Infotech and the law: No rights to limit disclosure of prototypes to competitors

Jonathan Cain

Just in case there's a question in anyone's mind that those convoluted, multipage intellectual property and data rights clauses in government contracts mean what they say, the U.S. Court of Federal Claim last month provided one contractor with a painful lesson that they do.

The case also brought into sharp focus that the limited rights data provisions in standard data rights clauses in government grants and contracts do not prevent the government from giving samples of the technology to third-party competitors for reverse engineering.

The case came about when the plaintiff, a company that had received and performed an Air Force Small Business Innovation Research grant to develop a prototype of improved night vision goggles, was denied a Phase III grant and subsequently lost to a team led by the plaintiff's former subcontractor, a competitive procurement to complete development of the improved goggles.

While performing the SBIR grant, the plaintiff was required to provide the government with progress reports, technical data concerning the goggles design improvements developed under the grant, and a prototype of the improved goggles.

As required to protect its rights under the data rights clause of the SBIR grant, the plaintiff marked the deliverable technical data packages with the required limited-rights legends.

However, no such markings were placed on the prototype goggles or packaging when it was delivered to the government.

During the procurement competition and after awarding the contract to the plaintiff's competitor, the government provided the plaintiff's prototype to its competitors for examination.

The disappointed plaintiff sued, alleging that the government had breached the SBIR contracts by disclosing proprietary technical data to competitors.

The court noted that a contractor may restrict only the government's use and disclosure of proprietary technical data by marking the data with the required legend. Failure to apply the proper legend cedes to the government the rights to unrestricted use and disclosure.

Although the data package describing the prototype goggles contained the legends, the prototype itself did not. Therefore, the court ruled, the government received it with unlimited rights.

The government was authorized to give it to the plaintiff's competitors and let them examine, disassemble and reverse-engineer the device.

There is no means by which a limitation on rights to data can be extended to protect data that is delivered unmarked.

The court went on to highlight an issue that is potentially more problematic. It said that it was likely that even if the plaintiff had attached a limited-rights notice to the prototype goggles, the government nevertheless would have received it with unlimited rights, because the prototype is not "data" that is subject to the clause.

The court said that the government was entitled to provide a copy of the goggles to the developer's competitor to reverse-engineer, even if it was prohibited from providing the competitor with technical data to accomplish the same end.

Because SBIR and other development contracts frequently include delivery of a prototype, companies that do such work should carefully note the requirements ? and limitations ? of the data rights clause in their grant or contract. They must scrupulously adhere to the notice and legend requirements in those clauses.

Where a sample or prototype is a deliverable, the only way to protect a proprietary interest in the technology is by patent or a separately negotiated clause in the contract that precludes the government from disclosing the technology or letting third parties reverse-engineer the prototype.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

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