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Longtime defense contractor Raytheon won in court when it sued the government over intellectual property. What the company thought was IP the government assumed was merely technical data it could share with anyone. With what happened and why it’s important, Smith, Pachter, McWhorter Partner Zach Prince joined the Federal Drive with Tom Temin.
Tom Temin: So tell us about this case, because intellectual property comes up a lot in federal contracts when there is development work. And so what happened here?
Zach Prince: This is an interesting case because usually what you’re getting is arguments between the government contractors about what type of license the government gets. This case, you actually are arguing about whether the government gets any license at all, because it’s a question of whether it qualifies as technical data onto the [Defense Federal Acquisition Regulation Supplement (DFARS)] clause. So in this case, Raytheon had a contract to service the Patriot missiles. It was an engineering services contract. Part of that had to provide spare parts. Since 2014, the government’s been insisting that Raytheon provide a vendor list for those parts, which it was doing every quarter. Raytheon marked the list as proprietary. The government demanded Raytheon remove those markings, because under the DFARS, if it is technical data, you’ve got specified types of markings you can provide, none of which are proprietary markings, per se. In the government’s view these lists were technical data. The license the government would get would then be an unlimited license, which means the government could do anything it wants with it, or it would be a government purpose rights license, which is pretty similar. The government can do anything it want short of actually commercializing it. But if you’re a contractor, what that means is that the government can hand your information to your competitors in order to stand up competition.
Tom Temin: Government’s motivation, then, was to perhaps take this technical data and then start competing those spare parts?
Zach Prince: Yeah, it seems pretty likely that what the government wanted to do was to use this, include it in an RFP and handed it out to Raytheon’s competitors.
Tom Temin: So how did it end up in court? Did the government go ahead and just remove those markings arbitrarily, and then Raytheon sued? How do they get to the point of where it was a case?
Zach Prince: In the government’s view, it wasn’t arbitrary, but that’s about right. Raytheon included the markings, the government said absolutely not, take these off and resubmit it. And Raytheon did that. And then submitted a dispute under the [Contract Disputes Act]. So that’s how it got here.
Tom Temin: Right. And so this dispute would not be like a protest that would go to the [Government Accountability Office], but would go directly to … which court?
Zach Prince: It would go either to the Armed Services Board of Contract Appeals, or to the Court of Federal Claims, and there are advantages of each of the forums. But I think Raytheon made the right decision to bring this to the Court of Federal Claims.
Tom Temin: All right, and what happened in court? What did the two sides argue?
Zach Prince: So Raytheon was arguing that at bottom, this is not technical data. The DFARS defines technical data pretty broadly, kind of a self referential definition, that technical data is any recorded information of a scientific or technical nature. But it specifically is not data incidental to contract administration. Raytheon said that this is not technical data. This wasn’t of a technical nature, it didn’t identify any characteristics of the parts. It didn’t describe the parts, it didn’t have drawings or include any way for anybody to do anything with this information of a technical or scientific nature. It was just the list of its manufacturers.
Tom Temin: So how could the government then use that simple list of manufacturers? I had said earlier, maybe they wanted to compete the parts, but the only way they could do that with a simple list of manufacturers is to simply go to those manufacturers directly and avoid the pass-through through Raytheon.
Zach Prince: No, I think what the government wanted to do was to allow another party the possibility of standing in Raytheon’s shoes, and already having a identified supply chain. These are the parties you would go to to buy the spares.
Tom Temin: And I guess the obvious question is, if the government was so interested in this, why not just buy them directly from those companies and cut out Raytheon?
Zach Prince: Well that’s right.
Tom Temin: Without making the argument about what type of information they were being given?
Zach Prince: I think the government didn’t do that because of the administrative burden. The government often will have a party acting in the primes capacity, and they can go out and do all these procurements the government would have to go through the whole administrative process to set up.
Tom Temin: Right, so it almost would become like a sourcing program that they just didn’t want to undertake.
Tom Temin: We’re speaking with Zach Prince. He’s a partner at Smith, Pachter, McWhorter. And so then what did Raytheon argue and how do they prevail here?
Zach Prince: Raytheon just pointed to the straightforward technical definition of the DFARS, that this isn’t technical data. And the court agreed. The definition of the DFARS is broad. But based on the plain dictionary definition, this information wasn’t, to quote the court, “inherently or essentially technical.” It just didn’t have any functional physical or performance characteristics of the components. So the DFARS, just like the [Armed Services Procurement Regulations] used to, excludes from the definition of technical data, administration data, stuff that you need in order to perform a contract, but that isn’t actually used to do the technical parts of the contract. And because of that, the court found Raytheon won. It had an interest in protecting this data and the government’s argument that it would somehow hinder competition, the court dismissed as irrelevant.
Tom Temin: And just a side question here. Suppose the information that Raytheon provided was the specification; say, a connector — I don’t know, I’m just making this up — that’s a certain diameter, a certain number of pins, certain materials used so that it meets mil specifications and so on. That information, then, the government could have shopped around to manufacturers, and therefore would have been possibly violating the IP of those small manufacturers. Is that a possibility?
Zach Prince: It depends on the circumstance. So likely, a lot of this IP, you know, the drawings and specs and stuff the government paid for. And because the government paid for it, it doesn’t own the IP, but it likely has a really broad license right. And then, yeah, it could have gone around and shopped that. If this manufacturer list had part of it — the list of manufacturers — and then next to that it had detailed specs, Raytheon probably could have submitted two different versions of this: one that had unlimited rights to the government, where Raytheon might have redacted the manufacturers names and identities, and then one that was subject to Raytheon’s proprietary rights that was unredacted.
Tom Temin: So what are the lessons learned here? What should contractors do to protect themselves? And what should the government do to make sure it gets the flexibility it sometimes feels it needs?
Zach Prince: So working in reverse order, the government should be more careful on the front end to actually negotiate contract rights that it thinks it needs. And you’re seeing some of that now with some fairly aggressive procurement policies in trying to replace the Blackhawk helicopters. Those procurements, government’s insisting on very broad rights so that later it’s not relying on the OEM for spare parts. Of course, the industry is pushing back because the government’s demanding rights and data that contractors paid for. But if the government wanted to procure an unlimited right to use this data, even if it wasn’t technical, the government could have done that on the front end, and they would have paid for it. But they could’ve negotiate it. From the contractor standpoint, I think contractors just need to not be timid in asserting their rights. The government pushes back in this area fairly frequently, and not always from the perspective of an informed party. I can’t tell you the number of times I’ve been on a call with a contracting officer where they talk about the government owning IP, and the government essentially never owns IP, with some rare exceptions. And don’t assume that the government knows what it’s talking about. Be respectful, of course, and recognize that you have to perform as a government direct subject to dispute, but don’t be hesitant to dispute when the government’s pushing too far.
Tom Temin: So the contracting officers should maybe enlist some help from the General Counsel, because COs tend to not be attorneys. Contracting officer representatives are usually not attorneys either. So you got to bring in those legal eagles one way or another.
Zach Prince: That’s exactly right.
Tom Temin: Zach Prince is a partner at Smith, Pachter McWhorter. Thanks so much for joining me.
Zach Prince: Thanks for having me, Tom. Appreciate it.