Subject: [NEXTEL-1] Ten Practical Rules for Protecting Intellectual Property in a U.S. Government Contract

From: [email-masked]
Date: Mon, 06 Oct 2003 15:46:40 -0400

Ten Practical Rules for Protecting Intellectual Property in a U.S. Government
Contract

by Matthew S. Simchak, Wiley Rein & Fielding LLP

When a company enters into a contract with an agency of the U.S.  government, it
may well be granting the government a license to its valuable technology, whose
scope may not be readily evident from the face of the contract itself. The
following is a summary of Wiley Rein & Fielding LLP Partner Matt Simchak’s
Briefing Paper on this subject describing how companies may protect their
intellectual property.

Contrasting the Standard Licenses

Since 1987, the Department of Defense's (DOD) regulations have specified three
standard licenses: limited, unlimited and government purpose. The “Rights in
Technical Data” or “Rights in Computer Software” clause that usually appears in
U.S. government contracts specifies the nature of these licenses, which differ
from each other regarding to whom the ordered data may be given, and for what
purposes the data may be used.

Information acquired with limited rights (LR) may not be given to anyone outside
the government, unless that disclosure is temporary and made merely to satisfy one
of the government’s limited, internal needs, such as reviewing competitive
proposals for a government contract or performing an emergency repair or overhaul.
Information acquired by the government with unlimited rights (UR) may be given to
anyone and used for any purpose whatsoever. Licenses granting government purpose
rights (GPR), by further contrast, convey rights in between the LR license and the
UR license. If the government acquires technical data or code with GPR, the
government may give the data to any person or any organization outside the U.S.
government, but the information may not be used for any purpose except purposes of
the U.S. government.  These purposes have been defined, in part, in the June, 1995
DFARS as including, “any activity in which the United States is a party….” DFARS
252.227-7013(a) (Nov 1995).
The standard licenses also differ considerably with respect to the permitted use
of intellectual property. The UR license gives the government, and anyone who is
given that information by the government, the right to use the information to
duplicate the product shown in the data, and then to compete for any and all
business opportunities for sales of that product — sales to the U.S.  government
or sales to any prospective customer, anywhere. By extreme contrast, an LR license
to technical data (and the restricted rights to software) conveys no such rights.
If the government takes information with limited or restricted rights, it may not
use that information to enable anyone to make itself a competitor to the developer
of the item shown in the data, at all.  Instead, the LR license authorizes the
government to use the data only for narrow, internal needs of the government.

The scope of permitted use under a GPR license lies somewhere in between the LR
and the UR licenses, but it can be almost as broad as the UR license.  As noted
above, the GPR license gives the government the right to use the data in “any
activity in which the United States is a party,” which may well mean that the uses
of that data are authorized as long as they are within the perimeters of an
agency’s legally authorized programs. Because federal agencies are obliged by law
to act in a vast array of programs, many of which oblige them to work with other
governments inside and outside the United States, a grant of GPR license may well
be construed as authorizing the government and every affiliate of a U.S. agency’s
programs to use the licensed data to generate a field of competition for purchases
by all of those entities —as long as those purchases can be shown to be a part of
a program to which a U.S. government agency is tied by law.

Plainly, when it is engaged in contracting with a U.S. government agency, the
developer’s goal is to try to assure that its designs shall go to the U.S.
government with no greater license than the LR license (or with the restricted
rights license for computer software). The most extreme dispute in this area of
government contracting is over a claim by the government that the developer has
promised unlimited rights in some technical data or code that describes technology
of value.
Recurring Issues

A dispute over what license, if any, has been obtained by the government to
technical data or software code can raise many issues, such as: (1) which version
of the prescriptive regulations or the standard clauses must be used to construe
the parties’ dealings; (2) whether the government contract actually specified the
technical data or software code at issue as a deliverable; (3) whether the item,
component or process shown in the technical data (or whether the software code)
was actually developed in the course of performing a government contract; or (4)
whether the development of the item (or the code) was accomplished with private,
or with public monies. Answering these questions requires an understanding of the
meaning of terms that are unique to these regulations and clauses, and some of
their meanings are open to argument.

Notwithstanding the obvious potential for argument over the meaning of these key
phrases, there are certain fundamentals in this law that make it possible to
distill a list of the essential practices for protecting a developer’s
intellectual property — and for avoiding the possibility of making an inadvertent
gift of unlimited rights to the government. That gift would place the developer at
risk of losing its sole-source position in the relevant marketplace.

10 Practical Rules

To obtain and keep the protection that is granted by the less-than-unlimited
rights, the developer who enters the U.S. government marketplace must perform
certain protective tasks, as a matter of routine. Meeting these burdens is vital
to protecting the trade secrets that might be used in the performance of a
government contract. These 10 duties include:

1.Claim Commercial Item Treatment for Technical Data and Software Undertake the
steps necessary to ensure that the company’s products and services qualify as
“commercial items” in federal procurements.

2.Develop at Private Expense

Elect to structure and apply one’s cost-accounting systems so that promising
technologies can be shown to have been developed at private, rather than
government, expense.

3.Avoid Developing Items Directly in the Performance of a Government Contract Be
careful not to enter thoughtlessly into a government contract or subcontract that
requires that the company develop an item or software.

4.Keep Evidence
Make — and keep — clear and convincing evidence that would prove that an item or
software product was developed at private expense.

5.Refine the Scope of “Government Purposes”
Whenever one contemplates a sale of a government purpose rights license, negotiate
with the government to redefine the term “government purposes,” being sure to
reserve the exclusive commercial rights in secondary markets such as foreign
programs, state and local programs, other federal markets and even commercial
markets.

6.Provide Written Notice Prior to Contract Award
Before the company enters into a contract, give written notice of any data and
software to be delivered to the government with less-than-unlimited rights, and be
prepared to explain why the company is entitled to do so.

7.Give Notice During Contract Performance
Give an additional notice during performance, before committing to the use of any
item whose data is specified for delivery with unlimited rights.

8.Reach Agreement with the Government
Reach an agreement with an agency contracting officer, sometime during
performance, to list the data or software that will go to the government with
something less than unlimited rights.

9.Mark Data and Software
Mark every piece of proprietary data and software with the appropriate protective
legend before delivering that material to the government.

10.Protect Proprietary Information
In all aspects of one’s business, government and commercial, protect all data and
software believed to be other than unlimited-rights material as though that
material contains trade secrets.
Matthew S. Simchak is a partner in WRF’s government contracts practice who
litigates before all forums representing clients in performance disputes and bid
protests. He is a frequent author and lecturer on all government contracts
matters.

For a copy of the full explanatory text of the Briefing Paper on these subjects or
to order a copy of the 832-page textbook on “Licensing Software and Technology to
the U.S. Government” please contact Matthew S. Simchak (202) 719-7278 or email
[email-masked].

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