Imagine That IP Law Blog

Startups entering defense-adjacent markets face a different environment from traditional Government contracting. Many technologies that have application in defense contexts are created or refined in commercial markets while later being adapted for military use. Artificial intelligence, drones, and Low-Earth Orbit (LEO) satellite constellations are just a few examples. The Department of Defense (DoD) is betting heavily on this model. Recent Defense awards to Anthropic, Google, OpenAI, and xAI to accelerate AI adoption across national security missions reflect a broader view that private companies are best equipped to provide the rapid innovation and scalability needed to win the next arms race.

For startups, this paradigm shift creates considerable opportunity. At the same time, defense-adjacent work differs meaningfully from ordinary private-sector business, and companies should approach these opportunities with a clear intellectual property strategy. This update highlights several developments that startups and small businesses should keep in mind as they enter the dual-use technology space.

1. DoD’s patent holiday signals an open door for collaboration with startups.
In January, the Department of Defense introduced a two-year “patent holiday” program that offers no-fee, non-exclusive Commercial Evaluation Licenses (CELs) for certain Government-owned patents. The program currently lists several hundred curated patents from military labs, covering areas such as artificial intelligence, autonomy, communications, and advanced materials. These patents are accessible through an online portal where companies can review available technologies and identify opportunities for development.

A Commercial Evaluation License allows a company to use a patented technology for internal research and development for up to two years. The license is non-exclusive and does not permit commercial sales, but it enables companies to assess technical and commercial viability without incurring immediate licensing costs. For early-stage companies who often lack the time or capital for traditional research and development, this program lowers the threshold for engagement and accelerates follow-on innovation.

The application process is streamlined. Companies interested in participating should select a patent, submit an application describing their plan for commercialization, and work with the relevant technology transfer office to obtain the license. Applications must be submitted no later than July 22, 2026.

Statements from Under Secretary for Research & Engineering Emil Michael suggest the current program is merely an initial phase to gauge industry interest and identify which technologies attract meaningful engagement. A second phase may significantly expand the number of available patents, refine the licensing process, and potentially create pathways to longer-term or commercial licenses.

2. Section 1498 can both limit and protect startup patent rights.
Even as the Government lowers barriers to entry, startups still need to understand the rules that govern patent enforcement once the Government becomes involved. One of the most important is 28 U.S.C. § 1498.

Under Section 1498, when a patented invention is used or manufactured by or for the United States with Government authorization or consent, the patent owner’s exclusive remedy is against the Government in the Court of Federal Claims, rather than against the contractor itself. In a typical infringement action, the patent owner may seek to file suit directly against an infringer in a district court, potentially seeking injunctive relief; Section 1498 strips away much of this leverage by shifting the dispute away from the contractor.

Defense contractors have placed less emphasis on patent protection, at least in part due to the difficulties in enforcement posed by Section 1498. For startups though, particularly those operating in the current defense ecosystem, patents may have a more substantial role to play. Patents that cover dual-use technologies may provide an effective mechanism for protection against commercial competitors. An early-stage company may depend heavily on patent coverage to support valuation, fundraising, licensing, or acquisition discussions, for example.

At the same time, startups that are engaged in development with or acting on behalf of the Government may in some circumstances benefit from Section 1498. Where the Government provides authorization or consent, a contractor may in some instances raise Section 1498 as an affirmative defense to patent infringement. This protection, however, depends on the specific facts of the relationship and does not arise automatically merely because the work relates to a Government program.

In Arbutus Biopharma Corp. v. Moderna, Inc., Arbutus alleged Moderna’s sales of the COVID-19 vaccine to the Government infringed its lipid nanoparticle delivery patents, while Moderna argued that its sales were protected under Section 1498 due to its defense contract.  2026 U.S. Dist. LEXIS 20889, 2026 WL 266389 at *13. In February, the District of Delaware held that Moderna satisfied the authorization-and-consent requirement, but only some of the accused activity qualified as being “for the Government.” Id. The court concluded Section 1498 applied to vaccine doses the Government acquired and distributed to its own employees, but not to the much larger number of doses supplied to the general public. Id. at 17-22. Last month, Arbutus and Moderna settled the dispute, with Moderna agreeing to pay $950 million and an additional $1.3 billion, depending on the outcome on appeal on the Section 1498 issue.  The Federal Circuit’s handling of the appeal is expected to further clarify how far Section 1498 extends.

3. SBIR and STTR will likely remain viable entry points for defense startups.
The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are federal initiatives that provide funding to small businesses to develop and commercialize technologies with potential Government applications. The SBIR program was originally established in 1982 under the Small Business Innovation Development Act, and the STTR program followed in 1992. Both programs expired last year, but Congress has taken steps to re-authorize them through pending legislation, including S.3971, which recently passed both chambers and now awaits presidential action.

SBIR and STTR require federal agencies with significant extramural research budgets to set aside a portion of those funds for small business research and development. Current set-aside levels are approximately 3.2 percent for SBIR and 0.45 percent for STTR across participating agencies. Eleven federal agencies participate, including the Department of Defense, which accounts for a substantial share of total funding.

Since their inception, the programs have provided more than $70 billion in cumulative R&D funding to small businesses, with annual awards exceeding $4 billion. They are structured to support early-stage research, prototype development, and eventual commercialization, while allowing participating companies to retain ownership of their intellectual property subject to certain Government use rights.

For startups, the attraction is obvious. These programs offer non-dilutive funding, early validation, and a structured path into Government-supported development. They also allow small businesses to retain ownership of their intellectual property, subject to Government rights defined by statute and contract. That can make them especially attractive to companies that want to explore defense applications without immediately surrendering control over foundational technologies.

Bottom line
Startups entering this space should view defense-adjacent work as a meaningful avenue for growth, validation, and long-term market development. Programs that encourage collaboration with the Government can provide access to funding, technical resources, and commercialization opportunities that would otherwise be difficult for smaller companies to secure.

At the same time, startups should pursue those opportunities with a clear understanding of the competitive landscape. Collaboration with Government agencies and contractors can create real advantages, but it also places companies in close proximity to other private actors operating in the same technical space. Protecting core intellectual property and preserving flexibility for commercial markets should remain part of the analysis from the beginning.

For many dual-use companies, the best approach is not to treat defense work as separate from the broader business, but as one part of a larger commercialization strategy. The startups best positioned to benefit will be those that take advantage of collaboration opportunities while keeping sight of how their technology can be protected, deployed, and monetized across both defense and commercial markets.