INNOVATIVE TECHNOLOGY

INNOVATIVE TECHNOLOGY
UNDERSTANDING INTELLECTUAL PROPERTY RIGHTS IN TECHNOLOGY DELIVERED UNDER FEDERAL CONTRACTS David S. Black Holland & Knight LLP March 7, 2018 I WANT YOUR INNOVATIVE TECHNOLOGY

Introduction: Who I Am David S. Black
Co-Chair, National Government Contracts Team Design, implement, and maintain compliance program for Federal contractors and grantees Represent non-Federal entities in responding to government investigations, audits, False Claims Act investigations and litigation David Black Partner .com Tysons, VA Federal Contracts & Grants Litigation and Dispute Resolution False Claims Act Defense Georgetown University Law Center, JD University of Virginia, BA District of Columbia Virginia

AGENDA Federal Policy Overview of Intellectual Property Rights Protection Federal Data Rights Allocation Scheme and Impact on Commercialization Strategic Research & Development Plan to Enhance Commercialization Considerations for Record Keeping Regarding Technology Development Rights Assertions in Proposals Marking Restricted Data/Software

Innovative Technology
The Business Context: Developing Innovative Technology For Future Commercialization

BUSINESS CONTEXT “If you build it with Federal funding,
will you be able to commercialize it?” Impact of Federal Data Rights on Future Revenue?

Federal Policy regarding Federally-Funded Intellectual Property

FEDERAL POLICY Bayh-Dole Act (35 USC §§ 200-12)
Use patent system to promote utilization of inventions arising from federally supported R&D Encourage maximum participation of small businesses Promote collaboration between commercial concerns and nonprofits Promote commercialization and public availability of inventions made in the U.S. Ensure Government obtains sufficient rights in Federally supported inventions to meet Government needs

FEDERAL POLICY FAR Part 27
Encourage maximum practical commercial use of inventions made under Government contracts Recognize rights in data developed at private expense, and limit demand for delivery of that data Acquire only those rights essential to Government needs Ensure appropriate utilization of the results of research, development, and demonstration activities Protect contractor proprietary data from unauthorized use and disclosure

FEDERAL POLICY DFARS Part 227.71 – Technical Data
Acquire only the technical data and the rights in data necessary to satisfy agency needs. Solicitations shall Specify technical data to be delivered Establish CLINs with contract prices for deliverables Require offerors to identify technical data to be furnished with restrictions on Government’s rights Offerors shall not be required to relinquish rights to the Government as condition for award

FEDERAL POLICY DFARS Part 227.72 – Noncommercial Computer Software
Acquire only the rights in computer software and related documentation necessary to satisfy agency needs. Solicitations shall Computer software/documentation to be delivered Establish CLINs with contract prices for deliverables Require offerors to identify computer software/documentation to be furnished with restrictions on Government’s rights Offerors shall not be required to relinquish rights to the Government as condition for award

FEDERAL POLICY DFARS Part 227.72 – Commercial Computer Software
Commercial software shall be acquired under the licenses customarily provided to the public No requirement to furnish to the Government technical information not customarily provided to the public No requirement to relinquish to the Government rights to use, modify, reproduce, or disclose the commercial software

Intellectual Property Protection
Overview of Intellectual Property Protection

Not Specified as Deliverable
WHY IT MATTERS Three “Buckets” of Intellectual Property Contract Deliverables: Technical Data Computer Software Technical Data & Computer Software Developed but Not Specified as Deliverable Other Data Generated During Performance (Financial, Drafts, etc.) FAR/DFARS Clauses Apply Contract Assertion Table Mark as Required FAR: Additional Data Requirements” DFARS: “Deferred Ordering” Don’t Forget to Mark! (In case of Govt’ Access)

Spectrum of License Rights
WHY IT MATTERS Contractor retains “title.” Government gets a “license.” Extent of Government’s license determines commercial value of Contractor’s title Spectrum of License Rights Government Purpose Rights Commercial License Limited/Restricted Rights SBIR Rights Unlimited Rights More Commercial Value Less Commercial Value

WHY IT MATTERS Intellectual Property Rights that Impact Commercial Value I.P. Rights Make Copies Modify Display Perform Use Disclose to Third Parties Geographic Restriction Temporal Restriction

