1. Government Contract Intellectual Property Presented to NCMA Denver November 10, 2009 William C. Anderson United Launch Alliance, LLC 303-269-5120 [email_address] Steven M. Masiello McKenna Long & Aldridge LLP 303-634-4355 [email_address]

2. Agenda

• Introduction

• Regulatory Scheme/Rights Granted

• Comparison of Civilian Agency and Department of Defense (DoD) Regulations

• Specifically Negotiated Licenses

• Commercial Items

• Protection of Proprietary Contractor Information

• Managing Subcontracts

• Risks/Tips Regarding the Management of IP

• Illustrative Scenarios

3. Introduction

• Many types of regulated information exist, e.g. :

• • Freedom of Information Act (FOIA), 5 U.S.C. 552 and Trade Secrets Act, 18 U.S.C. 1905

• • Procurement Integrity Act, 41 U.S.C. 423

• • National Industrial Security Program, DoD 5220.22-M

• • International Traffic in Arms Regulations, 22 C.F.R. Parts 120-130

• • Miscellaneous types of information, such as Privacy Act records, For Official Use Only, nonpublic information

4. Introduction (cont.)

• Information may overlap several regulated areas and/or may constitute intellectual property (IP)

• Relevant types of IP and related legal rights

• • Inventions (patents)

• • Works of art or authorship, including technical data and computer software (copyrights/data rights)

• • Trade secrets (data rights)

• • Trademarks (not usually covered in government procurements)

5. Introduction (cont.)

• Originator of the IP is the owner

• • Unless the originator assigns the IP to the government or a statutory provision provides otherwise

• Owner permitted to restrict the use, reproduction, and/or disclosure of the IP

• Owner may license IP and/or enforce its exclusive rights in infringement actions

• • Exception - the Authorization and Consent statute, 28 U.S.C. 1498

• • • See, e.g., Zoltek Corp. v. United States , 85 Fed. Cl. 409 (Fed. Cl. 2009) (discussed infra)

6. Introduction (cont.)

• Bayh-Dole Model applies - 35 U.S.C. 202-204; 15 U.S.C. 3710a

• • Generally, ownership of IP developed under a contract is maintained by contractor, unless:

• • • Contract includes Work-Made-For-Hire provisions

• • • Contractor fails to employ IP effectively

• Executive Order 12,591 of April 10, 1987, established a similar model for large businesses - 52 Fed. Reg. 13,414

• • See also FAR 27.201-2 (extending the Bayh-Dole Model to large business contractors, subject to exceptions)

7. Introduction (cont.)

• Bayh-Dole Model intended to encourage the commercialization of technology developed under government contracts

• • Bayh-Dole applies explicitly to small businesses and nonprofit organizations - 35 U.S.C. 202

• IP rights for procurement contracts governed under Federal Acquisition Regulation (FAR) Part 27

• • Relevant agency supplements may also govern, e.g., Department of Defense FAR Supplement (DFARS) Part 227 and NASA FAR Supplement (NFARS) Part 1827

8. Regulatory Scheme/ Rights Granted

• Patents

• • Subject inventions include those conceived or first actually reduced to practice under the contract - 28 U.S.C. 201(e)

• • Contracts regulated are those for experimental, developmental, or research work - FAR 27.303(a)

9. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Agencies generally follow Bayh-Dole Model allowing contractors and subcontractors to own patents on subject inventions

• • However, the agencies demand an unlimited rights license in technical data and computer software developed under contract

• • Exceptions to the Bayh-Dole Model for patents exist if the contractor is a large business

• • • Department of Energy

• • • • 42 U.S.C. 2182; 42 U.S.C. 5908

• • • NASA

• • • • 42 U.S.C. 2457(a)

10. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Exceptions to the Bayh-Dole Model exist if the contractor is a large business (cont.)

• • • Department of Defense

• • • • DFARS 227.303 prescribes employing the large-business ownership clause DFARS 252.227-7038.

