Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

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Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

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Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

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Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

James Tucker

<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

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Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

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Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

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The Court of Federal Claims recently affirmed its jurisdiction to settle disputes over protective markings in <a href="https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2019cv0883-25-0">Raytheon Co. v. United States</a>.<a name="_ednref1" href="#_edn1">[i]</a>  In that case, Raytheon asked the Court to review a contracting officer’s demand that Raytheon replace its common proprietary, not-subject-to-release-under-FOIA<a name="_ednref2" href="#_edn2">[ii]</a> marking with the “Government Purpose Rights” legend prescribed by the DFARS. <a name="_ednref3" href="#_edn3">[iii]</a> Among other claims, Raytheon argued the contracting officer’s final decision denied Raytheon certain procedural rights granted by 10 U.S.C. § 2321.<a name="_ednref4" href="#_edn4">[iv]</a> The Government sought to dismiss that claim, arguing that Raytheon’s procedural challenges were outside the Court’s jurisdiction under the Contract Disputes Act (“CDA”). Thankfully, the court rejected that argument and denied the motion to dismiss, giving some reassurance that the Government will still be held to challenges to the “healthy measure of due process” guaranteed for restrictive marking challenges and described in an earlier post.BackgroundThe dispute in Raytheon centered on the agency’s request that the contractor remove proprietary markings from a Vendor List submitted in 2016 as part of a contract to supply engineering services supporting the Patriot weapon system. The contract identified the Vendor List as a contract deliverable identifying all the sources Raytheon used to procure subcontracted items in support of the Patriot system “as a means for the Government to track parts selection, supplier qualifications, and identification of parts.” Raytheon’s markings stated the list was proprietary, privileged, submitted in confidence, exempt from disclosure under FOIA,<a name="_ednref5" href="#_edn5">[v]</a> and subject to the criminal protections of the Trade Secrets Act.<a name="_ednref6" href="#_edn6">[vi]</a> The Army challenged Raytheon’s use of these restrictive markings in September 2016, declaring the list contained technical data the government intended to use to fulfill other government contracts, and instructed Raytheon to remove the restrictions. Raytheon replied that it had “no obligation to diminish its competitive advantage” by removing the proprietary legends that protected its proprietary Vendor Lists from competitors.In March 2017, the Army again objected, warning that it would remove the legends at Raytheon’s expense, reject future submissions, and withhold 10% of the total contract price until Raytheon resubmitted the lists with proper markings. In June 2018, the contracting officer issued a final decision in response to Raytheon’s justification of November 2016, reasoning that the Vendor List qualified as technical data because it contained a list of parts and part numbers, which the Army used in conjunction with other technical drawings. The contracting officer therefore determined Raytheon’s markings failed to conform to DFARS Part 227 and needed to be replaced with GPR legends, and again repeated her earlier warning that failure to comply would result in future rejections and a 10% withholding.AnalysisRaytheon, seeking a declaratory judgment, filed a complaint with the Court of Federal Claims, challenging the final decision, alleging the Army violated procedural rights protected under 10 U.S.C. § 2321, and furthermore breached provisions of the contract, which incorporated the restrictive-marking validation procedures of DFARS 252.227-7037.<a name="_ednref7" href="#_edn7">[vii]</a>The Government moved to dismiss one count of Raytheon’s complaint for lack of jurisdiction under either the Tucker Act or the Contract Disputes Act (CDA). Specifically, the Government argued that the court lacked jurisdiction to consider Raytheon’s allegation that the Army violated its procedural rights under 10 U.S.C. § 2321. The court rejected all three parts of the government’s argument.First, the Government posited that the court lacked jurisdiction because the Tucker Act extends to statutory claims only where a plaintiff seeks monetary relief. <a name="_ednref8" href="#_edn8">[viii]</a> Because Raytheon did not seek money damages, but rather sought declaratory relief, the Government asserted that section 1491(a)(1) of the Tucker Act did not apply. The court found no merit in the argument because the Tucker Act, at section 1491(a)(2), and the CDA clearly grant the Court jurisdiction over such requests for declaratory relief. <a name="_ednref9" href="#_edn9">[ix]</a>Second, the court rejected the Government’s contention that jurisdiction over Count I did not exist under the CDA because Raytheon didn’t seek a determination on the Government’s rights to a GPR license. The court disagreed, finding the gravamen of Raytheon’s complaint was whether, in the absence of “the procedural protections mandated by the statute,” the agency could compel delivery of the Vendor Lists. To resolve the issue, the court looked to the Federal Circuit’s definition of a “claim,” which the CDA left undefined. Finding the higher court applied the term as defined in the Federal Acquisition Regulations (FAR), the court held that to be covered by the CDA, a claim “need not be based on the contract itself . . . as long as it relates to its performance under the contract.” Therefore, because Raytheon alleged a statutory right “to assert and justify its use of restrictive markings of its own choice” during contract performance, the contracting officer’s final decision directing Raytheon to affix GPR marks served to confer jurisdiction by resolving Raytheon’s “claim.”Third, the Government argued the court lacked the authority to include the language “invalid” or “null and void” in any judgment on the contracting officer’s final decision. The court decided to first test the merits of whether the contracting officer committed any procedural violations, and whether such violations prejudiced Raytheon, before addressing the proper scope of any declaratory relief it might provide.Finally the court summarily rejected the Government’s motion to dismiss for failure to state a claim. The Government contended Raytheon brought a private cause of action not supplied by § 2321. The court held that, rather than bringing a “freestanding private right of action to enforce . . . §2321,” Raytheon asserted a violation of § 2321 as the basis for its claim under the CDA.TakeawaysWhile appreciated for its affirmation that the Court of Federal Claims may issue declaratory relief where an agency runs astray from the procedural safeguards Congress has set out in statute, the Raytheon decision is most interesting for highlighting the procedural tension between defending one’s data rights and safeguarding other confidential information exempt from FOIA and protected by the Trade Secrets Act.The FAR and DFARS set out rules and procedures for marking technical data and computer software, as well as a clear disputes process for justifying those markings that winds its way to either the Court of Federal Claims or a board of contract appeals. But contractors often share very confidential information – for example, detailed cost or pricing data, personnel management information, or (as relevant here) vendor lists – that is not “technical data,” as defined in regulation and statute, but nevertheless is protected from disclosure by law. Contractors should always mark such data with a proprietary legend like the one used by Raytheon, and, typically, the Government will not object. More often, disputes over such markings arise through the regular FOIA process, where a competitor or some other third party requests release of the data, the Government acquiesces, and the contractor is forced to defend its proprietary markings in federal district court under the Administrative Procedure Act.In Raytheon, that mold was broken: the Government preemptively sought to remove Raytheon’s proprietary, FOIA-specific legends, so that it could share Raytheon’s information with others to fulfill other government contracts. Thus, because the Government’s final decision related to the markings themselves, and not the prospect of release under FOIA, the Court of Federal Claims, rather than a federal district court of general jurisdiction, appears to have been the appropriate forum for Raytheon’s appeal.This result is noteworthy – and good for Raytheon and other similarly situated contractors – because, by adhering to the data rights dispute procedures, it affords the contractor a year to decide whether to bring its appeal, with the Government all the while bound to the original restrictive marking. Were this a FOIA case in federal district court, Raytheon would have had significantly less time (often two weeks or even less) to decide whether safeguarding its confidential information warranted litigation.<a name="_edn1" href="#_ednref1">[i]</a> Raytheon Co. v. United States, 19-883C (Fed. Cl. Jan. 14, 2020).<a name="_edn2" href="#_ednref2">[ii]</a> In long form, the Freedom of Information Act, 5 U.S.C. § 552.<a name="_edn3" href="#_ednref3">[iii]</a> “Government purpose rights” are defined in DFARS 252.227-7013 as the right to both “use, modify, reproduce, release, perform, display, or disclose technical data within the Government without restriction,” and to “release or disclose technical data outside the Government and authorize persons to whom release or disclosure has been made to use, modify, reproduce, release, perform, display, or disclose that data for United States government purposes.” As anyone working for the Government will tell you, the United States government has many purposes – so the difference between “government purpose rights” and “unlimited rights,” for most intents and purposes, is minimal. In particular, it is the second provision, allowing disclosure to those outside the Government, which most vexes those seeking to protect their trade secrets, as it allows the Government to share otherwise trade secret information with one’s competitors – even in a publicly released solicitation – for purposes of increasing competition.<a name="_edn4" href="#_ednref4">[iv]</a> Specifically, 10 U.S.C. § 2321­ provides that the Secretary of Defense shall ensure a “thorough review” of any restriction asserted to technical data in “any contract for supplies or services” with the Department of Defense providing for the delivery of technical data. In challenging a restriction, § 2321(d)(3)(B) requires the government to provide written notice to the contractor, requiring “a response . . . justifying the current validity of the asserted restriction.”<a name="_edn5" href="#_ednref5">[v]</a> 5 U.S.C. § 552(b)(4) states that “trade secrets and commercial or financial information obtained from a person and privileged or confidential” are exempt from disclosure to the public.<a name="_edn6" href="#_ednref6">[vi]</a> 18 U.S.C. § 1905 makes it a federal crime for a federal employee to publish, divulge, disclose, or make known information related to trade secrets obtained in the course of his or her employment.<a name="_edn7" href="#_ednref7">[vii]</a> DFARS 252.227-7037 is a contract clause, mandated by regulation, and implements 10 U.S.C. § 2321 and establishes the contractual rights and duties of the parties in the context of a dispute over technical data restrictive markings. Among other things, the clause mandates that the government “require a response . . . justifying and providing sufficient evidence as to the current validity of the asserted restriction” before issuing any final decision finding a restrictive marking to be improper. DFARS 252.227-7037(e)(ii).<a name="_edn8" href="#_ednref8">[viii]</a> 28 U.S.C. § 1491 (a)(1) provides that, “The United States Court of Federal Claims shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department.”<a name="_edn9" href="#_ednref9">[ix]</a> Jurisdiction over claims arising under the CDA (41 U.S.C. §§7101–09) is granted to the U.S. Court of Federal Claims under 28 U.S.C. § 1491(a)(2), including claims over “nonmonetary disputes on which a decision of the contracting officer has been issued.”*Markus Speidel is a Law Clerk in our Washington, D.C. office and not admitted to the bar.

