The government confirms its rights to certain contractor intellectual property

Tom Temin: Dan, this is one of those cases that sounds really arcane, markings on technical drawings, but you feel this is an important case for governmentwide. Tell us about it.

Dan Ramish: Sure, Tom. So when commercial products and services companies provide technical data that relates to their commercial products and services developed exclusively at private expense, contractors are entitled to grant the government a limited license in that data. But there are certain categories of data that the government reserves broader, in this case, unrestricted rights to use the data. And one of those categories is data that’s necessary for operation, maintenance, installation and training as long as that data isn’t also detailed manufacturing and process data. So the government is different from commercial buyers in that it buys a lot of stuff that is going to be around a long time. And the government needs the ability to make sure that it can make full use of commercial products and services and also is able to have the information needed to maintain it if it’s going to be in place a long time.

Tom Temin: In this case, we’re talking about training software for the C-5 aircraft, which is old, and will be around probably for another generation or two.

Dan Ramish: Yes, that’s right, training simulators for the C5. And the visual system specifically was being supplied and replaced by this company called FlightSafety. Now when a company provides technical data that pertains other than commercial item, something that’s government unique, there are specific legends that are required to be used on the data so that it’s clear what rights the government has in it. When it’s a commercial product or service, the clauses don’t specify any particular markings. And so this case is important because the court addressed what types of markings are permissible and what restrictions there are on the types of markings that contractors can use.

Tom Temin: In other words, the contractor had marked it up in a way the Air Force felt was too restrictive.

Dan Ramish: That’s right. So the traditional approach has been for commercial contractors to use the same markings they use in the commercial marketplace. And in this case, there were a few different markings that were included on these drawings that were delivered by FlightSafety. There was a long-form marking that described the drawing as proprietary material and include the copyright marking with a statement that said all rights reserved and asserted that the document and information that it contained was confidential and or proprietary to FlightSafety. Then there was also language that said it shall not be reproduced, distributed or disclosed to others except as expressly authorized in writing. There was also a shorter-form marking that just said flight safety proprietary rights reserved. And these sorts of markings would be fairly routine in the commercial marketplace. They’re necessary when you’re attempting to protect trade secret rights in documents to make it clear to the recipients that they can’t just provide them to whomever they want, that there are limits and that they cannot use or reproduce them or disclose them in an unauthorized way.

Tom Temin: Now there’s a practical question here though too, isn’t there? Because who else would the Air Force share it with? There’s nobody in the world that operates that particular plane except the Air Force.

Dan Ramish: Right. So the way these things often work, Tom, there are components, say the visual system, that may be used in a commercial aircraft simulator as well. And so often, there are commercial components of a government unique broader system. So that may well be the case here. Clearly, there was no question that the drawings here related to commercial products that were offered to other commercial customers. So we assume some sort of commercial simulator application.

Tom Temin: We’re speaking with Dan Ramish. He’s a procurement attorney with Haynes Boone. So how did this all come to a head then?

Dan Ramish: So the Air Force argued that these drawings were necessary for operation, maintenance, installation and training. That’s referred to in the data rights realm as omit data. And they said that they weren’t detailed manufacturing and process data. As this dispute kind of developed, the Air Force challenged the markings and said, ‘Well, because these are omit data, we have unrestricted rights to use them and are not limited to using them only within the government.’ And so therefore, the Air Force told FlightSafety to remove the markings. FlightSafety ultimately provided an alternate marking as an alternative that said it provided the U.S. government unrestricted rights only pursuant to certain DFARS provisions, but the parties couldn’t come to terms. And so FlightSafety submitted a claim, the Air Force contracting officer rendered a final decision. This went to the Armed Services Board of Contract Appeals. And the subcontractor of FlightSafety said that the Air Force couldn’t challenge the markings because it was undisputed that they were developed at private expense. And some of the language in the clause and the regulations seemed to say there needed to be evidence that contesting that the data was developed at a private expense in order to bring a validation challenge. They also argued that the markings were permissible because this was commercial technical data instead of government unique noncommercial technical data and they contested that the drawings were omit data in the first place.

Tom Temin: All right, and then the whole thing ended up in appellate court.

Dan Ramish: That’s right. So one important point here and something that makes this case unique is that there was actually a settlement agreement between the Air Force and FlightSafety and FlightSafety acknowledged that the Air Force would have omit type rights in the data. In most cases, a commercial subcontractor or a contractor would argue, ‘Hey, that, that technical data is not really needed for operation, maintenance, installation, and training.’ Or it goes beyond what’s just needed for omit purposes and tells you how to actually manufacture the product. And so there’s that exception for detailed manufacturing and process data. But here, the parties conceded it. The Armed Services Board ruled in the Air Force’s favor. They said, ‘Look, the validation proceedings aren’t limited to the source of funding. There these categories that government is entitled to receive unrestricted rights and it’s acceptable to bring a challenge on those grounds as well.’ They also said that the markings were not permissible, that they clearly impinged on the government’s license rights given that they were unrestricted rights.

Tom Temin: And by the way, there’s nothing that would have precluded the vendor from continuing to use that same software with any commercial customer, it so choose, so that it was not really restricting their uses of it for revenue elsewhere.

Dan Ramish: That’s right. Whenever a government contractor provides technical data to the government, the government contractor typically will retain ownership rights in the technical data and just grant the government a license. But if the license is very broad, unlimited rights or unrestricted rights, then it makes it more difficult for them to protect the data from commercial uses that are unauthorized. So the federal circuit here upheld the board’s decision on all counts. They agreed that based on the statute and the regulation and the clauses that a validation challenge based on the category of technical data was permissible. And so the Air Force could challenge that this was omit data and they had unrestricted rights on that basis, even though the source of funding was admittedly all at private expense. They also reviewed the different legends that flight safety had used and said that they were impermissible because they affected the government’s rights and didn’t acknowledge that the government had unrestricted rights. So they said that the proprietary marking implied that government recipients were restricted because the data was confidential to FlightSafety. The language about expressly authorizing and writing wasn’t required by the regulation or by the statute of the clause. Even the copyright notice, the appellate court said, was improper because the notice and surrounding text didn’t recognize that the government possessed a copyright license in the data. That part was particularly surprising because even the other than commercial technical data clause allows for contractors to include a copyright notice. And it doesn’t require a copyright notice to be listed when there’s a data assertions table. So I think the distinguishing factor here may have been that they used the language rights reserved, which the appellate court said was problematic because it didn’t make it clear which rights were being reserved and what rights the government had.

Tom Temin: All right. And now we know.

Dan Ramish: Yes, and now we know. So the offshoot of this decision is that commercial product and services companies first need to be aware that when they deliver technical data to the government that there may be challenges brought by the agency. And actually during the case of the course of this litigation, the government actually changed the clause within the regulations to allow for challenges six years after delivery or after final payment on the contract instead of just three, so making it easier for the government to bring these kinds of challenges. The other major takeaway is really the markings where traditionally commercial product and services companies could just use the same markings they use in the commercial marketplace and now there are new restrictions imposed by the court where they can’t include markings that fail to acknowledge the government’s rights in data.

Tom Temin: All right, so buyers across the government should keep this in mind?

Dan Ramish: I think that’s right. I mean, the government will potentially be taking a more aggressive stance, but it’s important for agencies to be fair with contractors as well and bear in mind what their actual needs are. To the extent that they are asking for more technical data than they really need, they’re going to have to, at the end of the day, probably pay more for it. If similarly, if they’re requiring different markings, all these things raise the costs of government and make it more expensive for the government to buy things than commercial buyers, which isn’t really in anyone’s best interest.