RIGHTS IN TECHNICAL DATA & COMPUTER SOFTWARE UNDER GOVERNMENT CONTRACTS: KEY QUESTIONS & ANSWERS. By W. Jay DeVecchio

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1 This material from Briefing Papers has been reproduced with the permission of the publisher, Thomson Reuters. Further use without the permission of the publisher is prohibited. For additional information or to subscribe, call or visit west.thomson.com/fedpub. Briefing Papers is now available on Westlaw. Visit westlaw.com Briefing papers Second Series practical tight-knit briefings including action guidelines on government contract topics RIGHTS IN TECHNICAL DATA & COMPUTER SOFTWARE UNDER GOVERNMENT CONTRACTS: KEY QUESTIONS & ANSWERS By W. Jay DeVecchio Intellectual property covers a great deal of legal territory including trade secrets, copyrights, and patents. And Government contract law occupies a broad and unique niche in the legal landscape. So, it is no surprise people think that the intersection of intellectual property and Government contracts law is a formidable area. It certainly sounds like a complicated subject. That perception is not eased by the fact that the data, software, and patent clauses in the Federal Acquisition Regulation and the Department of Defense FAR Supplement are some of the longest clauses in the books, and the DOD clauses are being proposed for revision. 1 But, in fact, the basic principles involved in Government contract IN BRIEF intellectual property are simple and relatively few. Development They will remain so even when (or if) the regulations are revised. Indeed, almost all of the Govern- Delivery ment contract intellectual property issues (besides Scope Of Government s Unlimited Rights patents) that one confronts in the ordinary course Rights Of Subcontractors & Other of business can be captured in about 30 questions and answers. And these same 30 questions, Contractors more or less, are ones that get asked repeatedly Copyright by contractors and Government personnel alike. Marking Requirements Commercial Computer Software Civilian Agency Contracts vs. DOD Contracts Departing somewhat from the typical Briefing Papers format, this Paper reproduces and answers, as succinctly as possible, the top 30 (or so) questions that tend to be asked in this field over and Government Challenges To Subcontractor s Assertion Of Rights W. Jay DeVecchio is a partner in the law firm of Jenner & Block LLP. NO SEPTEMBER 2010 THOMSON REUTERS COPYRIGHT 2010 ALL RIGHTS RESERVED

2 over. Chances are that you or the people you advise have asked many of these same key questions before. The Paper focuses principally on rights in technical data and computer software which are typically trade secret matters with a small foray into copyright. Patent questions are reserved for another time. Although the issues addressed often overlap, to assist readers, the Paper categorizes the questions and answers under a few basic topic headings, some broad and others narrow. Development Question 1: The data rights clauses seem so difficult. Is there a basic principle I can keep in mind to understand how data rights are allocated? Answer: There are three principal data rights clauses. For civilian agencies, there is one FAR clause that is used in most circumstances: FAR , Rights in Data General. The FAR clause does not apply to the DOD, however. For DOD contracts, there are two principal clauses, which are found in the DFARS. They are DFARS , Rights in Technical Data Noncommercial Items, and DFARS , Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation. You can resolve most data and software issues under these clauses if you can determine when an item or software was developed and who paid for it. If it was developed before there was any Government contract requirement and if it was paid for without any direct Government funding, then the Government would obtain the fewest rights typically limited rights in technical data and restricted rights in software. If it was developed under a Government contract, then the Government would get the broadest rights typically unlimited rights. Limited rights in data apply only to technical data; they do not apply to computer software. To be covered by this category, under the FAR, technical data must be data developed at private expense that embody trade secrets or are commercial or financial and confidential or privileged. 2 Under the DFARS, generally, those rights accrue in technical data [p]ertaining to items, components, or processes developed exclusively at private expense and marked with the limited rights legend. 3 Limited rights means the rights to use, modify, reproduce, release, perform, display, or disclose technical data, in whole or in part, within the Government. The Government may not, without the written permission of the party asserting limited rights, release or disclose the technical data outside the Government, use the technical data for manufacture, or authorize the technical data to be used by another party. 4 Restricted rights apply only to computer software. To be considered restricted rights data under the FAR, it must be developed at private expense and embody trade secrets or be commercial or financial data that is confidential or privileged. 