Jim Tucker is of counsel in Morrison & Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.
Jim’s practice runs the gamut of litiga

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Locke Bell is a partner in the firm’s Government Contracts & Public Procurement practice.

Locke Bell

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Court of Federal Claims Marks Its Territory, Confirms CDA Jurisdiction Over Proprietary Legends

New DCMA Defective Pricing Pilot Team Will Possess Audit Resolution Authority

The Court of Federal Claims recently affirmed its jurisdiction to settle disputes over protective markings in Raytheon Co. v. United States.[i]  In that case, R

Court of Federal Claims Marks Its Territory, Confirms CDA Jurisdiction Over Proprietary Legends

Mark your calendars for MoFo’s third annual MoForward program, which will be held once again at the Ritz Carlton Tysons Corner, on November 5.MoFo partner Jay DeVecchio and associate Locke Bell will cover IP rights, specifically as they pertain to “other transactions” (OTs). The use of OTs are becoming more popular, especially within the Department of Defense (DOD). This allows DOD and its contractors to avoid many of the most burdensome aspects of the procurement regulations. But it also allows for even more confusion than usual about how to handle intellectual property rights, particularly rights in technical data and computer software, because there are no “standard” IP clauses for OTs.Jay and Locke will address the most commonly raised IP issues in OTs and offer clear, practical advice for contractors.See below for Jay and Locke’s recent publications on IP rights:<ul><li>DOD’S Other Transactions: Data Rights & Intellectual Property Simplified (Thomson Reuters Briefing Papers, July 2019)</li><li>Sikorsky: What the GAO Said and Did Not Say About Soliciting Data Rights (Government Contracts Insights, 5/30/2019</li><li>GAO Continues to Expand the Scope of “Prototypes” DoD May Buy Through OTs (Government Contracts Insights, 3/4/2019)</li><li>Data Rights Assault: What in the H (clause) Is Going On Here? Air Force Overreaching on OMIT Data (The Government Contractor, 1/17/2018)</li></ul>

