(Editor’s Note. The rights of the Governments to use, duplicate, modify or disclose the technical data and computer software that you create or deliver to either the government or prime contractor can significantly affect your profitability. If you are a developer of technical data or software, you want to limit the government’s rights to your proprietary information to, for example, prevent others from obtaining that information to bid on other government contracts or use it in the private sector; if you are a replicator that manufactures parts and components but not a designer then you want to maximize your ability to obtain proprietary information. Though some issues can be quite complex, recent changes in these rights have created the need to provide at least some basic understanding of this area. We have used an article written by Andrea Mayner, Director of Contracts at Trident Data Systems, in the August 1997 issue of Contract Management as the basis for explaining the rights and an article by David Burgett, Daniel Sweeny and Greg Kunzi Papers of the law firm of Hogan & Hartson L.L.P. in the October 1995 issue of Briefing Papers as well as the Mayner article for recommended actions. This article is intended as a basic introduction and further research may be warranted.)
First, lets clear up a couple of misconceptions about technical data and computer software rights (when we refer to both we will use the term "data rights"). First, data rights refer to the government’s right to use the data or software not the contractor’s right to use it. Though the government’s rights may vary, the contractor may freely use the same data and software for its commercial purposes. Second, data rights are not about ownership but the type of licenses the Government buys. The government buys license rights not ownership.
The rights we will be discussing will primarily be those issued by the Department of Defense in June 1995 in the Defense Federal Acquisition Regulation Supplement that replaced the "interim" rule in effect since 1988. These newer rules are intended to be simpler and more favorable to the originating contractor by providing greater opportunity for it to retain proprietary rights and restrict those of the government. The data rights we will discuss pertain largely to noncommercial technical data and software. Though we will discuss what qualifies as "commercial" there is little discussion of commercial data rights which under the new rules provide that commercial data and software will be purchased under the same licenses offered to the public.
Definitions
Technical Data. DFARS 252.227-7013 addresses technical data and states all "recorded information, regardless of the form or method of the recording, of a scientific or technical nature". This category of data is commonly recorded data related to contract items, components or processes that tell how to use, maintain, modify or manufacture a product. Examples include design drawings, specifications, tolerances, manufacturing drawings, maintenance handbooks and operating instructions. Ordinarily the most important type of technical data is that which is useful in manufacturing the product and if control is lost, the originator will lose its advantage over competitors in both the government and commercial marketplace.
Data not considered technical data is user information that is valuable only when used in conjunction with the product and is usually impossible to control because of broad dissemination with the product. Also, in contract to useful manufacturing data is that related to form, fit and function data that enables the user to use the item, maintain it or integrate it into other products or systems but not to manufacture it.
DFARS 252.227.7014 address computer software which means "computer programs, source code, source code listings, object code listings, design details, algorithms, processes, flow charts, formulae or related material that would enable the software to be reproduced, recreated or recompiled". It does not include computer databases or software documentation.
Source of Funding
The type of rights given to the government is now based on the source of funding. When sourcing is exclusively government, the government obtains "unlimited rights" for "developed" technical data and software. When sourcing is exclusively private, then the government has "limited rights" over technical data and "restricted rights" over software. When funding is mixed, the government has "government purpose rights" over both technical data and computer software.
The new rules limit exclusive government funding to that which is derived from a contract and did not include any private expense. Exclusive government funding refers only to direct costs associated with performance of a government contract. Exclusive private funding now refers to those costs charged indirectly to indirect cost pools. If it is the contractor’s normal practice to charge such costs as manufacturing engineering, design engineering and development of software costs to indirect cost pools, then the resulting source of funds will be considered exclusively private. The new rules will also permit the common practice of having subcontractors develop new items and components at their own expense and then sell them to the prime contractor. Mixed funding means partial private and partial government funding with no mention as to percentage.
Developed
The source of funding issue is for "developed" data and software. The definition of "developed" is important because once completed, the source of funds for subsequent work is irrelevant to the determination of rights. Developed means the item or processes "exits and is workable". Its function and workability must be demonstrated by reaching the testing stage – merely designing an item or process is not considered sufficient to be developed. Once an item is "developed", the parties’ rights become fixed and the source of funds for later "enhancements" become irrelevant as to the original rights to an item, component, process or software program.
It is possible for different components of a single system to be subject to varying rights thus allowing a modification or subcomponent of an item to qualify for a different right than the data relating to the basic item itself. For technical data, a determination of source of funds may be made at "any practical sub-item or subcomponent level". The ability to segregate goes even further for software where a funds determination "should be made at the lowest practical segregable portion of the software or documentation" (e.g. a subroutine that performs a specific function).
Categories of Rights
Unlimited Rights. These rights, which apply to both technical data and software, are the most extensive rights for the government. It permits the government to use data and software delivered under a contract without any restrictions. Included is the right to distribute the data and software to competitors for reprocurement purposes. The government can disseminate unlimited rights data and software to the public at large for whatever purpose even if there is no connection to the government. With unlimited rights, the government is free to authorize other contractors to commercialize an item or software but this, of course, does not preclude the contractor who developed the item to commercialize it.