5 The FAR minimum rights are for the Government to (1) use the computer software with the computer for which it was acquired, even if that computer is transferred to a different Government installation, (2) use the computer software with a backup computer, if the computer for which it was acquired is inoperative, or use or copy or transfer the software to a replacement computer, (3) copy the computer program for archive or backup purposes the FAR provides the Government with the right to reproduce all computer software, not just Briefing Papers (ISSN ) is published monthly except January (two issues) and copyrighted 2010 Valerie L. Gross, Editor Periodicals postage paid at St. Paul, MN Published by Thomson Reuters / 610 Opperman Drive, P.O. Box / St. Paul, MN west. thomson.com Customer Service: (800) Postmaster: Send address changes to Briefing Papers / PO Box / St. Paul, MN BRIEFING PAPERS This publication was created to provide you with accurate and authoritative information concerning the subject matter covered; however, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional. Briefing Papers is a registered trademark used herein under license. All rights reserved. Reproduction, storage in a retrieval system, or transmission of this publication or any portion of it in any form or by any means, electronic, mechanical, photocopy, xerography, facsimile, recording or otherwise, without the written permission of Thomson Reuters is prohibited. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Danvers, MA 01923, (978) ; fax (978) or West s Copyright Services at 610 Opperman Drive, Eagan, MN 55123, fax (651)

3 the program, for these purposes, (4) modify or combine the software with other software and adapt the software for the Government s purposes, and (5) disclose the software to and reproduce it for use by the Government s support service contractors for the aforementioned purposes. 6 Under the DFARS, if development of computer software occurs exclusively at private expense, then the contractor is entitled to restricted rights and the DOD may only (a) use a computer program with one computer at a time, but the program may not be accessed by more than one terminal or central processing unit or time shared unless otherwise permitted by the contract, (b) transfer the computer program to another Government agency without the further permission of the contractor if the transferor destroys all copies of the program and related documentation and notifies the contractor of the transfer, (c) make the minimum number of copies of the software required for safekeeping (archive), backup, or modification, (d) modify the computer software provided that the Government may use the modified software only as provided and not release it except in limited circumstances, (e) permit service contractors to use the software to diagnose and correct deficiencies in the computer program or to modify or combine it with other programs, or, when necessary, to respond to urgent tactical solutions, provided that the contractor is notified and that any subcontractors first execute a nondisclosure agreement provided for in the regulations under DFARS , and (f) permit contractors or subcontractors performing emergency repairs or overhauls to use the software when necessary to their work, subject also to their executing a nondisclosure agreement. 7 Under the FAR, the Government acquires unlimited rights in the following: 8 (i) Data first produced in the performance of this contract; (ii) Form, fit, and function data delivered under this contract; (iii) Data delivered under this contract (except for restricted computer software) that constitute manuals or instructional and training material for installation, operation, or routine maintenance and repair of items, components, or processes delivered or furnished for use under this contract; and (iv) All other data delivered under this contract unless provided otherwise for limited rights data or restricted computer software in accordance with paragraph (g) of [FAR ]. The DOD regulations vest the Government with unlimited rights in the following: 9 (i) Data pertaining to an item, component, or process which has been or will be developed exclusively with Government funds; (ii) Studies, analyses, test data, or similar data produced for this contract, when the study, analysis, test, or similar work was specified as an element of performance; (iii) Created exclusively with Government funds in the performance of a contract that does not require the development, manufacture, construction, or production of items, components, or processes; (iv) Form, fit, and function data; (v) Necessary for installation, operation, maintenance, or training purposes (other than detailed manufacturing or process data); (vi) Corrections or changes to technical data furnished to the Contractor by the Government; (vii) Otherwise publicly available or have been released or disclosed by the Contractor or subcontractor without restrictions on further use, release or disclosure, other than a release or disclosure resulting from the sale, transfer, or other assignment of interest in the technical data to another party or the sale or transfer of some or all of a business entity or its assets to another party; (viii) Data in which the Government has obtained unlimited rights under another Government contract or as a result of negotiations; or (ix) Data furnished to the Government, under this or any other Government contract or subcontract thereunder, with (A) Government purpose license rights or limited rights and the restrictive condition(s) has/have expired; or (B) Government purpose rights and the Contractor s exclusive right to use such data for commercial purposes has expired. Under the DFARS, the Government also acquires unlimited rights in the following: 10 (i) Computer software developed exclusively with Government funds; (ii) Computer software documentation required to be delivered under this contract; 3

