DECEMBER 13, 2005
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Failure to Properly Mark Deliveries to Government Customers Causes Loss of IP Rights
A case decided last month in the U.S. Court of Federal Claims serves as a reminder to any company that conducts research and development work for, or delivers software to, U.S. Government customers that proper marking of deliveries is essential to protecting intellectual property rights in the deliveries.
The case, Night Vision Corp. v. United States, No. 03-1214C (Nov. 8, 2005), came about when the plaintiff, which had received and performed the first two phases of an Air Force Small Business Innovation Research (SBIR) grant to develop a prototype of an improved night vision goggle, was denied a Phase III grant to go into commercial production. The Air Force then issued a competitive solicitation to procure the improved goggles. The resulting contract was won by a team that was led by the plaintiff’s former subcontractor, which had been engaged to fabricate the housing for the improved goggle and to assemble the prototype.
During the course of performing the SBIR grant, the plaintiff had been required, as is common in such contracts, to provide the government with progress reports, technical data (including drawings and schematic diagrams of the electrical circuitry) of the goggle design improvements developed under the grant, and a prototype of the improved goggle. To protect its rights under the data rights clause of the SBIR grant, the plaintiff marked the technical data packages that it delivered to the Air Force with the limited rights legends required by the data rights clause. However, no such markings were placed on either the prototype goggle or its packaging when it was delivered to the government.
During the procurement competition and after awarding the contract to the plaintiff’s competitor, the Air Force provided the plaintiff’s prototype to the plaintiff’s competitors for examination. One of the competitors disassembled and took photographs of the plaintiff’s prototype that had been supplied by the Air Force.
After losing the competition, the disappointed plaintiff sued the Air Force, alleging among other claims, that the government had breached the SBIR contracts by disclosing its proprietary technical data of the goggle design to its competitors.
In its opinion dismissing the case, the court went straight to the wording of the standard data rights clause in the contract. It noted that under the standard clause a contractor may restrict the government’s use and disclosure of proprietary technical data to third parties only by scrupulously observing the requirements of giving notice of proprietary information and by marking the delivered drawings and other technical data with the required legend. It ruled that failure to apply the proper legend results in the government receiving unrestricted rights to use and disclose delivered technical data.
The court found that while the data packages describing the prototype goggle contained the legends, neither the prototypes themselves nor the packages that contained them were marked with proprietary legends. Therefore, the government received them with unlimited rights. The government was authorized to give then to the plaintiff’s competitors and could permit them to examine, disassemble and reverse engineer the device. In short, there is no means by which a limitation on rights to data can be extended to protect data that is delivered unmarked.
In this regard, the case is completely consistent with prior rulings in which contractors have been held to have granted the government unlimited rights in their technologies by delivering technical design information without the required markings. Similar cases also have found that even when the deliveries were marked with proprietary legends, the design information was received by the government with unlimited rights because the contractor had failed to comply with a second standard requirement, that the contract contain a description of all items proposed to be delivered in which the contractor claimed proprietary rights. Courts have a penchant for being quite literal in reading government contract terms, and contractors have to be just as literal in taking steps to protect their rights.
The court in the Night Vision case went on to highlight an issue that is potentially even more problematic for companies that supply prototypes or samples of any kind to government agencies. It said that it was “likely” that even if the plaintiff had attached limited rights notices to the goggle prototypes themselves, the government would nevertheless have had unlimited rights to share them with third parties because a sample or prototype is not “data” that is subject to protection under the government’s standard data rights clauses. A prototype may be “the embodiment of data, but is not itself recorded information” that is covered by the data rights clause, said the court. The government was entitled to provide a copy of the goggles to the developer’s competitor to reverse engineer, even if it was prohibited from providing the same competitor with written materials to accomplish the same end.
SBIR and other government research and development grants and contracts frequently include a requirement that the grantee or contractor deliver prototypes, samples or other tangible examples of the work effort. Companies that do such work should take note of the requirements — and limitations — of the data rights clause in their grant or contract. They must be scrupulous about adhering to the notice and legend requirements in those clauses. In those cases where a sample or prototype is a deliverable, the only way to protect a proprietary interest in the physical manifestation of the technology is either by patent or by a separately negotiated clause in the contract that precludes the government from disclosing the technology or permitting third parties to reverse engineer the prototype.
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Should you have any questions on this topic or any legal issue regarding government contracts, please contact Jonathan Cain in the http://stage.mintz.com/newsletter/Gov-Contract-12-8-05/index.htm Section.
Jonathan T. Cain / http://stage.mintz.com/newsletter/Gov-Contract-12-8-05/index.htm
703.464.8105 JTCain@mintz.com
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