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PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT COMMUNICATION

CALDERWOOD & HARKNESS LLP

399 Park Avenue, 31st Floor New York, NY 10022

1750 K Street NW, Suite 800 Washington, DC 20006

MEMORANDUM

TO: Beatrice Holloway, Responsible Partner, Mergers & Acquisitions Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls

FROM: Omar Siddiqui, Lead Associate, intellectual Property Christy Bauer, Working Associate, intellectual Property

DATE: September 29, 2023

RE: Government Rights in Subject Inventions — Marlowe Asset Management Photonics Inc. Patent Portfolio; Impact of Bayh-Dole Act and DFARS Clauses on Post-Acquisition Commercialization

MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. Acquisition — CFIUS Filing & IP Diligence

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I. Executive Summary

This memorandum analyzes the scope and implications of United States government rights in the patent portfolio of Marlowe Asset Management Photonics Inc. ("VPI"), with particular focus on the twenty-three (23) of VPI's forty-seven (47) granted U.S. patents that were developed in whole or in part under federally funded contracts and therefore constitute "Subject Inventions" within the meaning of the Bayh-Dole Act, 35 U.S.C. §§ 200–212. This analysis is being provided in connection with the pending acquisition of VPI by Halcyon Semiconductor AG ("HSAG") and the associated CFIUS filing and IP diligence workstreams.

Our review has produced the following principal findings:

The twenty-three government-funded patents span all three of VPI's key patent families — the GaN-on-SiC Epitaxial Growth Process Family, the HEMT Gate Structure Optimization Family, and the mmWave Broadband Matching Network Family. These patents were developed under government-funded contracts with the U.S. Army Program Executive Office for intelligence, Electronic Warfare & Sensors ("PEO IEW&S"), the U.S. Air Force Research Laboratory ("AFRL"), the Missile Defense Agency ("MDA"), and the Department of Homeland Security Science and Technology Directorate ("DHS S&T"). In the aggregate, the active DoD contracts from which these Subject Inventions arose carry a remaining backlog of approximately $193 million.

The U.S. government retains the following rights in each Subject Invention, each of which will survive the proposed acquisition and cannot be extinguished or modified by the transaction:

First, the government retains a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced each Subject Invention throughout the world, pursuant to 35 U.S.C. § 202(c)(4). This license is perpetual and runs with the patents regardless of changes in ownership.

Second, the funding agencies retain march-in rights under 35 U.S.C. § 203, which may be exercised in certain circumstances — most notably where the contractor or its successor has not taken effective steps to achieve practical application of the Subject Invention, or has failed to comply with domestic manufacture requirements.

Third, the domestic manufacture preference under 35 U.S.C. § 204 requires that any exclusive license to use or sell a Subject Invention in the United States include a commitment that products embodying or produced through the use of the Subject Invention will be manufactured substantially in the United States. This provision is directly relevant to HSAG's contemplated integration of VPI's technologies into its global semiconductor manufacturing platform.

Fourth, DFARS 252.227-7038, which is incorporated into VPI's DoD contracts, imposes additional reporting and rights obligations specific to DoD-funded inventions, including enhanced utilization reporting and the government's right to file foreign patent applications in jurisdictions where VPI has not sought protection.

We have confirmed that all iEdison reporting obligations have been satisfied. VPI's records, as supplemented by the records provided by VPI's VP Government Programs, Col. (Ret.) Bryce Hendrickson, and CFO Derek Wainsborough, and as verified by Arbor & Greenfield LLP (VPI's independent auditor, engagement partner Joan Greenfield) during the course of financial diligence, indicate that all invention disclosures, elections of title, patent application filings, and utilization reports have been timely submitted through the Interagency Edison (iEdison) system. No deficiencies, late filings, or government title-reversion risks have been identified.

These government rights create material constraints on HSAG's ability to commercialize VPI's intellectual property internationally, particularly in non-allied markets. The constraints interact significantly with the National Security Agreement ("NSA") and Technology Control Plan ("TCP") restrictions currently under negotiation with CFIUS, creating a multi-layered compliance regime that HSAG must navigate with care.

We recommend that HSAG structure its post-closing IP commercialization strategy with full awareness of these government rights. In particular, any cross-border technology sharing with HSAG's parent entity in Dresden, Germany, or with HSAG's non-U.S. affiliates, will require careful navigation of both Bayh-Dole restrictions and NSA/TCP obligations, as well as compliance with applicable ITAR and EAR export control requirements. The balance of this memorandum sets forth our detailed analysis and specific mitigation recommendations.

II. Scope of Review and Methodology

A. Documents Reviewed

In preparing this memorandum, we reviewed the following categories of documents and records:

1. VPI Patent Portfolio. We reviewed VPI's complete patent portfolio of forty-seven (47) granted U.S. patents and twelve (12) pending U.S. patent applications. Our review encompassed the patent specifications, claims, prosecution histories, and assignment records for each patent and application. We also reviewed the government-support acknowledgment legends on the face of each issued patent.

2. Underlying Government Contracts. We reviewed the fourteen (14) active DoD contracts — comprising both prime contracts and subcontracts — under which VPI is currently performing. These contracts have an aggregate remaining backlog of approximately $193 million. We examined the full contract instruments, including all modifications, statements of work, and data rights clauses. Particular attention was directed to the patent rights provisions incorporated by reference or by full text into each contract.

3. Contract Data Rights Clauses. We reviewed the specific DFARS data rights clauses incorporated into each government contract, with particular focus on DFARS 252.227-7038 ("Patent Rights — Ownership by the Contractor (Large Business)") and related DFARS provisions governing technical data and computer software rights.

4. iEdison System Records. We obtained and reviewed VPI's complete iEdison filing records for all Subject Inventions. These records were provided by Col. (Ret.) Bryce Hendrickson, VPI's Vice President of Government Programs and Facility Security Officer, and Derek Wainsborough, VPI's Chief Financial Officer. The records include initial invention disclosures, elections of title, patent application filings, patent issuance notifications, and periodic utilization reports.

5. Invention Disclosure Logs. We reviewed VPI's internal invention disclosure logs, which are maintained as part of VPI's trade secret management program. The logs cover all inventions disclosed by VPI personnel, including both Subject Inventions and privately funded inventions. VPI currently maintains thirty-one (31) registered internal trade secrets, many of which relate to manufacturing processes and epitaxial recipes that overlap with the patented technologies at issue.

6. Ancillary Documents. We reviewed relevant contract modifications, patent assignment records (including all assignments recorded at the U.S. Patent and Trademark Office), government correspondence (including contracting officer communications regarding patent rights elections), and VPI's standard operating procedures for government contract compliance.

B. Interviews Conducted

We conducted substantive interviews with the following VPI personnel:

1. Dr. Nathan Trevorrow, Founder and Chief Executive Officer of VPI, who holds a TS/SCI security clearance. Dr. Trevorrow provided a comprehensive account of the history of VPI's government-funded research and development programs, including the genesis of each patent family and the relationship between government-funded and privately funded research streams. Dr. Trevorrow was instrumental in identifying the specific government contracts under which particular inventions were conceived or first actually reduced to practice.

2. Col. (Ret.) Bryce Hendrickson, Vice President of Government Programs and Facility Security Officer, who holds a TS/SCI security clearance. Col. Hendrickson addressed VPI's contract compliance program, its iEdison filing procedures, and its internal protocols for identifying and reporting Subject Inventions. Col. Hendrickson also discussed VPI's interaction with government contracting officers regarding patent rights elections and utilization reporting, and provided context regarding VPI's DCSA-managed classified facility at the Albuquerque, New Mexico campus.

3. Marissa Sung-Avila, President and Chief Operating Officer, who holds a SECRET security clearance. Ms. Sung-Avila discussed VPI's manufacturing processes and government-funded fabrication activities at VPI's Albuquerque facility, located at 9200 Innovation Boulevard, Albuquerque, NM 87113. Her testimony was particularly relevant to the § 204 domestic manufacture analysis, as she confirmed that all production of defense-related GaN-on-SiC components currently takes place at the Albuquerque fab.

C. Coordination with Outside Counsel

We coordinated our review with Wethersfield & Gale LLP, VPI's longstanding outside counsel for government contracts and national security matters. Harrison Whitfield, lead partner in Wethersfield & Gale's Government Contracts & National Security practice, confirmed VPI's historical compliance with Bayh-Dole reporting obligations and provided background on VPI's interactions with government contracting officers regarding Subject Invention disclosures. Wethersfield & Gale's independent assessment of VPI's iEdison filing history was consistent with our findings.

D. Legal Framework

Our analysis is grounded in the following legal authorities:

• The Bayh-Dole Act, 35 U.S.C. §§ 200–212;

• The implementing regulations promulgated by the Department of Commerce, 37 C.F.R. Part 401;

• DFARS 252.227-7038, "Patent Rights — Ownership by the Contractor (Large Business)";

• Related DFARS data rights clauses, including DFARS 252.227-7013 (Rights in Technical Data — Noncommercial Items) and DFARS 252.227-7014 (Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation); and

• Relevant agency guidance and case law interpreting the foregoing provisions.

III. The Bayh-Dole Act Framework — Overview

A. Statutory Purpose and Applicability

The Bayh-Dole Act, codified at 35 U.S.C. §§ 200–212, establishes a uniform patent policy governing inventions arising from federally funded research and development. Section 200 articulates the Congressional policy objectives underlying the Act, which include: (i) promoting the utilization of inventions arising from federally funded research; (ii) encouraging maximum participation of small business firms in federally supported research and development efforts; (iii) promoting collaboration between commercial concerns and nonprofit organizations, including universities; (iv) ensuring that the government obtains sufficient rights in federally supported inventions to meet the needs of the government and protect the public against nonuse or unreasonable use of inventions; and (v) minimizing the costs of administering policies in this area.

The Bayh-Dole Act applies to any "Subject Invention," which is defined in 35 U.S.C. § 201(e) as any invention of the contractor conceived or first actually reduced to practice in the performance of work under a "funding agreement" with a federal agency. A "funding agreement" is defined broadly under § 201(b) to include any contract, grant, or cooperative agreement entered into between a federal agency and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the federal government.

VPI is a small-to-midsize defense contractor with approximately 486 employees and fiscal year 2022 revenue of $287.4 million. VPI was incorporated on February 14, 2009, in the State of Delaware, and has performed on U.S. government contracts since approximately 2011, which is the year VPI first registered with the Directorate of Defense Trade Controls ("DDTC") under Registration No. M-24817. VPI currently holds fourteen (14) active DoD contracts — including both prime contracts and subcontracts — with an aggregate remaining backlog of approximately $193 million. The Bayh-Dole Act applies to all Subject Inventions made by VPI under these funding agreements.

As a for-profit entity that is not a small business concern for Bayh-Dole purposes (VPI exceeded the relevant SBA size standard thresholds as of fiscal year 2020), VPI's rights under the Bayh-Dole Act are governed by the specific contract provisions negotiated with each funding agency, as informed by the standard patent rights clauses prescribed in the implementing regulations. For DoD contracts, the operative clause is DFARS 252.227-7038, discussed in detail in Section V below.

B. Contractor's Right to Elect Title — 35 U.S.C. § 202

Under 35 U.S.C. § 202(a), a contractor that receives title to a Subject Invention may elect to retain such title, subject to the government's retained rights set forth in the statute. The right to elect title is not automatic; rather, the contractor must comply with the procedural requirements set forth in § 202(c)(1) through (c)(3).