4 (iii) Corrections or changes to computer software or computer software documentation furnished to the Contractor by the Government; (iv) Computer software or computer software documentation that is otherwise publicly available or has been released or disclosed by the Contractor or subcontractor without restriction on further use, release or disclosure, other than a release or disclosure resulting from the sale, transfer, or other assessment of interest in the software to another party or the sale or transfer of some or all of a business entity or its assets to another party; (v) Computer software or computer software documentation obtained with unlimited rights under another Government contract or as a result of negotiations; or (vi) Computer software or computer software documentation furnished to the Government, under this or any other Government contract or subcontract there under with (A) Restricted rights in computer software, limited rights in technical data, or government purpose license rights and the restrictive conditions have expired; or (B) Government purpose rights and the Contractor s exclusive right to use such software or documentation for commercial purposes has expired. Question 2: What if I have an item that I ve almost finished developing, but development will be completed under a contract that I ve just gotten? Who gets rights then? Answer: The answer will depend on how far along the development is for each component. That is, whenever you ask this question, you should not look to the end item or software as a whole, but rather look at its principal component parts or subroutines. The Government s rights in that item, component, process, or software will be determined by evaluating when the item, component, process, or software was developed and who paid for it at the lowest component level. The DFARS states expressly that in making this determination of development at private expense, one should do so at the lowest practicable level. 11 Think of it this way: Most items or software consist of many subcomponents or subroutines that are discretely identifiable. Software development, for example, can occur at the level of modules or subroutines, which in turn might be collections of algorithms, which in turn can be related to specific lines of source code. 12 You have to look to the stage of development for each one of those and ask whether each one had already been developed before the Government contract. This is how you analyze development, not at the overall level of the entity or of the software. So, if you have got something that is pretty far along in development, chances are there are some portions of it that are already completely developed before your Government contract. You will be able to limit or restrict the Government s rights in that component, but not those other components that are finally developed with Government funding. At the DOD, if the development occurred with mixed funding i.e., development at private expense and Government expense then the Government would obtain Government purpose rights, 13 while under the FAR, the Government generally would get unlimited rights. 14 Question 3: What if I already have something that is completely developed at private expense but now the Government wants to acquire and modify it? Will the Government get unlimited rights in the whole thing? Answer: The answer is much the same as to the previous question you have to see what elements, components, or subroutines of the item or software are being modified under the Government contract. 15 If some element hasn t been modified, then you retain your limited or restricted rights. 16 If something has been modified so extensively that the original is essentially no longer recognizable, then the Government will get broader rights in it. For example, in a bid protest, a breadboard design of a radar set had been developed with private funds and thereafter the Government funded completely the conversion of the breadboard to a manufactured item. Because the development of the item as reflected in the breadboard design had occurred at private expense, the Comptroller General concluded that the Government had not obtained unlimited rights in the device, notwithstanding the fact that it funded the updating and reduction of the breadboard to a manufacturable design. 17 Question 4: What does development entirely at private expense mean? My company does development work under independent research 4

5 and development (IR&D), which is reimbursed partially by the Government. Is that Government expense? Answer: No. Generally, developed at private expense means there was no direct funding for the development under a Government contract or subcontract. But development under any indirect account such as IR&D or an overhead account is considered private expense, even though the Government may reimburse all or a portion of that indirect expense. 18 In a 1985 decision, the Armed Services Board of Contract Appeals held that at private expense meant funded by the contractor exclusively, without any direct Government reimbursement and without any indirect government reimbursement except for independent research and development expenses. 19 The ASBCA left open the question whether a minimal Government contribution would negate otherwise privately expended development costs. This question is resolved under the current DOD regulations, which define developed exclusively at private expense to mean that development was accomplished entirely with costs charged to indirect cost pools, costs not allocated to a government contract, or any combination thereof. 20 Question 5: If indirect accounts are private expense, does that mean I can shift my charging from a direct charge account to an indirect account and preserve data rights? Answer: No. You can only charge development to an indirect account if it is otherwise properly chargeable to that account, i.e., if it is not a direct cost and meets the definition for the particular indirect costs category. 21 Simply shifting costs to an indirect account not only will not protect your data rights but could be a serious mischarging and accounting problem. Question 6: Well, if the Government paid entirely for the development of an item or software, isn t it true that the Government owns it? Answer: No. Generally, the Government only owns those things that are delivered to it under a contract. And, although the FAR and DFARS data rights clauses anticipate delivery (stating, e.g., If delivery of that data is required, the Contractor shall ), 22 they do not establish any delivery requirements for the contract nor provide a mechanism for the Government to obtain delivery of technical data or software. Rather, the clauses specify rights, not deliverables. This is expressly stated in the FAR 23 and in the DOD s 2001 policy guidance, Intellectual Property: Navigating Through Commercial Waters. 