When trade secrets and other intellectual property disputes arise involving federal government contractors, defendants often claim that the alleged trade secret or intellectual property belongs to the government as part of their defense. Indeed, much can be done in civil litigation on the legal impact of the entrepreneur’s creation of an alleged trade secret for and his delivery of the alleged trade secret to the government. The Federal Acquisition Regulations (FAR) and Defense FAR Supplement (DFARS) set out “data rights” regulations covering various software, technical data, and similar deliverables developed by contractors for the government. These items are commercial or non-commercial items and can be fully or partially funded by the government or developed by the entrepreneur with private funding. Under FAR and DFARS, the government receives a license fee commensurate with the funding and therefore has unlimited rights, rights for government purposes, limited rights, restricted rights (in the case of non-commercial software) or specifically negotiated rights.1 The contractor who developed these items, however, generally retains ownership.2
Even in cases where the government pays for the creation of a non-commercial item and obtains “unlimited rights” to the product, as the United States Court of Appeals for the Federal Circuit recently recalled in Boeing Company c. Secretary of the 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 equipment. Username. to 1325.
Although the government is only licensed in cases where the items have been fully developed at government expense, the government has “unlimited rights” to the delivered product, “which means the government has the right. to “use, modify, reproduce, perform, display, publish or disclose [the] technical data in whole or in part, in any manner and for any purpose, and to have or authorize third parties to do so. ‘” Username. to 1325 (citing DFARS 252.227-7013 (a) (16)). When third parties, including other contractors, receive items to which the government has unlimited rights, they often argue that they are not responsible for the misappropriation of trade secrets in terms of their use and disclosure. The parties argue that the entrepreneur who developed the product, having transmitted it to the government with unlimited rights, cannot demonstrate that he sufficiently protected the product against disclosure and use.
A key counterpoint to this “what and if I have it or if I have taken it” defense may depend practically in jury trials, among other things, on how exactly the defendants obtained the alleged trade secret. Did the defendant receive it from the government agency which had “unlimited [license] rights “to the data, or did it actually obtain it from non-governmental channels as in the classic case of the outgoing employee who brought the software, data or other material to the defending competing contractor?3
However, the question posed in Boeing was whether the subcontractor could also have and apply a unique proprietary mark on its product that claimed Boeing’s rights to the data with respect to other non-governmental third parties in order to protect its data from use and subsequent disclosure by such third parties. The Federal Circuit found that Boeing indeed could, where Boeing initially marked a “Non-US Government Notice” on its deliverable stating, “Disclosure by a third party owner of Boeing requires written approval. ” Username. at 1325. In overturning the lower court’s decision, the Federal Circuit found that the marking requirements under DFARS subsection 252.227-7013 (f) only apply to government – not to other parties: “Subsection 7013 (f)” permits the use of certain restrictive markings’ with the aim of restricting the rights of the government. Therefore, we conclude that the plain language of paragraph 7013 (f) demonstrates that it only applies in situations where a contractor seeks to assert restrictions on government rights. ” Username. to 1329 (emphasis in original).
This move should be seen as a victory for trade secret protection in the often complicated and contentious world of government regulations on licensing rights in the transactions and delivery of valuable intellectual property to government. The ruling makes it clear that entrepreneurs can properly enforce restrictions on third-party use, which may allow them to protect their products from unauthorized use and disclosure by competitors and other non-governmental parties. Depending on the circumstances of an entrepreneur’s particular situation, this additional measure provides a potential additional means of protecting the entrepreneur’s trade secrets. Boeing further suggests that contractors may be able to protect and enforce their rights even against competing contractors who may have received government products as part of the performance of subsequent government contracts.
1 See, for example, FAR 52.227-14 and DFARS 252.227-13 and 252.227-14; see also Boeing Company c. Secretary of the Air Force, 983 F.3d 1321 (Fed. Cir. 2020) (citing DFARS 227.7103-5 (a) – (d)).
2 See DFARS 252.227-7013 (b) (“[a]All rights not granted to the Government are retained by the Contractor. “)
3 In these “unlimited rights” scenarios as presented in Boeing, the Contractor could not – at least with respect to “its restrictions on government rights” – include a copyright mark on its deliverable under DFARS 252.227-7013 (f).