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Technical data licensing.

In April 1992, the regional contracting department of the Naval Supply Center (NSC) in Norfolk, Virginia, published an intent to negotiate a fixed-price contract for the design, development, and manufacture of a quantity of data terminals and associated technical data (TD).

The solicitation contained (1) the right of NSC to order TD for a period of three years after the acceptance of all items; (2) the parties' "rights" in TD, which gave NSC "unrestricted rights," unless a specific, defined, and prescribed "legend" was marked on the software; and (3) the right of NSC to remove, cancel, and ignore markings not authorized by the terms of the ensuing contract. NSC was not required to pay charges for data on which it had unrestricted, unlimited rights.

TD was sold to NSC with unlimited rights, unless the TD was identified in a list made a part of the contract, so NSC could review it for a variety of features and the nature and timing of particular Supply Center rights.

The Contract Details

In July 1992, General Atronics Corporation (GAC) submitted the sole offer in response to the solicitation. Its proposal, in several volumes, included language such as "deviations and enhancements," summarized under the heading "Wireline/Digital Interface (Additional Unspecified Feature)" with several appended applications. These words were typical throughout the proposal: "It has been standard in all GAC [data terminals] for 12 years."

In October 1992, pricing of the enhancements was discussed and memorialized in great detail. The software packages associated with the "wireline" interface hardware, however, were not even mentioned among the optional items NSC purchased.

A contract was awarded in November 1992 at a price of over $1.1 million. After award, the parties disputed whether GAC was required to provide software packages along with the wireline hardware. GAC supplied the software under protest and later claimed compensation in the amount of $203,684. The Armed Services Board of Contract Appeals (ASBCA) ruled that NSC had not purchased the software as part of the contract; the software had been offered as an option by GAC. The appeal was sustained.

The contract terms, consisting of the clauses set forth in the solicitation, gave NSC unlimited rights in the wireline software, unless GAC marked the software with the "restricted rights legend" specified in the Department of Defense Federal Acquisition Regulation Supplement (DFARS). The applicable restrictions of NSC "rights" had to be in a licensing agreement that was part of the contract, before the software delivery.

GAC's proposal contained a detailed "restricted rights" paragraph applicable to all the software. The proposal exempted from "freedom of information" GAC's costs, financial and technical data, and limited the use of the TD to the restrictions on the title page of the proposal. The delivered software was not marked with any specific restricted rights legend. The display screen of the data terminals bore the "General Atronics Corporation, 1995" legend. These legends did not conform to the requirements of the DFARS, nor did they make reference to any proprietary rights of GAC.

At the time of software delivery, there was no license agreement in effect--GAC did not even propose to enter into such an agreement until October 1994, approximately 16 months after the first data terminals had been delivered to NSC. During performance, GAC issued a document to NSC, titled "Update Procedure," containing a restrictive rights legend generally conforming to DFARS. Neither the legend nor the text of the document made reference to wireline interface software. The memory devices of the interface software contained markings, which did not exhibit restricted rights legends.

After the decision on GAC's appeal that the wireline interface software was not part of the contract and had been offered as optional, the parties entered into settlement negotiations. In March 1995, NSC agreed to pay $230,477 in full settlement of the claim. Previously, in October 1994, GAC had requested an equitable price adjustment of $327,000 for software application license fees. Since the contracting officer did not submit a decision, GAC appealed the case and was assigned another docket number.

The decision granting the appeal on the optioned software is General Atronics Corporation, ASBCA 46784, 94-3 BCA 27,112. The decision on GAC's appeal from the failure of the CO to decide the license fees is General Atronics Corporation, ASBCA 49196, 02-1 BCA 31,798 (March 2002).

At the outset, the board noted that each of the parties relied on the same precedent case, in which the government and the prime contractor were repeatedly put on notice of the subcontractor's proprietary rights regarding a missile launching subsystem. Nonetheless, the subcontractor delivered 21 out of 103 technical drawings without restrictive legends. The board cited the regulations--almost identical with the ones at issue in the GAC case--and held that the failure to mark the drawings with restrictive legends had conferred unlimited rights on the government in the 21-drawing data.

GAC used the precedent to rely on the restrictions of rights in its proposal. It urged that NSC, on substantial and actual notice of GAC's proprietary rights, should be prevented from contending that it had unlimited rights in the wireline interface drawings. The board noted that the government in the precedent case was well aware of the subcontractor's claim to proprietary rights. It was the subcontractor's failure (and GAC's, too) in the precedent case to perfect that claim, by marking the software with the restrictive legend in the DFARS. The government now had unlimited rights. GAC also failed to incorporate restrictions into a licensing agreement before the software delivery.

GAC argued that the DFARS applied only to diskettes and not to memory devices. The board noted that GAC was mistaken because the language of the regulation is "computer software." This is defined as "machine-dependent programs," which include memory devices. Other markings placed by GAC, such as the display screen, the "update" document, or any other memory devices, are also not considered restrictive legends. They do not comply with the specificity of the DFARS. The appeal, therefore, was denied.

In Summary

The lesson of the case is the value of education and application. Only knowledge of the regulations--and their interpretations--will suffice. Just "winging it" doesn't work. The formal requisites of the regulations, complicated though they may be, are the sine qua non of the protection of contractor proprietary rights.

About the Author

ROBERT D. WITTE is a senior partner in the firm of Witte & Lestz, P.C., White Plains, New York. One of the original members of NCMA, he is an Honorary Life Member, Fellow, Charles J. Delaney Memorial Award winner for his articles, and a member of NCMA's South East Florida Chapter. NCMA's Blanche Witte Memorial Award was founded in memory of his mother. Send comments on this artide to
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Title Annotation:Case Commentary
Author:Witte, Robert D.
Publication:Contract Management
Geographic Code:1USA
Date:Dec 1, 2003
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