Section 31.205-37 - Royalties and other costs for use of patents(a) Royalties on a patent or amortization of the cost of purchasing a patent or patent rights necessary for the proper performance of the contract and applicable to contract products or processes are allowable unless- (1) The Government has a license or the right to a free use of the patent;(2) The patent has been adjudicated to be invalid, or has been administratively determined to be invalid;(3) The patent is considered to be unenforceable; or(4) The patent is expired.(b) Care should be exercised in determining reasonableness when the royalties may have been arrived at as a result of less-than-arm's-length bargaining; e.g., royalties- (1) Paid to persons, including corporations, affiliated with the contractor;(2) Paid to unaffiliated parties, including corporations, under an agreement entered into in contemplation that a Government contract would be awarded; or(3) Paid under an agreement entered into after the contract award.(c) In any case involving a patent formerly owned by the contractor, the royalty amount allowed should not exceed the cost which would have been allowed had the contractor retained title.(d) See 31.109 regarding advance agreements.