intellectual property in government contracts...intellectual property in government contracts...

Intellectual Property in

Government Contracts

Commercial data and software

McKenna Government Contracts, continuing excellence at Dentons

• Michael J. McGuinn

• Jeremiah J. McIntyre III

• Joel M. Pratt

June 9, 2016

2

Agenda

• Review of non-commercial data and software rights

• Commercial context: Better buying power and Silicon Valley initiatives

• Commercial item qualifications

• Rights acquired in commercial data

• Rights acquired in commercial software

• Subcontracts

• Practical pointers

June 9, 2016

• Technical data is:

• Any recorded information of a scientific or technical nature

• Includes computer databases and computer software documentation

• Computer software is:

• “Computer programs that comprise a series of instructions, rules, routines, or

statements, regardless of the media in which recorded, that allow or cause a

computer to perform a specific operation or series of operations”

• “Recorded information comprising source code listings, design details,

algorithms, processes, flow charts, formulas, and related material that would

enable the computer program to be produced, created, or compiled”

3

Review of non-commercial data and software rights

Definitions

June 9, 2016

• Contractor retains title

• Government receives a license

• General categories of government license rights:

• Unlimited rights

• Limited rights (technical data) / Restricted rights (computer software)

• Government purpose rights

• Specifically negotiated rights

4

Review of non-commercial data and software rightsOverview of rights allocation scheme

June 9, 2016

• Scope of government rights defined by the contract

• Principal levers for contractors to protect data under civilian contracts:

• Negotiation of deliverables to exclude certain sensitive data

• Disclosure – only disclose what is necessary

• Marking data as required

• Difference in scope of government license between DOD and civilian

agencies

• Civilian agencies (FAR): scope depends on what the contract requires

• DOD (DFARS): scope depends on extent to which USG funded development

5

Government rights receivedReview of non-commercial data and software rights

June 9, 2016

6

Overview of government license rights

Least

restrictive

Most

restrictive

Unlimited

Rights

Limited/

Restricted/SBIR

Rights

Government

Purpose

Rights

Government

Funded

Mixed

Funding

Privately

Funded

Rights allocation for technical data and computer software

June 9, 2016

Commercial context

• DOD acquisition program to improve procurements

• Focus areas:

• Affordable programs

• Cost control throughout product lifecycle

• Incentivize productivity and innovation

• Eliminate unproductive bureaucracy

• Promote effective competition

• Improve tradecraft in acquisition of services

• Improve the professionalism of the total acquisition workforce

• http://bbp.dau.mil/

Better Buying Power

7June 9, 2016

http://bbp.dau.mil/

Commercial context

• IP-related initiatives

• Open systems architecture and modularity of design

• Goal: Allow DOD to substitute components so that DOD need not acquire unlimited

rights in all data and to increase competition

• See H.R. 4909; http://bbp.dau.mil/docs/IP_Strategy_Brochure_FINAL_em.pdf

• Acquisition of alternative data rights

• Form, fit, function, operation, maintenance, installation, training.

• Unlimited rights in interface data

• Limits unclear concerning interface rights: where would unlimited rights apply for

lower-level subcomponents?

• E.g., microchips, integrated hardware systems, etc.

Better Buying Power

8June 9, 2016

http://bbp.dau.mil/docs/IP_Strategy_Brochure_FINAL_em.pdf

Commercial context

• Increased desire to partner with commercial companies

• Desire that commercial technology cannot be used by non-US interests against

DOD

• Additional push to move employees in high-tech field through DOD

• E.g., Defense Digital Service, which brings innovators from large companies to DOD-

funded startups, often on a short-term basis

• Defense Innovation Unit Experimental (DIUx)

• Seminars and funding pipeline for connecting commercial technology

companies with DOD opportunities

• Expansion to Boston

• Use of OTAs and prototyping contracts to spur R&D outside of traditional

procurement process

Silicon Valley initiatives

9June 9, 2016

Commercial context

• DOD funding of innovation

• IR&D funding

• Proposed changes to IR&D threaten to reduce contractor investments:

• 81 Fed. Reg. 6488 (Feb. 8, 2016): Proposed rule that would penalize contractors for

IR&D costs at the proposal phase. See comments provided by Dentons and the ABA.

• 81 Fed. Reg. 7721 (Feb. 16, 2016): Proposed requirement that would “require that

proposed new IR&D efforts be communicated to appropriate DoD personnel prior to the

initiation of these investments, and that results from these investments should also be

shared with appropriate DoD personnel.”