24 Under the data rights clauses, the Government gets a license to use either the technical data or the computer software. 25 It is those license rights that are covered by the data rights clauses, not title or ownership. Think of it like a book: If you go to a bookstore and buy a best seller, you own that copy, but you do not own the intellectual property rights in it. It works the same way under Government contracts; the contractor retains its data rights, and the Government gets a use license. Delivery Question 7: What if my data or software isn t a deliverable, does that mean the Government doesn t get data rights? Answer: No. The Government gets license rights under the clauses; it just doesn t have the data or software in which it has those rights. 26 Question 8: Doesn t the Government have the right to make me deliver data or software in which it gets rights even if that data or software was not specified in the contract as a deliverable? Answer: No, not under the basic data rights clauses. But if the Government has a Deferred Ordering or a Deferred Delivery clause in its DOD contract or the Additional Data Requirements clause under a FAR contract i.e., a clause that allows the Government to make the data or software deliverable even if it wasn t originally then those clauses permit the Government to obtain delivery. 27 The basic data rights clauses themselves only specify the license rights the Government gets. 28 They do not specify requirements or deliverables. FAR , Additional Data Requirements, states, in pertinent part, that the Contracting Officer may, at any time during contract performance or within a period of 3 years after 5

6 acceptance of all items to be delivered under this contract, order any data first produced or specifically used in the performance of this contract. 29 For DOD contracts, the comparable clause is DFARS , Deferred Ordering of Technical Data or Computer Software, which broadly permits the Government to order any technical data or computer software generated in the performance of this contract or any subcontract hereunder for a similar three-year period. Under these clauses, the contractor is paid only for the costs of converting the data or software into the prescribed format and for its reproduction and delivery. 30 DFARS , Deferred Delivery, requires the Government to identify in the contract the technical data or software that it may later want delivered. Question 9: How much do I get paid for delivering my data if the Government invokes one of those clauses? Answer: As noted, you are only paid the cost of reproducing the data. 31 Question 10: But can t the Government use the Changes clause to make the data a deliverable? Answer: No. The Changes clauses (e.g., FAR , Changes Fixed Price ) permit the Government to change only drawings, designs, specifications, the method of shipment or packing, and the place of delivery. 32 None of those encompasses added data deliverables for existing items. 33 The CO can, under a contract s Changes clause, change a design and thus concomitantly create (and specify) a new contract data deliverable, for which the contractor would be entitled to an equitable price and schedule adjustment. 34 Nothing in the Changes clause states or suggests, however, that a data deliverable pertaining to unchanged drawings, designs, or specifications can be created. 35 Scope Of Government s Unlimited Rights Question 11: The Government tells me that because it paid entirely for my development under a contract I cannot use the data or the software for my own purposes. Is that correct? 6 Answer: No. If the Government paid entirely for the development, it gets unlimited rights. 36 But unlimited rights are not exclusive rights. The contractor retains the ability to use or to license others to use unlimited rights data or software. 37 With unlimited rights, the Government can do virtually whatever it pleases with the technical data or software, but absent some express preclusion in the contract, which is unusual, those aren t exclusive rights. 38 The contractor remains free, subject to other laws and regulations (such as national security or export control laws and regulations), to do whatever it pleases with the technical data or software. 39 Question 12: Do you mean that even when the Government has unlimited rights, I can lease or license others to use that technical data or software? Answer: Yes, but the Government cannot be charged by the other contractor, even if the other contractor has to pay you, because the Government already paid for the development. Question 13: But I thought that if the Government got unlimited rights I no longer had a trade secret in my technical data or software. Answer: Not necessarily. Think about the delivery issue: If the Government gets rights under a clause, but it never actually gets the thing in which it has rights because that thing is never a deliverable then the Government hasn t gotten the information or software; it hasn t gotten the trade secret. 40 In that case, simply because the Government gets unlimited rights does not mean that the trade secret would no longer be valid. Rights Of Subcontractors & Other Contractors Question 14: My prime contractor has flowed down the Government data rights clauses but swapped its name for the Government. Can the prime do that? Answer: It isn t supposed to. In fact, the DOD regulations expressly dissuade prime contractors from doing this. 41 The principle behind the data rights clauses is that the rights are supposed to flow from all the lower tiers up to the Government.