• • • However, title-taking agencies like DoE and NASA are encouraged to waive their title to patent - see Executive Order 12,591, 52 Fed. Reg. 13,414

11. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Standard FAR ownership clauses include:

• • • Ownership by contractor: Bayh-Dole Model

• • • • Default ownership paradigm - see FAR 27.303(b)

• • • • Contract clause - FAR 52.227-11

• • • • • Contractor has right to elect ownership, subject to invention reporting requirement, government purpose license, and government march-in rights.

• • • • • If contractor fails to elect to file an application, the government may do so with a license back to the contractor with limited right to sublicense others.

• • • • • Contractors failure to timely report an invention can lead to lead to loss of all rights in that invention see Campbell Plastics Eng. & Mfg. , ASBCA 53,319, 2003 WL 1518313 (Mar. 18, 2003)

12. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Standard FAR ownership clauses include (cont.):

• • • Ownership by government

• • • • Exceptions to ownership paradigm - see FAR 27.303(e)

• • • • Contract clause - FAR 52.227-13

• • • • • Contractor assigns ownership to government

• • • • • Contractor receives a revocable, nonexclusive, paid-up license

13. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Other standard FAR clauses include:

• • • Authorization and consent

• • • • Government provides third-party infringement protection to the contractor - FAR 27.201-2(a)

• • • • Contract clause - FAR 52.227-1

• • • Indemnification: indemnifies government

• • • • For delivery of commercial items, the government demands that the contractor indemnify the government from patent infringement liability - FAR 27.201-2(c)

• • • • Contract clause - FAR 52.227-3

14. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Contractors obligations:

• • • Disclose subject inventions to the government

• • • • Under contractor ownership clause, the contractor must disclose within 2 months of notifying the contractors patent personnel - FAR 52.227-11(c)(1)

• • • • Under government ownership clause, the contractor must disclose within the shorter of 2 months of notifying its patent personnel or 6 months after becoming aware of the invention - FAR 52.227-13(e)

• • • Elect to retain ownership

• • • • Under contractor ownership clause, contractor must elect within 2 years of its disclosure to the government - FAR 52.227-11(c)(2)

• • • File patent application

15. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Domestic manufacture preference

• • • Unless not commercially feasible, if a contractor obtains patent rights under a government contract, then product production must be manufactured domestically - 35 U.S.C. 204

• • • Preference not reflected in various patent rights (DoD) or New Technology (NASA) clauses

16. Regulatory Scheme/ Rights Granted (cont.)

• Patents (cont.)

• • Government has march-in rights to require licensing by the contractor to third-parties - 35 U.S.C. 203

• • • Resulting license can be nonexclusive, partially exclusive, or exclusive

• • • Justifications for marching-in include:

• • • • Contractors failure, or anticipated failure, to achieve practical applications

• • • • Public health needs, safety needs, or other public use specified by government regulations

• • • March-in option never used but times may be changing for bioterrorism inventions

17. Regulatory Scheme/ Rights Granted (cont.)

• Rights in Technical Data and Computer Software (Data Rights)

• • Government receives unlimited rights license to data/software first produced or created and delivered under contract

• • Exceptions to the unlimited rights license:

• • • Data/software identified by contractor as having been developed at private expense

• • • • However, government always receives unlimited rights license to form, fit and function data, instructional materials, test data, etc.;

• • • Contractor grants government limited rights license to use (but not for manufacture) data/software; and

• • • Data delivered with limited/restricted rights legends

• • • • Failure to mark with restrictions conveys unlimited data rights - FAR 52-227-14(f)

18. Regulatory Scheme/ Rights Granted (cont.)

• Executive agency specific data rights statutes

• • 10 U.S.C. 2320-2321 (DoD technical data statute)

• • 41 U.S.C. 418a (civilian agencies, e.g. , NASA, technical data statute)

• No federal statute defines the governments rights in computer software

• • Computer Software Documentation is technical data

• • • Technical data is defined in 41 U.S.C. 403(8) and 10 U.S.C. 2302(4)

• • • See also FAR 27.401

19. Regulatory Scheme/ Rights Granted (cont.)

• Data Rights (cont.)

