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Federal Circuit Ruling Reinforces Technical Data Rights for Defense Contractors

January 25, 2021

The US Court of Appeals for the Federal Circuit last month reversed a decision by the Armed Services Board of Contract Appeals that rejected a contractor’s proposed document legends prohibiting unauthorized third-party use of technical data delivered to the US government with unlimited rights.

On December 21, 2020, the Federal Circuit decided The Boeing Company v. Secretary of the Air Force.[1] The case involved an appeal by Boeing of a denial of summary judgment and final judgment of the Armed Services Board of Contract Appeals (the Board) regarding certain legends that Boeing embedded its documents that contained technical data delivered to the US Department of the Air Force with unlimited rights under government contracts. The Federal Circuit reversed the Board’s denial, finding that defense contract requirements for legends on technical data submitted to the government do not apply to legends that restrict only third-party rights.

TECHNICAL DATA RIGHTS UNDER DEFENSE CONTRACTS

Defense contracts that require delivery of technical data pertaining to noncommercial items are governed by clause 252.227-7013 of the Defense Federal Acquisition Regulation Supplement (DFARS).

This clause applies to different scenarios where technical data developed or delivered under the contract is developed exclusively at private expense, exclusively with government funds, or with mixed funding. Depending on the funding source, the government obtains “limited rights,” “unlimited rights,” or “government purpose rights” in the data:

  • For items developed exclusively with private funds, the government receives only “limited rights,” meaning the right to use, modify, reproduce, release, perform, display, release, or disclose the technical data only within the government. The government also generally may not, without the written permission of the contractor, release or disclose the technical data outside the government, use the technical data for manufacture, or authorize the technical data to be used by another party.[2]
  • For items developed exclusively with federal funds, the contractor retains ownership of the technical data, but the government receives “unlimited rights,” meaning that the government has the right to use, modify, reproduce, perform, display, release, or disclose the technical data in whole or in part, in any manner, and for any purpose whatsoever, and to have or authorize others to do so.[3]
  • For items developed with mixed funding, the government receives “government purpose rights,” meaning the right to use, modify, reproduce, perform, display, release, or disclose the technical data within the government without restriction, and release or disclose the technical data outside the government and authorize persons to whom release or disclosure has been made to use, modify, reproduce, perform, display, release, or disclose the technical data for government purposes.[4] Government purpose rights convert to unlimited rights after a period of five years, unless the government and the contractor negotiate a longer period prior to the conversion of right.[5]

The clause requires a contractor that wished to restrict the government’s rights in technical data to limited or government purpose rights to place restrictive markings on the data in the form of certain prescribed legends set forth in the clause.[6] For example, in order to assert that the government only has limited rights in certain data, the contractor must mark the data with “LIMITED RIGHTS,” the contract number, contractor name and address, and the following statement: “The Government's rights to use, modify, reproduce, release, perform, display, or disclose these technical data are restricted by paragraph (b)(3) of the Rights in Technical Data—Noncommercial Items clause contained in the above identified contract. Any reproduction of technical data or portions thereof marked with this legend must also reproduce the markings. Any person, other than the Government, who has been provided access to such data must promptly notify the above named Contractor.”

The clause authorizes the government to reject restrictive markings on technical data that do not conform to the format specified in the contract clause.[7] If the government notifies the contractor of a nonconforming marking and the contractor fails to remove or correct the marking within 60 days, then the government may ignore the marking or, remove or correct the marking at the contractor’s expense.[8] At issue in the Boeing case was whether Boeing’s legends, which sought to restrict third parties’ use of technical data furnished to the government with unlimited rights, were nonconforming and therefore could be rejected by the Air Force.