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MoForward 2020 Sneak Peek: Taking the Mystery Out of IP in Other Transactions

FedPubs Intellectual Property Series (June 16-30)

Mark your calendars for MoFo’s third annual MoForward program, which will be held once again at the Ritz Carlton Tysons Corner, on November 5. For more details 

MoForward 2020 Sneak Peek: Taking the Mystery Out of IP in Other Transactions

How To Handle Intellectual Property Rights In OTs:  The Department of Defense is actively pursuing “Other Transactions” (OTs) instead of procurement contracts. This allows DOD and its contractors to avoid many of the most burdensome aspects of the procurement regulations.  But it also allows for even more confusion than usual about how to handle intellectual property rights, particularly rights in technical data and computer software, because there are no “standard” IP clauses for OTs.Jay DeVecchio has written a Briefing Paper, published by Thomson Reuters, that sorts out these issues and offers clear, practical advice.  With Thomson Reuters’ permission we have attached Jay’s paper, which we hope will assist you in your OT negotiations.Read Jay’s article <a rel="noopener noreferrer" target="_blank" href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/bltefaca2a1a876415e/627317ca0d4d8e1d7f10f312/190701-dod-data-rights-ip-simplified.pdf">here</a>.

DOD’s Other Transactions: Data Rights & Intellectual Property Simplified

How To Handle Intellectual Property Rights In OTs:  The Department of Defense is actively pursuing “Other Transactions” (OTs) instead of procurement contracts. 

DOD’s Other Transactions: Data Rights & Intellectual Property Simplified

You can rejoice in a recent Supreme Court decision if you have ever spent hours trying to convince a government agency not to release your company’s confidential information to the public in response to a Freedom of Information request. In a reversal of long-standing precedent in federal district and circuit courts, the Supreme Court ruled Monday that those submitting confidential information to the government need not demonstrate a “substantial competitive harm” to protect that information from disclosure under the Freedom of Information Act (FOIA). Instead, the Court held in <a href="https://www.supremecourt.gov/opinions/18pdf/18-481_5426.pdf" target="_blank" rel="noopener noreferrer">Food Marketing Institute v. Argus Leader Media</a> that those seeking to prevent disclosure of confidential commercial or financial information under FOIA Exemption 4 need simply demonstrate that (1) the information is “customarily kept private” or “closely held”; and (2) the government, in receiving the information, provided “some assurance that it will remain secret.”  The extent to which this new rule will limit the nature and type of federal contractor information released under FOIA is unclear. But the Court’s decision, at the very least, assures contractors that they will no longer be forced to prove (to an agency or to a court) that they will be substantially harmed by the release of information they provide to a federal agency, so long as that information has been provided with the expectation that it remain confidential.At the center of Food Marketing Institute is “Exemption 4” to FOIA’s mandatory disclosure requirement, which states that FOIA does not apply to “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”  5 U.S.C. § 552(b)(4). Congress provided no guidance in the FOIA statutes as to what would make commercial or financial information “confidential,” but for 45 years, federal courts all but unanimously applied the D.C. Circuit’s National Parks test, requiring a party to demonstrate that disclosure of such information would either “impair the Government’s ability to obtain necessary information in the future” or “cause substantial harm to the [submitter’s] competitive position.”  See National Parks & Conservation Assn. v. Morton, 498 F.2d 765, 770 (D.C. Cir. 1974).In an opinion authored by Justice Gorsuch and joined by Chief Justice Roberts and Justices Thomas, Alito, Kagan, and Kavanaugh, the Supreme Court rejected that test as “a relic from a ‘bygone era of statutory construction,’”<a href="#_ftn1" name="_ftnref1">[1]</a> one that inappropriately elevated legislative history above statutory text. The Court, turning instead to an assortment of English‑language and legal dictionaries contemporary to FOIA’s enactment, found no mention of “substantial competitive harm” in their definitions of “confidential.”  Instead, the Court gleaned “two conditions” that “might be required” to make information confidential. Based on definitions such as “known only to a limited few,” “not publicly disseminated,” and “intended to be held in confidence or kept secret,” the Court found that information could be considered confidential if it “is customarily kept private, or at least closely held, by the person imparting it.”  Based on definitions such as “spoken or written in confidence” and “told in confidence,” the Court found that information also could be confidential if “the party receiving it provides some assurance that it will remain secret.”The Court questioned whether both conditions must be met. The first “has to be,” it figured, as “it is hard to see how information could be deemed confidential if its owner shares it freely.”  But the Court left open whether “privately held information [can] lose its confidential character for purposes of Exemption 4 if it’s communicated to the government without assurances that the government will keep it private,”<a href="#_ftn2" name="_ftnref2">[2]</a> finding the information at issue clearly satisfied both conditions.So, for now at least, a contractor seeking to prevent the release under FOIA of information it has submitted to the government must show that information was submitted under some assurance that the government would keep it secret. But what kind of assurance satisfies?  In Food Marketing Institute, the Court cited the government’s promises of privacy in the Federal Register when promulgating regulations requiring submission of the data at issue. If text supporting a regulation counts, then one would strongly suspect the government’s assurances in FAR 15.506(e)(3) — that it will not disclose in a debriefing any confidential manufacturing processes or techniques, cost breakdowns, profit, indirect cost rates, or similar information submitted with a proposal — should also suffice. By corollary, the promise to disclose information such as overall cost or price, including unit prices, in FAR 15.506(d) means such information would not be protected under Food Marketing Institute.In all events, it is as important now as ever that contractors mark their proposals with the legend supplied in FAR 52.215-1:<blockquote>This proposal includes data that shall not be disclosed outside the Government and shall not be duplicated, used, or disclosed — in whole or in part — for any purpose other than to evaluate this proposal. If, however, a contract is awarded to this offeror as a result of — or in connection with — the submission of this data, the Government shall have the right to duplicate, use, or disclose the data to the extent provided in the resulting contract. This restriction does not limit the Government’s right to use information contained in this data if it is obtained from another source without restriction. The data subject to this restriction are contained in sheets [insert numbers or other identification of sheets]</blockquote>or such other legend or marking as prescribed in the RFP. Use of this legend will help ensure that the proposal — and any portions of it not incorporated into the final contract — will remain confidential. Furthermore, during contract performance, it is essential to mark all technical data and computer software in accordance with the applicable data-rights clauses.<a href="#_ftn3" name="_ftnref3">[3]</a>  And, where appropriate, mark other documents with a FOIA legend such as the following:<blockquote>This document contains trade secrets and commercial or financial information which are proprietary and confidential and exempt from disclosure under the Freedom of Information Act, 5 U.S.C. § 552(b)(4). Furthermore, this information is prohibited from disclosure under the Trade Secrets Act, 18 U.S.C. § 1905. <a style="font-size: 1rem;" href="#_ftn4" name="_ftnref4">[4]</a></blockquote>These practices should not be new to government contractors, but if your company has not been using them routinely, we recommend that you implement them immediately. Although the scope of information protectable under FOIA Exemption 4 may have grown, the sensitive information that keeps contractors up at night — cost breakdowns, indirect rates, confidential technical information, and trade secrets — have long been exempt from disclosure, if marked appropriately. The difference now is that, under Food Marketing Institute, contractors will be spared the time, cost, and aggravation of having to prove, at the behest of an aggressive FOIA-requester or insistent government official, that disclosure could cause them substantial harm when, in many cases, the FAR itself already recognizes as much. This is welcome, and warranted, relief.<a href="#_ftn1">[1]</a> This quotes the United States in its amicus brief, in which the Administration’s position was a marked departure from those before it and undoubtedly in contrast with the government’s position in many ongoing FOIA disputes.<a href="#_ftn2">[2]</a> Emphasis in original.<a href="#_ftn3">[3]</a> See, e.g., FAR 52.227-14(g)(3)-(4) (Alternates II and III), DFARS 252.227-7013(f), and DFARS 252.227-7014(f).<a href="#_ftn4">[4]</a> This additional sentence recognizes a nuance that is beyond the scope of this post, but one that might be affected by the Food Marketing Institute holding — that is, FOIA does not itself prohibit the government from disclosing information that falls within an exemption; the Act’s exemptions merely enumerate categories of information the government is not required to disclose pursuant to a FOIA request. Courts have long held that FOIA Exemption 4 is coextensive with (or at least wholly within) the scope of the Trade Secrets Act, 18 U.S.C. § 1905, which prohibits government officials from disclosing “information concern[ing] or relat[ing] to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association,” and can serve as a basis for injunctive relief under the Administrative Procedure Act if an agency has decided to disclose information falling into FOIA Exemption 4. See Chrysler Corp. v. Brown, 441 U.S. 281 (1979); CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1151-52 (D.C. Cir. 1987); McDonnell Douglas Corp. v. Dep’t of the Air Force, 375 F.3d 1182, 1186 (D.C. Cir. 2004). With the scope of FOIA Exemption 4 now greatly enlarged under Food Marketing Institute, however, it’s possible courts could find situations in which information would be exempt from disclosure under FOIA but not necessarily protected from disclosure under the Trade Secrets Act.

