Application of 18 U.S.C. § 209 to Employee-Inventors Who

Receive Outside Royalty Payments

A federal governm ent em ployee w ho obtains patent rights to an invention made in the course of 

federal em ploym ent ordinarily does not violate 18 U S.C. §209 by licensing the patent rights to 

a private entity and receiving royalty payments in exchange

September 7, 2000

M e m o r a n d u m O p in io n fo r t h e D ir e c t o r

O f f ic e o f G o v e r n m e n t E t h ic s

Y o u have asked for our opinion whether a federal government employee who 

obtains patent rights to an invention made in the course of federal employment 

violates 18 U.S.C. §209 by licensing the patent rights to a private entity and 

receiving royalty payments in exchange. See Letter for Randolph D. Moss, Acting 

Assistant Attorney General, Office of Legal Counsel, from Stephen D. Potts, 

Director, Office of Government Ethics (Oct. 19, 1999) (“ Potts letter” ). We conclude that § 209 ordinarily does not ban outside royalty payments to employeeinventors.

I.

Section 209(a) states:

Whoever receives any salary, or any contribution to or 

supplementation of salary, as compensation for his services as an 

officer or employee of the executive branch of the United States 

Government, of any independent agency of the United States, or 

of the District of Columbia, from any source other than the Government of the United States, except as may be contributed out of 

the treasury of any State, county, or municipality; or

Whoever, whether an individual, partnership, association, corporation, or other organization pays, or makes any contribution to, 

or in any way supplements the salary of, any such officer or 

employee under circumstances which would make its receipt a violation of this subsection shall be subject to the penalties set forth 

in section 216 of this title.

18 U.S.C. § 209(a) (1994). This provision, as the Court of Appeals for the Ninth 

Circuit has explained, bars “(1) an officer or employee of the executive branch 

or an independent agency of the United States government from (2) receiving

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Application o f 18 U.S.C. §209 to Employee-lnventors Who Receive Outside Royalty Payments

salary or any contribution to or supplementation of salary from (3) any source 

other than the United States (4) as compensation for services as an employee 

of the United States.” United States v. Raborn, 575 F.2d 688, 691-92 (9th Cir. 

1978). You have asked us to focus on the third and fourth elements, see Potts 

letter at 2, and we accordingly assume that the first two elements — that an 

employee-inventor is an “ officer or employee of the executive branch” or an 

“ independent agency,” and that royalty payments constitute a “ contribution to 

or supplementation of salary” — would be established here.

The government has the right to obtain the “ entire right, title and interest in 

and to all inventions made by any Government employee (1) during working 

hours, or (2) with a contribution by the Government of facilities, equipment, materials, funds, or information, or of time or services of other Government employees 

on official duty, or (3) which bear a direct relation to or are made in consequence 

of the official duties of the inventor.” Exec. Order No. 10096, 3 C.F.R. 292 

(1949-1953 comp.). If an agency determines that the government’s contribution 

to the employee’s invention is “ insufficient equitably to justify” the government’s 

obtaining all rights to the invention, or that the agency has “ insufficient interest” 

in the invention, it “ shall leave title to such invention in the employee,” subject 

to an irrevocable, nonexclusive license to the government. Id. We understand that 

employee-inventors who are allowed to retain patent rights in their inventions 

often enter into licensing agreements with private entities, under which they 

receive royalty payments. See Potts letter at 1. In some instances, an employeeinventor may continue to develop the invention as part of his or her job responsibilities and may participate in a cooperative research and development agreement 

(“ CRADA” ) between the agency and a private entity. See id.

II.

You have suggested that the third element of a § 209 violation — receipt of paym ent/raw a source other than the United States — might not be satisified here 

because the government could be deemed the source of outside royalty payments 

to employee-inventors. See Potts letter at 2-3; see also 18 U.S.C. § 209(a) (forbidding salary supplementation “ from any source other than the Government of the 

United States” ). We do not believe that this argument can be sustained.

The closest analogue appears to be set out in an opinion of our Office from 

1993. There, we considered the government’s practice, under the Federal Technology Transfer Act (“ FTTA” ), 15 U.S.C. §§3701-3717 (1994 & Supp. IV 

1998), of sharing with an employee-inventor the royalties that the government 

received from licensing the employee’s invention. These payments to the 

employee, we concluded, did not place the employee in the position of violating

18 U.S.C. §208, which generally forbids an employee from working on a par171
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ticular matter in which he or she has a financial interest.1 See Ethics Issues Related

to the Federal Technology Transfer A ct o f 1986, 17 Op. O.L.C. 47, 50 (1993). 