WHY IT MATTERS Proposal Writing Delivery & Marking
Factors that Impact Scope of the Government’s License Structural Design of Technology Development Plan Time and cost of Development Break down to Lowest Practicable Level Plan Funding Sources: Government and Private Document Funding Sources: Government and Private Proposal Writing Delivery & Marking Maintaining “Inventory”

Contractor’s Rights in Tech. Data Without Strategic Planning
WHY IT MATTERS Impact of Strategic Planning in Technology Development Contractor’s Rights in Tech. Data Without Strategic Planning No segregation and record of development at private expense = Government Unlimited Rights in Everything Sub-process Sub-system Sub-routine

WHY IT MATTERS Sub-process Sub-system Sub-routine
Impact of Strategic Planning on Technology Development Contractor’s Rights in Tech. Data With Strategic Planning With segregation and record of development at private expense = Contractor has Enhanced Rights In Sub-Elements Sub-process Sub-system Sub-routine

Contractor’s Rights in Software Without Strategic Planning
WHY IT MATTERS Impact of Strategic Planning in Technology Development Contractor’s Rights in Software Without Strategic Planning 2.0 1.2 1.1 1.0 No segregation and record of development at private expense = Government Unlimited Rights in Everything Versions as Software Functions are Added or is Enhanced

WHY IT MATTERS Impact of Strategic Planning on Technology Development
Contractor’s Rights in Software With Strategic Planning 2.0 1.2 1.1 1.0 With segregation and record of development at private expense = Contractor has Enhanced Rights In Modifications Versions as Software Functions are Added or is Enhanced

WHY IT MATTERS Protecting Data Rights is NOT Self-Executing
Requires Timely: Record-Keeping, Assertions, and Marking

Federal Data Rights Allocation Scheme and Impact on Commercialization

Data Rights Impact Commercialization
Contractor retains “title.” Government gets a “license.” Extent of Government’s license determines commercial value of Contractor’s title Spectrum of License Rights Government Purpose Rights Commercial License Limited/Restricted Rights SBIR Rights Unlimited Rights More Commercial Value Less Commercial Value

Key Definitions and Concepts “Technical Data” vs. “Computer Software” Types of Government License Rights “Source of Funds” Test Exceptions to the Sources of Funds Test “Developed at Private Expense” “Doctrine of Segregability”

Rights Allocation Scheme: Key Definitions and Concepts
“Technical Data” Recorded information, regardless of the form or method of the recording, of a scientific or technical nature (including data bases or computer software documentation). Recorded on any medium (paper or digital) and form (text, graphics, tables) Does not include computer software Does not include data incidental to contract administration, such as financial and/or management information.

Rights Allocation Scheme: Key Definitions and Concepts
“Computer Software” Includes source code and object code Includes non-code aspects of software, such as design details, algorithms, processes, flow charts, formulae, and related material that would enable the software to be reproduced, recreated, or recompiled. Does not include computer databases or computer software documentation (these are “technical data”)

Rights Allocation Scheme
Contractor gets title to the technical data or software Important for commercialization outside Federal marketplace Government gets a license in the technical data or software. Types of licenses include: Unlimited Rights Government Purpose Rights (DoD) Limited Rights (Technical Data) Restricted Rights (Computer Software) OTA rights, CRADA rights, SBIR Rights

Rights Allocation Scheme: Limited Rights
Applies to Technical Data Gov’t may only use technical data internally Gov’t can’t use for manufacturing or reprocurement purposes No disclosure to third parties except under narrow circumstances (emergency repair and overhaul), subject to prohibition on further use and disclosure Contractor has exclusive right to commercialization FAR ; DFARS

Rights Allocation Scheme: Restricted Rights
Applies to Non-Commercial Software Gov’t may only use technical data internally Single copy on a single computer plus limited administrative purposes No disclosure to third parties except under narrow circumstances (emergency repair and overhaul; correction of deficiencies; or to integrate with other programs), subject to prohibition on further use and disclosure Contractor has exclusive right to commercialization FAR ; DFARS

