PROPRIETARY INFORMATION (INTELLECTUAL PROPERTY)

One of the major considerations in using commercial products is how proprietary information and intellectual property will be handled. As one would imagine, government policy encourages the use of commercial inventions while performing government contracts. It is also government policy to honor the rights in patents, technical data, and copyrights and to comply with the stipulations of the law when using or acquiring such rights. However, some of the rules regarding the use of intellectual property by the government recognize the dominant relationship that the needs of the public have in relation to all other needs.

Part of the market research process is a requirement to obtain information regarding intellectual property that could be involved. Questions to ask are: (1) what intellectual information is needed to meet the acquisition objectives, (2) where is it, and (3) who owns it? The concern over location and ownership of intellectual property begins during product development and continues through the life cycle of the product. It is important to the government because it is technical information required to develop or modify products as well as detail on testing, training, operation, maintenance, and re-procurement. To the contractors it is their life’s blood, and therefore it must be protected from use by outsiders. This is because maintaining control over intellectual property is viewed as the best way to remain competitive and profitable.

In 1919 not a single U.S. company could supply a complete radio transmitter or receiver to the U.S. Navy without an infringement on patent rights of other firms. The situation was finally resolved, at the prodding of the Navy, by forming the Radio Corporation of America (RCA). This new enterprise included General Electric (GE), AT＆T, and Westinghouse as major shareholders. Key patent rights were leased from American Marconi. Thus the barriers that had prevented vacuum tubes from being supplied to produce radio transmitters and receivers were removed. This obstacle to equipping the Navy with radio transmitters and receivers illustrates how the access to intellectual property, i.e., patents, copyrights, and other proprietary data or processes, plays a significant part in acquiring modern high-tech products.

Industry places a premium on innovation and strongly defends its rights to its intellectual property against being used by its competitors. Many of today’s products are an accumulation of technologies. “Cumulative systems technologies” exist when one innovation builds on another. To be successful, many products must draw on several related technologies. Some firms can create marketable value from their innovation only by embedding their new products and processes into equipment produced by others. Examples of products with multiple technologies are electronics, semiconductors, aircraft, and automobiles.

One of the realities of the high-tech world we live in is that the competitive necessity to shorten the acquisition cycle times requires industry to speed up its innovative processes. With less time to create new products, or variations of established products, one corporation cannot possibly have the expertise within its walls to develop independently the cumulative technologies contained in today’s components. Innovation requires that organizations evolve their products in concert with each other. Therefore, it is essential that contractors look for ways to supplement their capabilities with the needed technology from outside the firm. This can be accomplished by working in close collaboration with others through license agreements for patented items, teaming arrangements, or subcontracting.

Patent Rights

A patent is a grant of a right given to the inventor to exclude others from the making, using, or selling of an invention during a specified time; it constitutes a legitimate monopoly. This right is usually conferred by the government to the originator of the invention for a 17-year period. Government policy:

• Encourages the use of inventions in performing contracts, even though the inventions may be covered by U.S. patents and protection against infringement may be appropriate

• Encourages maximum use of commercial inventions made while performing government contracts

• Encourages the development of inventions under federally sponsored research contracts so that the general public can benefit from their use.

In the private sector, any encroachment on the exclusivity rights of the patent holder, without legal permission, means that the person guilty of the infringement is subject to damages and is prohibited from continuing to use the invention in any way. Predictably, this often requires the government to enter into some form of license agreement with the owner of a patent if its plans for future use of the item dictate. This can occur because the government is either bound to pay a royalty on a patent because of an existing license agreement between the government and the patent holder or the government is obligated to pay a royalty on a patent involved in a prospective contract. In the latter case, the government acknowledges its obligation by including a clause in the solicitation identifying the owner of the patent.

The Authorization and Consent clause (FAR 52.227-1) in included in most government contracts primarily to permit the contractor to continue to work on the contract uninterrupted even if a patient infringement has occurred. Under this clause, the government authorizes and consents to the manufacture or use of an invention covered by a patent of the United States. A suit for infringement of the patent cannot be made against the contractor or subcontractor. It must be made against the government in a U.S. Claims Court. In any solicitation or contract, the CO is not to include (a) any cause whereby the government expressly agrees to indemnify the contractor against liability for patent infringement, or (b) any authorization and consent clause when delivery and performance are outside the United States, its possessions, and Puerto Rico. There are two Authorization and Consent clauses in the FAR. One covers work specified in the contract. The other is used when the effort is primarily a research and development contract, and it gives blanket authorization and consent to use any invention.

For contracts for supplies or services normally sold to the public in the commercial open market, including commercial items that have minor modifications, the Patent Indemnity clause is required. This clause, which also applies to construction contracts, provides that the contractor will reimburse the government for the infringement of any patent used during performance of the contract. This is necessary because the government is liable for paying compensation to the owner of the patent.

There are two schools of thought regarding who should retain title to intellectual property developed while performing federally funded contracts. One favors government retention of the title to the patent. The other point of view advocates the inventor retaining title to the patent while assigning a nonexclusive, nontransferable, royalty-free license to the government to use the invention for government purposes. The logic supporting the latter school of thought is that contractors are more likely to develop innovative technology with possible commercial applications when the title remains in their possession.

