BOSTON // HARTFORD // NEW YORK // NEWARK // STAMFORD // PHILADELPHIA // WILMINGTON
A Status Report on the Changing Terrain of
Government Rights in Data and Inventions
Under DoD Contracts
Daniel J. Kelly
September 20, 2011
National Contracts Management Association
World of Intellectual Property
Patents
Copyrights
Trade Secrets
Trademarks
(and Service Marks)
2
Government Contracts and Trade Secrets
Threshold Questions
(1) What is being delivered?
(2) Who is paying for development?
(3) Is the product being delivered, sold, or
offered for sale in the commercial
marketplace?
3
Underlying Principles Government Trade
Secrets in Government Contracts
(1) Government never gets to own it
(2) Prime contractor gets no rights
(3) Commercial development, license, and sale
always an option
(4) Prohibition of acquisition rights in IP
developed at private expense; presumption
that commercial products are developed at
private expense
4
In the Weeds: DoD World (Now)
♦ Two Regimes of Trade Secrets
– Technical Data
 DFARS subpart 227.71
 DFARS 252.227-7013; 252.227-7015 (TD –
Commercial Items)
– Computer Software
 DFARS subpart 227.72
 DFARS 252.227-7014
♦ Regulations that Dictate Policies and Procedures
♦ Contract Clauses that Dictate Rights
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Technical Data
♦ Recorded information of a scientific or
technical nature (including computer software
documentation) relating to supplies procured
by an agency
♦ Does not include computer software
♦ 10 U.S.C. § 2302(4);DFARS 252.227-7013
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Policies and Procedures Governing
Technical Data
♦ DoD to only acquire technical data and rights
in technical data necessary to satisfy agency
needs
– Deliverables: separate line items and minimum
necessary
– Disclosure of technical data with restrictions
– Alternative forms of delivery
– For commercial items, no rights in technical
data not customarily given to public
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Government Rights to Non-Commercial
Technical Data
♦ Rights: Royalty-free, world-wide, non-exclusive,
irrevocable license* (DFARS 252.227-7013)
*computer software documentation carve-out
– Standard: (1) unlimited rights; (2) government purpose
rights; (3) limited rights
♦ Option: Specially negotiated license rights
– “Government can accept lesser rights in data in return
for other consideration” (DFARS 227.7103-5(d))
– Must be enumerated in a License Agreement made
part of contract
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Unlimited Rights (License Right)
♦ Right to use or disclose technical data
– In any manner
– And for any purpose whatsoever
– And to have others do so
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Government Purpose Rights (License Right)
♦ Right to use technical data in any activity in which the Government is
a party, including:
– Competitive procurement but not use for commercial purposes
♦ Limited in duration
– 5-year benchmark (negotiable)
 Begins on execution of contract
♦ Disclosure to third party
– Must sign NDA (227.7103-7)
– Covered Government Support Contractor (subject to New Clause
252.227-7025)
– Government gets release
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Limited Rights (License Rights)
♦ Right to use, modify, reproduce, release, perform, display,
or disclose technical data within the Government
♦ Cannot be used for manufacture or used by another party
– EXCEPT:
 emergency repair and overhaul
 release to Covered Government support contractor
(must adhere to new clause 252.227-7025) NEW
 release to foreign government
 need notice and agreement by third parties on
restrictions on further release
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What Gets Limited Rights Treatment
♦ Technical data pertaining to any item,
component, or process developed exclusively
at private expense with the legend
– Developed = workability
– Exclusively = costs not directly allocated to a
government contract
– IR&D and B&P costs
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What Gets Unlimited Rights Treatment
♦ Technical data pertaining to an item,
component, or process developed exclusively
with Government funds
– PLUS:
 Form fit and function data
 Necessary for installation, operation,
maintenance, or training purposes
 Released in past without restrictions
 Technical data produced as an element of
contract performance or in connection with
contract performance
13
What Gets Government Purpose Rights
Treatment
♦ Technical data that pertains to items,
components, or processes developed with
mixed funding
– Private expense determinations are to be
made at the lowest practicable level (DFARS
227.7103-4(b))
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Subcontractors (Noncommercial TD)
♦ Prime instructed to use same clause in
subcontracts calling for delivery of TD to
Government (252.227-7013)