The F IT A, as then written, required government agencies to “ pay at least 15 

percent of the royalties or other income the agency receives on account of any 

invention to the inventor . . . if the inventor . . . assigned his or her rights in 

the invention to the United States.” 15 U.S.C. § 3710c(a)(l)(A)(i) (1994). Because 

the government paid the royalties at issue, we determined that they did not constitute an outside financial interest implicating §208. See 17 Op. O.L.C. at 50- 

5 1.2 Although the opinion primarily dealt with §208, we also concluded, on the 

same reasoning, that employees receiving such payments would not violate 

§ 209(a). See id. at 51.

Here, although private entities pay the royalties, employee-inventors acquire 

patent rights only because the government has decided not to exercise its right 

to obtain title. See Potts letter at 3. We agree, therefore, that the royalties come 

from the government in an indirect sense. Nonetheless, the royalties at issue in 

our 1993 opinion came directly from the government and indirectly from a private 

source; here the converse is true. See 17 Op. O.L.C. at 51 (“ Since an employee 

receives section 7 payments from the federal agency holding the rights to the 

invention, the payments are not subject to §209(a)’s prohibition.” ). Rather than 

incidentally benefitting by receiving a portion of the royalties from an agreement 

between the government and a private entity, employee-inventors in the present 

case are themselves entering into licensing agreements to which the government 

is not a party. The payments here are thus critically different from those addressed 

in our 1993 opinion. Here, the indirect connection between the government and 

the royalty payments cannot negate their direct connection to a nongovernmental 

source. Accordingly, we conclude that the third element of §209 could be met, 

and we turn to the fourth element.

1 Section 208(a) states.

Except as permitted by subsection (b) hereof, whoever, being an officer or employee of the executive 

branch of the United States Government, or of any independent agency of the United States, a Federal 

Reserve bank director, officer, or employee, or an officer or employee of the District of Columbia, including 

a special Government employee, participates personally and substantially as a Government officer or 

employee, through decision, approval, disapproval, recommendation, the rendering of advice, investigation, 

or otherwise, in a judicial or other proceeding, application, request for a ruling or other determination, 

contract, claim, controversy, charge, accusation, arrest, or other particular matter in which, to his knowledge, 

he, his spouse, minor child, general partner, organization in which he is serving as officer, director, trustee, 

general partner or employee, or any person or organization with whom he is negotiating or has any arrangement concerning prospective employment, has a financial interest [s]hall be subject to [specified] penalties

18 U S C § 208(a) (1994)

2 We reasoned that such payments would become part of the inventor’s federal employment contract, would necessarily be known to the government, and therefore would not implicate the central concerns of §208. See id.

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Application o f 18 U.S.C. § 209 to Employee-inventors Who Receive Outside Royalty Payments

III.

You have expressed the concern that outside royalty payments might be viewed 

as compensation “ for the employee’s past or present services to the Government 

in developing the invention.” Potts letter at 6. We recognize that the statute might 

be given that interpretation. Nonetheless, we believe that, on the better view, the 

payments would not meet this element of the statute.

In a 1997 opinion, we interpreted §209 to require an “ intentional, direct link” 

between the outside compensation and the employee’s government service. 

Applicability of 18 U.S.C. §209 to Acceptance by FBI Employees of Benefits

Under the “Make a Dream Come True” Program, 21 Op. O.L.C. 204, 206 

(1997). We did not read §209 to prohibit “ all non-government payments to an 

individual where there is any nexus between the payment and the individual’s 

employment by the government.” Id. at 209. We largely relied on an amendment 

of the provision in 1962, by which Congress deleted the phrase “ in connection 

with” from the earlier version and substituted the “ as compensation for” language. Congress made this change because the former phrase was thought ambiguous and “ capable of an infinitely broad interpretation.” Id. at 206 (citing H.R. 

Rep. No. 87-748, at 13, 25 (1961)). “ The amendment was designed to clarify 

that there must be a direct link between the contribution to or supplementation 

of salary and the employee’s services to the government.” Id. (emphasis added).