Rights Allocation: Gov’t Purpose Rights
DoD Only; Applies to Both Technical Data and Software Gov’t may only use data/software for “government purposes” where the Gov’t is a party Disclosure to competitors is possible for reprocurement but not for private commercialization Contractor has exclusive right to commercialization DFARS ; DFARS

Rights Allocation: Specially Negotiated License Rights
DoD Only; Applies to Both Technical Data and Software Applies in “unusual situations,” standard rights may not satisfy the Gov’t’s needs Gov’t may accept lesser rights in return for other consideration Example: Gov’t grants limited rights for government- funded software in exchange for rights in other software in which the Gov’t does not currently have rights Contractor may have exclusive right to commercialization DFARS (d)

Rights Allocation Scheme: Unlimited Rights
Applies to Non-Commercial Technical Data & Software Gov’t may only use data/software in any manner and for any purpose Gov’t may disclose data/software to any third party and authorize use for any purpose Gov’t may authorize competitors to use data/software for reprocurement or commercial purposes Contractor has non-exclusive right to commercialization FAR ; DFARS & -7014

Rights Allocation: SBIR
Small Business Innovative Research (SBIR) Program Research & Development Agreements for Phase I & II Focus on technology with potential for commercialization Procurement Contracts for Phase III Eligibility Not more than 500 employees U.S. owned and controlled and located

Rights Allocation: SBIR Data Rights (DoD)
Applies to Software and Technical Data generated under a SBIR Contract For five years after completion of the project from which such data were generated, Gov’t only has Limited Rights in SBIR Technical Data Restricted Rights in SBIR Computer Software Gov’t has Unlimited Rights after the protection period Contractor has exclusive right to commercialization during SBIR Protection Period DFARS

Rights Allocation: SBIR Data Rights (Civilian)
Applies to Software and Technical Data generated under a SBIR Contract For four years after acceptance of all contract deliverables, Gov’t may only use SBIR Data internally for government purposes. No disclosure outside the Government (including for procurement purposes) Gov’t has Gov’t Purpose Rights after the protection period but no liability for Disclosure Contractor has exclusive right to commercialization during SBIR Protection Period FAR

Rights Allocation: CRADA
Cooperative Research and Development Agreements (CRADAs) Not covered by FAR/DFARS Cooperative Research & Development at Federal Laboratories (Civilian & DoD) No Federal Funds Gov’t provides personnel, facilities, equipment Non-Federal party provides personnel, funds, services, and other resources Authority: 15 U.S.C. 3710a

Rights Allocation: CRADA Rights
Flexible Approach for each Federal Lab Generally, IP rights depend on who generated the work/invention: Federal personnel, Non-Federal Personnel, or jointly Contractor owns title in all inventions/works produced solely by its employees Gov’t gets a license ranging from Unlimited rights to Government Purpose rights, depending on the agency Protections for Background Data

Rights Allocation: OTAs
Other Transactions Agreements (OTAs) Not covered by FAR/DFARS Flexible agreements for prototype projects or other basic, applied or advanced research projects Used for nontraditional defense contractors and small businesses Authority: 10 USC 2371, 2371b

Rights Allocation: OTAs
Other Transactions Agreements (OTAs) A prototype project includes a pilot, test, evaluation, demonstration, or agile development activity used to evaluate the feasibility and utility of a particular technology, process, concept, end item, effect, or other discrete feature. May include systems, subsystems, components, materials, methodology, technology, or processes. May involve a proof of concept, a pilot, a novel application of commercial technologies for defense purposes, a creation, design, development demonstration of technical or operational utility, or a combination of the foregoing, relating to a prototype.

Rights Allocation: OTA Rights
DoD can negotiate I.P. terms and conditions different from procurement contracts Gov’t should seek technical data and computer software rights based on likelihood of follow-on production and deployment and consideration of Gov’t’s total life cycle cost of the technology Use Bayh-Dole Act (10 USC ) is a guide. Contractor retains title Gov’t get license rights to facilitate acquisition strategy Balance the relative investments/risks borne by the parties

Rights Allocation: OTA Rights
Rights in Data uses DFARS as a Model Agreement should explicitly address extent of Gov’ts rights to use, modify, reproduce, perform, display, release, and disclose the data/software Clause negotiated on a case-by-case basis Include delivery of data/software developed at Government expense Should consider instant and future needs of both parties, the technology at issues, and any commercialization strategies

