The DoD recently published a proposed rule that will significantly revise the rules at DFARS Part 227 and the associated standard clauses relating to patents, data, and copyrights. The proposed rule is intended to "simplify and clarify" these intellectual property regulations, but until a final rule is adopted, the proposed changes may be the source of additional confusion for defense contractors and subcontractors seeking to preserve their rights to technical data and computer software delivered to the government.
The deadline for submitting comments on the proposed DFARS rewrite has been extended to December 27, 2010.
Combining Treatment of Noncommercial Technical Data and Computer Software
The proposed rule will combine the current DFARS clauses at 252.227-7013 related to noncommercial technical data and 252.227-7014 for computer software into a single clause, given the nearly identical licensing treatment of the two types of deliverables. Consolidating the coverage is intended to help distinguish the actual differences between the treatment of technical data and computer software because so much of the coverage is identical. However, if the final rule combines the clauses, contractors may find that this consolidation creates even more confusion about what particular treatment will apply to the IP that is delivered to the government and, in particular, whether any inapplicable provisions are self-deleting when only one form of IP (technical data or computer software) is delivered.
Commercial Computer Software
The change in the treatment of commercial computer software in the proposed regulations is described as "noteworthy" and is in fact the most troubling of all the proposed changes. Currently, the DFARS has no contract clause governing the government's rights in commercial computer software, currently defined in DFARS 252.227-7014 and FAR 2.101. Rather, Part 227 of the DFARS prescribes a policy pursuant to which the government is to receive the rights specified in the contractor's standard commercial license agreement that are "customarily provided to the public unless such licenses are inconsistent with federal procurement law or do not otherwise meet the agencies' needs." This policy has paved the way for contracting officers accepting as a matter of course standard computer software licenses in connection with the delivery of commercial computer software by contractors. The proposed rule codifies the policy in the form of a clause but embeds into the clause a permanent uncertainty as to the enforceability of terms and conditions in the commercial license. The proposed clause incorporates a "severability" provision that specifically provides that any provisions in the contractor's standard commercial license terms inconsistent with federal procurement law are "considered stricken from the license."
Although the new clause encourages parties to negotiate any "issues raised by striking inconsistent provisions," exactly what provisions of the commercial licenses may be inconsistent with federal procurement law is left completely open, putting contractors at risk in the event disputes arise as to the scope of and privileges and limitations granted under the commercial license. This places an untenable burden on both contracting parties to root out alleged inconsistencies with federal procurement law before contract award and effectively undoes the policy embodied in the Federal Acquisition Streamlining Act of 1994 (FASA) to conform the acquisition of commercial items more closely to commercial practice.
Changes to Computer Software Documentation
The proposed rule amends and expands the definition of "computer software documentation" to clarify that the term includes "computer software design documentation, such as design details, algorithms, processes, flowcharts, formulas, and related information that describe the design, organization, or structure of computer software." This is a departure from the definitions in FAR 2.101 and 52.227-14, which include this type of data in the definition of "computer software." Although the proposed rule will also classify this information as "technical data that pertains to an item," its significance is tied to IP to which the government is entitled unlimited rights.
In both the existing and revised DFARS Rights in Data clauses (DFARS 252.227-7014(b)(1)(ii)), the government is entitled to unlimited rights in computer software documentation "required to be delivered under [the] contract." Under the new regime, the government will get unlimited rights in algorithms, processes, flowcharts, and formulas that describe the computer software, even if such information has been developed at private expense, if they are included as deliverables under the contract. Under the new regime, the expanded definition of "computer software documentation" would also apply to documentation associated with commercial computer software. However, the new clause provides that the government's rights in commercial computer software documentation are the "same rights as those in the standard commercial license customarily provided to the public unless those rights are inconsistent with Federal procurement law." If the revised clause is adopted as part of the final rule, contractors will have to be particularly mindful of the different definitions that apply when dealing with DoD versus civilian agencies, as well as the different sets of rules that will govern similar deliverables depending on the agency involved.