Silicon Valley initiatives

10June 9, 2016

https://www.regulations.gov/contentStreamer?documentId=DARS-2016-0004-0007&attachmentNumber=1&disposition=attachment&contentType=pdf

https://www.regulations.gov/contentStreamer?documentId=DARS-2016-0004-0009&attachmentNumber=1&disposition=attachment&contentType=pdf

Commercial item qualifications

FAR Part 12

11

• Prescribes policies and procedures unique to the acquisition of

commercial items as defined in FAR § 2.101

• Implements the federal government’s preference for the acquisition of

commercial items contained in Title VIII of the Federal Acquisition Streamlining

Act of 1994 (FASA)

• Requires agencies to:

• Conduct market research to determine whether commercial items are available to meet

agency needs;

• Acquire commercial items when they are available; and

• Require contractors to incorporate, to the maximum extent practicable, commercial

items as components of items.

• 2016 NDAA § 851: Presumption that previous DOD agency

commerciality determinations are valid

• Tends to discredit GSA schedule determinations

June 9, 2016

Commercial Item Qualifications

• Key policy problem: Commercial contract terms may be incompatible

with federal law

• 78 Fed. Reg. 80,382 (Dec. 31, 2013): DOD Final Rule regarding open-ended

indemnification clauses in commercial computer software license agreements

(see next two slides)

• 80 Fed. Reg. 79,615 (Dec. 22, 2015): OMB Memorandum regarding

commercial software acquisition that proposes standard terms to replace

commercial terms

• 81 Fed. Reg. 34,302 (May 31, 2016): GSA proposed rule replacing Commercial

Supplier Agreement terms with ones consistent with federal law, and

invalidating inconsistent terms. Comments due 08/01/2016.

• Undermines certain of the benefits of commerciality: If commercial

suppliers do not agree, they may decide not to do business with the

government

FAR Part 12

12June 9, 2016


• Standard clauses often deemed inconsistent with federal law:

• Disputes clauses

• May use state courts or arbitration as opposed to a board of contract appeals or COFC

• Automatic renewal clauses

• May result in violation of Anti-Deficiency Act

• Payment clauses

• May conflict with Prompt Payment Act

• Indemnity clauses

• May result in violation of Anti-Deficiency Act

FAR Part 12

13June 9, 2016


Indemnity clauses and the Anti-Deficiency Act

• FAR provisions make license agreements with indemnification clauses

that could create a violation of the Anti-Deficiency Act unenforceable

against the government

• Does not apply to indemnification expressly authorized by statute and agency

regulations and procedures

• Anti-Deficiency Act prevents commitments that exceed appropriated amounts,

including open-ended indemnity clauses

• The government cannot agree to such clauses by inclusion in a license

agreement

• Any such clauses will be considered stricken from license agreements

FAR Part 12

14June 9, 2016


What is a commercial item? (FAR 2.101)

15June 9, 2016



16June 9, 2016



17June 9, 2016


• Risks associated with relying on item being a commercial

nondevelopmental item:

• Requires procuring agency determination of commerciality:

• Developed exclusively at private expense, AND

• Sold in substantial quantities, on a competitive basis, to multiple State and local

government

• Procuring agency may determine that software or technical data is not a

commercial nondevelopmental item

• Contractor risks losing software or technical data protections if it proceeds with

contract under incorrect assumption of commerciality


18June 9, 2016


Commercial technical data (FAR and DFARS)

19

• Technical data pertaining to a commercial item, component, or process

OR

• Technical data that is a commercial item

June 9, 2016


Commercial computer software

20

FAR (2.101)

• Any computer software that is a commercial item

DFARS (252.227-7014(a)(1))

• Software developed or regularly used for nongovernment purposes

which:

• Has been sold, leased, or licensed to the public;

• Has been offered for sale, lease, or license to the public;

• Has not been offered, sold, leased, or licensed to the public but will be

available in time to satisfy delivery requirements of the contract; or

• Satisfies one of the above criteria and would require only minor modification to

meet requirements of the contract.

June 9, 2016

Rights acquired in commercial technical data

• Government “shall acquire only the technical data and the rights in that

data customarily provided to the public with a commercial item or

process.”

• Presumption that data delivered under contract for commercial items was

developed exclusively at private expense

• When contract for commercial items requires delivery of technical data,

CO “shall include appropriate provisions and clauses delineating the

rights in the technical data.”