Rights Allocation: Source of Funds Test (DoD)
Developed “exclusively at private expense” Gov’t acquires Limited Rights in Data Gov’t acquires Restricted Rights in Software Developed with “mixed funding” (part at private expense and part at Government expense) Gov’t acquires Government Purpose Rights Developed “exclusively at Government expense”: Gov’t acquires Unlimited Rights

Rights Allocation: Source of Funds Test (Civilian)
Developed “exclusively at private expense” Gov’t acquires Limited Rights in Data Gov’t acquires Restricted Rights in Software Developed with “mixed funding” (part at private expense and part at Government expense) Gov’t acquires Unlimited Rights Developed “exclusively at Government expense”:

Rights Allocation: Source of Funds Test
Source of Funds Determinations Private Expense: Development was accomplished “entirely with costs charged to indirect cost pools, costs not allocated to a government contract, or any combination thereof.” Mixed Funding: Development was accomplished “partially with costs charged to indirect cost pools and/or costs not allocated to a government contract, and partially with costs charged directly to a government contract.” Government Expense: Development “was not accomplished exclusively or partially at private expense” Importance of Record Keeping

Rights Allocation: Exceptions to Source of Funds Test
Gov’t always acquires Unlimited Rights in: Studies, analyses, or test data specified as element of contract performance Data necessary for installation, operation, maintenance or training purposes Form, Fit, and Function data Computer software documentation Data or software not marked with a restrictive legend Importance of Marking

When is Data/Software “Developed” or “Produced”: Technical Data
Key DFARS Concepts and Definitions – “Developed” When is Technical Data “Developed”? An item, component, or process exists and is workable. The item or component must have been constructed or the process practiced. “Workability” is established when tested sufficiently to demonstrate to reasonable people skilled in the art that there is a high probability it will operate as intended. Need not be at the stage where it could be offered for sale on the commercial market.

When is Data/Software “Developed” or “Produced”: Computer Software
Key DFARS Concepts and Definitions – “Developed” When is Computer Software “Developed”? A computer software has been successfully tested or analyzed to the extent sufficient to demonstrate to reasonable persons skilled in the art that the software can reasonably be expected to perform its intended purpose; or Computer software documentation required to be delivered under a contract has been written, in any medium, in sufficient detail to comply with requirements under that contract.

When is Data/Software “Developed” or “Produced”
FAR Part 27 Leaves Questions Unanswered Does not address when is Data or Software is “Developed” or “Produced” DFARS offers useful guidance Does not discuss at what level source of development determinations should be made – Segregability or Not? Does not discuss how to determine if data or software is “first produced in the performance of this contract” or “developed at private expense” “First produced” does not depend on funding source

Doctrine of Segregability Computer Software
Segregability & Source of Funds Determinations The determination of the source of funds to develop computer software should be made at any the lowest practicable segregable portion of the software or documentation E.g., a software sub-routine that performs a specific function. Contractors may assert restricted rights in a segregable portion of computer software which otherwise qualifies for restricted rights.

Doctrine of Segregability Technical Data
Segregability & Source of Funds Determinations The determination of the sources of development funds for technical data pertaining to items, components, or processes should be made at any practical sub-item or sub-component level or for any segregable portion of a process. Contractors may assert limited rights in a segregable sub-item, sub-component, or portion of a process which otherwise qualifies for limited rights.

Strategic Research & Development Plan to Enhance Commercialization

TECHNOLOGY BLUEPRINT

Technology Blueprint Design and Plan Development Activities Around the “Doctrine of Segregability” Develop a list of development activities based on the “lowest practicable level” of technical data or software, based on functionality and physical divisibility: For Data: portions of data that are functionally and physically divisible, such as components and subcomponents and sub-processes For Software: portions of the software program that are physically and functionally divisible, such as modules and sub-routines that perform a specific function For both, this includes modifications or amendments to prior iterations of segregable portions

Strategic Development Plan
Segregation of Data and Software at Lowest Practicable Level is REALLY IMPORTANT A contractor’s intellectual property rights depend on the source of funding for the development of data/software Source of funding can change level-by-level within a broader piece of technology (including government-funded work of discrete sub-process or sub-component). Design and track development work to retain greatest rights in privately funded portions of data or software Sub-routine, Sub-item, Sub-component, Sub-process Strategy: enhance commercialization by privately funding key sub-portions of data/software