Tina is a partner in Morrison & Foerster’s Government Contracts practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmace

Tina Reynolds

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Supreme Court Removes “Substantial Competitive Harm” Requirement for Contractors Seeking to Protect Confidential Information from Release Under FOIA

Supreme Court Removes “Substantial Competitive Harm” Requirement for Contractors Seeking to Protect Confidential Information from Release Under FOIA

You can rejoice in a recent Supreme Court decision if you have ever spent hours trying to convince a government agency not to release your company’s confidentia

The GAO’s decision last week, denying in part and dismissing in part Sikorsky Aircraft Corporation’s much-watched protest of the Air Force’s solicitation to replace the UH-1N helicopter, deals an early (if light) blow to contractors in their fight against the Air Force’s recent data rights grab.<a href="#_ftn1" name="_ftnref1">[1]</a>  Followers of this blog and readers of the Government Contractor will recall we raised concerns in January about overbroad data rights provisions in recent Air Force solicitations.<a href="#_ftn2" name="_ftnref2">[2]</a>  The GAO, in <a href="https://www.gao.gov/assets/700/692043.pdf">Sikorsky Aircraft Corp., B-416027; B-416027.2, May 22, 2018</a>, ultimately endorsed one such provision requiring broad delivery of both technical data and software necessary for operations, maintenance, installation, and training activities (defined in the solicitation as “OMIT Data”), but Sikorsky’s protest did not go down without first getting an important concession from the Air Force.  This concession, and the GAO’s discussion of whether OMIT Data includes source code, are the key takeaways from Sikorsky, and we will discuss them in some length here.  Before we do, some stage-setting is appropriate, in particular because the clauses at issue are confusing.For more than 20 years, contractors and government personnel have used “OMIT data” as a familiar shorthand for the data called out in DFARS 252.227-7013(b)(1)(v) as “Necessary for installation, operation, maintenance, or training purposes (other than detailed manufacturing or process data),” and, importantly, in which the Government is entitled to unlimited rights. In this parlance, OMIT data by definition include neither “detailed manufacturing or process data” (DMPD) nor computer software.  Unsurprisingly, the Air Force caused some consternation recently when it bucked this convention and began including in its solicitations for major weapons systems a provision defining “OMIT Data” to include all types of computer software and, in some cases, DMPD.  (We distinguish this OMIT Data, specially defined by the Air Force, and the colloquial OMIT data.)  Sikorsky was the first to file a formal challenge.As reflected in the GAO’s decision, the Air Force gets away with its definition by relying on a distinction between the Government’s right to order delivery of technical data and software – which is not covered by the data rights clauses, but rather is determined by the unique and independent delivery requirements of each solicitation or contract, unbound by regulation – and the Government’s right to use technical data and software, which is addressed at length in the DFARS data rights clauses.  In other words, the data rights clauses articulate license rights of use, but not delivery requirements.  Delivery requirements are covered elsewhere in contracts.  Thus, if the Air Force defines OMIT Data broadly but requires only its delivery, there is no formal conflict with the data rights regulations; a conflict would occur if the Air Force demanded unlimited rights in DMPD or in computer software, as distinguished from demanding their delivery subject to the correct rights provided in the data rights clauses.  Such a demand would violate DFARS 227.7103-1(c) and 10 U.S.C. § 2320(a)(2)(H).<a href="#_ftn3" name="_ftnref3">[3]</a>  That said, one hardly can blame a seasoned contractor for assuming that an H clause requiring delivery of DMPD or software as OMIT data also correspondingly requires unlimited rights in them, particularly given the fact that “OMIT data” is synonymous with a subset of Unlimited Rights Data.Indeed, the Air Force’s clauses as originally drafted did not address only the scope of delivery, but also required broad rights in OMIT Data – bringing us to the Air Force’s key concession.  Before Sikorsky filed its protest, the OMIT Data clause in the UH-1N replacement contract (and similar clauses in other Air Force procurements) were at best ambiguous (and questionably legal) regarding whether they required offerors to relinquish government purpose rights or even unlimited rights in OMIT Data that were DMPD or noncommercial computer software developed at private expense – two categories in which contractors by regulation may assert limited or restricted rights.  But after Sikorsky correctly challenged this aspect of the solicitation, the Air Force sent a letter to all offerors clarifying that its provision did not require contractors to give up more than limited or restricted rights in these specific types of OMIT Data, leaving Sikorsky’s protest on this ground academic.Nonetheless, this concession is, as a practical matter, a significant victory for contractors. One should fairly assume the Air Force will not in the future be promulgating these H clauses in a way that suggests relinquishing limited or restricted rights if they are properly asserted.With this key portion of Sikorsky’s protest knocked out, the GAO marched through the remaining grounds, dismissing one as an untimely challenge to the terms of the solicitation and dismissing another two as premature challenges to the agency’s evaluation, leaving only two grounds surviving to a decision on their merits. One, examining whether the solicitation distinguished OMIT Data at the CDRL or data item level (the GAO found the latter), is of little interest outside the UH-1N replacement solicitation.  