Nadler: Know your rights

Companies must take certain steps to protect their proprietary products

In the fiercely competitive technology market, a company’s proprietary products, software and methodologies are often its most important assets. Most companies recognize that the intellectual property relating to those products and methodologies are the crown jewels of their business and must be protected at all costs.

However, selling to the government presents unique challenges to a company’s ability to safeguard its intellectual property.

The U.S. Court of Federal Claims issued two decisions that led to harsh results for contractors and provided cautionary tales for the unwary.

In Ervin and Associates Inc. v. United States, the court directed contractors to follow the guidelines of the Rights in Data clause (FAR 52.227-14) when they enter into contracts for providing data to the government. That clause provides broad intellectual property rights to the government, which may be unlimited or limited/restricted. But it also allows a contractor to preserve certain rights with specific data rights legends.

The Defense Department employs a different clause that includes another category of rights, Government Purpose Rights, which allow the use of data in a subsequent procurement.

Ervin was a small contractor that was awarded a contract for collecting, reviewing and analyzing financial statements relating to projects for the Department of Housing and Urban Development. Ervin created a database that contained and analyzed all information from HUD’s financial statements. HUD asked for the data and shared it with third parties.

The government claimed that the firm’s proposals promised the creation of data beyond the solicitation’s request. Ervin argued that the data was not required by the contract, was created at private expense and was provided on the condition it would not be disclosed outside HUD.

The court ruled that the data was first produced under the contract, and thus, the government had unlimited rights to use the data, including giving it to third parties.

In Night Vision Corp. v. United States, the Air Force allowed the contractor’s night-vision goggles to be examined by competitors in the course of a competitive procurement. The contractor properly affixed protective data rights legends to documents submitted to the Air Force in connection with the goggles. However, because the contractor failed to put the legends on the goggles or their packaging, the court held that the contractor waived its rights and the goggles could be shown to competitors. The contractor’s concern was that once its competitors were provided with the goggles, they could reverse-engineer the technology and obtain a competitive advantage in the procurement. And, indeed, a competitor won that contract.

If a contract requires the delivery of limited rights data or restricted rights software, the contractor must identify that data with restrictive legends in the Rights in Data clause. To qualify for this protection, the contractor must demonstrate that the data was developed at private expense. Data provided without the authorized notices will be treated as unlimited rights data. Nevertheless, when the contractor properly informs the government of limited or restricted rights, the government may challenge that designation.

Contractors seeking to preserve all rights in proprietary data should strictly follow the guidelines in the Rights in Data clause, attaching the proper notice whenever proprietary data is provided to the government.

Nadler is a partner in the law firm of Dickstein Shapiro Morin and Oshinsky. Contact him at NadlerD@dsmo.com.

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