• • May not incorporate previously developed data/software in deliverables unless government permits and sufficient government license rights acquired

• • Deferred ordering rights

• • • Government can later order delivery of data first produced or used under the contract - FAR 52.227-16; DFARS 252.227-7027

• • • • Deferred ordering clause is to be used unless it is believed that all data requirements are known as of the time of contracting FAR 27.409(d); DFARS 227.7103-8(b)

20. Regulatory Scheme/ Rights Granted (cont.)

• Proposal data

• • Generally, government use of proposal data is subject to FAR Subparts 15.2 & 15.6

• • But the government can acquire unlimited rights in proposal data through the successful contract FAR 27.407

• • • Contractor can identify proposal data that it wishes to exclude from the unlimited rights, but this is non-dispositive

21. Regulatory Scheme/ Rights Granted (cont.)

• Copyrights

• • Previously copyrighted works

• • • Government permission required to incorporate previously copyrighted works in deliverables

• • • Contractor must deliver unlimited license

• • • Contract clause - FAR 52.227-14(c)

22. Regulatory Scheme/ Rights Granted (cont.)

• Copyrights (cont.)

• • Copyright in data first produced under the contract

• • • Contractor may assert copyright in works first produced under the contract, if it is published; otherwise:

• • • • Government permission required (if copyright authorized, affix copyright & government notices)

• • • • Government granted an unlimited license

• • • • Government granted a nonpublic license to copyrighted software

• • • Contract clause - FAR 52.227(b)-(c)

23. Differences Between Civilian and DoD Rules

• Civilian

• • Deliver form/fit/function data in lieu of limited/restricted rights, unless previously agreed to by government

• • • Limited Rights Data must already be reduced to an item, process or component, unless Alternate terms provided

• • • Alternate terms also available to deliver proprietary data subject to limited/restricted rights and marking

• • • See FAR 52.227-14

• • Disputes clause permits government to cancel/ignore marking of proprietary data (subject to contractor appeal)

• • • FAR 27.404-5(a)

24. Differences Between Civilian and DoD Rules (cont.)

• DoD

• • Different subject invention disclosure obligations

• • • Shorter disclosure periods, negative disclosure reports, and R&D subcontractor notifications required

• • Government data rights determined by who funded the creation of the data/software or its development:

• • • Unlimited Rights if government funding

• • • Government Purpose Rights if mixed funding entitles contractor to 5 year commercial lockup

• • • Limited Rights if private funding

• • • Specifically Negotiated License Rights, infra , may be an exception

• • • See DFARS 227.7103-5

25. Differences Between Civilian and DoD Rules (cont.)

• DoD (cont.)

• • Delivery of data subject to limited/restricted rights

• • Permits incorporation of third-party copyrighted material with sufficient license rights

• • No permission required to assert copyright

• • Separate provision for noncommercial software and documentation

26. Specifically Negotiated Licenses

• FAR

• • Part 27 neither provides for nor expressly prohibits against use of specifically negotiated licenses

• • Basic data rights clause allows contractor to protect minor modifications of data or software FAR 52.227-14

• • • No definition of minor modification

• DFARS

• • Explicitly allows specifically negotiated licenses to be used to modify the standard license rights granted to the government DFARS 227.7103-5(d)

• • May also be used when the government wants to obtain rights in data in which it does not have rights

• • • Example technical data pertaining to an item, component or process that is not developed but created at private expense

27. Specifically Negotiated Licenses (cont.)

• Modifying the Standard License Rights

• Options

• • Extending the period during which the government enjoys Government Purpose Rights

