Intellectual Property Issues

William C. Anderson

Chief Intellectual Property Counsel

United Launch Alliance, LLC

Commercial Item “Revolutionaries”“Boston Tea Party”

President Reagan Defense Buildup during 1980’sDrive to have the best of everything drove up

prices for weapons systemsMid- to late-1980‘s well-publicized

procurement scandals$600 toilet seats$1,000 coffee pots and hammers

Great pressure to “get out of the news”

Initial DoD response was to seek reprocurement data with reprocurement rights

Secretary of Defense Weinberger deviation approvalsSansone ClauseOrr Clause

Government study showed that data rights not the “root cause” to the problem of high cost spare parts

Industry coalesced around business interestsLarge & small OEM business “revolt”Replicator contractors supported Government position

Series of DoD data rights statutesDefense Procurement Reform Act of 1984, Pub. L.

No. 98-525, 1201-1252, 98 Stat. 2588Defense Acquisition Improvement Act of 1986 (Pub.

L. No. 99-661, 953, 100 Stat. 3910, 3949 (1986))National Defense Authorization Act for Fiscal Year

1988, Pub. L. No. 100-180, 807-808, 101 Stat. 1128, (1987)

Data rights allocations codified in 10 U.S.C. 2320 (41 U.S.C. 418a)

Validation statutes codified in 10 U.S.C. 2321 (41 U.S.C. 418b)

Plethora of proposed DoD data rules

50 Fed. Reg. 32,870 (1985) (proposed Aug. 15, 1985) 52 Fed. Reg. 2082 (1987) (proposed Jan. 16, 1987/effective

May 18, 1987 (see See 52 Fed. Reg. 12,390 (1987) ). 53 Fed. Reg. 10,780 (1988) (proposed April 1, 1988) 53 Fed. Reg. 51,557, 51,559 (1988) (rights in computer

software to be codified at DFARS 227.473-2) (proposed June 6, 1988).

53 Fed. Reg. 43,698 (1988) (to be codified at 48 C.F.R. pts. 227, 252) (proposed Oct. 28, 1988)

Interim from October 1988 until June 1995 55 Fed. Reg. 41,788 (1990) (Advance Notice of Proposed

Rulemaking; a joint effort of the DOD, the National Aeronautics and Space Administration ("NASA"), and the General Services Administration ("GSA") to create a single, government-wide regulation for data rights in computer software and technical data)

 

1985 Reagan impaneled Blue Ribbon Commission on Defense Management (the "Packard Commission") Commission highlighted the need for DoD to expand

its use of commercial products and processes and to eliminate barriers that discouraged application of innovative technology to DoD contracts

Section 800 Committee (See National Defense Authorization Act of 1990, Pub. L. No. 101-510, 800, 104 Stat. 1587 (1990))Recommended new exemptions to technical data

requirements in commercial item acquisitions

Pre-1995 Commercial Item Procurement Impediments to the acquisition of commercial data Data acquisition issues

Quantum/types of data required by Government generally greater than that furnished to commercial customers

Allocation of rights License “entitlements” greater than those granted

commercial customersAdministrative Burdens

Segregation of data to preserve rightsRecord keeping relating to previous license grants

and private expense developmentsUnique restrictive legends for data deliverables

Pre-1995 Commercial Item Procurement Impediments: to acquiring commercial data (continued)

Mandatory flowdown to subcontractorsRe-opening pre-existing subcontracts to

include unique Government requirementsData rights challenges

Potential loss of rights and competitive advantages for failing to prove “exclusive private development” of the commercial item

Government usually not willing to negotiate

Impediment Removed?

Pre- 1995 DFARS

Prime Subcontractor

Data Acquisition

NO NO

Allocation of Rights

NO NO

Administrative Burdens

NO NO

Flowdown to Subcontractor

NO NO

Interdivisional Transfers

NO NO

Data rights challenges

NO NO

Negotiation NO NO

Contract regulation infractions which were previously considered noncriminal were "criminalized" by enactment of new federal contracting statutes.

By the late 1980's, 440 statutes and regulations dealing with federal procurement contractor fraud were enacted by Congress and an outside study showed that more than 300,000 different federal regulations had been criminalized

“The number of inspections, oversight, and redundancy that are required by regulation and specification in the production of military equipment increase our overheads (sic) to the point that we are simply unable to match or beat the prices of the commercial environment. A case in point. A supplier called me last month and said he didn't want any more of our business. He said he'd made the decision to get out of defense because of the cost accounting procedures and other requirements are simply adding too much to his overheads (sic) and he was having difficulty competing elsewhere.“ (emphasis added)

June 1992 testimony to the U.S. Senate Small Business Committee by Mr. Stephen Rash of BMY-Combat Systems Division of Harsco Corporation

Section 807 Committee (See National Defense Authorization Act for Fiscal Years 1992 and 1993, Pub. L. No. 102-190, 807, 105 Stat. 1421 (1991))

Battle between “OEM’s” and “Replicators”“Private Expense Test”Acquisition of reprocurement dataData repositories