The other, however, warrants discussion.As noted above, industry long has used “OMIT data” to refer to a subset of Unlimited Rights Data that necessarily excludes DMPD. Sikorsky argued that it reasonably read this exclusion into the Air Force’s definition of OMIT Data, in particular given the solicitation’s qualification that OMIT Data “includes technical data and software used in the installation and deinstallation, and disassembly and reassembly, at the lowest practicable segregable level that does not require detailed manufacturing or process data.”  Sikorsky also argued this exclusion extended by analogy to source code.  The GAO disagreed with Sikorsky on both.The GAO first pointed to the distinction between the delivery requirements and use rights and reasoned that, because the regulations address only use rights (e.g., unlimited rights),  excluding DMPD from the grant of unlimited rights in DFARS 252.227-7013(b)(1)(v) does not affect the Government’s right to order delivery of DMPD.  Thus, when the Air Force defines OMIT Data as a category for delivery, it is not required by the data rights clauses to exclude DMPD.  And even though the Air Force in fact did exclude DMPD related to installation and deinstallation, and disassembly and reassembly, the GAO noted it did not also do so for other OMIT activities, e.g., other maintenance or training and operations.  Accordingly, the GAO found DMPD was not categorically excluded from delivery as OMIT Data.The GAO also found that source code was not excluded, through a rather straightforward syllogism, although one with unexpected consequences: the solicitation requires delivery of OMIT Data, which it defines to include “computer software.”  In turn, computer software is defined by regulation to include source code.  Ergo, the solicitation’s OMIT Data includes source code.  Once again, the GAO depends on the point that the delimitation of OMIT data in DFARS 252.227-7013(b)(1)(v) is irrelevant for the purposes of delivery.  And the GAO noted that even if it were not so, this DFARS provision would not apply to computer software, as it applies exclusively to noncommercial technical data.<a href="#_ftn4" name="_ftnref4">[4]</a> According to the GAO, just because the Air Force decided to lump computer software into its definition of OMIT Data, it did not “treat computer software as though it were technical data.”  Thus, even where the solicitation excluded delivery of DMPD for installation or assembly activities, that exclusion did not extend to source code because DMPD, as defined in regulation, is limited to technical data.A careful reader might point out that it seems at least somewhat disingenuous for the GAO to discard so quickly the language of DFARS 252.227-7013(b)(1)(v) as applicable only to use rights, but then to rely on the definition of DMPD in that same regulation to dismiss Sikorsky’s understanding that the solicitation did not require delivery of source code. One may criticize the GAO’s method as unfairly formalistic:  the result hinges on the solicitation’s expressly incorporating definitions from DFARS 252.227-7013, which defines “detailed manufacturing or process data” but not “OMIT data.”  To be sure, this formal interpretation is reasonable, but is Sikorsky’s interpretation not also reasonable, at least enough to expose an ambiguity in the solicitation as to whether delivery of source code is required?  According to the GAO, it is not.We expect to see a surge in bid protests involving data rights issues, as the Department of Defense (and other agencies), at the direction of Congress, seeks greater rights in data to effect Open Systems Architecture or Approach and pushes the fight over the scope of delivery of and rights in technical data and software to the left in the timeline of the procurement process. The GAO, therefore, likely will become an increasingly important voice interpreting data rights regulations and clauses, a role it has played in past decades but from which it has been relatively absent for some time. Sikorsky indicates the GAO’s willingness to step into this role with strong, if unforgiving, respect for the formalism of the long-standing DFARS provisions.<a href="#_ftnref1" name="_ftn1">[1]</a> The GAO’s decision also provides an interesting examination of the Office’s pre-award protest timeliness rules, which in cases like Sikorsky can put an offeror in the tricky situation of guessing whether the Agency, in the course of discussions, has espoused a disagreeable interpretation of the solicitation (in which case a protest clock starts ticking) or simply has presented its interim evaluation of the offeror’s proposal (in which case a protest is premature).  We will analyze this aspect of GAO’s decision in more depth in our forthcoming Bid Protest Roundup for May 2018.<a href="#_ftnref2" name="_ftn2">[2]</a> W. Jay DeVecchio, Data Rights Assault; What In The H (clause) Is Going On Here?  Air Force Overreaching On OMIT Data.  60 The Government Contractor 8 (January 17, 2018).<a href="#_ftnref3" name="_ftn3">[3]</a> These provisions preclude the government from requiring a prospective contractor to relinquish its limited or restricted rights as a condition of being responsive to a solicitation or for award of a contract.  It is worth noting here that the GAO, in a footnote in its decision, questioned whether, given the structure of 10 U.S.C. § 2320 as a direction to the Secretary of Defense to promulgate certain regulations, the statute’s provisions themselves create any additional rights for contractors or obligations on the Government beyond those in the promulgated regulations.  This question, although academically somewhat interesting, is not relevant to our discussion, as a demand for unlimited rights in DMPD or computer software most certainly would violate DFARS 227.7103-1(c).<a href="#_ftnref4" name="_ftn4">[4]</a> Rights in noncommercial computer software are covered in DFARS 252.227-7014.