• In addenda to solicitation and contract

FAR 12.211

21June 9, 2016


• Policy: DOD shall acquire only the technical data customarily provided to

the public with a commercial item or process

• Compare to policy for non-commercial technical data: “to acquire only the

technical data, and the rights in that data, necessary to satisfy agency needs”

• Exceptions:

• Form, fit, or function data

• Data required for repair or maintenance of commercial items or

processes, or handling of commercial item when such data customarily

provided to public is not sufficient for military purposes

• Data describing modifications made at government’s expense to a

commercial item or process in order to meet requirements of solicitation

DFARS 227.7102-1

22June 9, 2016


• DFARS 252.227-7015 governs technical data for any portion of

commercial item developed exclusively at private expense

• DFARS 252.227-7013, Rights in technical data—non-commercial items,

governs if government pays for any portion of development costs

• Both clauses must be included in all contracts for commercial items where any

portion was developed at government’s expense

• Presumption of development “exclusively at private expense”

• Exception: non-COTS major systems or subsystems or components thereof:

• CO “shall sustain” challenge to asserted technical data restriction “unless information

provided by the contractor or subcontractor demonstrates that the item was developed

at private expense”

• DOD Proposed Rule (81 Fed. Reg. 28,812, 05/10/16): Would narrow major systems

exception to “major weapons systems,” thereby expanding applicability of presumption

that item was developed exclusively at private expense

DFARS 252.227-7015

23June 9, 2016


• Government receives essentially a limited rights license in commercial

technical data

• “Government may use, modify, reproduce, release, perform, display, or disclose

technical data within the Government only.”

• Cannot use technical data to manufacture additional quantities

• Cannot disclose outside of government without contractor’s written permission

• Unless for emergency repair or overhaul or for performance of work by covered support

contractors

• Contractor may require support contractors to sign NDA

• A restrictive legend (no specific format) required

• Otherwise government “shall have no liability for any release or disclosure” of

unmarked technical data

DFARS 252.227-7015

24June 9, 2016

Rights acquired in commercial computer software

• Government acquires rights under license customarily provided to the

public, to the extent such licenses are consistent with federal law and

satisfy the government’s needs

• Contractor generally not required to provide to government information

not generally provided to the public

• Government gets only the rights stated in the license

• If government needs additional rights it must negotiate (FAR § 27.405-3)

• But see 81 Fed. Reg. 34,302 (May 31, 2016); 80 Fed. Reg. 79,615 (Dec. 22,

2015) (proposing standard terms)

• Government still must agree to commercial terms; delivery of software along

with a license agreement does not constitute agreement. GlobeRanger Corp. v.

Software AG, 27 F. Supp. 3d 723, 752 (N.D. Tex. 2014)

FAR 12.212; DFARS 227.7202-1

25June 9, 2016

Rights acquired in commercial computer software

• FAR 52.227-19, Commercial Computer Software License

• Certain rights to duplicate software for backup computers or newly acquired

computers

• Defers to the commercial clause

• Data Enterprises of the NW., GSBCA No. 15607, 04-1 BCA ¶ 32,539 (Feb. 4, 2004)

• Improper disclosure and use of contractor’s computer software led the government to be required

to pay damages for its improper use

• No parallel DFARS clause

FAR 52.227-19

26June 9, 2016

Subcontracts

• Technical data

• DFARS 252.227-7015 must be flowed down, so same requirements will apply

• Only true since 2011. See 76 Fed. Reg. 58,144 (Sept. 20, 2011)

• Software

• FAR 52.227-19 contains no flow-down requirement; no DFARS commercial

software clause

• Typical arrangement: Commercial developer sells to distributor or contractor, who then

sells to government, who is then bound – through the prime – to the developer’s

agreement.

• As government creates standard terms and voids inconsistent ones, there may be a

gap between the prime’s obligation to the subcontractor (based on the subcontractor’s

license agreement) and the prime’s obligation to the government.

27June 9, 2016

Practical pointers

• Identify commercial items and get government to agree on identification,

if possible

• Especially if relying on commercial nondevelopmental item determination

• Carefully review the license rights provided in standard commercial

license agreements

• If possible, negotiate FAR 52.227-19, Commercial Computer Software

License out of contracts

• Provides government with restricted rights license, including modification rights

not typical in standard commercial licenses

• If included, ensure subcontractors supplying commercial software are willing

and able to provide necessary rights in software

• Mark commercial technical data and computer software

28June 9, 2016

Practical pointers

• Ensure that standard commercial license provided to government is

consistent with federal law

• Disputes clauses

• Automatic renewal clauses

• Payment clauses

• Indemnity clauses

• Should consider tailoring indemnity provisions to apply to government “subject to the

availability of funds”

29June 9, 2016

Michael J. McGuinn

Counsel


303.634.4333

[email protected]

Jeremiah J. McIntyre III

Associate


303.634.4317

[email protected]

Joel M. Pratt

Associate


303.634.4324

[email protected]

Questions?

June 9, 2016 30

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Suite 700

Denver, CO 80202-5548

United States

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McKenna Government Contracts, continuing excellence at Dentons

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