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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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Photo of Evan R. Sherwood Evan R. Sherwood

Evan Sherwood counsels federal contractors on Contract Disputes Act (CDA) claims, the cost accounting standards (CAS), cost allowability, requests for equitable adjustment (REAs), contract terminations for convenience/default, and related audits, litigations, and investigations. He also advises on contract compliance and formation issues, including TINA/defective pricing…

Evan Sherwood counsels federal contractors on Contract Disputes Act (CDA) claims, the cost accounting standards (CAS), cost allowability, requests for equitable adjustment (REAs), contract terminations for convenience/default, and related audits, litigations, and investigations. He also advises on contract compliance and formation issues, including TINA/defective pricing, data rights, mandatory disclosure rules, ethics, conflicts of interest, teaming arrangements, and other transaction agreements (OTAs). He has litigated matters before the Court of Federal Claims, the Armed Services Board of Contract Appeals, the Government Accountability Office, and the Federal District Courts.

In his work for defense and civilian agency contractors, Evan:

  • Prepares CDA claims and REAs;
  • Litigates matters involving CAS compliance, cost accounting practice changes, and cost allowability under the FAR and grant rules;
  • Defends contractors during audits and investigations involving the Defense Contract Audit Agency (DCAA), Defense Contract Management Agency (DCMA), and the Office of the Inspector General (OIG);
  • Advises on constructive changes, work delays, defective specifications, stop-work orders, government-furnished property, CPARS, warranty matters, data rights, and quality controls;
  • Counsels on disputes between primes and subcontractors, including teaming disputes; and
  • Conducts internal investigations and defends clients in federal investigations involving whistleblower allegations and retaliation claims.

Evan is a Vice Chair of the ABA Public Contract Law Section’s Contract Claims & Disputes Resolution Committee. He routinely writes and speaks about legal issues in federal contracting.

Photo of Jay Carey Jay Carey

Recognized by Chambers as one of the nation’s top bid protest lawyers and government contracts practitioners, Jay Carey represents clients in complex, high-stakes government procurements often worth billions of dollars. He is a vice-chair of the firm’s Government Contracts practice group and a…

Recognized by Chambers as one of the nation’s top bid protest lawyers and government contracts practitioners, Jay Carey represents clients in complex, high-stakes government procurements often worth billions of dollars. He is a vice-chair of the firm’s Government Contracts practice group and a co-chair of the Aerospace, Defense, and National Security industry group.

Jay has won bid protests collectively worth more than $100 billion, for clients across a range of industries — including aerospace & defense, energy, healthcare, biotechnology, cybersecurity, IT, and telecommunications. He litigates protests before the U.S. Government Accountability Office (GAO); the Court of Federal Claims (COFC); and state tribunals across the country. A list of his recent wins can be found under the “Representative Matters” tab.

In addition, Jay advises clients on compliance matters, conducts internal investigations, and defends against investigations by federal and state agencies. He also counsels clients on matters related to the formation of government contracts, including organizational conflicts of interest and the protection of intellectual property rights when entering into procurement contracts, grants, cooperative agreements, and “Other Transaction Authority” agreements with the government.

Jay serves as co-chair of the American Bar Association Public Contract Law Section’s Bid Protest Committee.