Protecting Your Intellectual Property: Fundamentals of Federal Data Rights Regulations

July 20, 2016

Shaun C. Kennedy

Oles Morrison Rinker & Baker LLP www.oles.com

kennedy@oles.com

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Washington PTAC Locations

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Outside Washington State?

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http://aptac-us.org/

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• From a contractor’s perspective, intellectual property is a valuable corporate asset that can be used to generate revenue, create a competitive advantage, create barriers to entry by competitors, and act as a deterrent to litigation

• The Government also needs to consider intellectual property issues during the acquisition planning process to help promote competition, reduce lifecycle costs, and reduce re-procurement costs. See Defense Contracting: Early Attention in the Acquisition Process Needed to Enhance Competition (GAO-14-395) (May 2014).

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Intellectual Property in Government Contracts

• Which federal agency is administering the contract?

• Does the contract require the delivery of intellectual property? If so, what kind?

• What rights to the intellectual property does the Government obtain?

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Threshold Issues to Consider

• Ownership vs. License

– The Government rarely takes ownership over intellectual property developed by a contractor

– Instead, the Government obtains a license defined by the terms of the contract

• Minimalism

– The Government should take only the minimum necessary rights in intellectual property delivered under a contract

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Fundamental Principles

• Important to recognize that the regulations governing technical data and computer software differ between civilian and defense agencies – Civilian Contracts

• FAR Part 27 – “Patents, Data, and Copyrights”

• FAR 52.227-14 – “Rights in Data-General”

– Defense Contracts – • DFARS Subpart 227.71 – “Rights in Technical Data”

• DFARS Subpart 227.72 – “Rights in Computer Software

• DFARS 252.227-7013 – “Rights in Technical Data-Noncommercial Items”

• DFARS 252.227-7014 – “Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation”

• DFARS 252.227-7015 – “Technical Data-Commercial Items”

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Separate Regulatory Regimes

• For any particular contract, the FAR and DFARS cannot both apply simultaneously!

– FAR 27.400 provides that FAR Subpart 27.4 applies to “all executive agencies except the Department of Defense.”

• It is critical to understand which regulatory regime applies to your contract, because the FAR and DFARS take antithetical approaches to intellectual property issues.

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Separate Regulatory Regimes (cont.)

RELEVANT DEFINITIONS

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Recorded information, regardless of the form or method of the recording, of a scientific or technical nature (including computer software documentation). The term does not include computer software or data incidental to contract administration, such as financial and/or management information.

FAR 52.227-14(a); DFARS 252.227-7013(a)(15)

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Technical Data

Computer programs, source code, source code listings, object code, design details, algorithms, processes, flow charts, formulae and related material that would enable the software to be reproduced, recreated, or recompiled. Computer software does not include computer databases or computer software documentation.

FAR 52.227-14(a); DFARS 252.227-7013(a)(3)

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Computer Software

Software developed or regularly used for nongovernmental purposes which—(i) Has been sold, leased, or licensed to the public; (ii) Has been offered for sale, lease, or license to the public; (iii) Has not been offered, sold, or leased to the public but will be available for commercial sale, lease, or license in time to satisfy the delivery requirements of the contract; or (iv) Satisfies an above-referenced criterion and would require only minor modifications to satisfy the delivery requirements of the contract. FAR 2.101; DFARS 252.227-7014(a)(1)

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Commercial Computer Software

ALLOCATION OF DATA RIGHTS

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• Unlimited Rights

• Government Purpose Rights

• Limited Rights (Technical Data Only)

• Restricted Rights (Computer Software Only)

• Commercial Computer Software Rights

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Categories of Data Rights

• Permits the Government to use, disclose, reproduce, prepare derivative works, distribute copies of technical data/computer software to the public, perform publicly and display publicly in any manner for any purpose

• Government may grant third-party rights to the same

• Although the contractor retains ownership of the technical data/computer software, likely loses any trade secret protection and may have difficulty commercializing the technical data

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Unlimited Rights (FAR & DFARS)

• Applies to technical data, including computer software documentation (not computer software)

• Permits the Government to use, modify, release, perform, display, or disclose technical data within the government

– Government may not disclose technical data to third parties or use for manufacturing

– Cannot release technical data outside the Government

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Limited Rights (FAR & DFARS)

• Applies to computer software

• Permits the Government to use computer software on one computer at one time

• Government prohibited from:

– Accessing computer software by more than one user unless permitted by the contract

– Transferring the computer software to another government agency

– Modifying the computer software

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Restricted Rights (FAR & DFARS)

• Permits the Government to modify, reproduce, release, perform, display, or disclose technical data/computer software within the Government without restriction

