1. Protecting Data Rights Under DoD Contracts October 14, 2009 NCMA Workshop Cape Canaveral Chapter Keith R. Szeliga Sheppard Mullin Richter & Hampton

2. Overview  Categories of Data  Types of Government License Rights  Understanding the Follow-the-Funds Test  Protecting Proprietary Rights  Questions

3. Categories of Data

4.  Technical Data –Recorded information of a scientific or technical nature (includes computer software documentation) –Does not include computer software or data incidental to contract administration  Computer Software –Source code and object code –Design details, algorithms, processes, flow charts, formulae, etc.

5. Types of Government License Rights

6. Limited Rights (Technical Data)  Application –Technical data pertaining to items, components, or processes developed exclusively at private expense –Technical data created exclusively at private expense under contracts that do not require development  Scope of License –May be used internally –May not be used for manufacturing or reprocurement –May not be disclosed to third parties without NDA

7. Restricted Rights (Computer Software)  Application –Non-commercial computer software developed exclusively at private expense and delivered to the Government under a contract  Scope of License –May be used on a single computer –May be transferred to another Government agency –May be copied for archival or backup purposes –May be modified (Government obtains restricted rights in modification) –May not be duplicated, reverse engineered, or decompiled –May not be disclosed to third parties without NDA

8. Government Purpose Rights  Applicability –Technical data pertaining to items, components, or processes developed with mixed Government and private funding –Technical data created with mixed funding under contracts that do not require development –Computer software developed with mixed funding  Scope of License –May be used in any activity where Government is a party –May be used for manufacturing or competitive procurement –May be duplicated, reverse engineered, or decompiled –May not be used for commercial purposes –May not be disclosed to third parties without NDA

9. Unlimited Rights  Applicability –Technical data pertaining to items, components, or processes developed exclusively with Government funds –Technical data created exclusively with Government funds under contracts that do not require development –Computer software developed exclusively with Government funds  Scope of License –May be used in any manner and for any purpose –May be disclosed freely to third parties

10. Additional Types of Unlimited Rights Data  Studies, analyses, and test data produced for a contract and specified as an element of performance  Form, fit, and function data  Technical data necessary for installation, operation, maintenance, or training purposes  Corrections or changes to Government furnished technical data and computer software  Data that is otherwise publicly available or has been released or disclosed without restriction  Data furnished to the Government without a restrictive legend

11. Special Categories of License Rights  Commercial License Rights –Technical Data = Analogous to limited rights –Computer Software = Standard commercial license  Specifically Negotiated License Rights –Government may not accept lesser rights than those obtained under a limited rights license

12. Understanding the Follow the Funds Test

13. Follow-the-Funds Test  Government’s rights are determined by source of funding for development effort –Government Expense = Unlimited Rights –Mixed Funding = Government Purpose Rights –Private Expense = Limited/Restricted Rights  Preventing competitors from using your data requires development exclusively at private expense  Doctrine of segregability allows source of funding determination at lowest practicable level

14. Private Expense  Commercial Items –Presumed to be developed at private expense  Non-Commercial Items –Development must be funded exclusively with: Costs properly charged to indirect cost pools Costs properly not allocated to a Government contract Any combination of the foregoing

15. Development (Key Concepts)  Before a product has attained the status of being “developed,” any development work at Government expense will cause the Government to acquire unlimited or Government purpose rights  After a product has attained the status of being “developed,” minor redesign work at Government expense will not cause the Government to acquire unlimited or Government purpose rights

16. Development (Hardware)  Hardware must “exist” and be “workable” –An item or component “exists” when it has been constructed and a process “exists” when it has been practiced –An item, component, or process is “workable” if there has been sufficient analysis and testing to demonstrate a high probability that it will function as intended –Extent of testing required depends on technology and state of the art

17. Development (Software)  Software Programs and Modules –Operated successfully in a computer –Tested to the extent they can be expected to perform their intended function  Non-Code Aspects of Software –Sufficient testing and analysis to demonstrate that the software program, when coded, can be expected to perform its intended purpose

18. Segregability (Key Concepts)  Source of funding may be determined at the component or process level  Rather than Government purpose rights in technical data pertaining to an entire item, the Government receives: –Limited rights in technical data pertaining to components and processes developed exclusively at private expense –Unlimited rights in technical data pertaining to components and process developed exclusively at Government expense  If the privately developed component is difficult to duplicate, the Government may not be able to obtain the item from a competitor – even though it has paid for much of the development effort

19. Segregability  Hardware –Source of funding determination “should be made at any practical sub-item or subcomponent level or any segregable portion of a process” Segregable replacement parts or assemblies Separate elements of a process  Software –Source of funding determination “should be made at the lowest practicable segregable portion of the software or documentation” Subroutines and modules that perform a specific function

20. Protecting Proprietary Rights

21. Develop a Business Plan  Identify items, components, or processes that offer long-term competitive advantages  Do not accept any Government funding to develop those items, components, or processes  Ensure that any improvements developed with Government funding are segregable from the core technology

22. Document Source of Funding  Government may challenge contractor’s assertion of proprietary rights  Contractor has the burden to justify that it was entitled to deliver data with less than unlimited rights  Contractor must create and maintain evidence sufficient to establish development at private expense

23. Document Source of Funding  A memorandum that documents the baseline technology, describes the nature of the planned development, and creates a separate account number for the development effort  Records of all costs charged to the separate development account  Periodic status reports on the progress of the development effort  Records of all significant tests performed and the design status at the time of testing  Engineering, laboratory, and project management logs and journals  Copies of all contracts under which products incorporating the relevant technology are delivered, modified, tested, or enhanced

24. Analyze Data Rights Before Bidding  Implement a formal procedure for analyzing the data rights implications of each potential Government contract –Does the SOW require further development or testing of products developed at private expense? –Can necessary development or testing efforts be limited to segregable components, elements, or modules? –Does performance of the contract require the production of new technical data for preexisting, privately developed products or software? –Does the solicitation include any unusual data rights clauses (e.g., “Rights in Special Works”)? –Is it necessary to include any proposal language that clarifies the parties’ proprietary rights or the companies obligations under the SOW?

25. List Proprietary Data in Pre-Award Notice  Proposals submitted to DoD agencies must include a standard form attachment that identifies all data to be delivered with less than unlimited rights  Data not included on this form must be delivered with unlimited rights unless the contractor can establish that its failure to identify those data resulted from: –Lack of information regarding the need to use that data –Inadvertent omission – but only if unlimited rights in the relevant data was not a significant factor in the Government’s award determination

26. Use Appropriate Restrictive Legends  Data delivered with less than unlimited rights must be marked with an appropriate restrictive legend  Government obtains unlimited rights in data furnished without an appropriate restricted legend  Contractor can add a legend to unmarked data within six months after delivery – but the Government will not be liable for use or disclosure of data that were not marked

27. Questions?