Transcript Commercial Item Procurement Reforms

Intellectual Property Issues
William C. Anderson
Chief Intellectual Property Counsel
United Launch Alliance, LLC
 Commercial Item “Revolutionaries”
 “Boston Tea Party”
 President Reagan Defense Buildup during 1980’s
 Drive to have the best of everything drove up prices for
weapons systems
 Mid- to late-1980‘s well-publicized procurement
scandals
 $600 toilet seats
 $1,000 coffee pots and hammers
 Great pressure to “get out of the news”
 Initial DoD response was to seek reprocurement data
with reprocurement rights
 Secretary of Defense Weinberger deviation approvals
 Sansone Clause
 Orr Clause
 Government study showed that data rights not the
“root cause” to the problem of high cost spare parts
 Industry coalesced around business interests
 Large & small OEM business “revolt”
 Replicator contractors supported Government position
 Series of DoD data rights statutes
 Defense Procurement Reform Act of 1984, Pub. L. No.
98-525, 1201-1252, 98 Stat. 2588
 Defense Acquisition Improvement Act of 1986 (Pub. L.
No. 99-661, 953, 100 Stat. 3910, 3949 (1986))
 National Defense Authorization Act for Fiscal Year 1988,
Pub. L. No. 100-180, 807-808, 101 Stat. 1128, (1987)
 Data rights allocations codified in 10 U.S.C. 2320 (41
U.S.C. 418a)
 Validation statutes codified in 10 U.S.C. 2321 (41 U.S.C.
418b)
 Plethora of proposed DoD data rules
 50 Fed. Reg. 32,870 (1985) (proposed Aug. 15, 1985)
 52 Fed. Reg. 2082 (1987) (proposed Jan. 16, 1987/effective May 18, 1987
(see See 52 Fed. Reg. 12,390 (1987) ).
 53 Fed. Reg. 10,780 (1988) (proposed April 1, 1988)
 53 Fed. Reg. 51,557, 51,559 (1988) (rights in computer software to be
codified at DFARS 227.473-2) (proposed June 6, 1988).
 53 Fed. Reg. 43,698 (1988) (to be codified at 48 C.F.R. pts. 227, 252)
(proposed Oct. 28, 1988)
 Interim from October 1988 until June 1995
 55 Fed. Reg. 41,788 (1990) (Advance Notice of Proposed Rulemaking; a
joint effort of the DOD, the National Aeronautics and Space
Administration ("NASA"), and the General Services Administration
("GSA") to create a single, government-wide regulation for data rights
in computer software and technical data)
 1985 Reagan impaneled Blue Ribbon Commission on
Defense Management (the "Packard Commission")
 Commission highlighted the need for DoD to expand its
use of commercial products and processes and to
eliminate barriers that discouraged application of
innovative technology to DoD contracts
 Section 800 Committee (See National Defense
Authorization Act of 1990, Pub. L. No. 101-510, 800, 104
Stat. 1587 (1990))
 Recommended new exemptions to technical data
requirements in commercial item acquisitions
Pre-1995 Commercial Item Procurement Impediments to the
acquisition of commercial data
 Data acquisition issues
 Quantum/types of data required by Government generally
greater than that furnished to commercial customers
 Allocation of rights
 License “entitlements” greater than those granted commercial
customers
 Administrative Burdens
 Segregation of data to preserve rights
 Record keeping relating to previous license grants and private
expense developments
 Unique restrictive legends for data deliverables
Pre-1995 Commercial Item Procurement Impediments:
to acquiring commercial data (continued)
 Mandatory flowdown to subcontractors
 Re-opening pre-existing subcontracts to include unique
Government requirements
 Data rights challenges
 Potential loss of rights and competitive advantages for
failing to prove “exclusive private development” of the
commercial item
 Government usually not willing to negotiate
Impediment
Removed?
Pre- 1995 DFARS
Prime
Subcontractor
Data Acquisition
NO
NO
Allocation of
Rights
NO
NO
Administrative
Burdens
NO
NO
Flowdown to
Subcontractor
NO
NO
Interdivisional
Transfers
NO
NO
Data rights
challenges
NO
NO
Negotiation
NO
NO
 Contract regulation infractions which were previously
considered noncriminal were "criminalized" by
enactment of new federal contracting statutes.