• • Negotiating government purposes

• • Eliminating ambiguities in standard license rights

• • Expanding the scope of standard license rights

• • Defining minor modifications

• • Negotiating less than unlimited rights

• • Preventing reverse engineering of product / decompilation of source code

• • Establishing obligations of confidentiality

28. Specifically Negotiated Licenses (cont.)

• Minimum license rights

• • Limited Rights in technical data

• • Restricted Rights in computer software

• Government does not have to negotiate deviations from standard license rights

• Must show value to government

• • Must meet governments minimum needs for technical data/computer software

• May have to prove that license has basis in DFARS regulatory text or that FAR does not prohibit these licenses

29. Commercial Items

• The First Gulf War and the Federal Acquisition Streamlining Act of 1994 (FASA)

• Commercial Item definition includes IP (licensed or offered to be licensed to the general public) FAR 2.101

• • Includes minor modifications and customary modifications

• Permits a division of a company to be a commercial item subcontractor

30. Commercial Items (cont.)

• Commercial Item Contracts - FAR Part 12; DFARS Part 212

• • Commercial Item definition can include both supplies and services that are offered for sale or sold to non-government customers typically at market or catalog prices

• • Qualification as commercial item contract often will require justification to government contracting officer

31. Commercial Items (cont.)

• FASA permitted waiver of data rights statutes for commercial item subcontracting

• • 41 U.S.C. 253d & 418a; see FAR 12.504

• • 10 U.S.C. 2320-2321; see DFARS 212.504

• Waiver enables commercial item subcontractors to flow up standard commercial technical data licenses not inconsistent with law

• • Standard license rights generally inapplicable

• FAR/DFARS policy is to acquire commercial item technical data and commercial computer software under commercial terms that are not inconsistent with law and satisfy government needs

• • FAR 12.211-.212

• • DFARS 212.211-.212; 227.7102

32. Commercial Items (cont.)

• Prime contractor offering commercial item still subject to waived statutes

• DoD requires a broad grant of unrestricted license rights in technical data to permit the use and maintenance (but not manufacture) of the Commercial Item

• • See DFARS 252.227-7015

• • Note that no equivalent exists in FAR

• No DFARS computer software license clause - But see FAR 52.227-19

• Patent Rights clauses inapplicable to commercial items (no experimental, research or developmental work)

33. Protection of Proprietary Contractor Information

• FOIA & Reverse FOIA

• • Freedom of Information Act (FOIA) - 5 U.S.C. 552

• • • FOIA requires an agency to release information held by the agency, subject to enumerated exemptions, to the public upon request

• • • Trade secrets and commercial or financial information that is privileged or confidential is exempted - 5 U.S.C. 552(b)(4) (Exemption 4)

• • • Issues arise when the agency plans to release records that ought to be exempted under FOIA Exemption 4

34. Protection of Proprietary Contractor Information (cont.)

• FOIA & Reverse FOIA (cont.)

• • Reverse FOIA

• • • Agency required under Executive Order 12,600 to coordinate with contractor prior to disclosure 52 Fed. Reg. 23,781 (June 25, 1987)

• • • Contractor may object to disclosure, including written testimony to support exemption status

• • • If agency threatens disclosure over contractor objection, then an action under the Administrative Procedures Act is available to require the agency to withhold the records

• • • See, e.g., Canadian Commercial Corp. v. Dept of the Air Force , 514 F.3d 37 (D.C. Cir. 2008) (affirming district court decision enjoining Air Force from disclosing contractors line-item pricing under FOIA Exemption 4)

35. Protection of Proprietary Contractor Information (cont.)

• Recent cases & developments

• • Boeing Co. v. U.S. Dept of the Air Force , 616 F. Supp. 2d 40 (D.D.C. 2009)

• • • Reverse-FOIA case; Air Force sought to release labor cost information contained in Boeing contracts

• • • Held release of current and future pricing information should be exempt from disclosure because of competitive harm

• • • But affirmed release of past pricing information as not threatening contractors competitive position (unless competitor could extrapolate present pricing from past pricing information)

36. Protection of Proprietary Contractor Information (cont.)

• Recent cases & developments (cont.)