Sikorsky: What the GAO Said and Did Not Say About Soliciting Data Rights

The GAO’s decision last week, denying in part and dismissing in part Sikorsky Aircraft Corporation’s much-watched protest of the Air Force’s solicitation to rep

Sikorsky:  What the GAO Said and Did Not Say About Soliciting Data Rights

Effective May 1, 2018, newly issued federal government contracts, grants, and cooperative agreements will be subject to revised regulations implementing the Bayh-Dole Act, the federal statute governing title and license rights for inventions developed with federal funding.  The new regulations were issued on April 13, 2018 by the Department of Commerce, National Institute of Standards and Technology (NIST) as a final rule amending 37 C.F.R. part 401.  See <a href="https://www.gpo.gov/fdsys/pkg/FR-2018-04-13/pdf/2018-07532.pdf">83 Fed. Reg. 15954 et seq</a>.  Included in the regulations are changes to the standard intellectual property-related contract clauses that must be included in most federal contracts, grants, and cooperative agreements.Of particular note, under the revised regulations the federal government now has essentially an unlimited amount of time to demand title to grantee and contractor “subject inventions” – those inventions conceived or first actually reduced to practice in the performance of work under a funding agreement – in instances where the contractor did not precisely follow the notice and election procedures.  This change reinforces the importance of meeting the deadlines imposed under Bayh-Dole for invention disclosure and election of title.  A graphic describing the applicable deadlines is available <a href="https://govcon.mofo.com/cybersecurity-and-data-privacy/the-bayh-dole-act/">here</a>.Below we summarize this change and other significant considerations under the new regulations.  While the new rules apply to all federal funding agreements (i.e., grants, contracts, cooperative agreements) executed after May 14, 2018, agencies may, in their discretion, amend current funding agreements to make the new rules applicable prospectively.1. Expanded Government Opportunities to Demand Title to InventionsHistorically, if a contractor<a href="#_ftn1" name="_ftnref1">[1]</a> failed to disclose a subject invention or to elect title to that invention within the timeframes specified under the Bayh-Dole regulations, the government had sixty days, upon discovery of the error, to object to the procedural error and seek title for itself.  In practice, this meant that even where a contractor had mistakenly failed to disclose an invention or to elect title it could rectify the mistake by filing a notice and/or election of title and then waiting sixty days for the government’s objection period to expire.  This now happens routinely when subsequent licensees of an invention discover that government funding was involved in the development of the product, but that Bayh-Dole procedures were not followed.The most significant revision to the implementing regulations eliminates the government’s limited sixty day objection period and instead makes the objection period indefinite.  37 C.F.R. § 401.14(d)(1).  This means that a contractor’s failure to timely notify the funding agency of a subject invention, or to elect title to that invention, could allow the government to request title at any point in the future.  This new scheme injects uncertainty into the process and will have significant ramifications for companies, universities, and other organizations that develop inventions with government funding assistance.  Contractors may find themselves without valid title to a product or process they have patented or facing legal action from subsequent licensees whose licenses could be of little to no value if the government elects title.Now that the risk profile has changed, recipients of federal funding must prioritize strict adherence to the invention disclosure rules from this point forward.  (This has historically been a challenge for researchers, particularly those in life sciences fields.)  Further, potential licensees of inventions must be very careful to ascertain whether federal funding was involved and, if so, to verify through due diligence that all required deadlines were met.  In the event of error or delay, funding recipients must now seek and receive explicit confirmation from the funding agency that it will not seek to obtain title in the future.  It remains to be seen whether federal agencies will be willing to provide such confirmation.2. Regulatory Confirmation of Bayh-Dole’s Application to Large BusinessesAs originally crafted, the Bayh-Dole Act applied only to small businesses and non-profit institutions, including research universities.  The Patent and Trademark Law Act of 1980, Pub. L. 96-517 (as amended), was codified in 35 U.S.C. §§ 200-212 (the “Bayh-Dole Act”).  Executive Order 12591, issued April 10, 1987, expanded the reach of the Bayh-Dole Act’s requirements and protections to large businesses, thereby bringing all recipients of federal grants, contracts, and cooperative agreements under the same set of rules with respect to the treatment of subject inventions.  Notwithstanding the Executive Order, however, the implementing regulations in 37 C.F.R. were never amended to include large businesses until now.  Revised 37 C.F.R. § 401.1(b) now states that the regulations apply “to all funding agreements with firms regardless of size.”3. Circumvention of Supreme Court’s Ruling in Stanford v. RocheIn its 2011 decision, the Supreme Court held that title in a patented invention vests first in the inventor, even where the Bayh-Dole Act applies.  NIST has attempted to temper the impact of this holding by mandating that contractors require their employees to sign agreements requiring prompt disclosure of subject inventions and assigning all rights in the inventions to the contractor.  37 C.F.R. § 401.14(f)(2).4. Continued Preference for U.S. Companies and Requirement for U.S. ManufactureSeveral commenters on the draft proposed rule had requested that the regulations be revised to permit foreign collaborators to receive standard Bayh-Dole rights.  NIST rejected this request as contrary to the statutory mandate.  83 Fed. Reg. 15,955.  Similarly, NIST maintained the requirement for substantial U.S. manufacture of subject inventions, and rejected the suggestions of commenters to permit automatic waivers in certain instances.  In doing so, NIST noted that the Bayh-Dole statute allows waivers from the requirement only “in individual cases.”  83 Fed. Reg. 15,956.5. No Deviation from Required Patent LanguageSome commenters had asked NIST to give contractors flexibility in terms of the language used to reference government support in patent applications.  83 Fed. Reg. 15,956.  NIST declined, reiterating that the “two clear, concise sentences”<a href="#_ftn2" name="_ftnref2">[2]</a> prescribed by 37 C.F.R. § 401.14(f)(4) must be used to “notify readers of the Federal government’s rights in a subject invention.”  Id.6. Recognition of Contractors’ Strategic Use of Provisional Patent FilingsNIST acknowledged several commenters who pointed out the increasing use by contractors of provisional patent applications.  83 Fed. Reg. 15,956.  In turn, NIST amended the provision permitting the government to obtain title when a patent application had been abandoned to now apply only to non-provisional patent applications.  37 C.F.R. § 401.14(d)(3).  NIST also altered the requirement for contractor notice of a decision not to continue patent prosecution to require notice only where a non-provisional patent application has been abandoned.  37 C.F.R. § 401.14(f)(3).  (This notice period also was extended from thirty days prior to the expiration of the response period to sixty days (although sixty days was a compromise from the original 120-day change proposed by NIST).)  83 Fed. Reg. 15,956.  Finally, where a contractor requests an extension of time for filing a non-provisional application after a provisional application has been filed, a one year extension will now be granted automatically upon request, unless the funding agency notifies the contractor otherwise within sixty days of the request.  37 C.F.R. § 401.14(c)(5).7. Affirmation of Small Business Licensing Preference Requirement for Nonprofit OrganizationsNonprofit organizations have historically been required to give preference to small businesses when licensing subject inventions for commercial exploitation.  37 C.F.R. § 401.14(k).  The new regulations provide an avenue for small business appeals to the funding agency if they believe a nonprofit organization is not following this small business preference requirement.  37 C.F.R. § 401.7(b).8. Revised Procedures in Situations Involving Government Employee Co-InventorsUnder the revised regulations, the government agency that employs a government employee co-inventor now has patenting priority over the funding agency in instances where the contractor has declined to elect title.  37 C.F.R. § 401.10(a).9. Recognition of iEdison ChallengesWhile NIST expressed its support for the online electronic database operated by the National Institutes of Health (NIH), it noted that it cannot compel agencies to use the database and implicitly acknowledged some challenges with the system in touting a new collaboration between NIH and NIST to develop enhanced iEdison training modules and to identify “opportunities for updates and improvements” to the iEdison messaging system.  83 Fed. Reg. 15,957.<a href="#_ftnref1" name="_ftn1">[1]</a> The term “contractor” in 37 C.F.R. part 401 encompasses grant recipients and cooperative agreement holders as well as those with procurement contracts and is therefore used throughout this article to pertain to all federal funding recipients.<a href="#_ftnref2" name="_ftn2">[2]</a> The required language is:  “This invention was made with government support under (identify the contract) awarded by (identify the Federal agency).  The government has certain rights in the invention.”

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Bayh-Dole Regulatory Update Offers Clarifications to Federal Grantees and Contractors But Also Raises Specter of Government Interference with Patent Rights

Foreign Investment 2020 (Part 5): Final CFIUS Rules Announced

Effective May 1, 2018, newly issued federal government contracts, grants, and cooperative agreements will be subject to revised regulations implementing the Bay

Bayh-Dole Regulatory Update Offers Clarifications to Federal Grantees and Contractors But Also Raises Specter of Government Interference with Patent Rights

