Federal Circuit Affirms Contractors’ Ownership Rights in Technical Data and Trade Secrets
When trade secrets and other intellectual property disputes arise involving federal government contractors, defendants often assert that the alleged trade secret or intellectual property belongs to the government as part of their defense. Indeed, much can be made in civil litigation about the legal impact of the contractor's creation of an alleged trade secret for and its delivery of the alleged trade secret to the government. The Federal Acquisition Regulations (FAR) and the Defense FAR Supplement (DFARS) set forth the "data rights" regulations covering various software, technical data and similar deliverables developed by contractors for the government. These items are either commercial or noncommercial items, and may be either fully or partially funded by the government or developed by the contractor with private funding. Under the FAR and DFARS, the government receives license right commensurate with the funding and accordingly has either unlimited rights, government purpose rights, limited rights, restricted rights (in the case of noncommercial software) or specifically negotiated rights.1 The contractor that developed such items, however, usually retains ownership.2
Even in instances where the government pays for creation of a non-commercial item and obtains "unlimited rights" in the product, as the U.S. Court of Appeals for the Federal Circuit recently reminded in Boeing Company v. Secretary of Air Force, 983 F.3d 1321 (Fed. Cir. 2020), the government still does not own the product. Rather, the government only holds a license, with the contractor retaining ownership of the material. Id. at 1325.
Although the government is only a licensee in instances where the items were developed entirely at government expense, the government has "unlimited rights" in the product delivered, "which means that the government has the right to 'use, modify, reproduce, perform, display, release, or disclose [the] technical data in whole or in part, in any manner, and for any purpose whatsoever, and to have or authorize others to do so.'" Id. at 1325 (citing DFARS 252.227-7013(a)(16)). When third parties, including other contractors, receive items in which the government has unlimited rights, they often argue that they are not liable for misappropriation of trade secrets with regard to their use and disclosure. The parties maintain that the contractor that developed the product, having conveyed it to the government with unlimited rights, cannot demonstrate that it has sufficiently safeguarded the product against disclosure and use.
A key counter to this "so what if I have it or took it" defense can depend practically in jury trials on, among other things, exactly how the defendants obtained the alleged trade secret. Did the defendant receive it from the government agency that had "unlimited [license] rights" to the data, or did it actually obtain it from non-government channels as in the classic case of the departing employee who has brought the software, data or other material to the defendant competing contractor?3
However, the question presented in Boeing was whether the contractor could also have and enforce a unique proprietary marking on its product that asserted Boeing's rights in the data as they pertain to other non-governmental third parties as a means of protecting its data from such third parties' use and further disclosure. The Federal Circuit found that Boeing indeed could, where Boeing originally marked a "Non-U.S. Government Notice" on its deliverable stating, "Boeing Proprietary Third Party Disclosure Requires Written Approval." Id. at 1325. In reversing the lower tribunal's ruling, the Federal Circuit found that the marking requirements under DFARS Subsection 252.227-7013(f) only applied to the government – not to other parties: "Subsection 7013(f) 'authorizes the use of certain restrictive markings' for the purpose of restricting the government's rights. Therefore, we conclude that the plain language of Subsection 7013(f) demonstrates that it applies only in situations when a contractor seeks to assert restrictions on the government's rights." Id. at 1329 (emphasis in original).
This ruling should be considered a win for protecting trade secrets in the often-complicated and litigated world of government license rights regulations when transacting with and delivering valuable intellectual property to the government. The ruling makes clear that contractors may properly apply restrictions on third-party use, which may enable them to protect their products from unauthorized use and disclosure by competitors and other non-governmental parties. Depending on the circumstances of a contractor's particular situation, this added measure provides a potential additional way of protecting the contractor's trade secrets. Boeing further suggests that contractors may be able to protect and enforce their rights even against competitor contractors who may have received the products from the government in the course of performing subsequent government contracts.
1 See, e.g., FAR 52.227-14 and DFARS 252.227-13 and 252.227-14; see also Boeing Company v. Secretary of Air Force, 983 F.3d 1321 (Fed. Cir. 2020) (citing DFARS 227.7103-5(a)-(d)).
2 See DFARS 252.227-7013(b) (“[a]ll rights not granted to the Government are retained by the Contractor.”)
3 In such "unlimited rights" scenarios as presented in Boeing, the contractor could only – at least with respect to "its restrictions on the Government's rights" – include a copyright marking on its deliverable under DFARS 252.227-7013(f).