♦ Subcontractor permitted to supply data directly
to Government
♦ Prime cannot use power to award contacts as
“economic leverage” to obtain rights in TD
from subcontractors and or suppliers
15
Policies and Procedures Governing
Computer Software
♦ DoD only to acquire computer software and
documentation and rights therein to satisfy
agency needs
– Deliverables: Minimum necessary (including
number of users)
– Disclosure of computer software with restrictions
– For commercial computer software, acquire under
licenses customarily given to public
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Government Rights to Non-Commercial
Computer Software and CS
Documentation
♦ Rights: Royalty-free, world-wide, non-exclusive,
irrevocable license (DFARS 252.227-7014)
– Standard: (1) unlimited rights; (2) government
purpose rights; (3) restricted rights
♦ Option: Specially negotiated license rights
– To consider software maintenance philosophy,
time and user sharing requirements, and other
factors (DFARS 227.7203-5(d))
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Unlimited Rights in Non-Commercial
Software and Documentation
♦ Software developed exclusively with
Government funds
♦ Documentation required to be delivered under
the Contract
♦ Released in past without restrictions
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Restricted Rights (License Rights)
♦ Right to use a computer program with one computer at one time;
program cannot be accessed by more than one terminal or CPU
♦ Right to transfer program to another agency if original user destroys all
copies of program and provides notice
♦ Right to minimum number to maintain archives, backup or allow mod
♦ Right to permit service contractors to use software to diagnose and
correct deficiencies, adapt or merge with other programs or respond to
“urgent tactical situations” (requires notice and 227.7103-7 NDA or
adherence to NEW clause 252.227-7025)
♦ Right to permit contractors performing emergency repairs or overhauls to
use the software when necessary to their work (same notice and NDA
requirements)
♦ Right to permit Covered Government support contractors to use and/or
disclose to authorized persons (must adhere to NEW clause 252.2277025). NEW
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What Gets Government Purpose Rights
Treatment
♦ Computer software developed with mixed
funding
♦ Source of funds determination
– DFARS 227.7203-4(b)
♦ To be made at the lowest practicable
segregable portion of the software or
documentation
♦ Look to see what subcomponents or
subroutines are discreetly identifiable
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Subcontractors and Non-Commercial
Computer Software and Documentation
♦ Prime contractor instructed to use 252.2277014 in subcontracts.
♦ No other clause may be used to enlarge or
diminish rights
♦ Prime expressly instructed not to use
“economic leverage” to obtain rights from subs
or suppliers
♦ Primes instructed to disclose and protect subs
rights (through id, assertion and delivery
processes)
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The SBIR Data Rights Clause:
DFARS 252.227-7018
♦ Covers both non-commercial technical data and
computer software
♦ Rights: Royalty-free license for Government and
support service contractors to use or disclose
technical data or computer software generated or
developed under contract for any U.S.
Government purpose
– Extends from contract award until 5 years after
completion of project, then unlimited rights
– Despite broad definition of Government purpose,
disclosure to third parties is limited
22
Commercial Computer Software and
Documentation
♦ Commercial items (FAR 2.101)
♦ Commercial computer software (FAR 2.101, DFARS
252.227-7014(a)(i))
– Developed or regularly used for non-government purposes
– Sold or offered for sale or license to public
– Minor modifications to meet contract requirements permitted
♦ Commercial computer software (NO CLAUSE)
– To be acquired under licenses customarily provided to the
public unless inconsistent with Federal procurement law or do
not otherwise satisfy user needs. DFAR 227.7202 (Different
from FAR 52.227-19 governing commercial computer
software)
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Technical Data Pertaining to Commercial
Items
♦ 10 U.S.C. 2320(b)(1) Presumption that
commercial items are developed at private
expense whether or not a justification is made
in response to a challenge notice
♦ DoD to get technical data customarily
provided to the public with the commercial
item EXCEPT:
– Form, fit and function data
– Required for repair or maintenance, installation
or handling
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Technical Data Rights Pertaining to
Commercial Items – Clause
♦ DFAR 252.227-7015 – Gives Government
specific license rights – DoD may use, modify,
reproduce, release, perform, display or
disclose data only within the Government.