7 The purpose is to vest the Government with rights in data and software. Question 15: I have limited rights data. Isn t it true that I can bypass the prime contractor and give my data directly to the Government? Answer: Yes, you can do that. This is not an unusual practice, and it is supported inferentially by a subcontractor s right to deal directly with the Government in the validation process. 42 Question 16: But I m a prime contractor: Don t I have rights in my subcontractor s limited rights data or restricted rights software? Answer: Even though prime contractors are not supposed to put themselves in place of the Government when they flow down data rights clauses, a prime is free to include a clause in its contracts that says it has the right to use the subcontractor s data or software to the extent necessary for the prime to perform its contract with the Government. Otherwise, the prime would be in a difficult position when it comes time to perform its contract. 43 Indeed, there is arguably an implied license under the data rights clauses allowing the prime to use data and software in furtherance of its prime contract, but not beyond it. Question 17: What if the Government has unlimited rights in data or software I developed, can it give those to another Government contractor for use on a Government contract? Answer: Yes, the Government can almost certainly do that when it has unlimited rights 44 or when it has Government purpose rights. 45 Copyright Question 18: Can the contractor that gets the unlimited rights data or software then use the data or software on a commercial contract? Answer: Probably not. It comes as a surprise to many people, but whoever is the developer regardless of who pays for the development is the copyright holder of the technical data or the software. 46 Although the Government gets a copyright license, another contractor doesn t get that license. For example, DFARS , Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation, requires a contractor to grant, or obtain for the Government, license rights that permit the Government to reproduce the software or documentation, distribute copies, perform or display the software or documentation, and, through the right to modify data, prepare derivative works. The extent to which the Government, and others acting on its behalf, may exercise these rights varies for each of the standard data rights obtained under the clause. 47 So, although another contractor can almost certainly use the data or software to perform on a Government contract, it doesn t have any right i.e., copyright license to use it otherwise. Note that was no ambiguity under the prior (pre-1995) DOD regulations that the contractor (or subcontractor at any tier) that prepared the copyrighted work was the copyright holder. DFARS , Rights in Technical Data and Computer Software (Oct. 1988) provided: The Contractor shall be considered the person for whom the work was prepared for purpose of determining authorship under 17 U.S.C. 201(b). 48 This statement together with the requirement that the DFARS data rights provisions must be flowed down intact made it clear that prime contractors had no claim to copyright the software prepared by its suppliers. The current DFARS does not contain this language, but the result is the same. This is reflected in a DFARS provision requiring the contractor to grant the Government a license to reproduce data, distribute copies of the data, publically perform or display the data. 49 These are copyright holder s rights. Question 19: Is a subcontractor who is the developer also the copyright holder no matter what tier? Answer: Yes, because the subcontractor is the author of the work and thus the initial copyright holder. 50 Marking Requirements Question 20: Do I have to use the legends specified in the regulations, or can I modify them to 7

8 identify my limited or restricted rights data as proprietary? Answer: You re supposed to use only the legends provided in the particular data rights clause that is in your contract. 51 If you use any other marking in place of that legend, then you ve used an unauthorized legend, and the Government may later claim that you ve relinquished your limited or restricted rights. 52 If a CO believes that restrictive markings are unjustified, he has the ability to challenge the markings and afford a contractor an opportunity to prove its case. 53 Both the FAR and the DFARS also caution that any limited or restricted rights data or software delivered without the legend authorized by the clauses will be deemed to have been furnished to the Government with unlimited rights. 54 The DOD regulations distinguish between unjustified and nonconforming markings. An unjustified legend is one that is in the correct format required by the clause but is incorrectly applied, such as a limited rights legend on unlimited rights data. 55 An unjustified marking must be challenged by the DOD under the DFARS validation procedures. 56 The DOD may ignore any nonconforming marking, defined as a marking that is not in the format authorized by the contract, provided the CO affords the contractor a 60-day period to correct the nonconforming marking. 57 The basic FAR Rights in Data General clause treats nonconforming and unauthorized markings under a unified procedure. 58 Question 21: Can I also put my company s proprietary marking on technical data or software in addition to the legend in the clause? Answer: The answer isn t clear. Some Government agencies may take the position that a proprietary legend is an unauthorized marking and ask that it be removed. 