 By the late 1980's, 440 statutes and regulations dealing
with federal procurement contractor fraud were
enacted by Congress and an outside study showed that
more than 300,000 different federal regulations had
been criminalized
“The number of inspections, oversight, and redundancy that are
required by regulation and specification in the production of
military equipment increase our overheads (sic) to the point that
we are simply unable to match or beat the prices of the commercial
environment. A case in point. A supplier called me last month and
said he didn't want any more of our business. He said he'd made
the decision to get out of defense because of the cost accounting
procedures and other requirements are simply adding too much to
his overheads (sic) and he was having difficulty competing
elsewhere.“ (emphasis added)
June 1992 testimony to the U.S. Senate Small Business Committee
by Mr. Stephen Rash of BMY-Combat Systems Division of Harsco
Corporation
 Section 807 Committee (See National Defense
Authorization Act for Fiscal Years 1992 and 1993, Pub. L.
No. 102-190, 807, 105 Stat. 1421 (1991))
 Battle between “OEM’s” and “Replicators”
 “Private Expense Test”
 Acquisition of reprocurement data
 Data repositories
 Committee met between July 1992 until December 1993
 Proposed rules published for comment in June 1994
 60 Fed. Reg. at 33,464 (1995) (effective June 30, 1995, but
only applied to solicitations issued on or after September
29, 1995)
 Section 807 Committee mostly focused on non-
commercial items and non-commercial computer software
 At first, the Committee did not fully recognize emerging
forces that would ultimately influence Federal
procurement reforms:
 Decreasing Federal Budgets
 Defense Industry consolidation
 Persian (First) Gulf War
 Motorola reluctance to sell satellite telephones to U.S. Government
 Commercial sale to Japanese Government
 Commercial technologies becoming of increasing great value
to the Government
 Federal Acquisition Streamlining Act of 1994 (Pub. L. No.
103-355, tit. VIII, § 8001(a), 108 Stat. 3243, 3384 (1994)
(adding 41 U.S.C. § 403(12))).
 Defined “Commercial Item” (Id. tit. VIII, § 8102, 108 Stat. at
3390)
 Strong preference for commercial item acquisition (Id. tit.
VIII, § 8104, 108 Stat. at 3390 (adding 10 U.S.C. § 2377))
 Defined “subcontract” to include a transfer of commercial
items between divisions, subsidiaries, or affiliates of a
contractor or subcontractor (Id. tit. VIII, § 8002, para. (b)(5),
108 Stat. at 3390)
 Mandated waiver of Federal statutes inapplicable to
commercial item subcontracts (Id. tit. VIII, § 8003, 108 Stat.
at 3390)
 While pending in Congress, the Federal Acquisition
Streamlining Act influenced data rules being drafted by
Section 807 Panel
 Special clause for commercial data: DFARS 252.227-7015,
Rights in Technical Data – Commercial Items (1995)
 Definition of “commercial computer software”
 No commercial computer software clause prescribed for
either prime contractor or subcontractor
 FASA caused delay in implementing Section 807
Committee data rules:
 Definition of commercial item
 FAR Part 12/DFARS Part 227 Regulatory text
 FAR Part 12/DFARS Part 212 statutory waivers for commercial
item subcontractors
The term `commercial item' means any of the following:
(A) Any item, other than real property, that is of a type customarily used by the general
public or by nongovernmental entities for purposes other than governmental purposes,
and that--`(i) has been sold, leased, or licensed to the general public; or (ii) has been
offered for sale, lease, or license to the general public.
(B) Any item that evolved from an item described in subparagraph (A) through advances in
technology or performance and that is not yet available in the commercial marketplace,
but will be available in the commercial marketplace in time to satisfy the delivery
requirements under a Federal Government solicitation.
(C) Any item that, but for--(i) modifications of a type customarily available in the
commercial marketplace, or (ii) minor modifications made to meet Federal
Government requirements, would satisfy the criteria in subparagraph (A) or (B).
