United States: Data Rights: Current Developments & Pending DOD Changes

In a process at once overt yet stealthy, the Department of Defense (DOD) is developing proposed revisions to the Defense Federal Acquisition Regulation Supplement (DFARS) data rights provisions that will rewrite commercial software licenses in ways never before seen and guaranteed to be rejected by commercial software suppliers, as well as proposing authority to pressure contractors-in the guise of "specially negotiated license rights"-to negotiate away valuable intellectual property (IP) rights while increasing data delivery obligations. The DOD is doing this in plain view-if you know what to look for.

This BRIEFING PAPER discusses the proposed DFARS revisions in DFARS Case 2018-D071, "Negotiation of Price for Technical Data and Preference for Specially Negotiated Licenses," and DFARS Case 2018-D018, "Noncommercial Computer Software," implementing provisions of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018 and the FY 2019 NDAA, that the DOD has issued in draft form seeking public comment.¹ The PAPER focuses on the potential impacts of the proposed regulatory changes on contractors and provides practical guidelines outlining steps contractors can take right now to address the DOD's actions and diminish their risks.

Increasing The Pressure On Data & Software Rights

In June 1995, after years of discussions with industry, the DOD issued a comprehensive and equitable rewrite of the DFARS addressing rights in technical data and in noncommercial computer software and software documentation.² 1995 was about the high water mark of the DOD's professed affection for commercial items, including software, and the DOD's respect for contractors' technical data investments. The water has been draining away ever since, and with it the DOD's fidelity to the core principals of those enlightened regulations in DFARS Subparts 227.71 and 227.72 and their principal contract clauses-DFARS 252.227-7013, "Rights in Technical Data-Noncommercial Items," and DFARS 252.227-7014, "Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation."³ Things quickly will be getting much worse for industry's rights in data if the DOD prevails in its proposed changes.

Let us look at two overarching principals of the 1995 regulations that are most at risk-i.e., embracing commercial software and protecting private investment.

First, in 1995 the DOD took the remarkable step of eliminating any DFARS clause for commercial computer software.⁴ There is none to be found. This makes a great deal of sense if one's goal is-as the DOD's was-to encourage innovative private sector software developers to offer their clever advanced technology to the DOD. How better to do this than by eliminating contract clauses alien to the commercial world. Instead, commercial computer software "shall be acquired under the licenses customarily provided to the public unless such licenses are inconsistent with Federal procurement law or do not otherwise satisfy user needs."⁵ The "unless" in that sentence leaves room for mischief, but the DOD-with a few exceptions tied to amorphous and inexplicable "user need"-largely has confined this exception to rejecting commercial license terms that conflict with sovereign rights. One really cannot, for example, litigate government contract disputes through American Arbitration Association (AAA) arbitration applying California law.⁶

The DOD correspondingly imposed clear limits on what contracting activities could do to infringe commercial software rights:

These common sense and longstanding rules are in jeopardy.

The second overarching principle was for the DOD to acquire only the noncommercial technical data and software "necessary to satisfy agency needs,"⁸ while respecting contractors' private investment by precluding overt government coercion. This is seen in DFARS 227.7103-1(c), which essentially quotes verbatim the prohibitions of the DOD's main data rights statute, 10 U.S.C.A. § 2320(a)(2)(H):

Congress provided only limited exceptions to these preclusions and only for technical data, not software, allowing for unlimited government rights in "form, fit, and function data" (defined fairly)¹⁰ and technical data "necessary for installation, operation, maintenance, or training [OMIT] purposes."¹¹ Recognizing, however, that government personnel almost inevitably would attempt to construe the definition of OMIT so expansively as to swallow all technical data, Congress wisely excluded contractors' most important technical data from OMIT-their "detailed manufacturing or process data [DPMD]"¹²-which are "the steps, sequences, and conditions of manufacturing, processing or assembly used by the manufacturer to produce an item or component or to perform a process."¹³

All this worked well, more or less, for about 20 years. Then the DOD got restive. No matter what one hears from DOD upper echelons, the facts on the ground are that the DOD views contractors' statutory and common sense rights-accruing because of your time, money, and talent-to assert limited or restricted rights as "vendor lock," harmful to the DOD.

