Can the Defense Department help itself to commercial intellectual property, even stuff not developed with federal dollars? Yes it can, as a matter of fact. At least judging from a recent case before the Armed Services Board of Contract Appeals. It’s a warning to contractors. For the details,  the Federal Drive with Tom Temin spoke with Haynes Boone partner Dan Ramish.

Interview transcript:

Tom Temin
This is a case that touches on a long running nerve. Dan, tell us more what happened here.

Dan Ramish
Sure, Tom. So the case is flight safety international incorporated, an appeal at the Armed Services Board of Contract Appeals. And this is actually an unusual dispute, between the United States government and a subcontractor FlightSafety. FlightSafety was providing commercial technology under a subcontract, and its specific technology was a visual system replacement for C-5 weapons system trainers.

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Tom Temin
So nothing flew, but this was to be used in a training situation on the ground. And this was displays for pilots, I guess, to be able to learn how to fly that big whale safely.

Dan Ramish
Right, exactly. And so it’s not uncommon for military technology to incorporate commercial components. And generally, that’s more cost effective for the government. So it’s favorable, viewed favorably. The Federal Acquisition and Streamlining act, encourage the use of incorporating commercial technologies. And also, in this day and age, commercial technology is vitally important for National security. [Department of Defense (DoD)] wants the best cutting edge technology that the commercial world has to offer. In this case, FlightSafety developed this product under subcontract for the Air Force. And the Air Force looked at drawings that were submitted, related to this product, and challenged the contractors markings on the drawings.

Tom Temin
Right. So that’s the key thing here. They didn’t like the markings, because they seemed to be proprietary, or designate them as proprietary. So the Air Force is the one that brought the case forward?

Dan Ramish
Yes, that’s right. It was a a validation challenge. There was a final decision issued by the Air Force contracting officer, who looked at the restrictive legends on these drawings that were submitted, related to this visual system replacement, and said that the government had different rights from what the legends reflected. The contractor had said, these are proprietary, we develop them with private funds. And therefore, you get a very limited license under the applicable contract clause, government back off, this is our stuff.

Tom Temin
Sure. For all we know, this company might have developed these drawings and these capabilities for the Dreamliner or something.

Dan Ramish
Sure, other commercial customers. And the government, notably, didn’t argue with that, they didn’t contest that the subcontractor had used its own money or private funds to develop the drawings or the technology associated with drawings. What they argued was there was a special exception in the statute, and in the clause that says, if data is needed for operation, maintenance, installation or training, then the government gets a unrestricted rights, and there is an exception to the exception. Whenever it comes to the government intellectual property licensing scheme, it’s very complicated, and there are a lot of moving parts. So even if data is necessary for the government to maintain when it’s buying, if it’s detailed manufacturing or process data, the government’s gets the data but still has the limited license.

Tom Temin
Right. But if it’s operations, maintenance, installation, or training, commonly known as OMIT, then the government does have that right to use in an unlimited way.

Dan Ramish
So as long as it’s not related to the contractor, secret sauce, that’s the exception to the exception. Detailed manufacturing and process data. So if it’s needed for training and for maintenance, but it doesn’t get into the manufacturing processes, the secret sauce of the contractor or subcontractor, then the government gets an unrestricted rights license. And that’s what they were arguing here. We need this to maintain the equipment over the long haul. And under the right scheme that’s in the contract, and then the regulations, we get unrestricted rights. And actually, an interesting feature of this particular case, they settled the issue of the license that the government got in this these drawings. The contractor conceded, through settlement, that the government was entitled to an unrestricted rights license. And normally, you would you would fight over whether this data was really needed for operation maintenance, installation or training, and whether it was detailed manufacturing process data. But settlement eliminated that issue.

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Tom Temin
All right. What did the Contract Board of Appeals say? They cited with whom?

Dan Ramish
So the the Armed Services Board sided with the government. And they said, essentially that the government could challenge the legends, that the contractor put on its drawings, and that the legends, that the contractor put on the drawings, weren’t consistent with the government’s license.

Tom Temin
We’re speaking with Dan Ramish. He’s a partner at Haynes Boone. All right, so it seems cut and dried. If there was a statutory carve out for OMIT data, then the government, some sharp eyed guy in the Air Force, saw that and prevailed. And this, though, has a long history of dispute. The omit data being statutorily protected, if you will, or carved out omitted from what the government can’t do normally, with intellectual property. There’s a history to this whole issue, isn’t there?

Dan Ramish
There has been a lot of back and forth and debate, within DoD and on the Hill, about how to deal with commercial contractors. Because there’s kind of a tension between two really big principles when it comes to the government intellectual property. One of those principles is, the government recognizes the need for cutting edge commercial technology. And that intellectual property is important to commercial companies, that’s how they distinguish themselves and their products. And it’s one of the biggest concerns that nontraditional defense contractors have in looking at the defense market. Say, is the government can insist on getting the rights and to my proprietary information. So, DoD recognizes that there has to be some respect for proprietary rights of contractors, or people just won’t do business with the federal government.

Tom Temin
Sure. So there’s really a secondary issue, or you could look at this two ways. One, is the use in an unrestricted way by the government. But that doesn’t let the government redistributed freely to other people. So therefore, whatever use the government gets, it pays for, it just might be paying for less than what a commercial client would pay for. For the same intellectual property. Fair way to put it?

Dan Ramish
Yeah, well, so the government’s concern in negotiating this is, DoD wants rights to be able to maintain what it’s buying over the long haul, and not have to go back to the seller and have it maintained by third parties. So OMIT data, is really the government’s attempt to make sure that it’s able to use what it’s buying from, from contractors, including commercial contractors. But, there are real tensions between respecting the contractors rights and making sure that the government gets the rights that it needs.

Tom Temin
So maybe the answer for contractors then, is to go into this with a pricing scheme that compensates them for the way their property is actually going to be used.

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Dan Ramish
Certainly contractors. And after this decision, contractors and subcontractors doing business with DoD have to look very carefully at what documents they’re providing to the government and what rights the government is going to insist on. And there’s greater exposure than folks would have thought.

Tom Temin
And the section 809 panel, of a few years back, that proposed three volumes, three or four volumes of defense procurement reforms. This elimination of the OMIT exception was something that they proposed, wasn’t it?

Dan Ramish
That’s right. So the 809 panel was looking at how DoD buys intellectual property, specifically commercial intellectual property. And they identified that, although there’s this policy in the [Federal Acquisition Regulation (FAR)] that says, the government will only buy the intellectual property rights that commercial contractors provide in the commercial marketplace, and will only deliver what they deliver in the commercial marketplace. DoD has these exceptions that deviate from that general practice in the FAR. So the [Defense Federal Acquisition Regulation Supplement (DFARS)], includes OMIT and a few other exceptions for types of data that contractors are required to give up, even though they don’t provide it to their commercial customers. The 809 panel, in looking at that, said this is a disincentive for contractors to participate in the defense market. And DoD’s rights are adequately protected by the rest of the DAFRS. This is really overreach. And DoD should engage, like any other private contractual party, and negotiate for those rights if it wants them and not claim them by default. And so they propose getting rid of those exceptions.

Tom Temin
But nevertheless, the exceptions persist to use the modern parlance.

Dan Ramish
Indeed they do. If you’re waiting on Congress to fix your problems. You may be waiting a long time.

 

 

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