♦ May not be used to manufacture additional
quantities of commercial items.
♦ May not be released without Contractor’s
written permission
♦ Additional rights to be negotiated
♦ Not a mandatory flow-down
for subs
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Identification of TD and Computer
Software (Non-Commercial TD and
Computer Software
♦ Solicitation provision 252.227-7017
♦ Requires offerors to identify any technical data
for which restrictions, other than copyright, on
use, release, or disclosure are asserted and to
attach the identifications and assertions in the
offer.
♦ Contract clauses 7013/7014 permits
Contractor to make additional assertions if
new or inadvertent (before delivery and no
material affect on source selection)
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Marking Requirements (Upon Delivery) –
Noncommercial Technical Data and
Computer Software
♦ Deliverables must be marked by prime and
subcontractors in order to obtain protection
♦ May only use legends prescribed in
7013/7014 (Limited Rights, Restricted Rights,
GPR Rights, Special License Rights) and
Copyright notice
♦ Computer software transmitted directly from
one computer to another shall contain a notice
of asserted restrictions
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Marking – Unjustified and Nonconforming
♦ Unjustified Markings can be challenged under
validation procedures 252.227-7019
(computer software) and 252.227-7037 (TD)
♦ Nonconforming markings require a 60 day
notice to remove or correct – then
Government may ignore or remove or correct
at Contractor’s expense
28
Identification and Marking of Commercial
Computer Software and TD pertaining to
Commercial Items
♦ No clause governing early identification of
commercial item TD or computer software
♦ If a deliverable under solicitation, disclose and
append license agreement to proposal
♦ Mark TD, computer software and computer software
documentation with restrictive legends (New clause
227-7025 addresses “commercial restrictive legends”
♦ 252.227-7019 and 252.227-7037 Validation Process
Available (but Presumptions stand)
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Rights vs. Deliverables
♦ Data rights clauses establish Government’s
license rights – not deliverables
♦ Government has no right to require TD or
computer software unless a deliverable unless
there contract has Deferred Ordering
(252.227-7027) (3 year window after
acceptance) or Deferred Delivery (252.2277026) clause
♦ Changes clause is not available
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Copyright Protection
♦ Technical data and computer software in object
code and source code is subject to copyright
protection
♦ Contractor is copyright owner (includes works by
employees)
♦ Prime gets no copyright interest in works created
by subs
♦ Government under DFARS gets a license
coextensive with whatever data rights it obtains
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Copyright Protection – Unlimited Rights
♦ Government’s copyright license is coextensive
with author’s rights
♦ DoD IP Guidance instructs COs to not
automatically pursue unlimited copyright
licenses (GPR should be rule)
♦ Third party rights up in the air – limited to
“use”?
♦ Contractor can and should “mark” with
copyright notice (252.227-7013(f) and 7014(f).
32
Changing Terrain – 2011 Defense
Authorization Act
♦ SecDef to assure that military departments have guidance to
preserve option for competition for production and sustainment
of systems and subsystems developed exclusively with federal
funds
♦ Expands definition of “exclusively with federal funds” in 10
U.S.C. 2320 to include amounts spent for IR&D and Bid and
Proposal Costs
♦ New S. 1253 (for 2012 NDAA) gives Government GPR to items
developed with IR&D/B&P where contractor contributed less
than 10% of total development costs not allocated to federal
contracts or item integrated in major system which cannot be
segregated or contractor contributed less than 50% of total
development costs not allocated to federal contracts
33
Changing Terrain – Proposed Rule To
Change Presumption of Commercial Item
Designation – Major Systems
♦ Section 802(b) of FY 2007 NDAA reversed
presumption of development at private
expense for commercial items under contracts
and subcontracts for major systems (or
subsystems or components thereof)
♦ Section 815(a)(2) of FY 2008 NDAA exempted
COTS items from requirements established
under Section 802(b) of FY 2007 NDAA
34
Changes to Commercial Items Rule
♦ September 20, 2011Final Rule (76 Fed. Reg.