Specifically, § 202(c)(1) requires the contractor to disclose each Subject Invention to the funding agency within a reasonable time after it becomes known to the contractor. The implementing regulations and standard contract clauses typically require written disclosure to the agency within two months after the invention is disclosed by the inventor to the contractor's responsible person (e.g., the company's patent counsel or designated official). Section 202(c)(2) requires the contractor to make a written election to retain title within two years of disclosure to the agency, or such longer period as the agency may approve. Section 202(c)(3) requires the contractor to file a patent application on the Subject Invention within one year of electing title, or within any statutory bar period, whichever is earlier.

Our review of VPI's records confirms that VPI has elected to retain title to all twenty-three (23) Subject Inventions identified in this memorandum. VPI's elections of title were timely made for each Subject Invention in accordance with the statutory and contractual requirements. In each instance, VPI's internal invention disclosure process — managed by Col. (Ret.) Hendrickson and VPI's patent committee — captured the invention at the point of conception or first actual reduction to practice, and the required disclosures and elections were filed through the iEdison system within the applicable deadlines. We found no instances of late filings or procedural deficiencies that could give rise to a government title-reversion claim.

C. Government License Rights — 35 U.S.C. § 202(c)(4)

Section 202(c)(4) of the Bayh-Dole Act provides that the funding agreement shall contain a provision requiring the contractor to grant to the federal government a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States each Subject Invention throughout the world. This is commonly referred to as the "government purpose license."

The scope of this license merits careful attention in the context of the HSAG acquisition. The government purpose license is a worldwide license that permits the U.S. government to use the patented technology in two ways: (i) through its own employees, and (ii) through third-party contractors acting on the government's behalf (i.e., the "have practiced" prong). This latter prong means that the government may direct or authorize any contractor to practice the Subject Invention in the course of performing government work, without the need to obtain VPI's consent or pay any royalties.

The government purpose license is, however, limited to governmental purposes. It does not grant the government the right to commercially license the Subject Invention technology to third parties for non-governmental commercial use. The distinction between government-purpose use and commercial use is generally well-understood, although fact-specific questions can arise at the margins — for example, where a government contractor uses a Subject Invention in the performance of a government contract but also derives commercial benefits from the resulting products or processes.

The significance of the government purpose license for HSAG cannot be overstated. The license is nonexclusive, nontransferable, irrevocable, and paid-up. It cannot be terminated, waived, or restricted by the change in ownership of VPI. It survives the acquisition and runs with the patents. From HSAG's perspective, this means that the U.S. government will continue to hold a perpetual, royalty-free license to all twenty-three Subject Inventions following the closing of the transaction. While this does not prevent HSAG or VPI from commercializing the Subject Inventions, it does mean that HSAG cannot exclude the U.S. government from practicing those inventions for governmental purposes, and HSAG cannot demand royalties from the government or government contractors for such use.

D. March-In Rights — 35 U.S.C. § 203

The Bayh-Dole Act also confers upon the funding agency so-called "march-in rights," pursuant to 35 U.S.C. § 203. March-in rights authorize the funding agency to require the contractor (or its successors or assignees, including HSAG post-closing) to grant a nonexclusive, partially exclusive, or exclusive license to a "responsible applicant" on "reasonable terms." If the contractor refuses to comply, the agency may grant the license itself.

The statute identifies four triggering conditions for the exercise of march-in rights:

(1) The contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the Subject Invention in any field of use (§ 203(1));

(2) Action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees (§ 203(2));

(3) Action is necessary to meet requirements for public use specified by federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or their licensees (§ 203(3)); and

(4) The agreement required by § 204 (domestic manufacture preference) has not been obtained or waived, or the contractor or assignee has breached that agreement (§ 203(4)).

As a practical matter, march-in rights have been invoked very rarely in the decades since the Bayh-Dole Act was enacted. No federal agency has successfully exercised march-in rights to date. The National Institute of Standards and Technology ("NIST"), which administers the Bayh-Dole implementing regulations, has received a number of march-in petitions, but all such petitions have been denied or withdrawn. This track record suggests that the practical risk of a march-in is low under ordinary circumstances.

However, the theoretical risk of march-in activity increases in the context of a foreign acquisition. If HSAG acquires VPI and is perceived by the relevant funding agencies as failing to maintain practical application of the Subject Inventions in the United States — for example, by shifting manufacturing to HSAG's Dresden or other overseas facilities, or by allowing VPI's government contract programs to wind down without replacement — the funding agencies may have grounds to initiate march-in proceedings under § 203(1). Similarly, if HSAG fails to comply with the domestic manufacture preference under § 204, the agencies may invoke § 203(4).

This risk is not merely theoretical in the present context. The acquisition of a U.S. defense technology company by a foreign entity inherently draws attention from government agencies, and the CFIUS process itself reflects heightened scrutiny of the transaction's implications for national security. HSAG should assume that the funding agencies — particularly the U.S. Army, AFRL, and MDA — will be monitoring VPI's post-closing operations to ensure continued practical application of Subject Inventions and compliance with § 204.

To mitigate march-in risk, HSAG must ensure continued domestic manufacturing and commercialization of Subject Inventions, maintain VPI's government contract programs, and demonstrate active steps toward practical application of the funded technologies. These objectives are broadly consistent with the requirements of the NSA under negotiation, which imposes operational continuity obligations on HSAG as a condition of CFIUS clearance. The Technology Control Plan provisions will further support compliance by restricting the transfer of Subject Invention technology to non-U.S. persons and entities.

E. Domestic Manufacture Preference — 35 U.S.C. § 204

Section 204 of the Bayh-Dole Act provides that no small business firm or nonprofit organization which receives title to any Subject Invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any Subject Invention in the United States unless such person agrees that any products embodying the Subject Invention or produced through the use of the Subject Invention will be manufactured substantially in the United States. Although by its terms § 204 refers to small business firms and nonprofit organizations, the standard patent rights clauses incorporated into VPI's DoD contracts — including DFARS 252.227-7038 — extend substantially similar domestic manufacture requirements to large business contractors as well. In practice, the domestic manufacture preference applies to VPI and its successors with respect to all Subject Inventions.

The domestic manufacture requirement may be waived by the funding agency upon application by the contractor. A waiver may be granted upon a showing that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would manufacture substantially in the United States, or that under the circumstances domestic manufacture is not commercially feasible. Waiver applications are evaluated on a case-by-case basis, and there is no guarantee that a waiver will be granted.

The § 204 restriction has direct implications for HSAG's post-acquisition commercialization strategy. If HSAG seeks to commercialize VPI's government-funded technologies through its European manufacturing facilities — HSAG's headquarters and principal fabrication facility are located at Industriestraße 44, 01099 Dresden, Saxony, Germany — or through any non-U.S. subsidiary, the § 204 domestic manufacture preference would restrict HSAG from granting exclusive licenses in the U.S. market for products made at those facilities, unless a waiver is first obtained from the relevant funding agency.

It is important to note, however, that the § 204 restriction applies only to exclusive licenses, not to nonexclusive licenses. HSAG's own internal use of the technology globally, as opposed to exclusive licensing to third parties, may be structured to comply with § 204, but this requires careful analysis of the specific facts and commercial arrangements involved. We discuss potential commercialization pathways in greater detail in Section VII below.

F. Reporting Obligations — 35 U.S.C. § 202(c)(5) and 37 C.F.R. § 401.14

The Bayh-Dole Act and its implementing regulations impose a series of ongoing reporting obligations on contractors that have elected to retain title to Subject Inventions. These obligations are designed to ensure that the government maintains visibility into the status of Subject Inventions and the contractor's efforts to achieve practical application.

Under § 202(c)(3), the contractor must file patent applications on Subject Inventions within the statutory time periods or risk the government's right to obtain title. The implementing regulations and standard contract clauses provide that if the contractor fails to file a patent application within the required time frame — typically one year from the election of title, or prior to the expiration of any statutory bar date — the government may require the contractor to assign title to the government.

Under § 202(c)(5), the contractor must include a government-rights legend on all U.S. patent applications and issued patents for Subject Inventions. This legend must acknowledge the government support under which the invention was made and include a statement of the government's rights. The standard form of such an acknowledgment reads: "This invention was made with government support under [Contract No.] awarded by [Agency]. The government has certain rights in the invention."

The contractor is also required to submit periodic utilization reports through the iEdison system, reporting on the steps the contractor has taken to achieve practical application of each Subject Invention and the commercial use being made of the invention. These utilization reports are reviewed by the funding agencies and may inform decisions regarding the exercise of march-in rights.

Our review of VPI's records indicates that all required filings have been made in a timely manner. The government-support acknowledgment legends have been confirmed as present on all twenty-three issued patents for Subject Inventions. The utilization reports are current through the most recent reporting period. We discuss the iEdison compliance review in greater detail in Section VI below.

IV. Identification of the 23 Government-Funded Patents

A. Overview by Patent Family

VPI's total patent portfolio consists of forty-seven (47) granted U.S. patents and twelve (12) pending U.S. patent applications. Of the forty-seven granted patents, twenty-three (23) — representing approximately 48.9% of the total granted portfolio — were developed in whole or in part under government funding agreements and therefore constitute Subject Inventions under the Bayh-Dole Act. These twenty-three patents are distributed across all three of VPI's key patent families, which together form the core of VPI's competitive advantage in gallium nitride (GaN) power amplifier and radio frequency (RF) component technologies.

The three patent families and the distribution of government-funded patents within each are summarized below.

1. GaN-on-SiC Epitaxial Growth Process Family

This family comprises eight (8) granted U.S. patents, numbered 9,XXX,001 through 9,XXX,008, with an earliest priority date of 2012. The inventions in this family relate to VPI's proprietary gallium nitride epitaxial growth processes on silicon carbide substrates — the foundational manufacturing technology upon which VPI's defense and commercial GaN products are built.

Five (5) of the eight patents in this family were developed under government funding. The relevant funding sources are:

• U.S. Army CERDEC Contract — Development of GaN high-electron-mobility transistor (HEMT) modules for the AN/TPS-80 G/ATOR radar system. This contract carries a remaining backlog of approximately $52.3 million and is one of VPI's largest active programs. The contract funded early-stage research into epitaxial growth techniques that yielded several of the patented processes in this family.

• AFRL Contract — Development of next-generation millimeter-wave (mmWave) power amplifiers for airborne electronic warfare and communications systems. This contract has a remaining backlog of approximately $41.7 million and funded research into advanced epitaxial growth recipes optimized for high-frequency performance.

The remaining three (3) patents in this family were developed entirely with private VPI funding and are not Subject Inventions. These privately funded patents cover refinements and variations of the epitaxial growth processes that were developed independently of any government program.

It should be noted that the technologies covered by this patent family overlap significantly with VPI's trade secret portfolio — specifically, the proprietary GaN epitaxial recipes that constitute several of VPI's thirty-one (31) registered internal trade secrets. The trade secrets cover process parameters, material compositions, and manufacturing know-how that complement the patented inventions but are not fully disclosed in the patent specifications. The trade secrets are not Subject Inventions under the Bayh-Dole Act (as trade secrets are not patented inventions), but their relationship to the government-funded patents is relevant to the export control and TCP analyses being conducted by the CFIUS team.

2. HEMT Gate Structure Optimization Family

This family comprises nineteen (19) granted U.S. patents, numbered 10,XXX,101 through 10,XXX,119, with an earliest priority date of 2015. The inventions in this family relate to the design and optimization of high-electron-mobility transistor gate structures for defense radar, missile defense, and electronic warfare applications. This is VPI's largest patent family by number of patents and represents a significant portion of VPI's competitive differentiation in the defense GaN power amplifier market.