Committee met between July 1992 until December 1993Proposed rules published for comment in June 199460 Fed. Reg. at 33,464 (1995) (effective June

30, 1995, but only applied to solicitations issued on or after September 29, 1995)

Section 807 Committee mostly focused on non-commercial items and non-commercial computer software

At first, the Committee did not fully recognize emerging forces that would ultimately influence Federal procurement reforms:Decreasing Federal BudgetsDefense Industry consolidationPersian (First) Gulf War

Motorola reluctance to sell satellite telephones to U.S. Government Commercial sale to Japanese Government

Commercial technologies becoming of increasing great value to the Government

Federal Acquisition Streamlining Act of 1994 (Pub. L. No. 103-355, tit. VIII, § 8001(a), 108 Stat. 3243, 3384 (1994) (adding 41 U.S.C. § 403(12))). Defined “Commercial Item” (Id. tit. VIII, § 8102, 108

Stat. at 3390) Strong preference for commercial item acquisition

(Id. tit. VIII, § 8104, 108 Stat. at 3390 (adding 10 U.S.C. § 2377))

Defined “subcontract” to include a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor or subcontractor (Id. tit. VIII, § 8002, para. (b)(5), 108 Stat. at 3390)

Mandated waiver of Federal statutes inapplicable to commercial item subcontracts (Id. tit. VIII, § 8003, 108 Stat. at 3390)

While pending in Congress, the Federal Acquisition Streamlining Act influenced data rules being drafted by Section 807 PanelSpecial clause for commercial data: DFARS

252.227-7015, Rights in Technical Data – Commercial Items (1995)

Definition of “commercial computer software”No commercial computer software clause

prescribed for either prime contractor or subcontractor

FASA caused delay in implementing Section 807 Committee data rules:Definition of commercial itemFAR Part 12/DFARS Part 227 Regulatory textFAR Part 12/DFARS Part 212 statutory waivers for

commercial item subcontractors

The term `commercial item' means any of the following:(A) Any item, other than real property, that is of a type customarily used by

the general public or by nongovernmental entities for purposes other than governmental purposes, and that--`(i) has been sold, leased, or licensed to the general public; or (ii) has been offered for sale, lease, or license to the general public.

(B) Any item that evolved from an item described in subparagraph (A) through advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Federal Government solicitation.

(C) Any item that, but for--(i) modifications of a type customarily available in the commercial marketplace, or (ii) minor modifications made to meet Federal Government requirements, would satisfy the criteria in subparagraph (A) or (B).

(D) Any combination of items meeting the requirements of subparagraph (A), (B), (C), or (E) that are of a type customarily combined and sold in combination to the general public., etc.

See FAR 2.101

Government policy to acquire only the technical data and the rights in that data customarily provided to the public with a commercial item or process (See FAR 12.211, Technical data)

DFARS policy similar, but Government should also acquire technical data that (i) are form, fit and function data, (ii) required for repair or maintenance of commercial items or processes, or for the proper installation, operating, or handling of a commercial item, and (iii) describe the modifications made at Government expense to a commercial item or process in order to meet the requirements of a Government solicitation (See DFARS 227.7102-1 )

Commercial item presumed to be developed exclusively at private expense (See P.L. No. 103-355 8106; 10 U.S.C. 2320(b)(1); 10 U.S.C. 2321(f) and DFARS 252.227-7037(b))

Certain laws made inapplicable to commercial item subcontracts (see DFARS 212.504)10 U.S.C. 2320, Rights in Technical Data10 U.S.C. 2321, Validation of Proprietary Data

RestrictionsWaivers drove changes to DFARS 227

DFARS 252.227-7015, Right in Technical Data – Commercial items made inapplicable to commercial item subcontractors unless Government pays for development costsIn such case use 252.227-7013, Rights in Technical Data--

Noncommercial Items See DFARS 227.7102-3, Contract clause, paragraphs (a)(1)

and (b)DFARS 252.227-7037, Validation of Restrictive

Markings on Technical Data made inapplicable to commercial item subcontractors (See DFARS 227.7102-3 (c))

Impediment Removed?

1995 DFARS

Prime Subcontractor

Data Acquisition

NO NO

Allocation of Rights

NO YES

Administrative Burdens

NO YES

Flowdown to Subcontractor

YES YES

Interdivisional Transfers

YES YES

Data rights challenges

MAYBE YES

Negotiation MAYBE YES

Commercial items and major weapons systems; see DFARS SUBPART 234.70Secretary of Defense must make determination that

the major weapon system is a commercial itemCongressional defense committees are notifiedDetermination may not be delegated below the level

of Deputy Secretary of DefenseSubsystem of a major weapon system (other than

COTS) treated as commercial item only if certain requirements are met

Components and spare parts (other than COTS) treated as commercial item only if certain factors are satisfied

See 71 FR 58537, 10/4/2006, effective 10/4/2006; Final rule, 72 FR 51189, 9/6/2007, effective 9/6/2007; Interim rule, 74 FR 34263, 7/15/2006, effective 7/15/2009

Presumption of exclusive private development of commercial item modified. See section 802(b) of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2007 (Pub. L. 109–364); modified 10 U.S.C. 2321(f) with regard to the presumption of development at private expense for major systems; and section 815(a)(2) of the NDAA for FY 2008 (Pub. L. 110–181) revised 10 U.S.C. 2321(f)(2) to exempt commercially available off-the-shelf items from the requirements that section 802(b) had established for major systems.

