December 12, 2017

2018 NDAA Analysis: Intellectual Property Provisions

Holland & Knight Government Contracts Blog
Mary Beth Bosco
This is the sixth blog post in a series analyzing the current draft of the 2018 National Defense Authorization Act (NDAA) as agreed to by House and Senate negotiators on November 8, 2017. Stay tuned for more blog posts covering additional topics in the near future from Holland & Knight’s Government Contracts Team.

Introduction

The NDAA Intellectual Property provisions focus on ensuring that the DoD acquisition workforce is knowledgeable about government rights in IP and achieving a more consistent approach to assertion of those rights. The conference version of the 2018 NDAA (H.R. 2810) stresses early identification and pricing of IP rights. It also establishes a “cadre” of IP procurement experts from both within and outside of DoD. The Act creates three pilot programs aimed at streamlining the data rights acquisition process to adapt “agile” commercial practices.

Changes to Major Weapon System and Software Rights Acquisition

Section 802 of the NDAA contains the most sweeping changes to IP rights acquisition and licensing, as it requires DoD to develop department-wide policies for purchase and licensing of intellectual property. The goals for these policies are to: (i) enable coordination and consistency across the military departments; (ii) ensure that program managers are aware of the Government’s IP rights; and (iii) utilize customized strategies that are based on the unique nature of the system and its components, the product support strategy for the particular system, the organic industrial base strategy, and the commercial marketplace.

In addition to the call for department-wide policies, the Act contains more specific instructions for the acquisition of major weapon systems and software. NDAA Section 835 – which requires DoD to negotiate a price for technical data to be delivered before selecting a contractor for the engineering and manufacturing development of a major weapon system or for the production of a major weapon system – becomes effective one year and one day after the NDAA is enacted. While the NDAA does not contain any implementation provisions, it is clear that this provision will affect contractors providing engineering and manufacturing development or production of major weapon systems as soon as 2019.

With respect to software, the NDAA establishes a minimum set of rights which DoD must acquire to the maximum extent possible. Once enacted, DoD is charged with purchasing the software necessary to (i) reproduce, build, or recompile the software from original source code and required libraries; (ii) conduct required software testing; and (iii) deploy working computer software system binary files on relevant system hardware. The NDAA also contains requirements defining the format, scope, and necessary documentation of acquired software.

The New DoD Expert Group

In a relatively unique mandate, NDAA Section 802(b) creates a DoD “cadre” of intellectual property experts. These experts will come from within DoD and from the commercial marketplace. The “cadre’s” purpose, broadly speaking, is to assist DoD acquisition officials to interpret and apply the laws, regulations, and policies relating to intellectual property. More specifically, the IP experts’ duties include developing strategies to acquire and support IP and interacting directly with contractors to implement the strategies, drafting solicitations or needs statements, and assisting with the valuation of IP and negotiation of IP prices.

Pilot Programs

The 2018 NDAA draft establishes three pilot programs the effects of which may be felt by some DoD contractors in the not-too-distant future. The first program is designed to find ways to simplify software development methods for major software-intensive warfighting and defense business systems using existing programs.. Section 873’s pilot program directs DoD to choose programs in which it is to break down the program requirements into smaller increments using “agile or iterative development methods.” The Act defines agile development to encompass the use of smaller increments called “spirals,” “spins,” and “sprints” that are capable of being measured in weeks or months.

The NDAA directs DoD to select for inclusion in the pilot: (i) one weapon system from each armed force and at least one DoD-wide system, and (ii) no less than two and no more eight business systems. systems in accordance with a set of priorities set forth in the legislation. For the major software-intensive warfighting systems, DoD is to prioritize systems with identified high-risk software development, systems that have experienced cost growth and schedule delay, and systems that did not deliver operational capability within the prior years. The defense business systems to be included in the pilot those which have experienced cost growth and schedule delay, did not deliver operational capacity in the prior year, and are under performing.

The second pilot program requires DoD to select no less than four and no more than eight software development activities to be developed using “agile acquisition methods.” The NDAA’s Section 874 defines agile development in terms of what the procurement process cannot include. For example, the software development activities chosen for this pilot cannot use integrated master schedules and plans, systems and technical requirements documents, or low cost technically acceptable and cost plus acquisition vehicles. By foregoing these procurement tools, DoD is to achieve a three-month period between contract award and identification of a requirement.

Finally, Section 875 of the 2018 NDAA requires DoD to implement the open source pilot program established by Office of Management and Budget (OMB) Memorandum M-16-21. Under this program, participating agencies must release as open source software at least 20 percent of any new custom-developed code each year for the term of the program. The legislation requires the Comptroller General to report about DoD’s compliance with the pilot program requirement by June 1, 2019.

Conclusion

The 2018 NDAA, if enacted, will have significant impacts on contractors by creating uniform policies, expert assistance, and pilot programs aimed at unifying and simplifying DoD’s acquisition and licensing of IP. It is clear that these mandates are designed to ensure that DoD does not leave rights on the table when it negotiates the scope of IP rights with its contractors.

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