(D) Any combination of items meeting the requirements of subparagraph (A), (B), (C), or
(E) that are of a type customarily combined and sold in combination to the general
public., etc.
See FAR 2.101
 Government policy to acquire only the technical data and the
rights in that data customarily provided to the public with a
commercial item or process (See FAR 12.211, Technical data)
 DFARS policy similar, but Government should also acquire
technical data that (i) are form, fit and function data, (ii)
required for repair or maintenance of commercial items or
processes, or for the proper installation, operating, or handling
of a commercial item, and (iii) describe the modifications made
at Government expense to a commercial item or process in order
to meet the requirements of a Government solicitation (See
DFARS 227.7102-1 )
 Commercial item presumed to be developed exclusively at private
expense (See P.L. No. 103-355 8106; 10 U.S.C. 2320(b)(1); 10 U.S.C.
2321(f) and DFARS 252.227-7037(b))
 Certain laws made inapplicable to commercial item
subcontracts (see DFARS 212.504)
 10 U.S.C. 2320, Rights in Technical Data
 10 U.S.C. 2321, Validation of Proprietary Data Restrictions
 Waivers drove changes to DFARS 227
 DFARS 252.227-7015, Right in Technical Data – Commercial
items made inapplicable to commercial item subcontractors
unless Government pays for development costs
 In such case use 252.227-7013, Rights in Technical Data--
Noncommercial Items
 See DFARS 227.7102-3, Contract clause, paragraphs (a)(1) and (b)
 DFARS 252.227-7037, Validation of Restrictive Markings on
Technical Data made inapplicable to commercial item
subcontractors (See DFARS 227.7102-3 (c))
Impediment
Removed?
1995 DFARS
Prime
Subcontractor
Data Acquisition
NO
NO
Allocation of
Rights
NO
YES
Administrative
Burdens
NO
YES
Flowdown to
Subcontractor
YES
YES
Interdivisional
Transfers
YES
YES
Data rights
challenges
MAYBE
YES
Negotiation
MAYBE
YES
 Commercial items and major weapons systems; see DFARS
SUBPART 234.70
 Secretary of Defense must make determination that the major
weapon system is a commercial item
 Congressional defense committees are notified
 Determination may not be delegated below the level of
Deputy Secretary of Defense
 Subsystem of a major weapon system (other than COTS)
treated as commercial item only if certain requirements
are met
 Components and spare parts (other than COTS) treated as
commercial item only if certain factors are satisfied
See 71 FR 58537, 10/4/2006, effective 10/4/2006; Final rule, 72 FR 51189,
9/6/2007, effective 9/6/2007; Interim rule, 74 FR 34263, 7/15/2006,
effective 7/15/2009
Presumption of exclusive private development of commercial item modified. See
section 802(b) of the National Defense Authorization Act (NDAA) for Fiscal Year
(FY) 2007 (Pub. L. 109–364); modified 10 U.S.C. 2321(f) with regard to the
presumption of development at private expense for major systems; and section
815(a)(2) of the NDAA for FY 2008 (Pub. L. 110–181) revised 10 U.S.C. 2321(f)(2) to
exempt commercially available off-the-shelf items from the requirements that
section 802(b) had established for major systems.
“(f) Presumption of Development Exclusively at Private Expense.— (1) Except as provided in
paragraph (2), in the case of a challenge to a use or release restriction that is asserted with respect to
technical data of a contractor or subcontractor under a contract for commercial items, the contracting
officer shall presume that the contractor or subcontractor has justified the restriction on the basis that
the item was developed exclusively at private expense, whether or not the contractor or subcontractor
submits a justification in response to the notice provided pursuant to subsection (d)(3). In such a case,
the challenge to the use or release restriction may be sustained only if information provided by the
Department of Defense demonstrates that the item was not developed exclusively at private expense.
(2) In the case of a challenge to a use or release restriction that is asserted with respect to technical data
of a contractor or subcontractor (other than technical data for a commercially available off-the-shelf item
as defined in section 35(c) of the Office of Federal Procurement Policy Act (41 U.S.C.431(c)) for a major
system or a subsystem or component thereof on the basis that the major system, subsystem or
component was developed exclusively at private expense, the challenge to the use or release restriction
shall be sustained unless information provided by the contractor or subcontractor demonstrates that the
item was developed exclusively at private expense.”(emphasis added)
 DFARS Case 2007-D003, Presumption of Development Exclusively at
Private Expense.