Mandatory Flow-Downs
The proposed rule clarifies that the clauses arising under the Bayh-Dole Act involving inventions and patents and clauses related to technical data and computer software are mandatory flow-down clauses for commercial-item contracts. Previously, both prime and subcontract standard forms might have omitted data rights clauses when the subcontractor was supplying commercial items. However, prime contractors acted at their peril by not flowing down these clauses to commercial-item subcontract suppliers as the government's license (and in some cases, ownership rights) to IP conceived, reduced to practice, or created using federal funds extends to subcontractors, and the prohibitions on prime contractors embedded in the DFARS from taking rights in such IP extend to contracts with commercial-item suppliers. This will now make more important the task of specifically tailoring IP clauses in subcontract forms used by prime contractors and avoiding "mindless" flow-downs that simply incorporate by reference the DFARS data rights clauses. It is an important clarification particularly for subcontractors because it reinforces the rule that the subcontractor (not the prime) retains all rights in technical data and computer software that are not expressly granted to the government, including ownership.
Adding "Access" as a Licensed Activity
The proposed rule adds "access" as a licensed activity for noncommercial technical data and computer software in recognition of the growing practice of contractors permitting the government to remotely access contractor-maintained technical data and computer software via the Internet. The recognition is important in the sense that contractors may be able to better safeguard the confidentiality of their IP through remote access as opposed to delivering the IP on static electronic media such as a CD-ROM or DVD.
Use of Restricted Legends
The proposed rule provides further assistance with regard to the use of restricted legends in the delivery of both commercial computer software and technical data pertaining to a commercial item. It removes the mandatory chart format currently included in DFARS 252.227-7017, and instead allows contractors and subcontractors to make their data rights assertions in "any understandable format, so long as the required information is present and understandable." If adopted in the final rule, this change will mean that contractors will no longer have to create an entirely different identification system just for their government contracts. Rather, contractors will be able to present information regarding technical data and computer software to be delivered with restrictions in the same manner that they do for their commercial customers.
The proposed rule also loosens up the format for pre-award disclosures of both IP in which the government will not get unlimited rights and commercial computer software and technical data pertaining to a commercial item. In addition to alleviating concerns that without "magic words" contractors might risk waiving their rights in such data, it also provides guidance on the pre-award identification of commercial computer software and commercial technical data where no such guidance existed before, which will help to resolve any ambiguities regarding the government's rights.
Doctrine of Segregability
The proposed rule addresses the "doctrine of segregability" and acknowledges that different license rights terms can apply for each segregable element of technical data or computer software called for under a single contract. If adopted into the final rule, this will place an additional burden on both the contracting officer and the prime and subcontractors' contracts administrators to document the source of a deliverable that is IP or includes IP, and to develop different licenses for those segregable parts that are commercial items, technical data associated with a commercial item, or developed at private expense, with mixed funding, or at government expense. Contractors will also have to develop a system whereby they are able to track which licensing schemes apply to each segregable data or software component delivered under a defense contract.
Initial Public Comments on the Proposed DFARS Rewrite
Initial comments received in response to the proposed rule thus far have expressed common concerns about the potential impact of the DFARS rewrite if these changes are incorporated into the final rule. First, the comments have criticized the proposed rule's potential for increasing the administrative burdens for commercial item suppliers. The comments have instead requested that the DFARS adopt separate clauses applicable to commercial items and noncommercial items so that the licensing of commercial software and associated documentation is treated separately from the DoD's acquisition of data rights under non-commercial procurements. Multiple comments have also requested clarification of what rights the government obtains in IP developed in the performance of a contract versus that which is developed entirely at private expense, and have sought clearer definitions of what constitutes being "developed at private expense." Other comments have demanded that the DFARS dictate only the minimum number of required flow-down clauses so as to limit the potential burdens on small businesses and commercial item suppliers at the subcontract level. As mentioned above, public comments will be accepted until December 27, 2010.
A copy of the proposed rule in its entirety is available here.