No intentional, direct link between an employee-inventor’s government services 

and the licensing of patent rights would typically exist here. Our 1997 opinion 

identified several factors that should be taken into consideration when construing 

the ‘ ‘as compensation for’ ’ requirement of § 209, where the existence of an intentional, direct link is unclear. Those factors include:

(1) whether there is a substantial relationship or pattern of dealings 

between the agency and the payor; (2) whether the employee is 

in a position to influence the government on behalf of the payor;

(3) whether the expressed intent of the payor is to compensate for 

government service; (4) whether circumstances indicate that the 

payment was motivated by a desire other than to compensate the 

employee for her government service . . .; (5) whether payments 

would also be made to non-government employees; and (6) whether 

payments would be distributed on a basis unrelated to government 

service.

Id.

Three of these factors support the conclusion that outside royalty payments generally are not intended to be compensation for government services. It is unlikely 

that a payor would expressly indicate an intent “ to compensate for government 

service.” Id. (third factor). To the contrary, the circumstances typically would

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indicate that the payor “ was motivated by a desire other than to compensate the 

employee for her government service” Id. (fourth factor) — the desire to obtain 

property rights to an invention that it views as valuable. This value would not 

normally come from the fact that the employee-inventor developed his or her 

invention while working as a government employee. Presumably, a payor would 

be just as interested in acquiring rights to such an invention if the inventor were 

not a federal employee. Moreover, the payments “ would be distributed on a basis 

unrelated to government service.” Id. (sixth factor). They would not be calibrated 

to reflect the amount of government time the employee devoted to developing 

the invention but only to the value of the invention. In sum, these factors point 

to the conclusion that payors would not be compensating employee-inventors for 

government service, but instead would be motivated by the economic advantages 

of securing property rights to a potentially valuable invention. “ This Department 

has consistently construed § 209(a) and its predecessor, 18 U.S.C. § 1914, to forbid 

only payments intended to serve as additional compensation to an individual for 

undertaking or performing government service.” See Gifts Received on Official

Travel, 8 Op. O.L.C. 143, 144 (1984) (citing 41 Op. Att’y Gen. 217, 221 (1955); 

39 Op. Att’y Gen. 501, 503 (1940)) (emphasis added) (internal quotation marks 

omitted).

One other factor— “ whether payments would also be made to non-government 

employees” — at the least would not point to the contrary conclusion. We have 

not been apprised of any situation in which a particular licensee has entered into 

licensing agreements only with government-employed inventors, or in which, in 

instances where patent rights are held jointly by a federal employee and another 

inventor who is not employed by the federal government, a licensee has paid 

a disproportionately large share of the royalties to the federal employee.

The two remaining factors set forth in our 1997 opinion— “ whether there is 

a substantial relationship or pattern of dealings between the agency and the payor” 

and “ whether the employee is in a position to influence the government on behalf 

of the payor,” 21 Op. O.L.C. at 206 — may be applicable to some, though not 

all, licensing arrangements between a private entity and a government employee. 

Even in those circumstances in which these factors are present, however, we 

believe the independent prohibition in 18 U.S.C. §208 should ensure that royalty 

payments are not made “ as compensation for” the employee-inventor’s government services. These two factors follow from the Supreme Court’s explication 

of § 209 in Crandon v. United States, 494 U.S. 152, 158 (1990). The Crandon

Court observed that § 209 was intended to prevent an outside payor from having 

a “ hold on the employee deriving from his ability to cut off one of the employee’s 

economic lifelines,” and to address the tendency of an employee “ to favor his 

outside payor even though no direct pressure is put on him to do so.” Id. at

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Application o f 18 U.S.C. §209 to Employee-inventors Who Receive Outside Royalty Payments