• • Gen. Elec. Co. v. Dept of the Air Force , ___ F. Supp. 2d ___, 2009 WL 2749359 (D.D.C. Aug. 28, 2009)

• • • Reverse-FOIA case; jet engine manufacturer made FOIA request including pricing information about GEs sole source contracts to supply engine spare parts

• • • Air Force sought to release information arguing, in part, no actual competitive harm existed because the contracts were sole source awards

• • • Held that evidence of competition need not be competition over the subject contracts but merely that GE has competition over the general subject matter of the contracts, here spare engine parts

37. Protection of Proprietary Contractor Information (cont.)

• Recent cases & developments (cont.)

• • New U.S. Attorney General Guidelines for FOIA

• • • Memorandum dated March 19, 2009, rescinds earlier AG guidelines 74 Fed. Reg. 49,892 (Sept. 28, 2009)

• • • Implements President Obamas January 21, 2009, FOIA memorandum that creates a presumption in favor of disclosure

• • • Directions:

• • • • Agencies should not withhold information merely because they may legally do so

• • • • Agencies should make partial disclosures if possible whenever full disclosures are not possible

• • • • Encourages agencies to proactively post information online prior to public requests

38. Protection of Proprietary Contractor Information (cont.)

• Recent cases & developments (cont.)

• • Plainville Elec. Prod. Co. v. Bechtel Bettis, Inc. , No. 3:06cv920 (SRU), 2009 WL 801639 (D. Conn. Mar. 26, 2009)

• • • Data rights case; prime contractor released subcontractors technical data to other bidders for follow-on subcontract

• • • First subcontract included clause giving contractor unlimited technical data rights without reservations

• • • Held that prime contractor did not breach subcontract

39. Protection of proprietary contractor information (cont.)

• Recent cases & developments (cont.)

• • Zoltek Corp. v. United States , 85 Fed. Cl. 409 (Fed. Cl. 2009)

• • • Patent infringement case; portion of alleged patent infringement occurred by contractor in foreign country

• • • Prior, the government had successfully argued that the Court of Federal Claims had no jurisdiction to hear infringement suit against United States under Tucker Act because of acts on foreign soil

• • • Held here that derivative immunity conferred onto infringing contractor no longer existed

• • • • Typically, a contractor alleged to have infringed a patent in the course of its contract receives indemnity from the government see 28 U.S.C. 1498(a)

• • • • However, the Zoltek court held here that the plain language of 28 U.S.C. 1498(c) provides that none of 1498 applies to a claim arising in a foreign country

• • • • Thus, no derivative immunity existed because the claim arose in a foreign country

40. Protection of proprietary contractor information (cont.)

• Recent cases & developments (cont.)

• • National Defense Authorization Act For Fiscal Year 2010, Section 821

• • • Statutory expansion of DoD Limited Rights License

• • • Provides authority for covered government support contractors to have access to technical data belonging to prime contractors

• • • Covered government support contractors

• • • • Must be providing independent management advice to the government regarding the prime contract from which it is receiving a prime contractors technical data

• • • • Cannot be an affiliate of the prime contractor, a first-tier subcontractor, or a direct competitor of either

• • • • Must execute a non-disclosure agreement (NDA) with the prime contractor

• • • • Civilly liable to the prime contractor for breaches of NDA

• • • • Civilly and criminally liable to government for breaches of the consulting contract

41. Managing Subcontracts

• Flowing prime contract clauses to the subcontract

• • Contractor required to obtain all data and rights therein necessary to fulfill the Contractors obligations FAR 52.227-14(h)

• • Clauses (with alternates) to flow-through (if applicable) include:

