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Companies Raise Intellectual Property Protection Issues 

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By Alison Brown 

An industry survey on the subject of intellectual property highlighted major concerns from both prime and subcontractors about the Defense Department's ability to protect sensitive corporate data.

Many companies gave examples of cases where government employees improperly handled proprietary technical data, including the release of information to competitors.

Also, multiple complaints were raised about the broad use of the Federal Acquisition Regulation (FAR) 52.227-1 resulting in use of patented technology on government programs without the inventor receiving any compensation.

Lastly, a number of small businesses that participated in the Small Business Innovation Research (SBIR) program reported that intellectual property protected by SBIR data rights was misused.

A committee of the National Defense Industrial Association — which conducted the survey — predicted that the failure to protect intellectual property would result in shrinking interest and the reluctance of many innovative firms — and in particular small companies — to do business with the government. The conclusion was that ethical business dealings, while respecting the value of intellectual property, are essential to encourage innovative small businesses to participate in Defense Department acquisitions.

Some of the reports described instances of violations by government employees. This included cases of government employees giving equipment and documentation to competitors to “reverse engineer” proprietary products. Government-run laboratories initiated internal research projects to duplicate proprietary solutions and then published the intellectual property as government-owned. There were also cases of proprietary information being included in request for proposals or product specifications that were released as part of an open competition.  In one case, Spectrum Sciences provided the Air Force with intellectual property associated with a prototype munitions conveyor system under a cooperative research and development agreement. The Air Force subsequently shared Spectrum’s data during the procurement processes, which landed in the hands of one of Spectrum’s competitors. The rival company was eventually awarded the contract. Spectrum successfully challenged the Air Force in the Court of Federal Claims (Dec. 8, 2008, 53 CCF 79,044), which took the unusually rare step of awarding expectation damages for lost profits.

While the government makes it a crime for any federal employee to knowingly disclose the trade secrets of a private party (18 U.S.C. § 1905), the committee could find no reported cases where the government had initiated administrative action against a federal employee for IP violation. Although a private party can initiate action in the U.S. Court of Federal Claims for damages resulting from the government’s improper disclosure of a trade secret, this action is rarely taken by industry.

Another major issue raised was the lack of adequate patent protection when working with the government. Under U.S. statute (28 U.S.C. § 1498), the government has the right to authorize any contractor to use any invention covered by a U.S. patent. This authorization is granted to a contractor by the government through inclusion of FAR 52.227-1 in a contract. The subcommittee received reports of FAR 52.227-1 being included in Defense Department contracts as standard practice, giving blanket authority for contractors to use patents without incurring any liability for themselves. Under U.S. Code Title 28 section 1498, the patent owner’s remedy for any infringement has to be by action against the United States in the United States Court of Federal Claims, not against the infringing party. This procedure can be extremely lengthy and costly, prohibiting the ability of small businesses to recover fair and reasonable compensation for their property.

A third issue reported by multiple companies was the inability to receive adequate protection for intellectual property developed under the Small Business Innovation Research program.

The goal of the program is to provide funding for intellectual property development in order to increase the number and quality of small businesses competing for defense projects. The program grants unique data rights that allow use of the SBIR developed IP by the government royalty-free, but restricts it from disclosing the information outside of the government, and especially to competitors. Also, agencies must not use information from SBIR programs to produce future technical procurement specifications that could harm the SBIR company that discovered and developed the innovation.  

A survey distributed to NDIA members on their Phase III transition success revealed a number of concerns that this policy was not being implemented. In many cases the IP protection that should have been afforded the small business was either not understood or ignored by the program offices.

More information on the findings of the subcommittee can be found on the website www.ndia.org/ip. This site also includes training material with recommendations on how to deal with some of these issues.

Alison Brown serves as the vice chair for intellectual property on NDIA’s Small Business Division Executive Committee.

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