THE COURT’S DECISION

Boeing had entered into two contracts with the Air Force for work on the F-15 Eagle Passive/Active Warning Survivability System.[9] The contracts required delivery of technical data to the government with unlimited rights, and therefore did not merit a restrictive legend.[10] However, Boeing nonetheless marked its technical data deliverables with a legend asserting Boeing’s rights in the data as they pertain to nongovernment third parties:[11]

NON-U.S. GOVERNMENT NOTICE

BOEING PROPRIETARY

THIRD PARTY DISCLOSURE REQUIRES WRITTEN APPROVAL

COPYRIGHT 2016 BOEING

UNPUBLISHED WORK – ALL RIGHTS RESERVED

 

NON-US GOVERNMENT ENTITIES MAY USE AND DISCLOSE ONLY AS PERMITTED IN WRITING BY BOEING OR BY THE U.S. GOVERNMENT

 

 

The Air Force rejected Boeing’s technical data deliverables based on this legend, finding it nonconforming under DFARS 252.227-7013(h)(2).[12] Boeing then proposed an alternative legend, as follows:[13]

CONTAINS TECHNICAL DATA/COMPUTER SOFTWARE DELIVERED TO THE U.S. GOVERNMENT WITH UNLIMITED RIGHTS

 

Contract No. _______________________

Contractor Name ___________________

Contractor Address _________________

 

[Such portions identified by SPECIFY HOW or [ALL PORTIONS].

Copyright [Year of Creation] Boeing and/or its Supplier, as applicable. Non-U.S. Government recipients may use and disclose only as authorized by Boeing or the U.S. Government.

 

 

The Air Force rejected Boeing’s proposed alternative legend as well.[14]

Boeing requested a Contracting Officer’s Final Decision, which the Air Force issued, confirming its rejection of the legend.[15] Boeing then appealed to the Board.[16] In its appeal, Boeing asserted that since its legend does not restrict the government’s rights, it cannot be nonconforming; rather, it claimed that the DFARS is silent on which legends the contractor may or may not mark on its data when a contractor attempts to restrict third party use and does not seek to restrict the government’s rights.[17] The Board, on the other hand, agreed with the Air Force and found that the clause required only the prescribed legends and no others be used.[18]

On appeal, the Federal Circuit agreed with Boeing, finding that the plain language of the clause demonstrates that it applies only in situations when a contractor seeks to assert restrictions on the government’s rights.[19] However, the court remanded the case to the Board to resolve the factual issue over whether Boeing’s proprietary legend restricts the government’s rights in any way, since that would be prohibited by the clause.[20]

TAKEAWAY

Going forward, defense contractors should consider adding protective legends to unlimited rights technical data prohibiting unauthorized third-party use, if not already doing so. Doing so, however, without notification to the contracting officer or clarification regarding the impact of the markings on the US government’s right result in similar questions by other agencies. Although the Federal Circuit’s decision provides guidance in this area, it reflects only one court decision related to one military service, which leaves open the possibility of challenges by other US government agencies. Thus, a careful analysis of the requirements of the contract, the views of the contracting officer, and the impact of any “nonconforming” legends would be helpful assessments to manage any questions by the US government.

Given that the Federal Circuit remanded the case to the Board, it will be important to examine the Board’s decision to confirm whether the specific language used by Boeing is nevertheless found to be “nonconfirming” by restricting the government’s rights. 

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, John L. Hemmer (Philadelphia) and Katelyn M. Hilferty (Washington, DC), or any of the following lawyers from Morgan Lewis’s Defense Industry Working Group:

Chicago
Jason C. White

Dallas
Sheila A. Armstrong

Houston
C. Erik Hawes

Orange County
Mark J. Itri
Soyeon Pak “Karen” Laub

Philadelphia, PA
Kenneth J. Davis

Washington, DC
Giovanna M. Cinelli



[1] No. 2019-2147, 2020 WL 7484750 (Fed. Cir. Dec. 21, 2020).

[2] DFARS 252.227-7013(a)(14).

[3] DFARS 252.227-7013(a)(16).

[4] DFARS 252.227-7013(a)(13).

[5] DFARS 252.227-7013(b)(2).

[6] DFARS 252.227-7013(f)

[7] DFARS 252.227-7013(h)(2).

[8] Id.

[9] Boeing, 983 F.3d 1321 (Fed. Cir. 2020).

[10] Id. at 1322.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Id.