165 (quoting Association of the Bar of the City of New York, Conflict o f Interest

and Federal Service 211 (I960)) (internal quotation marks omitted).3

Where a private entity purchases the right to use a government employee’s valuable patent rights and the employee does no further work relating to the patent, 

neither the “ substantial relationship” nor the “ position to influence” factors 

should typically apply. In such situations, therefore, royalty payments would not, 

absent unusual circumstances, constitute “ compensation for” government services. According to your letter, however, in some cases, “ employee[-inventor]s 

may continue to work, as part of their official duties, on certain aspects of the 

product or process for which they have been permitted to obtain certain patent 

rights. This additional work may include, among other things, technical improvements to the invention or research on new uses for the invention.” Potts letter 

at 1; see also 17 Op. O.L.C. at 47 (discussing this practice). When the government 

and the payor are collaborating through a CRADA, there would likely be a 

“ substantial relationship or pattern of dealings between the agency and the 

payor.” 21 Op. O.L.C. at 206. Even when there is no CRADA, concerns may 

be raised if in developing or refining the invention the employee-inventor “ is 

in a position to influence the government on behalf of the payor.” Id.

Nevertheless, in the context of employee-inventors who receive outside royalty 

payments, these concerns are largely eliminated by the independent prohibition 

of §208. C f Crandon, 494 U.S. at 166 (noting that “ the [§209] concern that 

the employee might tend to favor his former employer” can be addressed by 

“ other rules [that] disqualify the employee from participating in any matter 

involving a former employer” ). Section 208 requires employee-inventors to recuse 

themselves from agency actions when they have a financial interest in a particular 

matter. Section 208 thus bars employee-inventors who receive outside royalty payments from continuing to participate in research concerning their inventions, 

including CRADAs. See 17 Op. O.L.C. at 53. This prohibition on participation 

in matters in which employee-inventors have financial interests prevents them 

from being “ in a position to influence the government on behalf of the payor,” 

even if “ there is a substantial relationship or pattern of dealings between the 

agency and the payor.” 21 Op. O.L.C. at 206.4]

To be sure, §208 may be waived “ upon a written determination that the disqualifying interest of the employee is ‘not so substantial as to be deemed likely 

to affect the integrity of the services which the government may expect’ from 

the employee.” See Waiver of the Application of Conflict of Interest Laws for

3 The Court noted that §209 is also aimed at preventing the “ suspicion and bitterness among fellow employees 

and other observers” that can occur when employees are receiving compensation from outside sources Id.

4 We do not address whether there could be facts under which an employee-inventor would have a financial interest 

under §208 before licensing an invention However, although our 1993 opinion did not reach this issue, it noted 

that after the government decides not to take up foreign patent nghts (but before the employee-inventor licenses 

those nghts), the employee-inventor’s possession of foreign patent nghts “ consitute[sJ an integral part of the FTTA 

incentive program created by Congress” and “ that §208 can and should be interpreted as consistent with the provisions of the FTTA.” 17 Op O L C . at 50, 53

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Members o f the President’s Commission on Strategic Forces, 1 Op. O.L.C. 10, 

12-13 (1983) (quoting 18 U.S.C. § 208(b)). Nevertheless, although that determination is left to the discretion of the official who appointed the employee, “ [i]t 

is the responsibility of that official to exercise his considerable discretion soundly 

and in good faith, after a careful and thorough consideration of all of the pertinent 

facts.” Id. at 14-15. In these circumstances, possible concerns about the divided 

loyalty of an employee are adequately addressed under § 208, including the standards for waivers. See 5 C.F.R. § 2640.301 (2000).

In view of § 208, a broad interpretation of § 209 would not advance any statutory 

purpose. Cf. Beth Nolan, Public Interest, Private Income: Conflicts and Control

Limits on the Outside Income of Government Officials, 87 NW. U. L. Rev. 57, 

80 (1992) ( “ The law prohibits not private gain per se, but rather prohibits private 

gain that impairs the integrity of services provided to the government, that creates 

the appearance of misuse of government office, or that requires others to pay 

to receive access to or services from the government.” ). Indeed, a ban on 

employee-inventors’ receiving any royalties from their inventions might well run 

counter to congressional intent. As the Crandon Court recognized, § 209 was not 

intended to “ impair the ability of the Government to recruit personnel of the 

highest quality and capacity.” 494 U.S. at 166 (quoting Message from the President of the United States Relative to Ethical Conduct in the Government, H.R. 