Eleven (11) of the nineteen patents in this family were developed under government funding. The relevant funding sources include:

• AFRL Contract — The same next-generation mmWave power amplifier program referenced above ($41.7 million remaining backlog), which funded research into gate structure designs optimized for broadband high-power performance at millimeter-wave frequencies.

• MDA Contract — Development of GaN-based transmit/receive (T/R) modules for missile defense radar systems. This contract carries a remaining backlog of approximately $38.9 million and funded research into gate structures capable of withstanding the extreme thermal and electrical stresses associated with high-power pulsed radar operation.

• Subcontract to Ironclad Defense Systems Inc. — VPI performs as a subcontractor to Ironclad Defense Systems Inc. under a prime contract with USN NAVSEA for naval radar components. This subcontract has a remaining backlog of approximately $34.1 million and funded the development of several gate structure optimization techniques tailored to naval shipboard radar requirements, including resistance to salt spray and vibration environments.

The remaining eight (8) patents in this family were developed with private VPI funding and are not Subject Inventions. These privately funded patents cover commercially oriented HEMT designs for 5G base station and telecommunications infrastructure applications.

3. mmWave Broadband Matching Network Family

This family comprises twenty (20) granted U.S. patents, numbered 11,XXX,201 through 11,XXX,220, with an earliest priority date of 2018. The inventions in this family relate to broadband impedance matching network architectures for millimeter-wave power amplifiers. This is VPI's newest and most rapidly growing patent family, reflecting the company's strategic expansion into both defense communications and commercial 5G infrastructure markets.

Seven (7) of the twenty patents in this family were developed under government funding. The relevant funding sources are:

• AFRL Next-Gen mmWave Program — The same AFRL contract referenced above ($41.7 million remaining backlog), which funded the development of broadband matching networks capable of operating across wide frequency bands relevant to electronic warfare and advanced radar applications.

• DHS S&T Contract — Development of RF components for border surveillance systems. This contract has a remaining backlog of approximately $26.0 million and funded research into compact, efficient matching network designs for portable and fixed-site surveillance radar equipment.

The remaining thirteen (13) patents in this family were developed with private VPI funding and are not Subject Inventions. These privately funded patents cover matching network designs optimized for commercial 5G millimeter-wave applications and represent the commercial pillar of VPI's mmWave technology portfolio.

B. Summary Table of Government-Funded Patents

The following table summarizes the twenty-three (23) government-funded patents identified in our review. A more detailed listing, including full patent titles and claims summaries, is provided in Appendix 1 to this memorandum.

All twenty-three patents have been confirmed as properly reported through the iEdison system, with timely elections of title, timely patent application filings, and current utilization reports.

C. Pending Applications with Government Funding

Of VPI's twelve (12) pending U.S. patent applications, our review has identified six (6) that were developed under government funding and will constitute Subject Inventions upon issuance. These six applications relate to inventions made under the AFRL next-generation mmWave program (three applications), the MDA T/R module program (two applications), and the DHS S&T border surveillance program (one application).

For each of these six pending applications, VPI has made timely invention disclosures and elections of title through the iEdison system. The patent applications were filed within the required statutory periods. Upon issuance, these patents will be subject to the same government rights described in this memorandum — including the government purpose license, march-in rights, and domestic manufacture preference.

It is critical that HSAG ensure continuity of VPI's election-of-title obligations for these pending applications following the closing of the transaction. Failure to maintain the required filings and elections could result in the government's right to obtain title to the resulting patents. We recommend that the post-closing compliance infrastructure described in Section VIII include specific protocols for monitoring and maintaining elections of title for pending Subject Invention applications.

V. DFARS 252.227-7038 — Additional DoD-Specific Rights

A. Clause Overview

DFARS 252.227-7038, entitled "Patent Rights — Ownership by the Contractor (Large Business)," is the standard patent rights clause incorporated into DoD contracts with large business contractors. Although VPI was initially a small business at the time of its earliest contracts, VPI exceeded the relevant Small Business Administration (SBA) size standards as its revenue grew, and DFARS 252.227-7038 has been incorporated into VPI's more recent DoD contracts by operation of the applicable contracting regulations.

This clause supplements the Bayh-Dole Act framework with additional requirements specific to the Department of Defense. It is incorporated — either by reference or by full text — into all fourteen (14) of VPI's active DoD contracts, including the five (5) major contracts with an aggregate remaining backlog of approximately $193.0 million, as well as the nine (9) additional prime and subcontract arrangements under which VPI currently performs.

B. Government Rights Under DFARS 252.227-7038

DFARS 252.227-7038 establishes the following principal government rights and contractor obligations:

Government's Paid-Up License. Consistent with the Bayh-Dole Act's § 202(c)(4), the clause provides that the government receives a worldwide, nonexclusive, irrevocable, paid-up license to practice or have practiced each Subject Invention for or on behalf of the United States throughout the world. The scope of this license under the DFARS clause is coextensive with the statutory government purpose license described in Section III.C above.

Reporting Requirements. The clause requires the contractor to report each Subject Invention to the contracting officer within specified time periods. Initial invention disclosures must be submitted promptly after the invention is disclosed to the contractor by the inventor. The contractor must also provide periodic utilization reports as requested by the DoD contracting officer. These reporting requirements are implemented through the iEdison system, and VPI's compliance with these obligations is confirmed in Section VI below.

Right to File in Foreign Countries. DFARS 252.227-7038 provides that if the contractor does not file patent applications in foreign countries within specified time periods, the government may file applications and obtain title to the Subject Inventions in those countries. This provision is significant in the context of the HSAG acquisition because it means that any gaps in VPI's foreign patent filing strategy could result in the U.S. government obtaining patent rights in foreign jurisdictions where VPI (or HSAG, post-closing) might otherwise wish to maintain exclusive patent protection.

Background Patent Rights and Technical Data. Under certain DFARS provisions — particularly DFARS 252.227-7013 (Rights in Technical Data — Noncommercial Items) and DFARS 252.227-7014 (Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation) — the government may have broader rights to technical data and computer software associated with Subject Inventions beyond the patent license itself. These data rights provisions are particularly relevant where the government has funded the development of manufacturing processes, design specifications, or software tools that embody or implement the patented inventions. The interaction between patent rights and data rights under the DFARS is a complex area that should be coordinated with the TCP analysis being conducted by the CFIUS team, as the TCP will govern access to and transfer of controlled technical data within the HSAG corporate structure post-closing.

C. Interaction with ITAR/EAR Controls

The twenty-three government-funded patents overlap significantly with VPI's ITAR-controlled defense articles and EAR-classified items. Specifically:

• The GaN HEMT and T/R module technologies covered by the patents in Families 1 and 2 are classified as defense articles under the International Traffic in Arms Regulations (ITAR), 22 C.F.R. Parts 120–130, within Category XI(a)(3) of the United States Munitions List (USML). These items are subject to the jurisdiction of the DDTC, and any export, reexport, or retransfer requires prior authorization through a DSP-5 license or other applicable authorization.

• Certain of the commercial-oriented mmWave technologies covered by patents in Family 3, and dual-use components that do not rise to the level of USML defense articles, are classified under the Export Administration Regulations (EAR), 15 C.F.R. Parts 730–774, under Export Control Classification Numbers (ECCNs) 3A001 (electronic components), 3A991 (electronic equipment and components not controlled by 3A001), and 3E001 (technology for the development or production of items controlled by 3A001).

Any disclosure or licensing of these patented technologies to non-U.S. persons — including HSAG's German or other non-U.S. employees — requires both compliance with the Bayh-Dole/DFARS government rights provisions described in this memorandum and separate export authorization under ITAR or EAR. VPI currently maintains DDTC Registration No. M-24817 and holds several existing DSP-5 export licenses for specific programs. The export control compliance framework will need to be updated post-closing to reflect the new ownership structure and any technology sharing contemplated between VPI and HSAG entities.

This dual-layer restriction — Bayh-Dole/DFARS government rights on one hand, and ITAR/EAR export controls on the other — is addressed comprehensively in the Technology Control Plan under negotiation as part of the NSA. The TCP will impose physical, logical, and personnel-based controls to ensure that ITAR- and EAR-controlled technical data, including data related to Subject Inventions, is not disclosed to unauthorized persons. The TCP analysis is being led by Lt. Col. (Ret.) David Caruso and Peggy Ashworth, and this memorandum is intended to inform their work by identifying the specific patents and technologies that are subject to government IP rights.

D. Contract-by-Contract Analysis Summary

The following table maps each of the top five (5) government contracts to the Subject Inventions arising thereunder:

A detailed contract-by-contract cross-reference, including specific patent numbers mapped to each contract and the applicable DFARS clause references, is provided in Appendix 2 to this memorandum. Note that certain patents may have been funded under more than one contract where the underlying research was performed under multiple programs; the table above reflects the primary funding source for each Subject Invention.

VI. iEdison Compliance Confirmation

A. iEdison System Overview

The Interagency Edison (iEdison) system is the federal government's web-based invention reporting system used by government contractors and grantees to comply with the reporting obligations imposed by the Bayh-Dole Act and its implementing regulations. The iEdison system is administered by the National Institute of Standards and Technology (NIST) and serves as the primary mechanism through which federal agencies track Subject Inventions, monitor contractor elections of title, and verify ongoing compliance with reporting requirements.

Under the Bayh-Dole framework, VPI is required to use the iEdison system to report the following categories of information for each Subject Invention:

• Initial Invention Disclosures. A written description of the Subject Invention, including the names of the inventors, the circumstances under which the invention was conceived or first actually reduced to practice, and the funding agreement under which the invention was made.

• Elections of Title. A written confirmation of the contractor's election to retain title to the Subject Invention, which must be filed within two (2) years of the initial disclosure to the funding agency.

• Patent Application Filings. Notification to the funding agency that a patent application has been filed on the Subject Invention, which must occur within one (1) year of the election of title or prior to any statutory bar date.

• Patent Issuance Notifications. Confirmation that a patent has been issued on the Subject Invention, including the patent number and issuance date.

• Utilization Reports. Periodic reports on the contractor's efforts to achieve practical application of the Subject Invention, including information on commercialization activities, licensing arrangements, and manufacturing status.

Failure to comply with iEdison reporting obligations can have serious consequences, including the government's right to obtain title to the Subject Invention under 35 U.S.C. § 202(c)(1)–(c)(3) and the potential exercise of march-in rights under § 203.

B. Review of VPI's iEdison Records

Our review of VPI's iEdison compliance was conducted through the following process:

Col. (Ret.) Bryce Hendrickson, VPI's Vice President of Government Programs and Facility Security Officer, and Derek Wainsborough, VPI's Chief Financial Officer, provided our team with access to VPI's iEdison filing records for all Subject Inventions. These records included printed confirmations of each filing, including timestamps, confirmation numbers, and agency acknowledgments.

We cross-referenced the iEdison records against VPI's internal invention disclosure logs, which are maintained by VPI's patent committee and include detailed records of each invention disclosure submitted by VPI's engineering and research personnel. We also cross-referenced the iEdison records against VPI's patent prosecution files to confirm that patent applications were filed within the required timeframes following elections of title.

In addition, we confirmed with Arbor & Greenfield LLP (VPI's independent auditor, engagement partner Joan Greenfield) that VPI's compliance with Bayh-Dole reporting obligations has been assessed as part of the firm's annual audit process. Arbor & Greenfield confirmed that no material deficiencies in VPI's government contract compliance, including iEdison reporting, were identified in any audit period.