 Implements Section 802(b) of the National Defense Authorization Act
of Fiscal Year 2007 (Pub. L. 109-364) and section 815(a)(2) of the
National Defense Authorization Act for Fiscal Year 2008 (Pub.L. 110-181)
 Section 802(b) addresses the presumption for commercial items of
development exclusively at private expense, with new provisions
relating to technical data for a major system or a subsystem of
component thereof
 Section 815(a)(2) exempts COTS items from the requirements of
section 802(b)
 Eliminates statutes previously waived for commercial item
subcontractors
 Both ABA and Aerospace Industries Association objected to proposed rules
 Status: Report Due 10/13/2010 (2nd Ext.)
 DFARS Case 2010-D001, Proposed rewrite of DFARS Part
227, Patents Data, and Copyrights. Follow-on to the DFARS
Transformation case 2003-D049.
 See 75 Fed. Reg. 59,412 (2010) (proposed Sept. 27, 2010)
 Elimination of statutory waivers for commercial item
subcontractors
 10 U.S.C. 2320, Rights in Technical Data
 10 U.S.C. 2321, Validation of Proprietary Data Restrictions
 Based on novel rationale
 “Special relationship” between Government and
subcontractors
 Re-interpretation of applicability of DoD data rights statutes
 Regulatory text changes
 Revised DFARS 252-7015, Rights in Technical Data and
Computer Software – Commercial (Date)
 Made applicable to commercial item subcontractors and
lower tier subcontractors
 Revised DFARS 252.227-7013, Rights in Technical Data
and Computer Software – Non-Commercial,
 Made applicable to commercial item subcontractors and
lower tier subcontractors when Government pays for
development (current) or modifications (new)
 New “negotiated license rights” limitations
 No negotiation of rights in certain classes of technical
data even if the technical data pertains to item
developed exclusively at private expense. For example,
the Government must always obtain unlimited rights in:
 Form, fit and function data
 Technical data necessary for installation, operation,
maintenance, or training purposes (other than detailed
manufacturing or process data)
 See DFARS 227.7104-3 (b)(1)
 Commercial computer software clause mandated. See DFARS
252.227-7015
 Valuable forms of computer software treated as technical data
 If considered form, fit and function data, those elements would be
subject to unlimited rights
 Off The Shelf commercial items enjoys modicum of special
treatment; see DFARS 252.227-7015
 But, Contractor/Subcontractor at any tier probably will be obligated to
provide Government with unlimited rights in certain classes of
commercial data
 Form, fit and function data
 Technical data necessary for installation, maintenance, etc.
 Other technical data subject to “limited rights” which may be
inconsistent with commercial licenses
 Mandatory flow down to subcontractors and lower tier subcontractors
 Data rights challenges still possible
 Completely ignores Congressional desire to eliminate
impediments to acquisition of commercial items urged
in Federal Acquisition Streamlining Act and Federal
Acquisition Reform Act of 1996 (Pub. L. 104-106)
 If DFARS 252-227-7013 applies (likely if Government
pays for “modifications”)
 Commercial item subcontractors will have to
segregate data
 Data not segregated will be subject to Government
purpose rights which expands to unlimited rights
 Administrative burdens will increase
 Unique restrictive legends if DFARS 252.227-7013
applies
 Segregation required
 Record keeping and system for proving exclusive
private development
 Interdivisional transfers subject to proposed rules
 Government less likely to negotiate data rights licenses
 Commercial item procurement reforms will be
effectively overturned
Impediment
Removed?
Proposed DFARS
Prime
Subcontractor
Data Acquisition
NO
NO
Allocation of
Rights
NO
NO
Administrative
Burdens
NO
NO
Flowdown to
Subcontractor
NO
NO
Interdivisional
Transfers
NO
NO
Data rights
challenges
NO
NO
Negotiation
NO
NO