Defense Contractors Have Some Leeway to Mark Noncommercial Technical Data to Restrict Rights of Non-Government Third Parties

Pillsbury Winthrop Shaw Pittman LLP

The U.S. Court of Appeals for the Federal Circuit interprets DFARS technical data rights clause to allow contractors to mark technical data delivered to the government to restrict the rights of non-government third parties.

TAKEAWAYS

  • The Federal Circuit has interpreted the mandate in DFARS 252.227-7013, Rights in Technical Data - Noncommercial Items, that contractors mark deliverables only with the specific legends listed in the clause to apply only to those markings that restrict the rights of the Government. Contractors may mark deliverables with other legends that restrict the rights of only non-government third parties.
  • Importantly, contractors must ensure restrictive legends or markings that are not explicitly referenced in DFARS 252.227-7013, restrict only non-government third parties’ rights and do not also restrict the Government’s rights. The Government may still reject nonconforming markings that restrict its rights.
  • The court’s decision does not affect the marking of commercial technical data and contractors often may continue to mark commercial technical data delivered to the Government in accordance with their commercial practices.

Long-standing U.S. Government regulations prohibit government contractors from placing restrictive legends that deviate from those specifically prescribed in the regulations on non-commercial technical data and software delivered to the Government. The most detailed regulations on this subject are found in the Department of Defense Federal Acquisition Regulation Supplement (DFARS). These regulations, however, do not prescribe how third parties can use technical data and software that contractors deliver to the Government, which is a concern for contractors. This concern is particularly acute where the Government has an “unlimited” rights license to the technical data at issue, because the regulations prescribe that such technical data have no restrictive markings. This license authorizes the Government to give (or sell) the contractor’s technical data to third parties, who can then use the technical data to compete for future government contracts against the company that created the technical data or for other commercial purposes.

On December 21, 2020, the U.S. Court of Appeals for the Federal Circuit, in the case of Boeing Co. v. Secretary of Air Force, reversed a prior ruling by the Armed Services Board of Contract Appeals (ASBCA) and found that DFARS 252.227-7013 does not prohibit government contractors from placing markings on noncommercial technical data that restrict the rights of third parties to use the technical data, provided that the marking do not restrict the rights of the U.S. Government.

The ASBCA had previously found that Boeing’s markings were non-conforming under DFARS 252.227-7013. The markings at issue admittedly did not conform to any of the four restrictive markings expressly allowed by DFARS 252.227-7013. Specifically, the contractor’s legend stated: “NON-U.S. GOVERNMENT ENTITIES MAY USE AND DISCLOSE ONLY AS PERMITTED IN WRITING BY BOEING OR BY THE U.S. GOVERNMENT.” Boeing argued that the markings were allowed because DFARS 252.227-7013 did not apply to the restrictive legends at all, and therefore could not be “nonconforming” as long as they did not purport to restrict the government’s rights. The Government’s position was that DFARS 252.227-7013 prohibited contractors from using any restrictive markings except one of the four expressly provided in the regulation.

The Federal Circuit agreed with Boeing based on the plain language of DFARS 252.227-7013 and remanded the case to the ASBCA for an initial ruling on whether contractor’s markings limited the Government’s unlimited rights. Based on this decision, defense contractors should now have some leeway in marking noncommercial technical data delivered to the Government to protect the contractor’s proprietary rights against third parties, including use of the data by competitors. Notably, this case addresses only non-commercial technical data, and not computer software, and does not affect the regulations regarding commercial technical data delivered under government contracts, which contractors often may mark according to their commercial practices.

Although the Federal Circuit’s decision is favorable to contractors, drafting appropriate markings that do not restrict the Government’s rights in the data will be critical to ensuring that the markings are not rejected by the Government as nonconforming. Under DFARS 252.227-7013, an unlimited rights license allows the Government to use, modify, reproduce, perform, display, release, or disclose technical data or computer software in whole or in part, in any manner, and for any purpose whatsoever, and to have or authorize others to do the same. Thus, on remand the ASBCA may yet conclude that the contractor’s markings impinged on the Government’s broad rights. The ASBCA’s eventual decision on that issue may provide important guidance regarding how contractors may restrict the rights of nongovernment third parties without impinging on the Government’s unlimited rights.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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