requiring licensed software (see the White Paper for more details).

 

  1. Licensing of the security software for the edge servers that control domain to domain communications.

 

  1. Gabriel for secure multimedia services.

 

  1. Licensing of security software modules for all mobile handsets and other user equipment (potentially millions of multimedia devices).

 

This are all my opinions and best regards to all.