59 The rationale is that the legend is not specified in the data rights clauses, and that marking something as limited or restricted rights conveys that the data or software is proprietary. The counterpoint is that if the correct legend is used, also marking something as proprietary does not impair the Government s rights but adds a measure of protection for the contractor. In all events, this is something that should be able to be resolved amicably. Question 22: The CO tells me that I have to put the restricted rights legend on my silicon chips my firmware that incorporates my software. Is that right? Answer: The regulations require that software be marked, and there is no distinction between software on a DVD or etched into a chip. 60 Accordingly, you have got to do something either to mark the chip or otherwise assert restrict rights in the chip. Firmware is essentially software etched into the silicon of a computer chip. There is no exemption from the marking requirements of either the DFARS or the FAR simply because the software is on a chip rather than in some other medium. This was confirmed by the ASBCA in a 2002 decision. 61 Question 23: What if we inadvertently forgot to mark the data properly when we gave it to the Government? What happens now? Answer: You can usually fix that if you go to the Government promptly and can demonstrate that your failure was inadvertent. Within six months of the submission with the wrong marking, COs are supposed to permit you to put the correct marking on as long as you take certain steps prescribed in the regulations. 62 After six months, it s in the CO s discretion to do it, and the CO can fairly ask you for consideration. Specifically, the FAR and the DFARS provide that the contractor may request permission within six months after delivery of the information (or a longer time approved by the CO for good cause shown) to have the correct notices placed on the qualifying data or software. 63 To obtain permission, the contractor must (1) identify the data or software to which the omitted notice is applied, (2) demonstrate that the omission of the notice was inadvertent, (3) establish that the use of the proposed notice is authorized, and (4) acknowledge that the Government has no liability with respect to the disclosure, use, or reproduction of any such data or software made prior to the addition of the notice or resulting from the omission of the notice. 64 Question 24: I m working on a DOD contract, and I forgot to identify in my proposal the data and software in which I m claiming limited or restricted rights. Do I have a problem? 8

9 Answer: You might. The DOD regulations require contractors to identify in the proposal any data or software that it proposes to furnish to the Government with limitations or restrictions. 65 If you neglect to do so, the Government may later assert unlimited rights. Question 25: Do I have to identify my subcontractor s limited or restricted data in that initial proposal disclosure? Answer: Yes. This means your subcontractors and suppliers need to be diligent in getting you that information; otherwise, they run a risk of losing their rights. 66 Question 26: Does it work the same way under the FAR if I fail to identify limitations or restrictions in my proposal? Answer: No. Under the FAR, if you forget to identify that information, you will not be at risk of losing your rights. 67 Commercial Computer Software Question 27: My software is commercial. Doesn t the Government have to use my standard license agreement? Answer: Sort of. Under the DOD regulations, if you have commercial computer software, then there is no prescribed clause. Rather, the Government is supposed to use a version of the contractor s standard license. 68 If your software is commercial under the definition in DFARS , Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation, 69 then none of the DFARS data rights clauses applies, and the Government obtains no rights under the regulation. Instead, the Government acquires commercial computer software and commercial computer software documentation from you under your standard commercial license. 70 Under the DFARS, the Government acquires commercial computer software (or computer software documentation) under the licenses customarily provided to the public unless such licenses are inconsistent with Federal procurement law or do not otherwise satisfy user needs. 71 There are certain provisions that are common to commercial software licenses that are invalid under Government contracts. For example, you can t specify a choice of law or a choice of forum with the Government because disputes under a Government contract are governed by the Contract Disputes Act of The Government and its contractors are obliged by the CDA to pursue disputes only before the U.S. Court of Federal Claims or an agency board of contract appeals. 72 Thus, license provisions attempting to limit the Government to arbitration or to confess judgment or to be bound by a state venue are unenforceable. Similarly, in most cases you can t have indemnification provisions because those provisions violate the Anti-Deficiency Act. The Anti-Deficiency Act precludes, among other things, a Government representative from incurring an obligation in advance of an appropriation. 73 In most circumstances an agreement to indemnify a party, which is an obligation for the future, will be in advance of the obligation itself. Question 28: What if I have commercial computer software under a civilian contract? Does the Government have to use my standard commercial license in those procurements? Answer: No. Under the FAR, the civilian agencies are encouraged to use your standard commercial license, subject to the same admonition that certain clauses are invalid. 74 If an agency is engaged in commercial item acquisition under FAR Part 12, then the Government is also supposed to abide by the terms and conditions of a contractor s commercial software license. 75 But, unlike the DOD, under a FAR contract, a civilian agency can use another clause at FAR , Commercial Computer Software License, which essentially gives the Government the same rights in commercial computer software that it gets in noncommercial computer software provided with restricted rights. 76 The clause provides the Government with the same basic minimum rights as the general data rights clause (FAR ) and overrides any standard commercial agreement that is incorporated into the contract to the extent that the commercial agreement is inconsistent with the Government s rights to use, duplicate or disclose any restricted computer software delivered under this contract. 77 9

