Security and vendor rights

During the past year, government funding for transportation safety, homeland defense and similar national security activities has increased substantially. Much of the new money has been earmarked for the acquisition of information technology and telecommunications equipment that policy-makers hope will create more efficient and effective government operations in these areas.

Companies throughout the industry are looking at this as an opportunity to expand their participation in government procurement. However, for many companies, the new opportunities will come with new risks as well. One of the most significant of those risks is the possibility that the government's interests in national security might be invoked to curtail or even eliminate the normal rights and remedies available to a company in the event of a dispute.

Under the "state secrets" privilege, the U.S. government can protect information from discovery by others if the disclosure would be harmful to national security. The state secrets privilege was first recognized in 1807, but it did not appear in its modern form until 1953.

In a Supreme Court case involving a military plane crash, the court set forth the conditions under which the privilege may be claimed. According to the court, the privilege may be asserted only by the head of the department that has control over the matter, after personal consideration of the issue. Afterward, the claim must be judicially reviewed to ensure that national security interests are truly threatened by the potential disclosure.

Once the privilege is successfully asserted, the evidence at issue becomes totally inaccessible. In such cases, "even the most compelling necessity cannot overcome the claim of privilege." Furthermore, the government has invoked the privilege even in purely private actions, in which the government itself is not a party.

If the information at issue is sufficiently peripheral to the dispute, the case may continue without consideration of the privileged evidence. If, however, the information is central to the matter at hand, the court will have no choice but to dismiss the case, effectively depriving the parties of a judicial remedy.

Last year, the Justice Department invoked the privilege in a private lawsuit by DTM Research LLC against AT&T, in which DTM alleged that AT&T had misappropriated DTM's proprietary data mining processes. AT&T alleged that the processes were not proprietary, but were in fact in wide use by U.S. government agencies.

When AT&T sought discovery from the government to prove this point, however, the privilege was invoked to stop inquiry into the government's use of those processes.

Given the heightened concerns over national security, it is likely that the state secrets privilege will occur in even more cases. Companies seeking to do business in this area should understand and consider the potential impacts of this possibility.

Peckinpaugh is corporate counsel for DynCorp in Reston, Va. This column represents his personal views.