For example, during the past five years various DOD entities have embarked on the following unsuccessful efforts:

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Footnotes

1. Defense Federal Acquisition Regulation Supplement: Negotiation of Price for Technical Data and Preference for Specially Negotiated Licenses (DFARS Case 2018-D071), 84 Fed. Reg. 60988 (Nov. 12, 2019) (advance notice of proposed rulemaking implementing National Defense Authorization Act for Fiscal Year 2018, Pub. L. No. 115-91, § 835, 131 Stat. 1283, 1470 (2017) (adding 10 U.S.C.A. §§ 2439, 2320(f)); John S. McCain National Defense Authorization Act for Fiscal Year 2019, Pub. L. No. 115-232, § 867, 132 Stat. 1636, 1901 (2018) (amending 10 U.S.C.A. § 2439)); Defense Federal Acquisition Regulation Supplement: Noncommercial Computer Software (DFARS Case 2018-D018), 85 Fed. Reg. 2101 (Jan. 14, 2020) (advance notice of proposed rulemaking implementing National Defense Authorization Act for Fiscal Year 2018, Pub. L. No. 115-91, § 871, 131 Stat. 1283, 1496 (2017) (adding 10 U.S.C.A. § 2322a)). For the text of the draft proposed rules ("strawmen"), visit https://www.regulations.gov/. See also Open DFARS Cases as of 4/19/2021, https://www.acq.osd.mil/dpap/dars/opencases/dfarscasenum/dfars.pdf.

2. 60 Fed. Reg. 33464 (June 28, 1995).

3. For civilian agency contracts, see the principal Federal Acquisition Regulation clause at FAR 52.227-14, "Rights in Data-General."

4. DFARS 227.7202-4; see 60 Fed. Reg. 33464 (June 28, 1995).

5. DFARS 227.7202-1(a) (emphasis added). See generally DeVecchio, "Taking the Mystery Out of Data Rights," 18-8 Briefing Papers 1 (July 2018); DeVecchio, "Licensing Commercial Software to the Government: Notice, Subcontracting & Pricing Issues," 15-6 Briefing Papers 1 (May 2015).

6. See generally DeVecchio, "Taking the Mystery Out of Data Rights," 18-8 Briefing Papers 1 (July 2018); DeVecchio, "Rights in Technical Data & Computer Software Under Government Contracts: Key Questions & Answers (Including § 815) / Edition II," 12-6 Briefing Papers 1 (May 2012); DeVecchio, "Rights in Technical Data & Computer Software Under Government Contracts: Key Questions and Answers," 10-10 Briefing Papers 1 (Sept. 2010).

7. DFARS 227.7202-1(c) (emphasis added).

8. DFARS 227.7103-1(a) (noncommercial technical data); DFARS 227.7203-1(a) (noncommercial computer software and noncommercial computer software documentation).

9. DFARS 227.7103-1(c); see also DFARS 227.7203-1(c).

10. See DFARS 252.227-7013(a)(11) (defining "form, fit, and function data" as "technical data that describes the required overall physical, functional, and performance characteristics (along with the qualification requirements, if applicable) of an item, component, or process to the extent necessary to permit identification of physically and functionally interchangeable items").

11. DFARS 227.7103-5(a)(4), (5); see 10 U.S.C.A. § 2320(a)(2)(C), (H).

12. DFARS 227.7103-5(a)(5); see 10 U.S.C.A. § 2320(a)(2)(C), (H).

13. DFARS 252.227-7013(a)(6).

Originally Published by Thomson Reuters; Briefing Papers, Issue 21-5.

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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