• • • Authorization and Consent (contractor indemnity) FAR 52.227-1

• • • Patent Indemnity (for the government) FAR 52.227-3

• • • Patent Rights Ownership by the Contractor FAR 52.227-11 (if applicable)

• • • Patent Rights Ownership by the Government FAR 52.227-13

• • • Rights in Data General FAR 52.227-14 / DFARS 252.227-7013, -7014, & -7015

• • • Additional Data Requirements (deferred ordering) FAR 52.227-16 / DFARS 252.227-7026

• • • Rights to Proposal Data FAR 52.227-23 / DFARS 252.227-7016

42. Managing Subcontracts (cont.)

• Additional subcontract clauses beyond prime contract flow-throughs

• Subcontracts may benefit from additional IP clauses to facilitate prime contract performance, such as:

• • Clause requiring a subcontractor to remove restrictive marks if the government requires removal

43. Risks/Tips for Managing IP

• Understand the rules!

• • Evaluate FAR/DFARS alternative clauses

• • Think!

• Be empathetic to the governments needs

• But, clearly understand your business goals

• Set up a system to ensure proper administration of government IP contract terms, including the reporting of inventions

• Avoid unanticipated or undesirable entanglements relating to development of IP by analyzing how the government obtains license rights

44. Risks/Tips for Managing IP (cont.)

• Prior to submitting a proposal or executing a government contract or subcontract:

• • Negotiate deliverables

• • Negotiate scope and duration of licenses

• • Identify and list deliverable, privately developed technical data and computer software

• • Identify inventions that have not been actually reduced to practice

• • Track ( i.e., maintain records of) the development of data/software in anticipation of Data Rights challenges

• • Restrictively mark privately developed data/software using conforming, authorized legends to avoid impairment or loss of rights

• • • Neither over- nor under-inclusive

45. Risks/Tips for Managing IP (cont.)

• Analyze and, if appropriate, eliminate unnecessary/inappropriate FAR/DFARS clauses

• • Work-Made-For-Hire clauses

• • Government deferred ordering terms

• • Additional Data Requirements see FAR 52.227-16

• • • Certain data can be exempted

• Ensure subcontract terms compatible with prime contract

46. Risks/Tips for Managing IP (cont.)

• Vigorously monitor agencies websites and other media for pre-FOIA-request agency disclosures

• When disputing FOIA disclosure, clearly demonstrate how release of past information will lead to future competitive harm

47. Illustrative Scenarios

• IP management arises in diverse ways in government contracting context

• Two basic types of scenarios encountered

• • Government - Prime contractor

• • Prime contractor - Subcontractor

48. Illustrative Scenarios (cont.)

• Scenario #1 - Government - Prime contractor

• • Contractor constructs complex weapons system for the U.S. Air Force. Those systems include embedded software applications that the Contractor developed at its sole expense. The contract includes DFARS 252.227-7014 (Rights in Noncommercial Computer SoftwareDocumentation). Contractor placed a legend on the display screen that only included the software version, Contractor name and date.

49. Illustrative Scenarios (cont.)

• Scenario #1 - Government - Prime contractor (cont.)

• • Governments perspective

• • • Government believes it is entitled to unlimited rights in the software because Contractor did not comply with the strict marking terms of DFARS 252.227-7014.

• • • Government claims it is unable to determine what rights it possesses without appropriate marking.

• • Contractors perspective

• • • Contractor developed software with its own funds prior to contract award and government should not obtain unlimited rights in embedded software.

50. Illustrative Scenarios (cont.)

• Scenario #1 - Government - Prime contractor (cont.)

• • Solution

• • • Failure to use marking required by DFARS 252.227-7014 allows the government to obtain unlimited rights in the software. See Gen. Atronics Corp. , ASBCA No. 49196, 2002 WL 450441 (Mar. 19, 2002).

