Technically Still Yours: Court Holds that Contractors May Mark Unlimited Rights Data with a Proprietary Legend

If your company delivers technical data to the Department of Defense, you should take a close look at the Federal Circuit’s decision issued yesterday in The Boeing Co. v. Secretary of the Air Force.

The Court acknowledged that contractors may retain ownership and other interests in unlimited rights data, and it held that they may take steps to put third parties on notice of those rights.  In particular, the Court held that, in addition to the standard legends required by the Defense Federal Acquisition Regulation Supplement (“DFARS”), contractors may also include a legend notifying third parties of the contractor’s retained rights.

However, the Court clarified that such a legend would be inappropriate if it was written in a way that restricted the government’s lawful data rights.  The Court declined to decide whether a legend used by Boeing had that effect, remanding the matter to the Armed Services Board of Contract Appeals (“ASBCA”) to decide that question.

Contractors would be well-served to evaluate whether their data protection policies can be enhanced in light of the Court’s decision.

Background on the Appeal

The appeal was based on an Air Force contract for development of the F-15 fighter jet’s electronic warfare system.  Slip Op. at 5-6.  Boeing was required to deliver certain data with unlimited rights, and it did so under DFARS 252.227-7013.  Id.  As a result, the Government received the right to use the data for any purpose or disclose it to anyone, including other contractors.  See id. (citing DFARS 252.227-7013(a)(16)).

However, under long-standing DFARS regulations, contractors generally retain ownership of and rights in data delivered to the Government.  See, e.g., DFARS 252.227-7013(c) (“All rights not granted to the Government are retained by the Contractor.”).  Contractors often seek to protect their retained rights from misuse by third parties.  One way of doing so is to add a legend to the data that warns third parties of a contractor’s rights.

Boeing used just such a notice, advising “NON-U.S. GOVERNMENT” parties of its assertion that the information was “proprietary” to Boeing and could not be used without permission from Boeing or the Government.  Slip Op. at 6.

In response, the Air Force’s Contracting Officer (“CO”) challenged the marking and directed Boeing to resubmit the data deliverables without the proprietary notice.  Id. at 7.  According to the Air Force, DFARS 252.227-7013(f) forbid Boeing’s marking, because the clause states that “only” the DFARS-prescribed legends can be used, and Boeing’s legend was not one of those.  DFARS 252.227-7013(f).

The Court’s Decision

In a 22-page opinion, the Federal Circuit rejected the Air Force’s interpretation, holding instead that DFARS 252.227-7013’s marking procedures apply “only in situations when a contractor seeks to assert restrictions on the government’s rights.”  Slip Op. at 13 (emphasis added).  The clause “is silent on any legends that a contractor may mark on its data when it seeks to restrict only the rights of non-government third parties.”  Id. at 11.  As a result, the Court held that Boeing’s third-party legend was not prohibited as a matter of law by the DFARS.

However, the Court held that there was still a question about whether the language of Boeing’s particular legend did — as a matter of fact — cause a restriction on the government’s unlimited rights.  Id. at 22.  The Court characterized this as a “factual dispute” for the ASBCA to resolve at trial.  So although legends directed at third parties are allowed, they must not be written in a way that burdens the government’s lawful rights in data.

Takeaways

The Federal Circuit’s decision confirms that contractors may mark data delivered to the Government — even data delivered with unlimited rights — with a legend putting third parties on notice of the contractor’s retained rights in that data.  Contractors who do not currently use such a legend may want to consider adopting that practice, but they should carefully assess the language of their legend to ensure that it does not restrict the Government’s data rights.

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