• Government may authorize others to use the technical data/computer software for only Government purposes

– Government purposes include competitive procurements, but do not include commercial purposes

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Government Purpose Rights (DFARS)

• Government obtains only the rights specified in the standard commercial license under which the commercial computer software and commercial computers software documentation is acquired

• If the Government seeks rights in addition to those set forth in the standard commercial license, the Government must negotiate with the contractor to obtain acceptable terms for purchasing such rights

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Commercial Computer Software Rights (DFARS)

DETERMINING APPROPRIATE ALLOCATION OF DATA RIGHTS

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• The Government’s data rights in technical data and computer software are often dictated by the source of development funding

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The “Funding” Test

• Civilian Contracts (FAR 52.227-14) – The Government shall have unlimited rights in:

1. Data first produced in the performance of the contract; 2. Form, fit, and function data delivered under the contract; 3. Data delivered under the contract that constitute manuals or instructional and

training material for installation, operation, or routine maintenance and repair of items, components, or processes delivered under the contract; or

4. All other data delivered under the contract unless provided otherwise for limited rights or restricted rights

– The Government shall have limited rights or restricted rights in technical data/computer software developed at private expense and that is a trade secret, proprietary, or copyrighted

– But what about government purpose rights

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The “Funding” Test (cont.)

• Defense Contracts (DFARS 252.227-7013 & DFARS 252.227-7014)

– The Government shall have unlimited rights in technical data/computer software first conceived and/or first created during performance of the contract, and “developed exclusively with Government funds”

– The Government shall have limited rights or restricted rights in technical data/computer software “developed exclusively at private expense” and that is a trade secret, proprietary, or copyrighted

– The Government shall have government purpose rights in technical data/computer software “created with mixed funding” (i.e., when the funding source is both the contractor and the Government)

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The “Funding” Test (cont.)

• The phrase “developed exclusively at private expense” is defined as:

– “[D]evelopment was accomplished entirely with costs charged to indirect cost pools, costs not allocated to a government contract, or any combination thereof.”

• The phrase “developed exclusively at Government expense” is defined as:

– “[D]evelopment was not accomplished exclusively or partially at private expense.”

• The phrase “developed with mixed funding” is defined as:

– “[D]evelopment was accomplished partially with costs charged to indirect cost pools and/or costs not allocated to a government contract, and partially with costs charged directly to a government contract.”

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Source of Funding Determination

• An item, component, or process is “developed” when it exists and is workable (i.e., the item has been constructed or the process practiced)

• Workability is generally established when the item, component, or process has been analyzed or tested sufficiently to demonstrate to reasonable people skilled in the art that there is a high probability that it will operate as intended

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When is Data “Developed?”

• “Segregability” is the concept of identifying privately-funded, severable portions of end products (i.e., individual parts, components, assembly, sub-system, source code, modules, etc.)

• Permits the contractor to restrict the Government’s license in technical data/computer software developed at private expense

• Determinations of the Government’s rights in technical data/computer software should be made at the lowest readily segregable terms

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Doctrine of Segregability

SPECIAL CONSIDERATIONS FOR CONTRACTORS

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• Both the FAR and DFARS require that technical data/computer software delivered to the Government with less than unlimited rights must be designated with an appropriate legend – Precise instructions are set forth in FAR 52.227-14(g) and DFARS 252.227-

7014

• Legends must be placed: – On the transmittal document or storage container

– On each page of any printed material subject to restrictions

– On reproductions

– On direct electronic transmittals

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Legends & Markings

• Failure to include the appropriate legend on technical data/computer software delivered with less than unlimited rights risks forfeiture of intellectual property rights

• The Government is permitted to challenged alleged improper markings, but must permit the contractor the opportunity to respond.

• If the parties are unable to resolve a challenge to an alleged improper marking, the Disputes clause (FAR 52.233-1) will govern

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Legends & Markings (cont.)

• Critical to maintain detailed records tracking the development of all privately funded technical data/computer software

– Often useful to create internal business plans describing the company’s development of technical data/computer software and the funding sources

• Records must be sufficient to justify the validity of any technical data/computer software delivered to the Government with less than unlimited rights

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Maintaining Appropriate Records

• Prime contracts must flow-down FAR and DFARS data rights to subcontractors during performance of a contract

• Prime contractors and subcontractor must be diligent in reviewing Government specifications to understand what intellectual property issues may arise

• If technical data/computer software is to be supplied by a subcontractor, subcontractor may bypass prime contractor and deliver directly to the Government

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Subcontract Administration

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Questions?

Shaun C. Kennedy

Oles Morrison Rinker & Baker LLP www.oles.com

kennedy@oles.com (206) 467-7498