C. Findings

Based on our review, we report the following findings:

1. All 23 Subject Inventions have been properly reported in iEdison. Each of the twenty-three government-funded patents identified in Section IV was disclosed to the relevant funding agency through the iEdison system in accordance with the applicable contract requirements and Bayh-Dole regulations.

2. All elections of title were timely. VPI elected to retain title to each Subject Invention within the two-year period prescribed by § 202(c)(1). No late elections were identified, and no government agency has challenged or sought to revoke any election of title.

3. All patent applications were timely filed. VPI filed patent applications on each Subject Invention within the one-year period prescribed by § 202(c)(3) following the election of title. No extensions were required, and no statutory bar dates were missed.

4. Government-support acknowledgment legends are present on all 23 issued patents. We reviewed the face of each issued patent and confirmed that the required government-support acknowledgment and statement of government rights are included, in the form substantially similar to: "This invention was made with government support under [Contract No.] awarded by [Agency]. The government has certain rights in the invention."

5. Utilization reports are current through the most recent reporting period. VPI has submitted utilization reports for all Subject Inventions as required by the applicable contract provisions and agency requests. The reports reflect VPI's active commercialization of the Subject Inventions through its government contract programs and, for certain dual-use technologies, through commercial channels.

6. No deficiencies, late filings, or government title-reversion risks identified. Our review did not identify any instances of non-compliance that could give rise to a government claim for title reversion or other adverse action.

7. Pending applications include appropriate disclosures. The twelve (12) pending patent applications, including the six (6) that are expected to constitute Subject Inventions upon issuance, include appropriate government-rights disclosures and have been reported through iEdison as required.

A chronological log of all iEdison filings is provided in Appendix 4 to this memorandum.

VII. Impact on HSAG's Post-Acquisition Commercialization Strategy

A. Constraints on International Commercialization

HSAG's strategic rationale for the acquisition of VPI centers on leveraging VPI's GaN power amplifier technology across HSAG's global semiconductor platform. HSAG has identified VPI's GaN-on-SiC epitaxial growth capabilities, HEMT design expertise, and mmWave matching network architectures as transformative technologies that could significantly enhance HSAG's competitive position in both defense electronics and commercial 5G infrastructure markets worldwide.

However, the U.S. government's rights in the twenty-three Subject Inventions create the following material constraints on HSAG's ability to realize this international commercialization strategy:

1. Government License Persists. The U.S. government's paid-up, irrevocable, nonexclusive license to all twenty-three Subject Inventions is perpetual and cannot be terminated, renegotiated, or restricted by HSAG. Following the closing of the acquisition, the U.S. government will continue to hold this license, and may continue to have these technologies practiced by third-party contractors acting on the government's behalf. This means that HSAG cannot monetize the Subject Inventions by seeking royalties from the U.S. government for governmental-purpose use, and cannot prevent government contractors from practicing the inventions under government direction. While this constraint does not directly impede HSAG's own commercial use of the technology, it does mean that the effective exclusivity of the patent rights is diminished in the government-use context. Competitors who serve as government contractors may gain access to the patented technology through government-directed contracts, potentially allowing them to develop expertise that could enhance their competitiveness in adjacent commercial markets.

2. Domestic Manufacture Preference. Under § 204 of the Bayh-Dole Act, any exclusive license for U.S. use of a Subject Invention must include a requirement that products embodying or produced through the use of the Subject Invention be manufactured substantially in the United States. This restriction may limit HSAG's ability to consolidate manufacturing at its Dresden headquarters or other non-U.S. fabrication facilities for products sold exclusively in the U.S. market under government-funded patents. If HSAG seeks to manufacture products embodying Subject Inventions at non-U.S. facilities and sell them into the U.S. market under exclusive arrangements, it would need to obtain a § 204 waiver from the relevant funding agency — a process that is discretionary on the part of the agency and carries no guarantee of approval, particularly in the current geopolitical environment.

3. March-In Risk (Heightened in Foreign Acquisition Context). While no federal agency has successfully exercised march-in rights in the history of the Bayh-Dole Act, the theoretical risk of march-in activity is heightened in the context of a foreign acquisition. The funding agencies — particularly the U.S. Army, AFRL, MDA, and DHS S&T — may increase scrutiny of VPI's post-closing operations to ensure that the foreign acquirer is maintaining practical application of Subject Inventions in the United States and not shifting production or development activities overseas. If HSAG is perceived as allowing VPI's government-funded technologies to languish, or as transferring manufacturing of government-funded products to non-U.S. facilities, the funding agencies may have grounds to initiate march-in proceedings under § 203(1) (failure to achieve practical application) or § 203(4) (breach of domestic manufacture obligation). HSAG should be cognizant of this risk and ensure that VPI continues to actively manufacture and commercialize products embodying Subject Inventions at its Albuquerque facility.

4. Foreign Filing Rights. Under DFARS 252.227-7038, if VPI has not filed patent applications in certain foreign jurisdictions, the U.S. government retains the right to file applications and obtain title in those countries. This provision means that any gaps in VPI's foreign patent filing strategy could result in the U.S. government — rather than VPI or HSAG — holding patent rights in strategically important foreign markets. HSAG should conduct a thorough review of VPI's foreign patent filing strategy for all Subject Inventions to identify any jurisdictions where VPI has not sought patent protection and where the government's right to file could be exercised. Where commercially significant gaps exist, HSAG should consider whether to file applications prior to closing (subject to VPI's contractual obligations and any export control restrictions on filing in certain countries) or to accept the risk of government ownership in those jurisdictions.

B. Interaction with NSA and Technology Control Plan

The government's rights in VPI's Subject Inventions must be understood in the context of the broader regulatory framework that will govern HSAG's ownership of VPI post-closing. The National Security Agreement under negotiation — a draft of which was circulated by CFIUS on November 3, 2023 — will impose additional restrictions on HSAG's access to and use of VPI technology that overlay and in many respects reinforce the Bayh-Dole constraints.

The Technology Control Plan, which will be appended to and incorporated into the NSA, will prohibit the transfer of VPI technical data that is controlled under ITAR or EAR to any non-U.S. person without prior U.S. government authorization. This prohibition effectively layers on top of the Bayh-Dole restrictions by ensuring that even where the Bayh-Dole Act might permit certain uses of Subject Invention technology (e.g., nonexclusive licensing), the transfer of underlying technical data to non-U.S. persons within the HSAG corporate family would be independently prohibited absent export authorization.

The NSA's data segregation requirements will further constrain HSAG's access to government-funded IP. Under the proposed TCP provisions, VPI's IT systems must be physically and logically separated from HSAG's global network, with no shared cloud infrastructure, no common email systems, and no cross-border data flows except through approved and audited channels. These segregation requirements will limit HSAG's ability to access VPI's government-funded patent specifications, engineering data, manufacturing process documentation, and trade secrets from HSAG's facilities in Dresden or elsewhere outside the United States.

The NSA's board governance provisions will require the establishment of a Government Security Committee ("GSC") with exclusive authority over classified and ITAR-controlled programs. The GSC — which will comprise U.S.-citizen directors approved by DCSA — will control decisions regarding Subject Inventions arising from classified programs, including decisions about patent filings, licensing, and technology transfers. HSAG's board-level representatives will not have access to classified program information and will not be able to direct decisions regarding classified Subject Inventions without GSC approval.

Finally, HSAG personnel access restrictions will limit direct exposure to manufacturing processes related to Subject Inventions. Under the proposed TCP, access to VPI's classified facilities — including the Albuquerque fab clean room Sections C-7 through C-12, where classified and ITAR-controlled GaN fabrication takes place — will require prior DCSA and GSC approval. HSAG's German or other non-U.S. employees will not be permitted to access these areas or the technical data associated with the production activities conducted therein.

The cumulative effect of these overlapping restrictions — Bayh-Dole government rights, DFARS contract clauses, ITAR/EAR export controls, and NSA/TCP provisions — is that HSAG's ability to integrate VPI's government-funded IP into its global operations will be significantly constrained. While VPI can continue to operate as a U.S.-based subsidiary with its own commercialization programs, the synergies that HSAG may have anticipated from cross-border technology sharing and manufacturing consolidation will be limited with respect to the twenty-three Subject Inventions and their associated technical data.

C. Commercialization Pathways Available to HSAG

Notwithstanding the constraints described above, several commercialization pathways remain available to HSAG. Each pathway requires careful structuring to comply with the applicable legal and regulatory requirements:

Non-Exclusive Licensing to HSAG Affiliates. The § 204 domestic manufacture restriction applies only to exclusive licenses granted for U.S. use. Nonexclusive licenses are not subject to the domestic manufacture requirement. Accordingly, VPI could grant nonexclusive licenses to HSAG affiliates — including Halcyon US Inc. (Austin, TX) or HSAG entities outside the United States — to practice the Subject Inventions, provided that the licensing arrangement does not constitute a de facto exclusive license and complies with applicable ITAR/EAR export licensing requirements and NSA/TCP provisions. Any such licensing would require prior analysis to ensure that the terms do not trigger § 204 by effectively granting exclusivity, and would require export authorization for any transfer of controlled technical data to non-U.S. persons.

Derivative Technology Development. HSAG may develop new technologies that are inspired by, but do not embody, the Subject Inventions. To the extent that HSAG's engineers can develop novel solutions to analogous technical problems without relying on VPI's government-funded patented inventions or controlled technical data, the resulting derivative technologies would not be subject to the government's Bayh-Dole rights. This pathway requires careful IP clearance to ensure that the derivative technologies do not infringe the Subject Invention patents and are not based on controlled technical data subject to ITAR/EAR or NSA/TCP restrictions. Freedom-to-operate analyses should be conducted prior to the initiation of any derivative development programs.

Separate R&D Programs at Halcyon US Inc. HSAG could fund independent research and development programs at Halcyon US Inc., its existing U.S. subsidiary located in Austin, Texas. Halcyon US Inc. currently has approximately 320 employees and operates as a fabless semiconductor design center with no classified work. Research conducted at Halcyon US Inc. that builds upon publicly available information — including the patent disclosures themselves, which are published documents — without accessing VPI's underlying controlled technical data, trade secrets, or classified information would not be subject to the government's Bayh-Dole rights (assuming the resulting inventions are not themselves made under government funding agreements) and would not implicate the NSA/TCP restrictions. This pathway requires strict informational barriers between Halcyon US Inc. and VPI's classified and ITAR-controlled programs.

Waiver Applications Under § 204. For specific commercial programs where HSAG determines that domestic manufacture of products embodying Subject Inventions is not commercially feasible, HSAG may apply to the relevant funding agencies for a waiver of the § 204 domestic manufacture requirement. Waiver applications must demonstrate that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would manufacture substantially in the United States, or that domestic manufacture is not commercially feasible under the circumstances. While the waiver process is discretionary and there is no guarantee of approval, it provides a potential pathway for HSAG to manufacture Subject Invention products at non-U.S. facilities for exclusive sale in the U.S. market where a compelling case can be made.

Government-Authorized Technology Transfers. Under the TCP, HSAG may apply for U.S. government authorization for specific technology transfers to non-U.S. persons or entities within the HSAG corporate structure. Such authorization would need to come from the Government Security Committee (for classified and ITAR-controlled items) and, for export-controlled items, from DDTC (for ITAR-controlled items) or the Bureau of Industry and Security (for EAR-controlled items). Government-authorized transfers would permit HSAG to share specific technical data related to Subject Inventions with approved non-U.S. personnel on a case-by-case basis, subject to the conditions and limitations imposed by the authorization.

