CHAPTER 21
Rights in Data

Rights in data is a highly specialized area of law designed to encourage creative thinking and fair competition in the marketplace by protecting the rights of individuals and businesses that have transformed their ideas into property. In government contracts, data rights may take the form of (1) unlimited, (2) limited, (3) government purpose, and (4) restricted. These rights are defined in DFAR 252.227-7013 Rights in Technical Data—Noncommercial Items (Nov 1995) as follows:

1) Unlimited Rights: Rights that entail the development of products exclusively at the government’s expense, providing the government with an unrestricted, royalty-free right to use the product. Consequently, the government may use the data as it sees fit, including, but not limited to, sharing this data with a competitor of seller in an attempt to develop competition.

2) Limited Rights: Rights allotted to the government or a government contractor to use, duplicate, or disclose technical data in whole or in part, with the understanding that they are not authorized to release such data outside the government. Nor may the government or government contractor use, duplicate, or disclose in whole or in part, the data for manufacture or procurement. Limited rights are typically granted when seller has exclusive rights and title to the product. Development of the product at seller’s expense is a good justification for asserting limited rights.

3) Government Purpose Rights: These rights are granted when the products are jointly developed at both the government and seller’s expense. This prevents the government from using, modifying, reproducing, releasing, performing, displaying, or disclosing software outside the government for commercial application. However, the government may authorize another contractor to use, modify, reproduce, release, perform, display, or disclose the software or documentation provided when this is done solely for government purposes.

4) Restricted Rights: Seller has paid for the development of the product. The government is limited to using the products only as negotiated in the contract.

Recognizing the terms defined above is important given that differing rights apply depending upon the circumstance, i.e., if a product was co-developed with government and seller funds, developed exclusively at the government’s expense, or developed at the sole expense of seller.

While the FAR limits the government’s rights to this data, it is common practice for buyer to incorporate a data rights provision into their subcontract, providing them sole proprietorship of the end product. The terms will often be written in a manner that transfers to buyer seller’s intellectual property used in the development of buyer’s product. Standard contract language reads similar to the proceeding example:

All designs, drawings, technical reports, specifications, related documentation, inventions, methods and processes conceived, developed or reduced to practice in the performance of this contract shall vest in the buyer.

RISKS

Data rights are often considered to be the lifeblood of a corporation since future sales may depend on the data. When seller neglects to protect their intellectual property by negotiating intellectual property rights into the contract, i.e., government purpose, limited or restricted rights, unlike with patent rights, seller has essentially given up their right to maintain these rights as a trade secret. Seller has given buyer unlimited rights to the property. Buyer may use seller’s data going forward without seller’s consent. Years ago, I inherited a contract whereby intellectual property rights were not asserted in our contract, nor was an NDA used to protect our rights. My employer had sixteen suppliers supporting the effort. Several years later, when we were bidding the follow-on effort as the incumbent, the U.S. Government elected to competitively bid it, providing competitors with intellectual property my firm developed at its own expense. Because my employer did not stipulate that the intellectual property was provided to the government with restricted rights, my company essentially waived these rights. The competitor won the follow-on contract using our intellectual property against us. This is a prime example where a company should protect its data through asserted rights restrictions and/or via an NDA.

RESPONSE

Protection of seller’s proprietary data is perhaps one of seller’s most important functions, since the data are often what generate revenue for seller. Accordingly, seller should follow the procedures outline below, prior to relinquishing any proprietary data to buyer:

1) Ensure that both parties have signed a non-disclosure agreement protecting seller’s intellectual property.

2) Incorporate in the proposal any specific intellectual property that seller anticipates using during the course of a contract. Assert what rights (unlimited, limited, government purpose, or restricted) buyer will be entitled under the contract and the rationale for the assertion. DFAR 252.227-7014 explains how seller is to assert their intellectual property rights, as identified in the example below:

The Contractor asserts for itself, or the persons identified below, that the government’s rights to use, release, or disclose the following computer software should be restricted:

*       Generally, development at private expense, either exclusively or partially, is the only basis for asserting restrictions on the government’s right to use, release, or disclose computer software.

**     Indicate
whether development was exclusively or partially at private expense. If development was not at private expense, enter the specific reason for asserting that the government’s rights should be restricted.

***   Enter asserted rights category (e.g., restricted or government purpose rights in computer software, government purpose license rights from a prior contract, rights in SBIR software generated under another contract, or specifically negotiated licenses).

**** Corporation, individual, or other person, as appropriate.

3) Delete any inappropriate references to design and development efforts. Seller should review both the terms and conditions and the statement of work for verbiage relating to usage rights other than those proposed by seller. Remember that buyer typically draws on the government’s money rather than their own to develop product under the prime contract. It is also important to recognize that the government is not in the profit making business; therefore, the government’s desire is only to obtain the right to use the end product, not own it. Provided that buyer has not invested any of their money into seller’s product, seller should insist on full rights to that property. If buyer, on the other hand, has some vested interest in the product, buyer and seller may consider mutual ownership of said product at which time financial options such as royalties may be discussed.

4) If the product is developed at seller’s expense and seller has no intention of giving up intellectual property rights, insist that the following disclosure statement be made by and part of the contract:

This contract is for the supply of services, software and/or technical data and notwithstanding anything herein to the contrary, experimental, developmental, or research work is not an element of, or necessary for performance under this contract, nor is it a contract purpose or requirement. Any experimental, developmental, or research work associated with the product supplied under this contract has been accomplished in efforts entirely separate and distinct from this contract. The cost of such experimental, developmental, or research work is not charged to the contract.

This clause will help protect seller’s intellectual property.

a) Do not commit to furnish any data or software with unlimited rights unless buyer pays for it.

b) When working a joint program where both buyer and seller are contributing to the development of an end product or products, consider incorporating language that passes right of title to either buyer or seller or both depending on who is entitled to it. Keep in mind that buyer will most likely use the government’s money when developing a product. Any work conducted by seller should remain with seller and/or be shared with buyer. In the contract for a joint project, consider incorporating the following language:

If during the performance of this agreement inventions result, the following shall apply: each invention, discovery, or improvement (hereinafter referred to as invention) conceived or first actually reduced to practice by one or more employees of one of the parties hereto, shall be the sole property of the party whose employee or employees made the invention. Any inventions conceived or first actually reduced to practice jointly by employees of both parties hereto shall be jointly owned by both parties. Patent applications covering such joint inventions shall be filed by attorneys mutually acceptable to both parties and the cost therefore shall be equally shared. In the event that one of the parties hereto does not desire to file a patent application covering a joint invention in any particular country or to equally share in the expenses therefore, the other party shall have the right, at its own expense, to file such application and shall have control over the prosecution of such application and maintenance of any patent, which may issue thereon, including the sole right to abandon such application or patent at any time.

c) Ensure that all Data Requirements Lists (CDRL or SDRL) contain the appropriate proprietary legends when supplied to buyer.

d) Include the following disclosure data in all proposals and contracts as it will help protect seller’s intellectual property:

Buyer agrees that any seller data, designs, software, or other information supplied by or on behalf of seller shall not be disclosed, in whole or in part to third parties without prior express written consent from seller. Buyer further agrees that such seller data, software, designs, and information shall only be used in the performance of this contract with seller or the United States Government. Buyer shall not use seller data, designs, software, or information supplied by or on behalf of seller for manufacture of seller’s products, or cause others to do so, without prior express written authorization from seller.