12.22.2010 The Department of Defense Proposes New Rules for Commercial Software and Technical Data Acquisitions
On September 27, 2010, the Department of Defense (“DOD”) published a proposed rule that would significantly revise the Defense Federal Acquisition Regulation Supplement (“DFARS”) Part 227, “Patents, Data, and Copyrights.” Vol. 75 Fed. Reg. 59,412 (Sept. 27, 2010). The proposed rule includes many significant changes, but those that specifically relate to commercial technical data and commercial computer software entitle the DOD, in substantial part, to the following:

1. obtain unlimited rights in certain commercial technical data, including form, fit, and function data and data necessary for “operation, maintenance, installation, or training.” Proposed DFARS 252.227-7015(b)(2);

2. “access, use, modify, reproduce, release, perform, display, or disclose” commercial technical data, which includes computer software documentation, within the government if such an action is necessary for “emergency repair or overhaul” or to foreign governments for evaluation or informational purposes. Proposed DFARS 252.227-7015(b)(3);

3. require contractors to identify and mark all commercial technical data and commercial computer software provided to DOD with restrictions on use, release, disclosures, etc. Proposed DFARS 252.227-7015(d);

4. unilaterally determine if commercial technical data or commercial computer software are improperly marked and in “urgent and compelling circumstances access, use, modify, reproduce, release, perform, display or disclose computer software or technical data as necessary to address said urgent and compelling circumstances” Proposed DFARS 252.227-7037(f)(3)(ii); and

5. order certain commercial technical data or commercial computer software on a deferred basis for up to three years. Proposed DFARS 252.227-7027.

Clearly, these proposed changes are an expansion of DOD rights in commercial computer software and commercial technical data. Currently, the DOD is required to purchase commercial computer software and commercial technical data on the same terms that the software or data are licensed to the public. DFARS 227.7202-1(a). And while the Proposed DFARS purport to require that DOD purchase commercial data using the commercial license, they also prohibit any commercial license terms that are “inconsistent with Federal procurement law.” Proposed DFARS 252.227-7015(b)(1). In an attempt to eliminate any ambiguity in the prohibition on inconsistent terms, the proposed clause incorporates “severability” language, which explicitly strikes such terms from the license. Further, the clause envisions the parties negotiating “any issues raised by the elimination of license terms or conditions,” which, presumably, may occur during performance of the contract.

An additional striking change to the traditional practice of most commercial vendors is (listed above at no. 3) the requirement in Proposed DFARS 252.227-7015(d), which will require all commercial software and technical data to be marked, regardless of whether it is purchased pursuant to a commercial license. Not only must a prime contractor adjust its practices accordingly, such requirements must also flow down to any subcontractors providing commercial software and technical data. Proposed DFARS 252.227-7015(f).

Further, although the Proposed DFARS provide the DOD a unilateral right to determine whether a contractor’s marking is proper in urgent and compelling circumstances (listed above at no. 4), the Proposed DFARS continues to require that the DOD “shall not challenge such assertions unless information the Department provides demonstrates that the commercial item was not developed exclusively at private expense.” Proposed DFARS 252.227-7037(b). It is not yet clear how the DOD will approach the potential conflict between its right to unilaterally determine that commercial software or commercial technical data is improperly marked and its obligation to only challenge a marking when it has evidence to demonstrate that the commercial item was not developed entirely at private expense.

Moreover, the revisions include a Proposed DFARS Deferred Ordering clause (listed above at no. 5) whose applicability to commercial items does not appear entirely clear. Specifically, the government’s right to order commercial technical data or commercial computer software on a deferred basis for up to three years appears to be limited to “any technical data or computer software created or developed in the performance of this contract or any subcontract hereunder.” Proposed DFARS 252.227-7027(a). However, the clause goes on to state that the government’s rights in such data will be subject to the appropriate data rights clause, including DFARS 252.227–7015, Rights in Technical Data and Computer Software — Commercial. Proposed DFARS 252.227-7027(d)(3). Application of the deferred ordering clause to commercial software and commercial technical data delivered to the government from both a prime contractor and its subcontractors creates a novel requirement for commercial vendors that may be at odds with standard business practice. Further, this requirement has the potential to undercut a contractor’s ability to protect commercial data, developed at private expense. Currently, the best way for a contractor to protect its data is to keep that data a trade secret. That means not delivering the source code to the government.

In sum, the Proposed DFARS provide an expansion of the rights that DOD receives when it acquires commercial computer software by effectively subjecting commercial software to DOD’s current clause governing the acquisition of commercial “technical data.” Proposed DFARS 252.227-7015. Further, the government’s ability to explicitly strike terms “inconsistent with Federal procurement law” may result in a contraction of data protection for commercial vendors of software or technical data to DOD.

Ultimately, the real implications of these proposed changes to the DFARS can only be surmised until government agencies and contracting officers begin to incorporate and implement them in the performance of contracts. However, the potential risk associated with dwindling protection for commercial software and commercial technical data must be assessed as commercial contractors determine whether and how they intend to go about doing business with the Federal Government.

The time for submitting comments on the proposed rule has been extended and may be submitted to the DOD until December 27, 2010.

For more information about this topic, please contact Thomas Mason, , 703.730.5227 or Kelly Hollowell, . 757.473.5381.


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