Data and the Department of Defense: data rights of British contractors

British firms contracting with the US Department of Defense (DoD) may be required to yield access to valuable, unpatented proprietary information. DoD policy and contract clauses in effect since the end of World War II require contractors to provide access to technical data and computer software in the form of licenses.

‘Technical data’ is an expansive term, including design information, manufacturing techniques, test programs and results, and quality control information. In its broadest form, this would permit a competitor to duplicate manufacture of the product or system involved.

‘Computer software’ refers to program, code and related materials which would enable software to be reproduced, recreated or recompiled. The scope of the DoD’s license generally depends on which party funded the development of the item, component or process to which technical data pertains. Both DoD policy and clauses are set forth in the DoD ‘Defense FAR Supplement’.

Boeing’s challenge to ‘unlimited’ data rights

Previously, the DoD funded Boeing’s development of a subsystem of the F-15 fighter aircraft. As required, Boeing provided an unlimited rights license in the technical data to the DoD, authorizing the latter to use or disclose the data without notice in any way it wished.

When the time arrived for Boeing to provide the technical data package to the DoD, Boeing sought to include legends on the drawings preserving Boeing’s proprietary interests in the data vis-à-vis third parties. The legends would bar third party use of the data unless authorized by the DoD or Boeing. DoD ordered the legends removed.

Boeing demurred and initiated an administrative proceeding before the Armed Services Board of Contract Appeals (ASBCA). The ASBCA held Boeing’s legends were prohibited by a provision in the applicable clause enumerating permissible data legends, which did not include the legend Boeing employed.

Boeing appealed to the US Court of Appeals for the Federal Circuit (CAFC), and argued the clause the DoD and ASBCA cited applied only to data legends affecting the government’s data rights and not to legends that affected the data rights of third parties. On 21 December 2020, the CAFC ruled in Boeing’s favor, opening the path to possible restrictions on third-party use of Boeing’s unlimited rights data.

Potential infringement on unlimited data rights

Recognizing the DoD can do anything it wishes with Boeing’s unlimited data rights, Boeing sought to assert limitations only on third-party use of the data. Boeing’s apparent goal was to establish an increased measure of participation in the lucrative after-market for aircraft replacement and spare parts, as well as to prevent third-party use of Boeing data in the development of new products or technologies.

Boeing recognized DoD may authorize such use of unlimited rights data by third parties and need not do so in writing. Accordingly, Boeing limited its restriction to situations in which the DoD has not authorized the release or use. In so doing, Boeing risks a determination it has improperly limited the scope of the license it has granted DoD.

DoD policy’s long-standing policy of unlimited rights meant technical data developed exclusively at government expense should be made broadly available. Whether Boeing’s proposed legends infringe upon the DoD’s unlimited rights was raised earlier in the case, but left undecided. The remand from the CAFC instructed the ASBCA to resolve the issue but so far that has not happened.

There is a substantial chance the data legends Boeing has proposed, in requiring individual DoD authorization for third-party use, would place improper limits on DoD’s license. Boeing’s argument to the contrary rests on the assumptions the DoD has a duty to ‘manage’ the license and as part of that duty must authorize third party use of Boeing’s data on a case-by-case basis.

The DoD’s license rights however include no such limitation, but instead, authorize release “in any manner and for any purpose.” It is thus questionable whether Boeing can successfully maintain its position in this regard. However, this remains an open issue.

Perhaps more troubling, if Boeing were to succeed, the result would be to insert into the stream of defense product development compilations of drawings and related documents in hard copy or digital form, bearing restrictive legends blocking third-party use unless specifically authorized by Boeing or the DoD. That would be fine if the restrictions remained valid and in effect. There would, however, be no easy way to verify this.

A potential third-party user may be unable to tell whether the restrictive legend was still valid. DoD agencies could, of course, determine whether they had released the data, but such agencies may be reluctant to deal with such complex research unrelated to their principal responsibilities. Suppliers could well find it less burdensome to obtain fee-bearing permission from Boeing, and the end result would likely include royalty payments on technical data in the public domain.

Again, that would be fine if the supplier determines it to be most cost-effective for it. But what if the supplier is itself selling spare or replacement parts to the US government and includes in its pricing a license fee paid to Boeing for technical data for which the DoD has unlimited rights? If the supplier’s price negotiations with the DoD are cost based, the fee paid to Boeing would be an ‘unallowable cost,’ and including such a cost it its pricing would not only be ‘unallowable,’ but could have other adverse consequences as well.

Boeing’s assertion of residual rights in unlimited rights-licensed data, if successful, is thus problematic. More fundamental, however, is the issue whether any form or degree of US trade secret protection survives Boeing’s grant of an unlimited rights license to the DoD.

Data rights and trade secret protection

The most serious obstacle confronting Boeing would be to fit its unlimited rights data within the definition of a trade secret. Because misappropriation of a trade secret is a tort, equitable considerations play an important role.

The totality of equitable circumstances relevant to determining trade secret status precludes any hard and fast rule, requiring consideration of whether the asserted trade secret has commercial value; whether its holder expended significant amounts to develop it; whether the holder has taken reasonable steps to protect it from public disclosure, and whether the person allegedly misappropriating the trade secret either stood in a confidential relationship to the holder of it or acted in an unethical or improper manner.

It is generally recognized if a third party has lawful access to the data, including by reverse engineering, and is legally free to disclose it to others, trade secret protection is lost, as the US Supreme Court ruled in 1985.

No case has been found, however, in which a trade secret survived intentional disclosure to a third party in the absence of any confidential relationship and with no restriction on further unlimited dissemination of the data. In the case of licensees, there is authority for denial of trade secret status for information provided to a licensee who is not obligated to maintain confidentiality.

Boeing’s challenge is to overcome the fact it has licensed its trade secrets to a third party, the DoD. The DoD is under no obligation to maintain confidentiality of the data. Thus, a UK producer providing unlimited rights data to the US’ DoD would face the same obstacles.

The path ahead

The safest course for UK contractors obliged to deliver technical data or computer software under a DoD contract or subcontract is to take all possible lawful steps to avoid unlimited rights licensing and to limit the amount and type of technical data to be delivered. Contracts and subcontracts for items or services qualifying as ‘commercial’ provide maximum insulation from unlimited rights licensing. Provision of technologies developed free of US government funding are similarly well protected.

It is important to raise and resolve any data rights issues prior to award of a contract or subcontract. The standard data rights clause provides a method for identifying technical data to be delivered with less than unlimited rights.

In submitting contract proposals UK firms should scrupulously follow this process, assuring any technical data issues surface and are resolved prior to contract or subcontract signature. However, be cautioned DoD is not bound to accept the contractor’s assertions, and may challenge the propriety of restrictive markings after delivery – in most cases, shifting the burden to the contractor.

Richard Johnson, Daniel Ramish, and Zachary Prince are associates at Smith Pachter McWhorter PLC in Northern Virginia, USA smithpachter.com