10 Civilian Agency Contracts vs. DOD Contracts Question 29: You are drawing a distinction between the civilian agency and DOD contracts: Don t the FAR data rights provisions apply to all agencies? Answer: No. The FAR data rights provisions do not apply to DOD contracts. The DOD data and software provisions are solely in the DFARS. Government Challenges To Subcontractor s Assertion Of Rights Question 30: I m a Government subcontractor, and I ve just gotten a letter from the Government challenging my assertion of limited rights. Can the Government do this directly with me? Answer: Yes, at the DOD it can. The DOD validation provisions expressly give the Government the right to challenge a subcontractor s assertion of data rights, even though the subcontractor is not in privity of contract with the Government and even though the challenge does not create privity of contract. 78 Question 31: Well, as a subcontractor, how do I pursue a dispute over my data rights when the Government challenges me directly? Answer: It s just like any other dispute when you re a subcontractor. You have to pursue an appeal either to the U.S. Court of Federal Claims or a board of contract appeals through an appeal agreement, also known as an indirect appeal, with the prime contractor. 79 GUIDELINES These Guidelines are intended to assist you in understanding the basic principles governing the allocation of rights in technical data and computer software under Government contracts. They are not, however, a substitute for professional representation in any specific situation. 1. Remember that there are three principal data rights contract clauses. For civilian agency contracts, FAR , Rights in Data General, is used in most circumstances. For DOD contracts, there are two principal clauses: DFARS , Rights in Technical Data Noncommercial Items, and DFARS , Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation. 2. Recognize that you can resolve most data and software issues under these clauses by determining when an item or software was developed and who paid for it. If it was developed before there was any Government contract requirement and if it was paid for without any direct Government funding, then the Government typically gets limited rights in technical data and restricted rights in software. If it was developed under a Government contract, then the Government typically gets unlimited rights. 3. Keep in mind that under the data rights clauses, the Government gets a license to use either the technical data or the computer software. The contractor retains its data rights, and the Government gets a use license. 4. Be aware that if the Government invokes its rights under a Deferred Ordering or a Deferred Delivery clause in your DOD contract or the Additional Data Requirements clause under your civilian agency contract to obtain delivery of data or software that was not originally a deliverable under the contract, you are paid only for the costs of converting the data or software into the prescribed format and for its reproduction and delivery. 5. Remember that even where the Government obtains unlimited rights in your data or software because it paid entirely for the development, you retains the ability to use or to license others to use the data or software. While with unlimited rights the Government can do virtually whatever it pleases with the technical data or software, those rights are not exclusive. 6. If you are a subcontractor with limited rights data or restricted software, you can bypass the prime contractor and give your data directly to the Government. 10

11 7. Bear in mind that regardless of who pays for development of technical data or software, the developer is the copyright holder. 8. Take care to use the legends specified in the data rights clause that is in your contract to mark your technical data or computer software If you use an unauthorized legend, the Government may later claim that you have relinquished your limited or restricted rights. 9. Be aware that because the regulations require that software be marked and make no distinction between software on a DVD or etched into a chip, you must do something either to mark the chip or otherwise assert restrict rights in the chip. 10. If you forget to mark the data or software properly when you give it to the Government, you have six months to demonstrate to the Government that your failure was inadvertent and to ask for permission to correct the marking. After six months, allowing correction is at the CO s discretion, and the CO can fairly ask you for consideration. 11. Be mindful that under a DOD contract, if you neglect to identify in the proposal any data or software that you propose to furnish to the Government with limitations or restrictions, the Government may later assert unlimited rights. Under the FAR, however, if you forget that information in your proposal, you will not be at risk of losing your rights. 