• • • Dispute process see DFARS 252.227-7037(e)-(i)

• • • • Government sends letter to contractor challenging the marks

• • • • Contractor has 60 days to respond, and that response is deemed a claim under the Contract Disputes Act

• • • • Government then has 60 days to issue a final decision

• • • • Contractor can appeal that final decision to the Court of Federal Claims

51. Illustrative Scenarios (cont.)

• Scenario #2 - Government - Prime contractor

• • NASA contracts with World Security, Inc. for the development and installation of a new security system for Cape Kennedy which will include development of new hardware and software to implement the system. World Security, Inc. has never obtained a prime contract from NASA before and has tough competitors who have U.S. and foreign patents that cover products similar to those of World Security, Inc.

52. Illustrative Scenarios (cont.)

• Scenario #2 - Government - Prime contractor (cont.)

• • NASAs perspective

• • • Ensure that it has sufficient patent and data rights to enable it to satisfy life-cycle requirements and safeguard the meta-security of the security system itself

• • • • Concern about software security holes and breaches

• • World Securitys perspective

• • • Get the contract and build a long-term relationship with NASA

• • • Protect as much of its data from future potential disclosures to competitors

• • • Protect itself from patent infringement liability

53. Illustrative Scenarios (cont.)

• Scenario #2 - Government - Prime contractor (cont.)

• • Solution

• • • Under the Basic Data Rights clause, FAR 52.227-14, a contractors best method to protect its data is to withhold it from delivery

• • • • May, however, not satisfy NASAs data needs

• • • Instead employ Alternate II that will permit delivery of the data subject to a limited rights license that will prevent the government from using the data for manufacturing

• • • Also, employ Alternate III to protect any software that must be delivered

• • • Solicit FAR 52.227-1, Authorization and Consent, Alternate I to protect against third party U.S. patent infringement claims

• • • Consider negotiating additional indemnity clauses from the government to protect against alleged patent infringement see Zoltek, supra

54. Illustrative Scenarios (cont.)

• Scenario #3 - Government - Prime contractor

• • The U.S. Army issued an RFP for a new armored vehicle. In the RFP, the Army stated clearly that it needs to obtain reprocurement data and rights in order to meet the Armys life cycle support requirements. The RFP included DFARS 252.227-7017 and DFARS 252.227-7013 which requires the identification of technical data to be delivered with less than unlimited rights and listed in the contract.

• • The successful bidder failed to identify any technical data subject to restrictions. After contract award, bidder internally identified such data and requested that the Army add a list of such technical data to the contract.

• • The Army refused to add the list to the contract

55. Illustrative Scenarios (cont.)

• Scenario #3 - Government - Prime contractor (cont.)

• • Army perspective

• • • Made it clear that the Army needed reprocurement package and associated rights

• • • Ensure that spare parts and maintenance services can be competitively procured

• • • Go to other contractors as the need arises

• • Prime contractors perspective

• • • Protect its privately developed data

• • • Be competitive in the future

56. Illustrative Scenarios (cont.)

• Scenario #3 - Government - Prime contractor (cont.)

• • Solutions

• • • DFARS 252.227-7013(e)(3) states that other assertions may be identified after award when based on new information or inadvertent omissions unless the inadvertent omissions would have materially affected the source selection decision.

• • • Assert that subparagraph (e)(3) is inapplicable.

• • • Negotiate when the government acquires the reprocurement data and associated rights.

• • • Offer to license subsequent contractor directly

57. Illustrative Scenarios (cont.)

• Scenario #4 - Prime contractor - Subcontractor

• • Prime contractor and subcontractor enter a contract for interactive displays for Navy training modules. Later, the prime contractor solicits bids from the subcontractor and other bidders for a follow-on subcontract to provide next generation displays.

• • Prime contractor distributes to all of the bidders the subcontractors data submitted under the subcontract. The subcontractor has submitted its data without any restrictive legends.

58. Illustrative Scenarios (cont.)

• Scenario #4 - Prime contractor - Subcontractor (cont.)