58144)
♦ Implements Major Systems Rule: A CO’s
challenge to asserted restrictions in TD or
noncommercial computer software relating to
a major system will be sustained unless
contractor submits information demonstrating
that the item was developed at private
expense. Shifts burden except for COTS.
Applies to subs.
35
Other Changes in Final Rule
Clarifies that Data Rights Statutes and
Corresponding Clauses Are Mandatory FlowDowns for Subcontracts for Commercial Items
Imposes non-commercial DFARS data rights
clauses on commercial items so long as there
is any current or future government funding for
development
Requires use of 252.227-7015 in all solicitations
related to commercial items
36
Changing Terrain: Proposed DFARS Rewrite
Federal Register Vol. 75, No. 186 (September 27,
2010) (Case No. 2010-D001)
60 pages of text
Comment period extended to December 27, 2010
Major groups concerned including Aerospace
Industry Association and ABA, Public Contract Law
Section
Status: Third extension given to PD&C Committee of
Defense Acquisition Regulations Council review
public comments and draft final rule (12/11)
37
Proposed DFARS Rewrite – General
Purpose
♦ Integrate, combine and simply coverage for
technical data and computer software
♦ Move text that does not impact the public to
Procedures, Guidance and Information
(PGI)
♦ Remove text and clauses that are obsolete
38
Proposed DFARS Rewrite – Key Changes
♦ Combined Treatment of Noncommercial
Technical Data and Computer Software
– 7013 and 7014 integrated into a single clause
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Proposed DFARS Rewrite – Key Changes
♦ Commercial TD, Computer Software and
Computer Software Documentation
– Creates a clause accepting standard
commercial licenses but carves out any license
terms which are inconsistent with federal
procurement law. “Considered stricken from
the license.” Carve outs for TD remain
– Undoes policy in FASA 1994 to conform
acquisition of commercial items more closely to
commercial practice
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Proposed DFARS Rewrite – Key Changes
♦ Computer Software Documentation
– Government gets unlimited rights in computer software
documentation required to be delivered under the contract
– Amends and expands definition to include “computer software
design documentation, including design details, algorithms,
processes, flowcharts, formulas, and related information that
describe the design, organization or structure of computer
software”
– For commercial computer software, Government to get “same
rights as those in standard commercial license . . . Unless those
rights are inconsistent with Federal procurement law”
41
Proposed DFARS Rewrite – Key Changes
♦ Mandatory Flow-Downs
– Clauses arising under Bayh-Dole Act and TD
and computer software are mandatory flowdown clauses for commercial item contracts
42
Proposed DFARS Rewrite – Key Changes
♦ Adds “Access” as Licensed Activity
– Government gets “access” as licensed use for
noncommercial TD and computer software in
recognition of practice of allowing government
to remotely access contractor-maintained TD
and computer software via the internet.
– Concern is over the Government’s rights in
non-deliverable/pre-delivery data or software
43
Proposed DFARS Rewrite – Key Changes
♦ Pre-Award and Post-Award Identification
Obligations
– Removes mandatory chart format in DFARS
252.227-7017 and requires disclosure of both
commercial and non-commercial TD and
computer software to which the Government is
getting less than unlimited rights plus copies of
proposed negotiated or standard commercial
licenses.
44
Proposed DFARS Rewrite – Key Changes
♦ Commercial TD and Computer Software
– Must mark with appropriate legend identifying
Government’s rights; government’s liability
excused for release and disclosure of unmarked
TD or computer software
♦ Unlimited Rights Markings
– For noncommercial TD and computer software in
which the Government has unlimited rights,
Contractor must use Unlimited Rights Legend if it
marks deliverable with a copyright legend
clarifying the government’s rights
45
Proposed DFARS Rewrite – Key Changes
♦ Doctrine of Segregability
– Different license rights terms can apply to each
segregable element of TD and computer
software under a single contract
– Standard data rights regime will apply to
modifications to commercial TD and computer
software
46
U.S. Supreme Court Assault on BayhDole: Stanford v. Roche (June 6, 2011)
♦ Bayh-Dole Act, passed in 1980, grants small
businesses, nonprofit entities (including
universities and research institutions) given
right to retain title to inventions developed
under Government funding agreements.