Strategic Funding Plan
Plan Development for Each Segregable Portion of the Technology around “Source of Funds” Test Once the technology is broken down into lowest segregable portions, map out development in phases over time Consider potential funding sources for each segregable portion: Exclusively Government Mixed Exclusively Private Strategy: enhance commercialization by privately funding key sub-portions of data/software

Maintain Records and Inventory
Collect and maintain accurate records of time and source of funds of each segregable portion of technology As segregable portions are completed, maintain an inventory that assigns data rights assertion that aligns with particular funding source Sub-Process Funding Source Data Rights Assertion 1 Private Expense Limited Rights 2 Mixed Funding Government Purpose 3 Government Expense Unlimited Rights Inventory can be used for Data Rights Assertions in Proposals

Technology Development
Considerations for Record Keeping of Technology Development

Documenting Development Activities
Why It Matters Gov’t can challenge restrictive markings on Technical Data and Computer Software Burden is on the Contractor to prove that restrictive markings is justified DFARS requires contractor to maintain records sufficient to justify validity of every marking on data/software delivered under contract FAR (e); DFARS

Commit Resources to Keep Records and Track Private-Expense Development Efforts Engineering Records Accounting Records Time Sheets Project Records Maintain at least Three Years after Delivery or Final Payment (whichever later)

Elements of Record Keeping: Interplay Between “Segregability” “Developed” “Source of Funds”

Documenting Development Activities Segregability of Technical Data
Segregability & Source of Funds Determinations The determination of the sources of development funds for technical data pertaining to items, components, or processes should be made at any practical sub-item or sub-component level or for any segregable portion of a process. Contractors may assert limited rights in a segregable sub-item, sub-component, or portion of a process which otherwise qualifies for limited rights.

When is Technical Data “Developed” or “Produced”:
An item, component, or process exists and is workable. The item or component must have been constructed or the process practiced. “Workability” is established when tested sufficiently to demonstrate to reasonable people skilled in the art that there is a high probability it will operate as intended. Need not be at the stage where it could be offered for sale on the commercial market.

Documenting Development Activities Segregability of Computer Software
Segregability & Source of Funds Determinations The determination of the source of funds to develop computer software should be made at any the lowest practicable segregable portion of the software or documentation E.g., a software sub-routine that performs a specific function. Contractors may assert restricted rights in a segregable portion of computer software which otherwise qualifies for restricted rights.

When is Computer Software “Developed” or “Produced”?
A computer software has been successfully tested or analyzed to the extent sufficient to demonstrate to reasonable persons skilled in the art that the software can reasonably be expected to perform its intended purpose; or Computer software documentation required to be delivered under a contract has been written, in any medium, in sufficient detail to comply with requirements under that contract.

Rights Allocation: Source of Funds Test
Source of Funds Determinations Private Expense: Development was accomplished “entirely with costs charged to indirect cost pools, costs not allocated to a government contract, or any combination thereof.” Mixed Funding: Development was accomplished “partially with costs charged to indirect cost pools and/or costs not allocated to a government contract, and partially with costs charged directly to a government contract.” Government Expense: Development “was not accomplished exclusively or partially at private expense”

“Developed” Milestone Date Development Cost Records and Funding Source
Records Keeping What is the segregable sub-process, sub-component, or sub-routine? When did it “exist and become workable” or become “tested and analyzed to perform intended function” Time-keeping records for development work charged to indirect account Milestone Development Plan Can Help: Set forth Testing and Analysis that will Determine Workability and Functionality; Follow the Plan Sub-Process “Developed” Milestone Date Development Cost Records and Funding Source 1 2 3

Value of Record Keeping
Contractor’s Rights in Tech. Data Without Adequate Records No segregation and record of development at private expense = Government Unlimited Rights in Everything Sub-process Sub-system Sub-routine

Contractor’s Rights in Tech. Data With Adequate Records With segregation and record of development at private expense = Contractor has Enhanced Rights In Sub-Elements Sub-process Sub-system Sub-routine