Under both FAR 52.227-14 and DFARS 252.227-7013 the government obtains unlimited rights when:
1. Data and software are first produced under performance of the contract
2. Form, fit and function data are delivered under the contract
3. Manuals or instructional materials are delivered under the contract
4. All other data that is not protected under other categories of rights.
DOD has added other conditions such as:
5. When the data and software is developed exclusively with government funds
6. Lesser rights have expired
7. In technical data that is necessary for installation, operation, maintenance or training (which excludes detailed manufacturing or process data)
8. Changes or corrections to technical data provided to the contractor from the government
9. All noncommercial computer software documentation required to be delivered under the contract.
Limited Rights. Limited rights apply only to technical data and offers the greatest degree of protection to the contractor. They do no permit the government to authorize a third party to become a competitor of the developer in either the commercial or government marketplace. It permits the government to "use, duplicate or disclose" technical data inside the government provided such material is not disclosed outside government or used by the government to manufacture an item. Because data cannot be divulged to competitors, the developing contractor is said to retain exclusivity in the government marketplace.
Restricted Rights. These rights apply only to noncommercial software or software documentation and are analogous to limited rights in technical data. Restricted rights permit the government to use the software on only one computer at a time, to transfer the program to another computer, to make archival copies and permit other contractors to use the software only during emergency repairs provided a non-disclosure statement is signed. Contractors as well as subcontractors and vendors may not be required to provide the government with additional rights though the contractor may negotiate with the CO any additional license rights.
Government Purpose Rights (GPR). These rights, applicable to mixed-funded situations, allows the government to use technical data and software for government purposes only including competition but excludes commercial use. GPR allows the government to disclose the data to other contractors for purposes of competition. The developer retains the exclusive benefit of the data or software in the commercial marketplace. GPRs are effective for 5 years following award of a contract (unless negotiated otherwise) after which the government enjoys unlimited rights.
Specifically Negotiated License Rights. These are negotiated rights and can include rights not identified above. COs are encouraged to obtain these but are not allowed to accept anything less than limited or restricted rights. These are common when the government seeks broader rights and the contractor should seek compensation for relinquishing additional rights.
Procedural Requirements
It is not enough that data and software qualify for protection. Such protection is forfeited and the government obtains unlimited rights if prescribed procedures are not followed:
1. Offerors must identify all technical data and software to be delivered with less than unlimited rights. Contractors should prove their subcontractors and vendors comply.
2. Postaward identification of restrictions are permitted when (a) based on new information or (b) earlier failure to assert restrictions was inadvertent and the omission did not materially affect the source selection decision.
3. To obtain protection, the contractor must ensure every copy of data, software or documentation claiming less than unlimited rights contain a prescribed legend. The legends for technical data and software are identified in DFARS 252.227-7013 and 7014, respectively.
Commercial Software and Data Rights
When the data rights qualify as commercial, they are exempt from data rights regulations. The claim of commercial software and data gives the contractor exclusivity in the government and commercial marketplace and the government’s rights are limited to those customarily granted to the public. Commercial software is now defined as software developed or regularly used which has been, is offered to be or will be sold, leased or licensed to the public by the time of delivery or would meet such criteria after minor modifications
Contractors may make minor modifications to commercial software at government expense and it will still be considered commercial. If the modifications are other than minor the software may still meet the definition of commercial if the modified software is offered for sale to the general public and it is still customarily used for nongovernmental purposes.
Contractors always have the right to commercialize military software that was developed under a government contract by virtue of the fact that the original authors are by default the owners of their work under copyright law. Contractors should be aware that they are not permitted to resell it to the government again, even to a different agency or department. Hence software developed at government expense or with mixed funding may only be resold in the commercial market.
As for commercial technical data, the new rules created a new separate clause (DFARS 252.227-7015). Similar to software, commercial technical date includes any item, other than software or real property that is customarily used by the public for nongovernmental purposes and that has been sold or offered for sale, lease or license to the public. The new clause grants the government only limited rights on commercial technical data.
Recommendations
1. Do some thinking about each new product on whether it is in your interests to keep limited rights. Consider, for example, the relative size of the commercial versus government markets, assess competitors strengths with or without access to data and identify where private versus public funding best meets your strategic goals. This will enable management to decide what level of government rights can and should be achieved and in what manner the product should be introduced to the government.
2. You may want to consider different sourcing decisions at the component or subcomponent level. Make sure that when you deliver technical data or computer software to the government, those portions developed at government expense are segregated from those at private expense.
3. Make sure your product managers are knowledgeable about the basics of Government data rights.
4. Review each solicitation and contract to understand what data will be generated and ensure appropriate clauses are included.
5. If you do much software or product development, make sure your accounting system can segregate development costs, identify costs by product and identify funding source (i.e. out of profit, indirect costs, commercial contract, direct government funding). Similar data should be tracked for new versions or releases of the product.
6. Before selling commercial software to the government under a contract, make sure the 1995 regulations are in place. Contracts commonly include older "boilerplate" clauses and new clauses should be substituted.
7. It’s a good idea to keep a file on products that have been or can be sold to the government that identifies sales data, quantities and buyers to ensure the products qualify for commercial item status.
8. Make sure data right clauses are flowed down to subcontractors. Prime contractors will face nightmares if rights they are obligated to provide are greater than rights received by subcontractors. Prime contractors should notify their subcontractors – especially those with limited government contracting experience – that they are mistaken if they believe their standard commercial license will supercede government "Rights in Data" clauses.
© 2024 Government Contract Associates. All Rights Reserved.