♦ Government gets a nonexclusive, irrevocable,
paid-up license to practice or have practiced
on its behalf such an invention throughout the
world
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♦ DOE, NASA and NRC are given title by statute
to any inventions developed under funding
agreements between large for-profit
businesses and those agencies; patents
issued to the United States
♦ Bayh-Dole extended by 1983 Presidential
Memorandum to large businesses and forprofit organizations not subject to DOE, NASA
and NRC funding agreements
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♦ Under Bayh-Dole – title can revert to the
Government if the contractor fails to disclose
the invention, fails to elect to retain title or fails
to file and prosecute a patent application
within certain prescribed time periods. Failure
to disclose means contractor loses all rights.
Failure to elect title – contractor still gets
license
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♦ The facts in Stanford
– Stanford researcher Mark Holodniy invented a
procedure for calculating the amount of HIV in
a patient’s blood, which was funded, in part, by
a NIH grant
– Holodniy worked on the invention at Stanford
and at the lab of a private company, Cetus
(predecessor to Roche)
50
♦ Stanford disclosed the invention to NIH,
pursuant to the Bayh-Dole provisions in the
grant. It elected to retain title, and prosecuted
and obtained patents for the invention
♦ Roche began manufacturing AIDS test kits
and Stanford sued for infringement
51
♦ Problem – Holodniy agreed with both Stanford
and Cetus to assign his right to the invention
♦ Stanford Copyright and Patent Agreement: “I agree to
assign . . . to Stanford . . . that right, title and interest in
and to . . . such inventions as required by Contracts and
Grants”.
♦ Cetus Visitor’s Confidentiality Agreement: “I will assign
and do hereby assign to CETUS my right, title and
interest” in inventions conceived “as a consequence of my
access to CETUS’ facilities or information”
52
♦ Before case got to Supreme Court, Federal
Circuit found that the Cetus assignment, even
though it came later, trumped the Stanford
assignment.
♦ Supreme Court does not challenge holding
that Cetus, and not Stanford, as a matter of
contract, held rights in the invention
53
♦ Supreme Court asks to examine whether
Bayh-Dole vests title to federally-funded
inventions in the federal contractor or the
Government, if the contractor fails to obtain an
assignment of rights from inventor employee
♦ Court says NO
54
♦ Citing basic precepts of patent law, the Court
finds that inventor, Holodniy, owned and had
exclusive rights to the patent, which he was
free to convey by contract to his employer or a
third party.
♦ Court finds that Stanford’s right to “retain title”
(and by implication the Government’s reverter
rights) did not apply to inventions which had
not been properly assigned by the employee
55
♦ Court finds that Bayh-Dole invention allocation
scheme only applies to “subject inventions” -a term defined in statute and FAR 52.227-11
as an “invention of the contractor”. Court finds
that under U.S. Patent Law a contractor entity
has no rights unless those are assigned by
actual individual inventor
♦ Government and contractor get no rights in
inventions conceived with federal funds unless
the employee assign the rights.
56
♦ Court finds that the Government does get title
without an assignment under DOE, NASA and
NRC statutes. Court found that exclusive
grant of title in the statute “expressly deprived
[inventors] of their interest.”
57
♦ STRANGE RESULT: Government gets clear
and exclusive title to inventions developed
under DOE, NASA and NRC funding
agreements with large for-profit businesses.
♦ There is no opportunity for Government or
contractor to get title in DOE, NASA and NRC
funding agreements with nonprofits or small
businesses unless the employee inventor
assigns his rights to the contractor or grantee
58
♦ Take-Away for Contracting Officers and
Companies
– Ensure that all employees have properly
assigned right to inventions to contractor
– Require employees to disclose prior
assignments and closely scrutinize any
agreements with third parties
– Carry due diligence down to subcontractors
and suppliers
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Questions?
Dan Kelly
McCarter & English, LLP
265 Franklin Street
Boston, MA 02110
(617) 449-6526
dkelly@mccarter.com
60