Contractor’s Rights in Software Without Adequate Records 2.0 1.2 1.1 1.0 No segregation and record of development at private expense = Government Unlimited Rights in Everything Versions as Software Functions are Added or is Enhanced

Contractor’s Rights in Software With Adequate Records 2.0 1.2 1.1 1.0 With segregation and record of development at private expense = Contractor has Enhanced Rights In Modifications Versions as Software Functions are Added or is Enhanced

Data Rights Assertions
Considerations for Data Rights Assertions In Proposals

Data Rights Assertions in Proposals
Why It Matters Civilian Agencies: Contractor must not deliver data not first produced in performance of contract (i.e., Unlimited Rights) “without the prior permission of the Contracting Officer” Contractor should Identify “Limited Rights Data” and “Restricted Computer Software” in proposal to secure CO permission at time of award.

Why It Matters DoD: Offerors must identify, to the extent known at the time of offer, data/software to be delivered with “other than unlimited rights” “Generally, development at private expense, either exclusively or partially, is the only basis for asserting restrictions.”

Data Rights Assertion Procedure for Each Proposal Make list of all technical data and software that might be used at the lowest segregable level Make a sublist of the data/software likely to be delivered under the contract From this sublist of deliverables, make an accurate data rights assertion Sub-Process Funding Source Asserted Rights 1 Private Expense Limited Rights 2 Mixed Funding Government Purpose 3 Government Expense SBIR Rights

Issues at the Solicitation-Proposal Stage Focus data rights assertion on CDRLs listed in the Solicitation Consider proposing what data is inside/outside the scope of the “Deferred Ordering” or “Additional Data Requirements” Clause List every known deliverable item as specifically as possible Software: consider distinction between source code vs. executable code

DFARS seems to enable Vendor “Lock” Issues at the Solicitation-Proposal Stage Gov’t efforts to avoid “Vendor Lock” ”Information provided by offerors in response to the solicitation provision may be used in the source selection process to evaluate the impact on evaluation factors that may be created by restrictions on the Government's ability to use or disclose technical data.” “However, offerors shall not be prohibited from offering products for which the offeror is entitled to provide the Government limited rights in the technical data pertaining to such products and offerors shall not be required, either as a condition of being responsive to a solicitation or as a condition for award, to sell or otherwise relinquish any greater rights in technical data when the offeror is entitled to provide the technical data with limited rights.”

Issues at the Solicitation-Proposal Stage Gov’t efforts to avoid “Vendor Lock” Solicitations can discourage restrictions on Gov’t data rights Some agencies draft solicitations that demand “no less than Government Purpose Rights.” Some agencies sometimes draft solicitations can demand Unlimited Rights Contractor Options: Q&A to clarify. Pre-Award Protest?

Marking Restricted Data/Software
Considerations for Marking Restricted Data/Software

Why It Matters FAR (f)(1): “Data delivered to the Government without any restrictive markings shall be deemed to have been furnished with unlimited rights. The Government is not liable for the disclosure, use, or reproduction of such data.”

Follow Instructions in FAR/DFARS Clauses No assertions of “trade secret” or “proprietary” data “Conspicuously and legibly mark the appropriate legend” Place on the transmittal document or storage container and each page of printed material

Follow Instructions in FAR/DFARS Clauses Partial Marking: When only portions of a page of printed material are subject to the asserted restrictions, such portions shall be identified by circling, underscoring, with a note, or other appropriate identifier. Electronic Transmission: Technical data transmitted directly from one computer or computer terminal to another shall contain a notice of asserted restrictions. Mark, Mark, Mark! Challenges: Partial Marking and Marking on Electronic Documents

Follow Instructions in FAR/DFARS Clauses

Omitted Markings Contractor may request within six months of delivery to have proper markings placed on data/software. Gov’t has no liability for disclosure resulting from omission of notice. FAR (f); DFARS (e)

Gov’t Challenges of (Allegedly) Incorrect Markings Challenges are in Writing Contractor has 60 days to provide justification and supporting records CO issues a final decision Contractor can appeal to Board of Contract Appeals or U.S. Court of Federal Claims Marking remain in place pending outcome of dispute

David Black Holland & Knight LLP

INNOVATIVE TECHNOLOGY

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