D. I

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP
399 Park Avenue, 31st Floor New York, NY 10022
1750 K Street NW, Suite 800 Washington, DC 20006
MEMORANDUM
TO: Beatrice Holloway, Responsible Partner, Mergers & Acquisitions Margaret "Peggy" Ashworth, Of Counsel, National Security & CFIUS Lt. Col. (Ret.) David Caruso, Senior Counsel, Government Contracts & Export Controls
FROM: Omar Siddiqui, Lead Associate, intellectual Property Christy Bauer, Working Associate, intellectual Property
DATE: September 29, 2023
RE: Government Rights in Subject Inventions — Marlowe Asset Management Photonics Inc. Patent Portfolio; Impact of Bayh-Dole Act and DFARS Clauses on Post-Acquisition Commercialization
MATTER: Halcyon Semiconductor AG / Marlowe Asset Management Photonics Inc. Acquisition — CFIUS Filing & IP Diligence
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I. Executive Summary
This memorandum analyzes the scope and implications of United States government rights in the patent portfolio of Marlowe Asset Management Photonics Inc. ("VPI"), with particular focus on the twenty-three (23) of VPI's forty-seven (47) granted U.S. patents that were developed in whole or in part under federally funded contracts and therefore constitute "Subject Inventions" within the meaning of the Bayh-Dole Act, 35 U.S.C. §§ 200–212. This analysis is being provided in connection with the pending acquisition of VPI by Halcyon Semiconductor AG ("HSAG") and the associated CFIUS filing and IP diligence workstreams.
Our review has produced the following principal findings:
The twenty-three government-funded patents span all three of VPI's key patent families — the GaN-on-SiC Epitaxial Growth Process Family, the HEMT Gate Structure Optimization Family, and the mmWave Broadband Matching Network Family. These patents were developed under government-funded contracts with the U.S. Army Program Executive Office for intelligence, Electronic Warfare & Sensors ("PEO IEW&S"), the U.S. Air Force Research Laboratory ("AFRL"), the Missile Defense Agency ("MDA"), and the Department of Homeland Security Science and Technology Directorate ("DHS S&T"). In the aggregate, the active DoD contracts from which these Subject Inventions arose carry a remaining backlog of approximately $193 million.
The U.S. government retains the following rights in each Subject Invention, each of which will survive the proposed acquisition and cannot be extinguished or modified by the transaction:
First, the government retains a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced each Subject Invention throughout the world, pursuant to 35 U.S.C. § 202(c)(4). This license is perpetual and runs with the patents regardless of changes in ownership.
Second, the funding agencies retain march-in rights under 35 U.S.C. § 203, which may be exercised in certain circumstances — most notably where the contractor or its successor has not taken effective steps to achieve practical application of the Subject Invention, or has failed to comply with domestic manufacture requirements.
Third, the domestic manufacture preference under 35 U.S.C. § 204 requires that any exclusive license to use or sell a Subject Invention in the United States include a commitment that products embodying or produced through the use of the Subject Invention will be manufactured substantially in the United States. This provision is directly relevant to HSAG's contemplated integration of VPI's technologies into its global semiconductor manufacturing platform.
Fourth, DFARS 252.227-7038, which is incorporated into VPI's DoD contracts, imposes additional reporting and rights obligations specific to DoD-funded inventions, including enhanced utilization reporting and the government's right to file foreign patent applications in jurisdictions where VPI has not sought protection.
We have confirmed that all iEdison reporting obligations have been satisfied. VPI's records, as supplemented by the records provided by VPI's VP Government Programs, Col. (Ret.) Bryce Hendrickson, and CFO Derek Wainsborough, and as verified by Arbor & Greenfield LLP (VPI's independent auditor, engagement partner Joan Greenfield) during the course of financial diligence, indicate that all invention disclosures, elections of title, patent application filings, and utilization reports have been timely submitted through the Interagency Edison (iEdison) system. No deficiencies, late filings, or government title-reversion risks have been identified.
These government rights create material constraints on HSAG's ability to commercialize VPI's intellectual property internationally, particularly in non-allied markets. The constraints interact significantly with the National Security Agreement ("NSA") and Technology Control Plan ("TCP") restrictions currently under negotiation with CFIUS, creating a multi-layered compliance regime that HSAG must navigate with care.
We recommend that HSAG structure its post-closing IP commercialization strategy with full awareness of these government rights. In particular, any cross-border technology sharing with HSAG's parent entity in Dresden, Germany, or with HSAG's non-U.S. affiliates, will require careful navigation of both Bayh-Dole restrictions and NSA/TCP obligations, as well as compliance with applicable ITAR and EAR export control requirements. The balance of this memorandum sets forth our detailed analysis and specific mitigation recommendations.
II. Scope of Review and Methodology
A. Documents Reviewed
In preparing this memorandum, we reviewed the following categories of documents and records:
1. VPI Patent Portfolio. We reviewed VPI's complete patent portfolio of forty-seven (47) granted U.S. patents and twelve (12) pending U.S. patent applications. Our review encompassed the patent specifications, claims, prosecution histories, and assignment records for each patent and application. We also reviewed the government-support acknowledgment legends on the face of each issued patent.
2. Underlying Government Contracts. We reviewed the fourteen (14) active DoD contracts — comprising both prime contracts and subcontracts — under which VPI is currently performing. These contracts have an aggregate remaining backlog of approximately $193 million. We examined the full contract instruments, including all modifications, statements of work, and data rights clauses. Particular attention was directed to the patent rights provisions incorporated by reference or by full text into each contract.
3. Contract Data Rights Clauses. We reviewed the specific DFARS data rights clauses incorporated into each government contract, with particular focus on DFARS 252.227-7038 ("Patent Rights — Ownership by the Contractor (Large Business)") and related DFARS provisions governing technical data and computer software rights.
4. iEdison System Records. We obtained and reviewed VPI's complete iEdison filing records for all Subject Inventions. These records were provided by Col. (Ret.) Bryce Hendrickson, VPI's Vice President of Government Programs and Facility Security Officer, and Derek Wainsborough, VPI's Chief Financial Officer. The records include initial invention disclosures, elections of title, patent application filings, patent issuance notifications, and periodic utilization reports.
5. Invention Disclosure Logs. We reviewed VPI's internal invention disclosure logs, which are maintained as part of VPI's trade secret management program. The logs cover all inventions disclosed by VPI personnel, including both Subject Inventions and privately funded inventions. VPI currently maintains thirty-one (31) registered internal trade secrets, many of which relate to manufacturing processes and epitaxial recipes that overlap with the patented technologies at issue.
6. Ancillary Documents. We reviewed relevant contract modifications, patent assignment records (including all assignments recorded at the U.S. Patent and Trademark Office), government correspondence (including contracting officer communications regarding patent rights elections), and VPI's standard operating procedures for government contract compliance.
B. Interviews Conducted
We conducted substantive interviews with the following VPI personnel:
1. Dr. Nathan Trevorrow, Founder and Chief Executive Officer of VPI, who holds a TS/SCI security clearance. Dr. Trevorrow provided a comprehensive account of the history of VPI's government-funded research and development programs, including the genesis of each patent family and the relationship between government-funded and privately funded research streams. Dr. Trevorrow was instrumental in identifying the specific government contracts under which particular inventions were conceived or first actually reduced to practice.
2. Col. (Ret.) Bryce Hendrickson, Vice President of Government Programs and Facility Security Officer, who holds a TS/SCI security clearance. Col. Hendrickson addressed VPI's contract compliance program, its iEdison filing procedures, and its internal protocols for identifying and reporting Subject Inventions. Col. Hendrickson also discussed VPI's interaction with government contracting officers regarding patent rights elections and utilization reporting, and provided context regarding VPI's DCSA-managed classified facility at the Albuquerque, New Mexico campus.
3. Marissa Sung-Avila, President and Chief Operating Officer, who holds a SECRET security clearance. Ms. Sung-Avila discussed VPI's manufacturing processes and government-funded fabrication activities at VPI's Albuquerque facility, located at 9200 Innovation Boulevard, Albuquerque, NM 87113. Her testimony was particularly relevant to the § 204 domestic manufacture analysis, as she confirmed that all production of defense-related GaN-on-SiC components currently takes place at the Albuquerque fab.
C. Coordination with Outside Counsel
We coordinated our review with Wethersfield & Gale LLP, VPI's longstanding outside counsel for government contracts and national security matters. Harrison Whitfield, lead partner in Wethersfield & Gale's Government Contracts & National Security practice, confirmed VPI's historical compliance with Bayh-Dole reporting obligations and provided background on VPI's interactions with government contracting officers regarding Subject Invention disclosures. Wethersfield & Gale's independent assessment of VPI's iEdison filing history was consistent with our findings.
D. Legal Framework
Our analysis is grounded in the following legal authorities:
• The Bayh-Dole Act, 35 U.S.C. §§ 200–212;
• The implementing regulations promulgated by the Department of Commerce, 37 C.F.R. Part 401;
• DFARS 252.227-7038, "Patent Rights — Ownership by the Contractor (Large Business)";
• Related DFARS data rights clauses, including DFARS 252.227-7013 (Rights in Technical Data — Noncommercial Items) and DFARS 252.227-7014 (Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation); and
• Relevant agency guidance and case law interpreting the foregoing provisions.
III. The Bayh-Dole Act Framework — Overview
A. Statutory Purpose and Applicability
The Bayh-Dole Act, codified at 35 U.S.C. §§ 200–212, establishes a uniform patent policy governing inventions arising from federally funded research and development. Section 200 articulates the Congressional policy objectives underlying the Act, which include: (i) promoting the utilization of inventions arising from federally funded research; (ii) encouraging maximum participation of small business firms in federally supported research and development efforts; (iii) promoting collaboration between commercial concerns and nonprofit organizations, including universities; (iv) ensuring that the government obtains sufficient rights in federally supported inventions to meet the needs of the government and protect the public against nonuse or unreasonable use of inventions; and (v) minimizing the costs of administering policies in this area.
The Bayh-Dole Act applies to any "Subject Invention," which is defined in 35 U.S.C. § 201(e) as any invention of the contractor conceived or first actually reduced to practice in the performance of work under a "funding agreement" with a federal agency. A "funding agreement" is defined broadly under § 201(b) to include any contract, grant, or cooperative agreement entered into between a federal agency and any contractor for the performance of experimental, developmental, or research work funded in whole or in part by the federal government.
VPI is a small-to-midsize defense contractor with approximately 486 employees and fiscal year 2022 revenue of $287.4 million. VPI was incorporated on February 14, 2009, in the State of Delaware, and has performed on U.S. government contracts since approximately 2011, which is the year VPI first registered with the Directorate of Defense Trade Controls ("DDTC") under Registration No. M-24817. VPI currently holds fourteen (14) active DoD contracts — including both prime contracts and subcontracts — with an aggregate remaining backlog of approximately $193 million. The Bayh-Dole Act applies to all Subject Inventions made by VPI under these funding agreements.
As a for-profit entity that is not a small business concern for Bayh-Dole purposes (VPI exceeded the relevant SBA size standard thresholds as of fiscal year 2020), VPI's rights under the Bayh-Dole Act are governed by the specific contract provisions negotiated with each funding agency, as informed by the standard patent rights clauses prescribed in the implementing regulations. For DoD contracts, the operative clause is DFARS 252.227-7038, discussed in detail in Section V below.
B. Contractor's Right to Elect Title — 35 U.S.C. § 202
Under 35 U.S.C. § 202(a), a contractor that receives title to a Subject Invention may elect to retain such title, subject to the government's retained rights set forth in the statute. The right to elect title is not automatic; rather, the contractor must comply with the procedural requirements set forth in § 202(c)(1) through (c)(3).
Specifically, § 202(c)(1) requires the contractor to disclose each Subject Invention to the funding agency within a reasonable time after it becomes known to the contractor. The implementing regulations and standard contract clauses typically require written disclosure to the agency within two months after the invention is disclosed by the inventor to the contractor's responsible person (e.g., the company's patent counsel or designated official). Section 202(c)(2) requires the contractor to make a written election to retain title within two years of disclosure to the agency, or such longer period as the agency may approve. Section 202(c)(3) requires the contractor to file a patent application on the Subject Invention within one year of electing title, or within any statutory bar period, whichever is earlier.