The government obtains rights in technical data, including a copyright license, under an irrevocable license granted or obtained for the government by the contractor. “A license is a legal instrument granting permission to do a particular thing, exercise a certain privilege, carry on a particular business, or pursue a certain occupation.” The contractor or licenser retains all rights in the data not granted to the government. The source of funds used to develop the item, component, or process generally determines the scope of the license.

In solicitations and contracts for experimental, development, or research work, the contractor is required to disclose all inventions it develops while working on the contract. Under FAR clauses 52.227-11 or 52.227-12, the contractor may elect to retain the entire right, title, and interest to these inventions throughout the world. The government retains a revocable, nonexclusive royalty-free license to the inventions and the right to apply for additional rights to use the patents throughout the world. Deviation from the rules of granting title to inventions is limited to: (1) contractors not located in the United States or subject to the control of a foreign government; (2) contracts for the operation of government-owned, contractor-operated Department of Energy facilities; (3) exceptional circumstances when a restriction will better serve FAR policy objectives; and (4) occasions when granting title would endanger national security. Most contractors favor retention of the title to the invention because they have the ability to use and commercially market the product or process.

Rights in Technical Data and Computer Software

The government has unique requirements for technical data and computer software, making it more expensive to prepare and maintain than it would be for commercial users. For example, equipment and supplies used by DoD are often unique, and the product must not only be purchased, operated, and maintained at remote locations, but the technical information needed for its re-procurement also should be included in the acquisition contract. The government’s long-term needs for technical data and computer software must be defined during the requirements determination process.

The basic government policy on rights to make use of technical data and computer software calls for the contractor and the government to reach a balance between: (1) the contractor’s legitimate proprietary interests in the privately developed data and protecting it from disclosure, thereby compromising the contractor’s commercial position; and (2) the government’s need to obtain access to the data. In other words, the policy states that the government should acquire only the rights to technical data and computer software that are needed for the contract, thereby relinquishing as much data as possible for private use by the developer.

There are two sets of rules in the areas of technical data and computer software. The FAR 27.400, Rights in Data and Copyrights, establishes the guidelines that pertain to commercial products. When it comes to needs of the Department of Defense, however, it is felt that DoD’s technical data requirements differ from those of the civilian agencies, and a single government-wide procurement regulation on the subject is not feasible. The Defense Acquisition Regulatory Council has the authority to implement separate policies and procedures for the acquisitions of technical data by DoD. These cover the right to use, modify, reproduce, release, display, or disclose data and are defined in a subpart of the Department of Defense FAR Supplement (DFARS) Rights in Technical Data.

Technical data is often produced as a deliverable item during the performance of the contract. It constitutes data on the form, fit, and function item delivered under the contract. It can encompass test results and instructional training manuals as well as directions on the installation, operation, and maintenance of the items delivered under the contract. Ownership of technical data and computer software is usually determined by the source of the funds that paid for its development. When the government pays the full cost of developing the product and related data, it almost always claims “unlimited rights” to the data. When a contractor or subcontractor develops an item at its own expense, it is considered proprietary, and the government generally obtains “limited rights” in technical data. Department of Defense contractors obtain “government purpose rights” to data when they were developed with a mixture of public and private funds. All of these rights are license rights, with the contractor retaining the title to the data.

The release of data delivered under a government contract is subject to the data rights provisions of the contract, federal export control, and national security laws and regulations. The basic categories for government rights to technical data defined in the FAR include:

• Unlimited rights data: The government has unlimited rights to use, reproduce, modify, or disclose form, fit, and function data delivered under a contract (except for restricted computer software) to the extent it feels is required.

• Limited rights data: These are “data that embody trade secrets or are commercial or financial and confidential or privileged, to the extent such data pertain to items, components, or processes developed at private expense, including minor modifications thereof.”

• Restricted rights: The rights of the government to computer software are restricted to what is negotiated as part of a collateral agreement and incorporated in the contract by the parties thereto.

• Limited rights data and restricted computer software: The contractor is able to protect qualifying computer software by delivering only form, fit, and functional data in lieu of all data. To qualify, the data must incorporate a trade secret or be commercial, financial, and confidential or privileged as well as pertain to components developed at private expense. When the buyer has a need for this data, the contracting officer can selectively request its delivery by specifying what data are to be delivered in the contract.

• Restricted computer software: This term applies to data, other than computer software, developed at private expense that embody trade secrets or are commercial or financial and confidential or privileged.

The contractor is able to protect qualifying limited rights and restricted computer software by withholding such data from delivery to the government and delivering form, fit, and function data in lieu thereof. (Form, fit, and function data means data relating to component processes that are sufficient to enable physical and functional interchangeability, as well as data identifying source, size, configuration, mating, attachment characteristics, functional characteristics, and performance requirements. For computer software, it includes data identifying source, functional characteristics, and performance requirements, but specifically excluding the source code, algorithm, process, formula, and flow charts of the software.)

As noted above, the Defense Acquisition Regulatory Council can prescribe regulations governing technical data rights under Public Law 102-190. These are included in the Defense Federal Acquisition Regulations System (DFARS), which defines DoD policies and procedures on data rights as they pertain to the defense agencies, and are intended to address unique military systems with no commercial counterpart.

The government is also able to require delivery of limited rights data rather than allow the contractor to withhold such data. As part of the negotiation process, the contractor may specifically identify data not to be delivered under the contract or data that will be delivered with limited rights.