• • Prime contractors perspective

• • • Achieve the lowest price by ensuring that all bidders have access to as much information as is possible so that no one reinvents the wheel

• • Subcontractors perspective

• • • Protect its competitive advantage resulting from its current experience

• • • Protect its confidential data and trade secrets

59. Illustrative Scenarios (cont.)

• Scenario #4 - Prime contractor - Subcontractor (cont.)

• • Solutions

• • • Using DFARS 252.227-7013(e)(2) contract clause, negotiate to submit data with restrictive legends to protect its data from disclosure to third-parties. See Plainville Elec. Prod. Co. v. Bechtel Bettis, Inc. , No. 3:06cv920 (SRU), 2009 WL 801639 (D. Conn. Mar. 26, 2009)

• • • Prime contractor cannot use its ability to award subcontracts to leverage data rights from the subcontractor - DFARS 252.227-7013(k)(4)-(5)

60. Illustrative Scenarios (cont.)

• Scenario #4 - Prime contractor - Subcontractor (cont.)

• • Solutions

• • • FAR somewhat different from DFARS policy.

• • • • [C]ontractors shall not use their ability to award subcontracts as economic leverage to acquire rights for themselves in inventions resulting from subcontracts - FAR 27.304-3

• • • • The Contractor shall obtain from its subcontractors all data and rights therein necessary to fulfill the Contractors obligations to the Government under this contract. If a subcontractor refuses to accept terms affording the Government those rights, the Contractor shall promptly notify the Contracting Officer of the refusal and shall not proceed with the subcontract award without authorization in writing from the Contracting Officer. - FAR 52.227-14(h)

61. Illustrative Scenarios (cont.)

• Scenario #5 - Government - Prime contractor - Subcontractor

• • Prime contract includes Alternate II permitting the delivery of limited rights data under FAR 52.227-14, which the prime contractor flowed-through to the subcontractor

• • Subcontractor submitted data restrictively marked as limited rights data

• • Government now disagrees with the subcontractors assertion that the data qualifies as limited rights data because it wants to use the data in a new procurement

• • • Sends letter to prime contractor disputing the restrictive legends

• • • Prime contractor is stuck in middle

• • • Goverment removes marks, see FAR 52.227-14(f), and issues decision to both prime & subcontractor asserting unlimited rights

62. Illustrative Scenarios (cont.)

• Scenario #5 - Government - Prime contractor - Subcontractor (cont.)

• • Governments perspective

• • • Wants to use the subcontractors data for new procurement

• • Prime contractors perspective

• • • Wants to protect its relationship with its subcontractor and with the government

• • • Wants to protect its competitive advantage for the new procurement via its relationship with its existing subcontractor

• • Subcontractors perspective

• • • Just wants to protect its technical data from disclosure to keep its competitive edge

63. Illustrative Scenarios (cont.)

• Scenario #5 - Government - Prime contractor - Subcontractor (cont.)

• • Solutions

• • • Prime can attempt to sponsor subcontractors claim to contest the governments decision removing the restrictive marks

• • • Subcontractor may seek relief directly under Contract Disputes Act pursuant to 41 U.S.C. 253d(e)

• • • • See also 10 U.S.C. 2321(h)

64. Conclusion

• Government contracts provide a good source of development funding which can be used to accelerate commercialization of technology

• Special care required to manage IP under pertinent statutes/regulations

• • Significantly different than commercial licensing

• • Due diligence necessary to avoid disputes, compliance issues and/or improper impairment of IP rights

65. Contact Information William C. Anderson United Launch Alliance, LLC 9100 East Mineral Circle, MS: U6003 Centennial, CO 80112 303-269-5120 [email_address] Steven M. Masiello McKenna Long & Aldridge LLP 1400 Wewatta Street, Suite 700 Denver, CO 80202 303-634-4355 [email_address] DN 32168417