Government Contract IP; Proposed DFARS Part 227 Rewrite

1. The Changing Environment of
Licensing Commercial Information to the
Federal Government
William (Bill) C. Anderson
Chief Intellectual Property Counsel
United Launch Alliance, LLC
Steven M. Masiello
Partner
McKenna Long & Aldridge, LLP
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2. Overview
• Over the past two decades, the Government significantly
liberalized how it acquires commercial software and
technical data (“commercial information”)
• Recently, the Government proposed new, far more
restrictive, conditions for the acquisition of commercial
information
• This presentation:
– discusses these new conditions
– identifies trends in Government information acquisition
regulations
– discusses how companies can protect their interests despite
these trends
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3. Information Procurements
Prior to 1995
• DoD procurement system designed primarily for the
acquisition of military-unique products
• Government typically needed significant information and
expansive rights in information pertaining to those
products
• Under DFARS contract clauses the Government is
granted license rights in all information that is either
created under the contract or delivered to the
Government (Limited/Restricted, Specifically Negotiated,
Government Purpose, Unlimited)
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4. Information Procurements
Prior to 1995 (cont.)
• Some commercial organizations were reluctant to do
business with the Government due to:
– Administrative burdens (e.g., added accounting regulations,
unique restrictive legends, flowdown requirements, other “non-
value added” requirements, etc.)
– Concerns that the Government would receive expansive non-
standard rights in commercial information
• Requirement to prove exclusive development of ICP/software
– Concerns particularly acute in software industry
• At end of Cold War the Government desired cost savings
achievable through commercial procurements
• Result: Clinton-era restructuring of acquisition system to
be more “friendly” to commercial-item acquisitions
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5. The Commercial Item
“Revolution”
• The 1994 Federal Acquisition Streamlining Act
– Created preference in favor of commercial item purchases
– Defined “Commercial Item”
– Defined Commercial Item “subcontractor”
– Waived certain DoD technical data rights-related statutory
requirements, but only for commercial item subcontracts
• Regulatory changes
– Implemented on both the federal level and within the DoD
– Separate structure created for commercial items more consistent
with standard commercial terms and reduced administrative
burdens
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6. The Commercial Item
“Revolution” (cont.)
• Result for commercial information procurements:
– Government policy to acquire only those rights in commercial
information provided to commercial customers
• DoD minimum requirements potentially greater
– Parallel contractual system for acquisition of licenses in
commercial information
• Commercial software acquired using standard commercial license
as long as the license terms are not inconsistent with Federal law
• Commercial item subcontractor licenses “flowed up” to Government
– DoD technical data statute amended - commercial items
presumed to be developed wholly at private expense
• Today some major tech companies only do business
with the Government on commercial terms
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7. Government Reaction to
Commercial Item Revolution
• Government now seeking to expand rights received in
commercial information possibly due to:
– Commercial item “abuses” with contracting officers buying
noncommercial items under commercial acquisition procedures
– Concern over paying for information previously funded by
Government
– Desire to have all information necessary to achieve
reprocurement and logistics goals
• Claims that the DoD failed to acquire such information during last
fifteen years
– Efforts to avoid subsequent sole-source procurements
– Concerns over interoperability
– Normal swing in the data rights pendulum
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8. Government Reaction to
Commercial Item Revolution (cont.)
• Commercial items and “major weapon systems”
– Only Secretary of Defense may determine a major weapon
system is a commercial item
– Barriers created to determining that subsystems, components,
and spare parts are commercial items
– Elimination of presumption that items identified as “commercial”
are developed exclusively at private expense in context of major
weapon system
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9. Government Reaction to
Commercial Item Revolution (cont.)
• Proposed DFARS Part 227 Rewrite
– Published on September 27, 2010 (75 Fed. Reg. 59,412)
– Re-establishes applicability of DoD-related data rights statutes to
commercial item subcontractors
– Creates a special contractual clause for commercial information
acquisitions similar to the prior commercial technical data clause
– New clause must be flowed down to subcontractors
– All terms contrary to “Federal procurement law” are struck from
commercial license
– DoD receives predetermined rights in commercial technical data
(including commercial software documentation) and
modifications to commercial software
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10. Government Reaction to
Commercial Item Revolution (cont.)
• Proposed DFARS Part 227 Rewrite (cont.)
– Requires commercial information, including software, to be
marked
– DoD relieved of liability for improper use of unmarked
commercial information
– Challenge procedures for information marked as commercial
permit government use during challenge if “urgent and
compelling circumstances”
– Applies deferred ordering clause to commercial information
– Special contractual clause for commercial information
acquisitions inapplicable if the Government pays for either
further “development” or “modification”
• Non-commercial information clauses apply in such case
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11. Government Reaction to
Commercial Item Revolution (cont.)
• If made final, the proposed Part 227 Rewrite will:
– Make the licensing of commercial software and associated
documentation almost the same as the DoD’s scheme for
acquiring non-commercial information
– Increase risk to commercial item suppliers that sell to the
Government at the prime or subcontract level
– Allow the Government to demand “unrestricted” rights in
computer software documentation, form, fit, function data
(source code?) and data necessary for operation, installation,
repair, maintenance and training
– Increase administrative burdens for commercial item suppliers
• Interested parties may submit comments until December
27, 2010
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12. Larger Trends in Government
Information Procurements
• Where DoD goes, other agencies follow
• Further narrowing of categories of commercial
information
• Further expansion of the categories of rights
Government receives in commercial information
• Less flexibility on the part of the Government to acquire
commercial information on terms similar to those used in
the commercial marketplace
• Increased complexity of selling commercial items to the
Government
– Special treatment for commercial items except when licensing
commercial information
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13. Coping With Recent Trends
• Stay current
• If Government prime contractor:
– Ensure that commercial information licenses are consistent with
Federal procurement law
– Require subcontractors to accept commercial item contract
clauses
– Flowdown non-commercial contract clauses when paying for
further development/modification of the commercial item
• If subcontractor, pay attention to how prime uses and
incorporates your commercial information
– Be careful before accepting Federal funds for further
development and/or modification of your commercial item
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14. Coping With Recent Trends
• Keep records concerning the exclusive private
development of your commercial item
– Stand ready to respond to challenges from the Government
• Negotiate/clarify license rights (if possible)
– Try to “pre-determine” the Government’s license rights
• Restrictively mark your commercial information prior to
delivery to prime contractor or the Government
– Negotiate how to mark your commercial information with the
prime contractor
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15. Thank You!
Bill Anderson: william.c.anderson@ulalaunch.com
Steve M. Masiello: smasiello@mckennalong.com