Anyone who has endeavored to sell commercial software to the Federal government well knows there are devils hiding in the details of most commercial license agreements. The trick is knowing how to spot them – or, more precisely, agreeing which present legitimate conflict. To assist industry and contracting officials alike, the General Services Administration has penned a field guide for identifying common terms and conditions the Government cannot agree to as a matter of Federal law.For suppliers selling through GSA, this rule – effective as final on February 22, 2018, but a version of which has been in use since GSA issued a memorandum on point in July 2015 – cuts out the negotiation altogether, providing a GSA-specific addendum to FAR 52.212-4, at GSAR 552.212-4, that rewrites 12 commonly problematic clauses to be consistent with Federal law. These rewritten clauses will supersede any conflicting language in the supplier’s commercial license agreement. For companies selling directly to other agencies, GSA’s list serves as a handy reference when trading redlines with the contracting agency.Before diving into some provisions commonly of interest, we note many practitioners will be relieved by GSA’s decision to ditch that part of its proposed clause that would have placed the commercial license agreement behind all provisions of the FAR 52.212-4 clause in the order of precedence. Public comments pointed out this would result in terms such as a standard commercial warranty being superseded by the warranty provision in FAR 52.212-4 paragraph (o), although there is no conflicting Federal law demanding that the FAR warranty provision prevail. Persuaded, GSA moved the commercial license agreement up in the order, subject only to select provisions of FAR 52.212-4 implementing mandatory Federal law.Now, to some specific provisions of interest:No Automatic Renewals. With the move from desktop solutions to cloud computing, commercial software providers increasingly offer subscription rather than perpetual licenses. Often, a subscription will be set up to renew automatically at the end of a subscription term unless the user takes an affirmative action to terminate the license. But the Government’s unique duties to the taxpayer and the public fisc restrict its ability to obligate funds in future years; as it’s often put, the Government “can’t spend what it ain’t got.” Congress has implemented this tenet of appropriations law through the Anti-Deficiency Act, see 31 U.S.C. § 1341, which prohibits a government official from entering into a contract or obligation to pay money before an appropriation is made unless otherwise authorized by law. Because Congress at least is supposed to appropriate funds annually, the Act prevents an ordering activity from agreeing to an automatically renewing license. GSA’s provisions reflect this as follows: “If any license or service tied to periodic payment is provided under this agreement (e.g., annual software maintenance or annual lease term), such license or service shall not renew automatically upon expiration of its current term without prior express consent by an authorized Government representative.”Unauthorized Indemnification. Another set of provisions that commonly run afoul of the Anti-Deficiency Act are those requiring an end user to indemnify the licensor for certain liabilities that might occur well into the future. Courts (see, e.g., <a href="https://supreme.justia.com/cases/federal/us/516/417/case.pdf">Hercules v. United States, 516 U.S. 417, 427 (1996)</a>) and the Comptroller General (see, e.g., <a href="https://www.gao.gov/assets/450/447287.pdf">Assumption by Gov’t of Contractor Liability To Third Person–Reconsideration, B-201072, May 12, 1983, 83-1 CPD ¶ 501 (62 Comp. Gen. 361)</a>) long have recognized a strict prohibition on Federal agencies entering into open-ended indemnifications absent clear statutory authority to the contrary. GSA takes this concern seriously, addressing it in no uncertain terms in a clause titled Unauthorized Obligations, which states that with the exception of “indemnification or any other payment by the Government that is expressly authorized by statute and specifically authorized under applicable agency regulations and procedures,” any “language, provision, or clause requiring the Government to pay any future fees, penalties, interest, legal costs or to indemnify the Contractor or any person or entity for damages, costs, fees, or any other loss or liability that would create an Anti-Deficiency Act violation” will be “unenforceable against the Government” and “stricken from the commercial supplier agreement.” GSA adds that no such clause will be deemed to have been agreed to by virtue of appearing in a commercial supplier agreement or by being invoked through an “I agree” click box or other click-wrap or browse-wrap agreements.Often, the Government will reject any indemnification language it can find in a commercial license agreement, and may be particularly inflexible in its position. It is flatly incorrect that the Anti-Deficiency Act prohibits all indemnifications. The GSA provisions recognize this, and when dealing with other agencies that are not so enlightened, you should consider pointing them to these provisions.Continued Performance. Commercial licenses often allow a supplier to revoke the license upon a user’s failure to pay, a failure to cure a breach of the terms, or in any number of other scenarios. The Government will not countenance a contractor’s unilateral termination, and instead requires in nearly all instances that an aggrieved contractor continue performance while raising its claim through the Contracts Disputes Act, 41 U.S.C. §§ 7101 et seq. GSA captures this as follows: “The supplier or licensor shall not unilaterally revoke, terminate or suspend any rights granted to the Government except as allowed by this contract. If the supplier or licensor believes the ordering activity to be in breach of the agreement, it shall pursue its rights under the Contract Disputes Act or other applicable Federal statute while continuing performance as set forth” in the Disputes clause of the contract.Updating Terms. Many commercial suppliers maintain standard terms and conditions that are available online, often updated, and incorporated into commercial supplier agreements by reference. These referenced terms trouble the Government, as it wants to understand the terms it is agreeing to during contract formation, and it will not allow a contractor to make material modifications unilaterally. GSA initially proposed to require commercial suppliers to provide the full text of the applicable terms, but when industry pushed back, noting these terms may be voluminous and are subject to change at any time, GSA removed the requirement. As final, GSA’s provisions require that “For revisions that will materially change the terms of the contract, the revised commercial supplier agreement must be incorporated into the contract using a bilateral modification,” and they define a material change as “(1) Terms that change Government rights or obligations; (2) Terms that increase Government Prices; (3) Terms that decrease the overall level of service; or (4) Terms that limit any other Government right addressed elsewhere in this contract.”This is another place where Federal agencies often take a hardline stance that is unwarranted. Drawing the distinction GSA provides for material changes in your government‑facing license agreements may head off disagreements with other contracting agencies.Law and Disputes. Most companies carefully select the law governing their commercial licenses and name exact fora and venues in which the company or end user can be sued. Of course, the Federal government will not consent to, for example, being sued in the Superior Court of California, County of Santa Clara, under the laws of the State of California. But the Government may be subject to state law torts claims under the Federal Torts Claims Act, 28 U.S.C. §§ 2671 et seq. To address this, GSA specifies, “This agreement is governed by Federal law,” it deletes “Any language requiring dispute resolution in a specific forum or venue that is different from that prescribed by applicable Federal law,” and it deletes any language specifying state, territory, district, or foreign law “except where Federal law expressly provides for the application of such laws.”End User. Many commercial agreements are directed to the End User of the software, hence the common title End User License Agreement or EULA. But only very specific persons are authorized to make obligations and enter into agreements on the Government’s behalf, and many government end users do not have this authority. Accordingly, the GSA provisions specify, “This agreement shall bind the ordering activity as end user but shall not operate to bind a Government employee or person acting on behalf of the Government in his or her personal capacity.” It is important to remember that the entity you are contracting with is the ordering activity within the Agency, not the individual end user.

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Final GSA Rule on Commercial License Terms that Conflict with Federal Law

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Anyone who has endeavored to sell commercial software to the Federal government well knows there are devils hiding in the details of most commercial license agr

Final GSA Rule on Commercial License Terms that Conflict with Federal Law