12. If you have commercial computer software, be aware that under the DOD regulations, there is no prescribed data rights clause and the Government is supposed to use a version of your standard commercial license, subject to the admonition that certain clauses will be invalid because they are inconsistent with federal procurement law. A civilian agency has the option of using the FAR Commercial Computer Software License clause, which essentially gives the Government the same rights in commercial computer software that it gets in noncommercial computer software provided with restricted rights. REFERENCES 1/ 75 Fed. Reg (Sept. 27, 2010) (proposed rule). For further discussion of the current FAR and DFARS clauses, see generally DeVecchio, The 2007 Rewrite of FAR Part 27, Patents, Data & Copyrights, Briefing Papers No (Mar. 2008); De- Vecchio, Patent Rights Under Government Contracts, Briefing Papers No (June 2007); DeVecchio, Technical Data & Computer Software After Night Vision: Marking, Delivery & Reverse Engineering, Briefing Papers No (Apr. 2006); DeVecchio, Copyright Protection Under Government Contracts, Briefing Papers No (May 2005); DeVecchio, Licensing Commercial Computer Software, Briefing Papers No (Feb. 2004); Burgett, Sweeney & Kunzi, Government Rights in Data and Software/Edition II, Briefing Papers No (Oct. 1995). 2/ FAR , (b). 3/ DFARS , para. (b)(3)(i)(a), , para. (a)(13). 4/ DFARS , para. (a)(13). 5/ FAR , para. (a). 6/ FAR , Alternate III, para. (g)(4)(i), Restricted Rights Notice, para. (b). 7/ DFARS , para. (a)(14). 8/ FAR , para. (b)(1). 9/ DFARS , para. (b)(1). 10/ DFARS , para. (b)(1). 11/ E.g., DFARS , para. (a)(7)(i). 12/ See DFARS (b); FAR / DFARS , para. (b)(2)(i)(b), , para. (b)(2)(i). 14/ FAR , para. (b)(1). 15/ Applied Devices Corp., Comp. Gen. Dec. B , 77-1 CPD / Applied Devices Corp., Comp. Gen. Dec. B , 77-1 CPD / Applied Devices Corp., Comp. Gen. Dec. B , 77-1 CPD 362; accord Dowty Decoto, Inc. v. Department of the Navy, 883 F.2d 774 (9th Cir. 1989). 18/ DFARS , para. (a)(7), , para. (a)(7). 19/ Bell Helicopter Textron, ASBCA No , 85-3 BCA 18,415, at 92, / DFARS , para. (a)(7); DFARS , para. (a)(7). 21/ See FAR (defining direct costs ), (defining indirect costs ); see also DFARS (a)(8), (9). 22/ FAR , Alternate II, para. (g)(3) (data), , Alternate III, para. (g)(4)(i) (software). 23/ FAR / Office of the Under Secretary of Defense for Acquisition, Technology & Logistics, Intellectual Property: Navigating Through Commercial Waters 2-7 (Version 1.1, Oct. 15, 2001), available at osd.mil/dpap/docs/intelprop.pdf. 25/ See, e.g., FAR ( Data rights clauses do not specify the type, quantity or quality 11

12 of data that is to be delivered, but only the respective rights of the Government and the contractor regarding the use, disclosure, or reproduction of the such data. ); DFARS , License Rights (technical data), , License Rights (software). 26/ See FAR ; DFARS , License Rights (technical data), , License Rights (software). 27/ DFARS , ; FAR , para. (a). 28/ See FAR ; DFARS , / FAR , para. (a). 30/ FAR , para. (c); DFARS / DFARS ( [T]he Contractor shall be compensated for converting the data or computer software into the prescribed form, for reproduction and delivery. ); FAR , para. (c) (similar). 32/ See FAR , para. (a)(1). 33/ See FAR , para. (a)(1). 34/ See FAR , para. (a)(1). 35/ See FAR , para. (a)(1). 36/ FAR , para. (b)(1); DFARS , para. (b)(1). 37/ Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1044 (9th Cir. 1983); Regents of Univ. of Colo. v. K.D.I. Precision Prods., Inc., 488 F.2d 261, 264 (10th Cir. 1973). 38/ Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1044 (9th Cir. 1983); Regents of Univ. of Colo. v. K.D.I. Precision Prods., Inc., 488 F.2d 261, 264 (10th Cir. 1973) 39/ See FAR , para. (d)(1) (2) ( The Contractor shall have the right to use, release to others, reproduce, distribute, or publish any data first produced or specifically used by the Contractor in the performance of this contract, except (1) As prohibited by Federal law or regulation (e.g., export control or national security laws or regulations); (2) As expressly set forth in this contract. ); see, e.g., DFARS , para. (c) ( All rights not granted to the Government are retained by the Contractor. ). 40/ See FAR But see L-3 Communications Westwood Corp. v. Robichaux, Civ. No , 2008 WL , at *7 (E.D. La. Feb. 29, 2008), ( [B]ecause plaintiff provided the government with unlimited rights to all of the source codes... they are no longer trade secrets. ); see also Nash, Postscript: Protecting Unlimited Rights Data, 22 Nash & Cibinic Rep. 28 (2008). 41/ DFARS (d), (d). 42/ E.g., DFARS (b), (b). 43/ See FAR (h) ( The Contractor shall obtain from its subcontractors all data and rights therein necessary to fulfill the Contractor s obligations to the Government under this contract. ); accord DFARS (k)(5), (k)(4). 44/ FAR (b)(1); DFARS , para. (b)(1). 45/ DFARS , para. (b)(2). 46/ 17 U.S.C.A. 201(a) ( Copyright in a work protected under this title vests initially in the author or authors of the work. ). 47/ DFARS (a)(1); see FAR (a)(4); DFARS (a), (a). 48/ DFARS , para. (e)(3) (prior to 1995 revisions). 49/ DFARS (a). 50/ 17 U.S.C.A. 201(a). 51/ See FAR , para. (e); DFARS , para. (f), , para. (f); see also FAR (b) (1), , para. (f)(1); DFARS (c)(1) (unmarked technical data), (c)(1) (unmarked computer software or computer software documentation). 52/ FAR , para. (e); DFARS , , , / FAR , para. (e); DFARS , , , / FAR (b)(1), , para. (f)(1); DFARS (c)(1) (unmarked technical data), (c)(1) (unmarked computer software or computer software documentation). 55/ DFARS (b)(1). 56/ See DFARS , ; see DFARS , para. (h)(1), , para. (h)(1). 57/ DFARS , para. (h)(2), , para. (h)(2). 58/ See FAR , para. (e). 59/ See FAR , para. (e); DFARS , para. (h), , para. (h); see also DFARS , / See General Atronics Corp., ASBCA No , 02-1 BCA 31,798, 44 GC / General Atronics Corp., ASBCA No , 02-1 BCA 31,798, 44 GC / FAR (b)(i), , para. (f)(2); DFARS (c)(2) (unmarked technical data), (c)(2) (unmarked computer software or computer software documentation). 63/ FAR (b)(i), , para. (f)(2); DFARS (c)(2) (unmarked technical data), (c)(2) (unmarked computer software or computer software documentation). 64/ FAR , para. (f)(2); DFARS (c)(2), (c)(2). 65/ DFARS , , / DFARS , para. (d). 67/ FAR , para. (c). 68/ DFARS / DFARS , para. (a)(1). 70/ DFARS / DFARS (a). 72/ 41 U.S.C.A / 31 U.S.C.A / FAR / FAR / See FAR / FAR , para. (a). 78/ DFARS (b), (b). 79/ FAR (c). 12