Our review of VPI's records confirms that VPI has elected to retain title to all twenty-three (23) Subject Inventions identified in this memorandum. VPI's elections of title were timely made for each Subject Invention in accordance with the statutory and contractual requirements. In each instance, VPI's internal invention disclosure process — managed by Col. (Ret.) Hendrickson and VPI's patent committee — captured the invention at the point of conception or first actual reduction to practice, and the required disclosures and elections were filed through the iEdison system within the applicable deadlines. We found no instances of late filings or procedural deficiencies that could give rise to a government title-reversion claim.
C. Government License Rights — 35 U.S.C. § 202(c)(4)
Section 202(c)(4) of the Bayh-Dole Act provides that the funding agreement shall contain a provision requiring the contractor to grant to the federal government a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States each Subject Invention throughout the world. This is commonly referred to as the "government purpose license."
The scope of this license merits careful attention in the context of the HSAG acquisition. The government purpose license is a worldwide license that permits the U.S. government to use the patented technology in two ways: (i) through its own employees, and (ii) through third-party contractors acting on the government's behalf (i.e., the "have practiced" prong). This latter prong means that the government may direct or authorize any contractor to practice the Subject Invention in the course of performing government work, without the need to obtain VPI's consent or pay any royalties.
The government purpose license is, however, limited to governmental purposes. It does not grant the government the right to commercially license the Subject Invention technology to third parties for non-governmental commercial use. The distinction between government-purpose use and commercial use is generally well-understood, although fact-specific questions can arise at the margins — for example, where a government contractor uses a Subject Invention in the performance of a government contract but also derives commercial benefits from the resulting products or processes.
The significance of the government purpose license for HSAG cannot be overstated. The license is nonexclusive, nontransferable, irrevocable, and paid-up. It cannot be terminated, waived, or restricted by the change in ownership of VPI. It survives the acquisition and runs with the patents. From HSAG's perspective, this means that the U.S. government will continue to hold a perpetual, royalty-free license to all twenty-three Subject Inventions following the closing of the transaction. While this does not prevent HSAG or VPI from commercializing the Subject Inventions, it does mean that HSAG cannot exclude the U.S. government from practicing those inventions for governmental purposes, and HSAG cannot demand royalties from the government or government contractors for such use.
D. March-In Rights — 35 U.S.C. § 203
The Bayh-Dole Act also confers upon the funding agency so-called "march-in rights," pursuant to 35 U.S.C. § 203. March-in rights authorize the funding agency to require the contractor (or its successors or assignees, including HSAG post-closing) to grant a nonexclusive, partially exclusive, or exclusive license to a "responsible applicant" on "reasonable terms." If the contractor refuses to comply, the agency may grant the license itself.
The statute identifies four triggering conditions for the exercise of march-in rights:
(1) The contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the Subject Invention in any field of use (§ 203(1));
(2) Action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees (§ 203(2));
(3) Action is necessary to meet requirements for public use specified by federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or their licensees (§ 203(3)); and
(4) The agreement required by § 204 (domestic manufacture preference) has not been obtained or waived, or the contractor or assignee has breached that agreement (§ 203(4)).
As a practical matter, march-in rights have been invoked very rarely in the decades since the Bayh-Dole Act was enacted. No federal agency has successfully exercised march-in rights to date. The National Institute of Standards and Technology ("NIST"), which administers the Bayh-Dole implementing regulations, has received a number of march-in petitions, but all such petitions have been denied or withdrawn. This track record suggests that the practical risk of a march-in is low under ordinary circumstances.
However, the theoretical risk of march-in activity increases in the context of a foreign acquisition. If HSAG acquires VPI and is perceived by the relevant funding agencies as failing to maintain practical application of the Subject Inventions in the United States — for example, by shifting manufacturing to HSAG's Dresden or other overseas facilities, or by allowing VPI's government contract programs to wind down without replacement — the funding agencies may have grounds to initiate march-in proceedings under § 203(1). Similarly, if HSAG fails to comply with the domestic manufacture preference under § 204, the agencies may invoke § 203(4).
This risk is not merely theoretical in the present context. The acquisition of a U.S. defense technology company by a foreign entity inherently draws attention from government agencies, and the CFIUS process itself reflects heightened scrutiny of the transaction's implications for national security. HSAG should assume that the funding agencies — particularly the U.S. Army, AFRL, and MDA — will be monitoring VPI's post-closing operations to ensure continued practical application of Subject Inventions and compliance with § 204.
To mitigate march-in risk, HSAG must ensure continued domestic manufacturing and commercialization of Subject Inventions, maintain VPI's government contract programs, and demonstrate active steps toward practical application of the funded technologies. These objectives are broadly consistent with the requirements of the NSA under negotiation, which imposes operational continuity obligations on HSAG as a condition of CFIUS clearance. The Technology Control Plan provisions will further support compliance by restricting the transfer of Subject Invention technology to non-U.S. persons and entities.
E. Domestic Manufacture Preference — 35 U.S.C. § 204
Section 204 of the Bayh-Dole Act provides that no small business firm or nonprofit organization which receives title to any Subject Invention and no assignee of any such small business firm or nonprofit organization shall grant to any person the exclusive right to use or sell any Subject Invention in the United States unless such person agrees that any products embodying the Subject Invention or produced through the use of the Subject Invention will be manufactured substantially in the United States. Although by its terms § 204 refers to small business firms and nonprofit organizations, the standard patent rights clauses incorporated into VPI's DoD contracts — including DFARS 252.227-7038 — extend substantially similar domestic manufacture requirements to large business contractors as well. In practice, the domestic manufacture preference applies to VPI and its successors with respect to all Subject Inventions.
The domestic manufacture requirement may be waived by the funding agency upon application by the contractor. A waiver may be granted upon a showing that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would manufacture substantially in the United States, or that under the circumstances domestic manufacture is not commercially feasible. Waiver applications are evaluated on a case-by-case basis, and there is no guarantee that a waiver will be granted.
The § 204 restriction has direct implications for HSAG's post-acquisition commercialization strategy. If HSAG seeks to commercialize VPI's government-funded technologies through its European manufacturing facilities — HSAG's headquarters and principal fabrication facility are located at Industriestraße 44, 01099 Dresden, Saxony, Germany — or through any non-U.S. subsidiary, the § 204 domestic manufacture preference would restrict HSAG from granting exclusive licenses in the U.S. market for products made at those facilities, unless a waiver is first obtained from the relevant funding agency.
It is important to note, however, that the § 204 restriction applies only to exclusive licenses, not to nonexclusive licenses. HSAG's own internal use of the technology globally, as opposed to exclusive licensing to third parties, may be structured to comply with § 204, but this requires careful analysis of the specific facts and commercial arrangements involved. We discuss potential commercialization pathways in greater detail in Section VII below.
F. Reporting Obligations — 35 U.S.C. § 202(c)(5) and 37 C.F.R. § 401.14
The Bayh-Dole Act and its implementing regulations impose a series of ongoing reporting obligations on contractors that have elected to retain title to Subject Inventions. These obligations are designed to ensure that the government maintains visibility into the status of Subject Inventions and the contractor's efforts to achieve practical application.
Under § 202(c)(3), the contractor must file patent applications on Subject Inventions within the statutory time periods or risk the government's right to obtain title. The implementing regulations and standard contract clauses provide that if the contractor fails to file a patent application within the required time frame — typically one year from the election of title, or prior to the expiration of any statutory bar date — the government may require the contractor to assign title to the government.
Under § 202(c)(5), the contractor must include a government-rights legend on all U.S. patent applications and issued patents for Subject Inventions. This legend must acknowledge the government support under which the invention was made and include a statement of the government's rights. The standard form of such an acknowledgment reads: "This invention was made with government support under [Contract No.] awarded by [Agency]. The government has certain rights in the invention."
The contractor is also required to submit periodic utilization reports through the iEdison system, reporting on the steps the contractor has taken to achieve practical application of each Subject Invention and the commercial use being made of the invention. These utilization reports are reviewed by the funding agencies and may inform decisions regarding the exercise of march-in rights.
Our review of VPI's records indicates that all required filings have been made in a timely manner. The government-support acknowledgment legends have been confirmed as present on all twenty-three issued patents for Subject Inventions. The utilization reports are current through the most recent reporting period. We discuss the iEdison compliance review in greater detail in Section VI below.
IV. Identification of the 23 Government-Funded Patents
A. Overview by Patent Family
VPI's total patent portfolio consists of forty-seven (47) granted U.S. patents and twelve (12) pending U.S. patent applications. Of the forty-seven granted patents, twenty-three (23) — representing approximately 48.9% of the total granted portfolio — were developed in whole or in part under government funding agreements and therefore constitute Subject Inventions under the Bayh-Dole Act. These twenty-three patents are distributed across all three of VPI's key patent families, which together form the core of VPI's competitive advantage in gallium nitride (GaN) power amplifier and radio frequency (RF) component technologies.
The three patent families and the distribution of government-funded patents within each are summarized below.
1. GaN-on-SiC Epitaxial Growth Process Family
This family comprises eight (8) granted U.S. patents, numbered 9,XXX,001 through 9,XXX,008, with an earliest priority date of 2012. The inventions in this family relate to VPI's proprietary gallium nitride epitaxial growth processes on silicon carbide substrates — the foundational manufacturing technology upon which VPI's defense and commercial GaN products are built.
Five (5) of the eight patents in this family were developed under government funding. The relevant funding sources are:
• U.S. Army CERDEC Contract — Development of GaN high-electron-mobility transistor (HEMT) modules for the AN/TPS-80 G/ATOR radar system. This contract carries a remaining backlog of approximately $52.3 million and is one of VPI's largest active programs. The contract funded early-stage research into epitaxial growth techniques that yielded several of the patented processes in this family.
• AFRL Contract — Development of next-generation millimeter-wave (mmWave) power amplifiers for airborne electronic warfare and communications systems. This contract has a remaining backlog of approximately $41.7 million and funded research into advanced epitaxial growth recipes optimized for high-frequency performance.
The remaining three (3) patents in this family were developed entirely with private VPI funding and are not Subject Inventions. These privately funded patents cover refinements and variations of the epitaxial growth processes that were developed independently of any government program.
It should be noted that the technologies covered by this patent family overlap significantly with VPI's trade secret portfolio — specifically, the proprietary GaN epitaxial recipes that constitute several of VPI's thirty-one (31) registered internal trade secrets. The trade secrets cover process parameters, material compositions, and manufacturing know-how that complement the patented inventions but are not fully disclosed in the patent specifications. The trade secrets are not Subject Inventions under the Bayh-Dole Act (as trade secrets are not patented inventions), but their relationship to the government-funded patents is relevant to the export control and TCP analyses being conducted by the CFIUS team.
2. HEMT Gate Structure Optimization Family
This family comprises nineteen (19) granted U.S. patents, numbered 10,XXX,101 through 10,XXX,119, with an earliest priority date of 2015. The inventions in this family relate to the design and optimization of high-electron-mobility transistor gate structures for defense radar, missile defense, and electronic warfare applications. This is VPI's largest patent family by number of patents and represents a significant portion of VPI's competitive differentiation in the defense GaN power amplifier market.
Eleven (11) of the nineteen patents in this family were developed under government funding. The relevant funding sources include:
• AFRL Contract — The same next-generation mmWave power amplifier program referenced above ($41.7 million remaining backlog), which funded research into gate structure designs optimized for broadband high-power performance at millimeter-wave frequencies.
• MDA Contract — Development of GaN-based transmit/receive (T/R) modules for missile defense radar systems. This contract carries a remaining backlog of approximately $38.9 million and funded research into gate structures capable of withstanding the extreme thermal and electrical stresses associated with high-power pulsed radar operation.
• Subcontract to Ironclad Defense Systems Inc. — VPI performs as a subcontractor to Ironclad Defense Systems Inc. under a prime contract with USN NAVSEA for naval radar components. This subcontract has a remaining backlog of approximately $34.1 million and funded the development of several gate structure optimization techniques tailored to naval shipboard radar requirements, including resistance to salt spray and vibration environments.
The remaining eight (8) patents in this family were developed with private VPI funding and are not Subject Inventions. These privately funded patents cover commercially oriented HEMT designs for 5G base station and telecommunications infrastructure applications.
3. mmWave Broadband Matching Network Family
This family comprises twenty (20) granted U.S. patents, numbered 11,XXX,201 through 11,XXX,220, with an earliest priority date of 2018. The inventions in this family relate to broadband impedance matching network architectures for millimeter-wave power amplifiers. This is VPI's newest and most rapidly growing patent family, reflecting the company's strategic expansion into both defense communications and commercial 5G infrastructure markets.
Seven (7) of the twenty patents in this family were developed under government funding. The relevant funding sources are:
• AFRL Next-Gen mmWave Program — The same AFRL contract referenced above ($41.7 million remaining backlog), which funded the development of broadband matching networks capable of operating across wide frequency bands relevant to electronic warfare and advanced radar applications.
• DHS S&T Contract — Development of RF components for border surveillance systems. This contract has a remaining backlog of approximately $26.0 million and funded research into compact, efficient matching network designs for portable and fixed-site surveillance radar equipment.
The remaining thirteen (13) patents in this family were developed with private VPI funding and are not Subject Inventions. These privately funded patents cover matching network designs optimized for commercial 5G millimeter-wave applications and represent the commercial pillar of VPI's mmWave technology portfolio.
B. Summary Table of Government-Funded Patents
The following table summarizes the twenty-three (23) government-funded patents identified in our review. A more detailed listing, including full patent titles and claims summaries, is provided in Appendix 1 to this memorandum.
All twenty-three patents have been confirmed as properly reported through the iEdison system, with timely elections of title, timely patent application filings, and current utilization reports.
C. Pending Applications with Government Funding
Of VPI's twelve (12) pending U.S. patent applications, our review has identified six (6) that were developed under government funding and will constitute Subject Inventions upon issuance. These six applications relate to inventions made under the AFRL next-generation mmWave program (three applications), the MDA T/R module program (two applications), and the DHS S&T border surveillance program (one application).
For each of these six pending applications, VPI has made timely invention disclosures and elections of title through the iEdison system. The patent applications were filed within the required statutory periods. Upon issuance, these patents will be subject to the same government rights described in this memorandum — including the government purpose license, march-in rights, and domestic manufacture preference.
It is critical that HSAG ensure continuity of VPI's election-of-title obligations for these pending applications following the closing of the transaction. Failure to maintain the required filings and elections could result in the government's right to obtain title to the resulting patents. We recommend that the post-closing compliance infrastructure described in Section VIII include specific protocols for monitoring and maintaining elections of title for pending Subject Invention applications.
V. DFARS 252.227-7038 — Additional DoD-Specific Rights
A. Clause Overview
DFARS 252.227-7038, entitled "Patent Rights — Ownership by the Contractor (Large Business)," is the standard patent rights clause incorporated into DoD contracts with large business contractors. Although VPI was initially a small business at the time of its earliest contracts, VPI exceeded the relevant Small Business Administration (SBA) size standards as its revenue grew, and DFARS 252.227-7038 has been incorporated into VPI's more recent DoD contracts by operation of the applicable contracting regulations.
This clause supplements the Bayh-Dole Act framework with additional requirements specific to the Department of Defense. It is incorporated — either by reference or by full text — into all fourteen (14) of VPI's active DoD contracts, including the five (5) major contracts with an aggregate remaining backlog of approximately $193.0 million, as well as the nine (9) additional prime and subcontract arrangements under which VPI currently performs.
B. Government Rights Under DFARS 252.227-7038
DFARS 252.227-7038 establishes the following principal government rights and contractor obligations:
Government's Paid-Up License. Consistent with the Bayh-Dole Act's § 202(c)(4), the clause provides that the government receives a worldwide, nonexclusive, irrevocable, paid-up license to practice or have practiced each Subject Invention for or on behalf of the United States throughout the world. The scope of this license under the DFARS clause is coextensive with the statutory government purpose license described in Section III.C above.
Reporting Requirements. The clause requires the contractor to report each Subject Invention to the contracting officer within specified time periods. Initial invention disclosures must be submitted promptly after the invention is disclosed to the contractor by the inventor. The contractor must also provide periodic utilization reports as requested by the DoD contracting officer. These reporting requirements are implemented through the iEdison system, and VPI's compliance with these obligations is confirmed in Section VI below.
Right to File in Foreign Countries. DFARS 252.227-7038 provides that if the contractor does not file patent applications in foreign countries within specified time periods, the government may file applications and obtain title to the Subject Inventions in those countries. This provision is significant in the context of the HSAG acquisition because it means that any gaps in VPI's foreign patent filing strategy could result in the U.S. government obtaining patent rights in foreign jurisdictions where VPI (or HSAG, post-closing) might otherwise wish to maintain exclusive patent protection.
Background Patent Rights and Technical Data. Under certain DFARS provisions — particularly DFARS 252.227-7013 (Rights in Technical Data — Noncommercial Items) and DFARS 252.227-7014 (Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation) — the government may have broader rights to technical data and computer software associated with Subject Inventions beyond the patent license itself. These data rights provisions are particularly relevant where the government has funded the development of manufacturing processes, design specifications, or software tools that embody or implement the patented inventions. The interaction between patent rights and data rights under the DFARS is a complex area that should be coordinated with the TCP analysis being conducted by the CFIUS team, as the TCP will govern access to and transfer of controlled technical data within the HSAG corporate structure post-closing.
C. Interaction with ITAR/EAR Controls
The twenty-three government-funded patents overlap significantly with VPI's ITAR-controlled defense articles and EAR-classified items. Specifically:
• The GaN HEMT and T/R module technologies covered by the patents in Families 1 and 2 are classified as defense articles under the International Traffic in Arms Regulations (ITAR), 22 C.F.R. Parts 120–130, within Category XI(a)(3) of the United States Munitions List (USML). These items are subject to the jurisdiction of the DDTC, and any export, reexport, or retransfer requires prior authorization through a DSP-5 license or other applicable authorization.
• Certain of the commercial-oriented mmWave technologies covered by patents in Family 3, and dual-use components that do not rise to the level of USML defense articles, are classified under the Export Administration Regulations (EAR), 15 C.F.R. Parts 730–774, under Export Control Classification Numbers (ECCNs) 3A001 (electronic components), 3A991 (electronic equipment and components not controlled by 3A001), and 3E001 (technology for the development or production of items controlled by 3A001).
Any disclosure or licensing of these patented technologies to non-U.S. persons — including HSAG's German or other non-U.S. employees — requires both compliance with the Bayh-Dole/DFARS government rights provisions described in this memorandum and separate export authorization under ITAR or EAR. VPI currently maintains DDTC Registration No. M-24817 and holds several existing DSP-5 export licenses for specific programs. The export control compliance framework will need to be updated post-closing to reflect the new ownership structure and any technology sharing contemplated between VPI and HSAG entities.
This dual-layer restriction — Bayh-Dole/DFARS government rights on one hand, and ITAR/EAR export controls on the other — is addressed comprehensively in the Technology Control Plan under negotiation as part of the NSA. The TCP will impose physical, logical, and personnel-based controls to ensure that ITAR- and EAR-controlled technical data, including data related to Subject Inventions, is not disclosed to unauthorized persons. The TCP analysis is being led by Lt. Col. (Ret.) David Caruso and Peggy Ashworth, and this memorandum is intended to inform their work by identifying the specific patents and technologies that are subject to government IP rights.
D. Contract-by-Contract Analysis Summary
The following table maps each of the top five (5) government contracts to the Subject Inventions arising thereunder:
A detailed contract-by-contract cross-reference, including specific patent numbers mapped to each contract and the applicable DFARS clause references, is provided in Appendix 2 to this memorandum. Note that certain patents may have been funded under more than one contract where the underlying research was performed under multiple programs; the table above reflects the primary funding source for each Subject Invention.
VI. iEdison Compliance Confirmation
A. iEdison System Overview
The Interagency Edison (iEdison) system is the federal government's web-based invention reporting system used by government contractors and grantees to comply with the reporting obligations imposed by the Bayh-Dole Act and its implementing regulations. The iEdison system is administered by the National Institute of Standards and Technology (NIST) and serves as the primary mechanism through which federal agencies track Subject Inventions, monitor contractor elections of title, and verify ongoing compliance with reporting requirements.
Under the Bayh-Dole framework, VPI is required to use the iEdison system to report the following categories of information for each Subject Invention:
• Initial Invention Disclosures. A written description of the Subject Invention, including the names of the inventors, the circumstances under which the invention was conceived or first actually reduced to practice, and the funding agreement under which the invention was made.
• Elections of Title. A written confirmation of the contractor's election to retain title to the Subject Invention, which must be filed within two (2) years of the initial disclosure to the funding agency.
• Patent Application Filings. Notification to the funding agency that a patent application has been filed on the Subject Invention, which must occur within one (1) year of the election of title or prior to any statutory bar date.
• Patent Issuance Notifications. Confirmation that a patent has been issued on the Subject Invention, including the patent number and issuance date.
• Utilization Reports. Periodic reports on the contractor's efforts to achieve practical application of the Subject Invention, including information on commercialization activities, licensing arrangements, and manufacturing status.
Failure to comply with iEdison reporting obligations can have serious consequences, including the government's right to obtain title to the Subject Invention under 35 U.S.C. § 202(c)(1)–(c)(3) and the potential exercise of march-in rights under § 203.
B. Review of VPI's iEdison Records
Our review of VPI's iEdison compliance was conducted through the following process:
Col. (Ret.) Bryce Hendrickson, VPI's Vice President of Government Programs and Facility Security Officer, and Derek Wainsborough, VPI's Chief Financial Officer, provided our team with access to VPI's iEdison filing records for all Subject Inventions. These records included printed confirmations of each filing, including timestamps, confirmation numbers, and agency acknowledgments.
We cross-referenced the iEdison records against VPI's internal invention disclosure logs, which are maintained by VPI's patent committee and include detailed records of each invention disclosure submitted by VPI's engineering and research personnel. We also cross-referenced the iEdison records against VPI's patent prosecution files to confirm that patent applications were filed within the required timeframes following elections of title.
In addition, we confirmed with Arbor & Greenfield LLP (VPI's independent auditor, engagement partner Joan Greenfield) that VPI's compliance with Bayh-Dole reporting obligations has been assessed as part of the firm's annual audit process. Arbor & Greenfield confirmed that no material deficiencies in VPI's government contract compliance, including iEdison reporting, were identified in any audit period.
C. Findings
Based on our review, we report the following findings:
1. All 23 Subject Inventions have been properly reported in iEdison. Each of the twenty-three government-funded patents identified in Section IV was disclosed to the relevant funding agency through the iEdison system in accordance with the applicable contract requirements and Bayh-Dole regulations.
2. All elections of title were timely. VPI elected to retain title to each Subject Invention within the two-year period prescribed by § 202(c)(1). No late elections were identified, and no government agency has challenged or sought to revoke any election of title.
3. All patent applications were timely filed. VPI filed patent applications on each Subject Invention within the one-year period prescribed by § 202(c)(3) following the election of title. No extensions were required, and no statutory bar dates were missed.
4. Government-support acknowledgment legends are present on all 23 issued patents. We reviewed the face of each issued patent and confirmed that the required government-support acknowledgment and statement of government rights are included, in the form substantially similar to: "This invention was made with government support under [Contract No.] awarded by [Agency]. The government has certain rights in the invention."
5. Utilization reports are current through the most recent reporting period. VPI has submitted utilization reports for all Subject Inventions as required by the applicable contract provisions and agency requests. The reports reflect VPI's active commercialization of the Subject Inventions through its government contract programs and, for certain dual-use technologies, through commercial channels.
6. No deficiencies, late filings, or government title-reversion risks identified. Our review did not identify any instances of non-compliance that could give rise to a government claim for title reversion or other adverse action.
7. Pending applications include appropriate disclosures. The twelve (12) pending patent applications, including the six (6) that are expected to constitute Subject Inventions upon issuance, include appropriate government-rights disclosures and have been reported through iEdison as required.
A chronological log of all iEdison filings is provided in Appendix 4 to this memorandum.
VII. Impact on HSAG's Post-Acquisition Commercialization Strategy
A. Constraints on International Commercialization
HSAG's strategic rationale for the acquisition of VPI centers on leveraging VPI's GaN power amplifier technology across HSAG's global semiconductor platform. HSAG has identified VPI's GaN-on-SiC epitaxial growth capabilities, HEMT design expertise, and mmWave matching network architectures as transformative technologies that could significantly enhance HSAG's competitive position in both defense electronics and commercial 5G infrastructure markets worldwide.
However, the U.S. government's rights in the twenty-three Subject Inventions create the following material constraints on HSAG's ability to realize this international commercialization strategy:
1. Government License Persists. The U.S. government's paid-up, irrevocable, nonexclusive license to all twenty-three Subject Inventions is perpetual and cannot be terminated, renegotiated, or restricted by HSAG. Following the closing of the acquisition, the U.S. government will continue to hold this license, and may continue to have these technologies practiced by third-party contractors acting on the government's behalf. This means that HSAG cannot monetize the Subject Inventions by seeking royalties from the U.S. government for governmental-purpose use, and cannot prevent government contractors from practicing the inventions under government direction. While this constraint does not directly impede HSAG's own commercial use of the technology, it does mean that the effective exclusivity of the patent rights is diminished in the government-use context. Competitors who serve as government contractors may gain access to the patented technology through government-directed contracts, potentially allowing them to develop expertise that could enhance their competitiveness in adjacent commercial markets.
2. Domestic Manufacture Preference. Under § 204 of the Bayh-Dole Act, any exclusive license for U.S. use of a Subject Invention must include a requirement that products embodying or produced through the use of the Subject Invention be manufactured substantially in the United States. This restriction may limit HSAG's ability to consolidate manufacturing at its Dresden headquarters or other non-U.S. fabrication facilities for products sold exclusively in the U.S. market under government-funded patents. If HSAG seeks to manufacture products embodying Subject Inventions at non-U.S. facilities and sell them into the U.S. market under exclusive arrangements, it would need to obtain a § 204 waiver from the relevant funding agency — a process that is discretionary on the part of the agency and carries no guarantee of approval, particularly in the current geopolitical environment.
3. March-In Risk (Heightened in Foreign Acquisition Context). While no federal agency has successfully exercised march-in rights in the history of the Bayh-Dole Act, the theoretical risk of march-in activity is heightened in the context of a foreign acquisition. The funding agencies — particularly the U.S. Army, AFRL, MDA, and DHS S&T — may increase scrutiny of VPI's post-closing operations to ensure that the foreign acquirer is maintaining practical application of Subject Inventions in the United States and not shifting production or development activities overseas. If HSAG is perceived as allowing VPI's government-funded technologies to languish, or as transferring manufacturing of government-funded products to non-U.S. facilities, the funding agencies may have grounds to initiate march-in proceedings under § 203(1) (failure to achieve practical application) or § 203(4) (breach of domestic manufacture obligation). HSAG should be cognizant of this risk and ensure that VPI continues to actively manufacture and commercialize products embodying Subject Inventions at its Albuquerque facility.
4. Foreign Filing Rights. Under DFARS 252.227-7038, if VPI has not filed patent applications in certain foreign jurisdictions, the U.S. government retains the right to file applications and obtain title in those countries. This provision means that any gaps in VPI's foreign patent filing strategy could result in the U.S. government — rather than VPI or HSAG — holding patent rights in strategically important foreign markets. HSAG should conduct a thorough review of VPI's foreign patent filing strategy for all Subject Inventions to identify any jurisdictions where VPI has not sought patent protection and where the government's right to file could be exercised. Where commercially significant gaps exist, HSAG should consider whether to file applications prior to closing (subject to VPI's contractual obligations and any export control restrictions on filing in certain countries) or to accept the risk of government ownership in those jurisdictions.
B. Interaction with NSA and Technology Control Plan
The government's rights in VPI's Subject Inventions must be understood in the context of the broader regulatory framework that will govern HSAG's ownership of VPI post-closing. The National Security Agreement under negotiation — a draft of which was circulated by CFIUS on November 3, 2023 — will impose additional restrictions on HSAG's access to and use of VPI technology that overlay and in many respects reinforce the Bayh-Dole constraints.
The Technology Control Plan, which will be appended to and incorporated into the NSA, will prohibit the transfer of VPI technical data that is controlled under ITAR or EAR to any non-U.S. person without prior U.S. government authorization. This prohibition effectively layers on top of the Bayh-Dole restrictions by ensuring that even where the Bayh-Dole Act might permit certain uses of Subject Invention technology (e.g., nonexclusive licensing), the transfer of underlying technical data to non-U.S. persons within the HSAG corporate family would be independently prohibited absent export authorization.
The NSA's data segregation requirements will further constrain HSAG's access to government-funded IP. Under the proposed TCP provisions, VPI's IT systems must be physically and logically separated from HSAG's global network, with no shared cloud infrastructure, no common email systems, and no cross-border data flows except through approved and audited channels. These segregation requirements will limit HSAG's ability to access VPI's government-funded patent specifications, engineering data, manufacturing process documentation, and trade secrets from HSAG's facilities in Dresden or elsewhere outside the United States.
The NSA's board governance provisions will require the establishment of a Government Security Committee ("GSC") with exclusive authority over classified and ITAR-controlled programs. The GSC — which will comprise U.S.-citizen directors approved by DCSA — will control decisions regarding Subject Inventions arising from classified programs, including decisions about patent filings, licensing, and technology transfers. HSAG's board-level representatives will not have access to classified program information and will not be able to direct decisions regarding classified Subject Inventions without GSC approval.
Finally, HSAG personnel access restrictions will limit direct exposure to manufacturing processes related to Subject Inventions. Under the proposed TCP, access to VPI's classified facilities — including the Albuquerque fab clean room Sections C-7 through C-12, where classified and ITAR-controlled GaN fabrication takes place — will require prior DCSA and GSC approval. HSAG's German or other non-U.S. employees will not be permitted to access these areas or the technical data associated with the production activities conducted therein.
The cumulative effect of these overlapping restrictions — Bayh-Dole government rights, DFARS contract clauses, ITAR/EAR export controls, and NSA/TCP provisions — is that HSAG's ability to integrate VPI's government-funded IP into its global operations will be significantly constrained. While VPI can continue to operate as a U.S.-based subsidiary with its own commercialization programs, the synergies that HSAG may have anticipated from cross-border technology sharing and manufacturing consolidation will be limited with respect to the twenty-three Subject Inventions and their associated technical data.
C. Commercialization Pathways Available to HSAG
Notwithstanding the constraints described above, several commercialization pathways remain available to HSAG. Each pathway requires careful structuring to comply with the applicable legal and regulatory requirements:
Non-Exclusive Licensing to HSAG Affiliates. The § 204 domestic manufacture restriction applies only to exclusive licenses granted for U.S. use. Nonexclusive licenses are not subject to the domestic manufacture requirement. Accordingly, VPI could grant nonexclusive licenses to HSAG affiliates — including Halcyon US Inc. (Austin, TX) or HSAG entities outside the United States — to practice the Subject Inventions, provided that the licensing arrangement does not constitute a de facto exclusive license and complies with applicable ITAR/EAR export licensing requirements and NSA/TCP provisions. Any such licensing would require prior analysis to ensure that the terms do not trigger § 204 by effectively granting exclusivity, and would require export authorization for any transfer of controlled technical data to non-U.S. persons.
Derivative Technology Development. HSAG may develop new technologies that are inspired by, but do not embody, the Subject Inventions. To the extent that HSAG's engineers can develop novel solutions to analogous technical problems without relying on VPI's government-funded patented inventions or controlled technical data, the resulting derivative technologies would not be subject to the government's Bayh-Dole rights. This pathway requires careful IP clearance to ensure that the derivative technologies do not infringe the Subject Invention patents and are not based on controlled technical data subject to ITAR/EAR or NSA/TCP restrictions. Freedom-to-operate analyses should be conducted prior to the initiation of any derivative development programs.
Separate R&D Programs at Halcyon US Inc. HSAG could fund independent research and development programs at Halcyon US Inc., its existing U.S. subsidiary located in Austin, Texas. Halcyon US Inc. currently has approximately 320 employees and operates as a fabless semiconductor design center with no classified work. Research conducted at Halcyon US Inc. that builds upon publicly available information — including the patent disclosures themselves, which are published documents — without accessing VPI's underlying controlled technical data, trade secrets, or classified information would not be subject to the government's Bayh-Dole rights (assuming the resulting inventions are not themselves made under government funding agreements) and would not implicate the NSA/TCP restrictions. This pathway requires strict informational barriers between Halcyon US Inc. and VPI's classified and ITAR-controlled programs.
Waiver Applications Under § 204. For specific commercial programs where HSAG determines that domestic manufacture of products embodying Subject Inventions is not commercially feasible, HSAG may apply to the relevant funding agencies for a waiver of the § 204 domestic manufacture requirement. Waiver applications must demonstrate that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would manufacture substantially in the United States, or that domestic manufacture is not commercially feasible under the circumstances. While the waiver process is discretionary and there is no guarantee of approval, it provides a potential pathway for HSAG to manufacture Subject Invention products at non-U.S. facilities for exclusive sale in the U.S. market where a compelling case can be made.
Government-Authorized Technology Transfers. Under the TCP, HSAG may apply for U.S. government authorization for specific technology transfers to non-U.S. persons or entities within the HSAG corporate structure. Such authorization would need to come from the Government Security Committee (for classified and ITAR-controlled items) and, for export-controlled items, from DDTC (for ITAR-controlled items) or the Bureau of Industry and Security (for EAR-controlled items). Government-authorized transfers would permit HSAG to share specific technical data related to Subject Inventions with approved non-U.S. personnel on a case-by-case basis, subject to the conditions and limitations imposed by the authorization.
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