Doc. No. 145, 87th Cong., 1st Sess. 2 (1961)). We understand that a ban on 

outside royalties could impede, perhaps severely, the government’s ability to 

attract and retain talented employees in the relevant labor markets because it 

would increase the already considerable income gap between private and public 

sector employment. See Potts letter at 12 (“ The application of section 209 to 

this situation would mean that employee-inventors would have to leave Government if they wanted to commercialize patents obtained under section 8” of the 

FTTA.); c f Crandon, 494 U.S. at 167 n.22 (“ The reach of [§209’s predecessor] 

had long been recognized as a serious obstacle to recruitment of men for government office . . . .” ).

An overly broad interpretation of §209 would also frustrate the purposes of 

the FTTA. Congress passed the FTTA to increase use of federally-developed technology by the private sector in order “ to improve the economic, environmental, 

and social well-being of the United States.” 15 U.S.C. §3702. Congress expected 

employee-inventors to obtain and exploit patent rights to their inventions when 

the government opted not to retain its rights. See S. Rep. No. 99-283, at 14 (1986), 

reprinted in 1986 U.S.C.C.A.N. 3442, 3456. As we observed in our opinion interpreting §208 and the FTTA, “ [i]t is well settled that statutes must be construed 

as consistent if possible.” 17 Op. O.L.C. at 50 (citing Watt v. Alaska, 451 U.S. 

259, 266-67 (1981) and Patterson v. McLean Credit Union, 491 U.S. 164, 181 

(1989)). “ [A] specific policy embodied in a later federal statute should control 

our construction of the [earlier] statute, even though it ha[s] not been expressly

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Application o f 18 U.S C. §209 to Employee-inventors Who Receive Outside Royalty Payments

amended.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 143 

(2000) (quoting United States v. Estate o f Romani, 523 U.S. 517, 530-31 (1998)); 

see also Patterson, 491 U.S. at 181 (stating that courts should hesitate to “ read 

an earlier statute broadly where the result is to circumvent” a later-enacted statutory scheme). If § 209 were interpreted to prohibit employee-inventors from 

licensing their inventions to private entities, the exploitation of those inventions 

would languish because employees would have little incentive to “ move the[ir] 

invention[s] into the private sector.” S. Rep. No. 99-283, at 14, reprinted in 1986 

U.S.C.C.A.N. at 3456. Such a construction would hinder one of the FTTA’s purposes.5

Finally, to the extent that the “ as compensation for services” language of §209 

is ambiguous, it should be interpreted in light of the rule of lenity. See Crandon,

494 U.S. at 182-83 (Scalia, J., concurring in the judgment) (referring to that language as a “ troublesome phrase” devoid of a “ clear and constant meaning” ); 

id. at 178 (describing administrative interpretations of the phrase as “ unpredictable” ); see also Nolan, supra, at 102 (describing §209’s meaning as “ uncertain” 

and noting that “ interpretations of section 209 and its predecessors have sometimes been tortured” ). Interpreting different language in §209, the Crandon Court 

looked to this “ time-honored interpretive guideline” that ambiguities in criminal 

statutes should be construed narrowly because of the due process requirement of 

“ fair warning of the boundaries of criminal conduct.” Crandon, 494 U.S. at 158 

(quoting Liparota v. United States, 471 U.S. 419, 427 (1985)). In general, 

“ [cjriminal statutes should be given the meaning their language most obviously 

invites. Their scope should not be extended to conduct not clearly within their 

terms.” United States v. Williams, 341 U.S. 70, 82 (1951) (plurality opinion).

Conclusion

We therefore conclude that, in the usual case, § 209 does not bar employeeinventors from receiving outside royalties. As you observe in your letter, ‘ ‘in any 

section 209 analysis, the facts of individual cases would have to be examined.” 

Potts letter at 11 n.7. In the typical case, however, we do not think that outside 

royalties would be paid “ as compensation for [the employee-inventor’s] services 

as an officer or employee of the executive branch.” 18 U.S.C. § 209(a).

RANDOLPH D. MOSS 

Assistant Attorney General

Office of Legal Counsel

5 As you note, the legislative history of ihe FTTA indicates that Congress intended to “ make no changes in 

the conflict of interest laws affecting Federal employees or former Federal employees ” Potts letter at 5 (quoting

S Rep. No 99-283, at 10, reprinted in 1986 U S C.C A N at 3451) As discussed above, however, we believe 

that §209 is best read as ordinarily not bam ng outside royalty payments. On this view, it was not necessary for 

Congress to amend that section when it enactcd the FTTA.

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