“(f) Presumption of Development Exclusively at Private Expense.— (1) Except as provided in paragraph (2), in the case of a challenge to a use or release restriction that is asserted with respect to technical data of a contractor or subcontractor under a contract for commercial items, the contracting officer shall presume that the contractor or subcontractor has justified the restriction on the basis that the item was developed exclusively at private expense, whether or not the contractor or subcontractor submits a justification in response to the notice provided pursuant to subsection (d)(3). In such a case, the challenge to the use or release restriction may be sustained only if information provided by the Department of Defense demonstrates that the item was not developed exclusively at private expense. (2) In the case of a challenge to a use or release restriction that is asserted with respect to technical data of a contractor or subcontractor (other than technical data for a commercially available off-the-shelf item as defined in section 35(c) of the Office of Federal Procurement Policy Act (41 U.S.C.431(c)) for a major system or a subsystem or component thereof on the basis that the major system, subsystem or component was developed exclusively at private expense, the challenge to the use or release restriction shall be sustained unless information provided by the contractor or subcontractor demonstrates that the item was developed exclusively at private expense.”(emphasis added)

DFARS Case 2007-D003, Presumption of Development Exclusively at Private Expense. Implements Section 802(b) of the National Defense Authorization

Act of Fiscal Year 2007 (Pub. L. 109-364) and section 815(a)(2) of the National Defense Authorization Act for Fiscal Year 2008 (Pub.L. 110-181)Section 802(b) addresses the presumption for commercial items

of development exclusively at private expense, with new provisions relating to technical data for a major system or a subsystem of component thereof

Section 815(a)(2) exempts COTS items from the requirements of section 802(b)

Eliminates statutes previously waived for commercial item subcontractors

Both ABA and Aerospace Industries Association objected to proposed rules

Status: Report Due 10/13/2010 (2nd Ext.)

DFARS Case 2010-D001, Proposed rewrite of DFARS Part 227, Patents Data, and Copyrights. Follow-on to the DFARS Transformation case 2003-D049.

See 75 Fed. Reg. 59,412 (2010) (proposed Sept. 27, 2010)

Elimination of statutory waivers for commercial item subcontractors

10 U.S.C. 2320, Rights in Technical Data10 U.S.C. 2321, Validation of Proprietary Data

RestrictionsBased on novel rationale“Special relationship” between Government and

subcontractorsRe-interpretation of applicability of DoD data rights

statutes

Regulatory text changesRevised DFARS 252-7015, Rights in Technical

Data and Computer Software – Commercial (Date)Made applicable to commercial item subcontractors

and lower tier subcontractors

Revised DFARS 252.227-7013, Rights in Technical Data and Computer Software – Non-Commercial,Made applicable to commercial item subcontractors

and lower tier subcontractors when Government pays for development (current) or modifications (new)

New “negotiated license rights” limitationsNo negotiation of rights in certain classes of

technical data even if the technical data pertains to item developed exclusively at private expense. For example, the Government must always obtain unlimited rights in:Form, fit and function dataTechnical data necessary for installation,

operation, maintenance, or training purposes (other than detailed manufacturing or process data)

See DFARS 227.7104-3 (b)(1)

Commercial computer software clause mandated. See DFARS 252.227-7015Valuable forms of computer software treated as technical

data If considered form, fit and function data, those elements

would be subject to unlimited rights

Off The Shelf commercial items enjoys modicum of special treatment; see DFARS 252.227-7015But, Contractor/Subcontractor at any tier probably will be

obligated to provide Government with unlimited rights in certain classes of commercial data Form, fit and function data Technical data necessary for installation, maintenance, etc.

Other technical data subject to “limited rights” which may be inconsistent with commercial licenses

Mandatory flow down to subcontractors and lower tier subcontractors

Data rights challenges still possible

Completely ignores Congressional desire to eliminate impediments to acquisition of commercial items urged in Federal Acquisition Streamlining Act and Federal Acquisition Reform Act of 1996 (Pub. L. 104-106)

If DFARS 252-227-7013 applies (likely if Government pays for “modifications”)Commercial item subcontractors will have to

segregate data Data not segregated will be subject to

Government purpose rights which expands to unlimited rights

Administrative burdens will increaseUnique restrictive legends if DFARS 252.227-

7013 appliesSegregation requiredRecord keeping and system for proving

exclusive private developmentInterdivisional transfers subject to proposed rulesGovernment less likely to negotiate data rights

licensesCommercial item procurement reforms will be

effectively overturned

Impediment Removed?

Proposed DFARS

Prime Subcontractor

Data Acquisition

NO NO

Allocation of Rights

NO NO

Administrative Burdens

NO NO

Flowdown to Subcontractor

NO NO

Interdivisional Transfers

NO NO

Data rights challenges

NO NO

Negotiation NO NO