DEFENSE WATCH DEFENSE CONTRACTING
DoD Must Explain Why It Needs IP Rights
The battle over “rights in technical data” in defense contracts has been unfolding over many years and all parties are now stuck in a regulatory quagmire. The Pentagon has been blasted by tech executives for demanding unreasonable rights to IP that companies fear will get into their competitors’ hands. Defense officials argue that, in order to have competition in the market, they need to be able to build and modify weapons systems without being legally bound to a specific vendor.
Amid the back-and-forth over IP rights, executives and Pentagon officials have pleaded their cases on Capitol Hill, asking Congress to legislate a way out of the impasse. The result has been a succession of IP provisions almost in every one of the past five National Defense Authorization Acts. Some call on DoD to be respectful of private sector rights to data and compensate vendors appropriately, especially as it seeks innovative suppliers to help modernize outdated defense systems. Other provisions seek to protect the government from being fleeced by companies that demand to be paid for intellectual property every time a piece of software is updated.
Nobody knows where things go from here. For now, defense contractors continue to hire more IP attorneys, and the Pentagon continues to rewrite procurement regulations in an effort to keep up with the onslaught of NDAA dictums.
To bring some sanity to the IP debate, the 2016 NDAA directed the defense secretary to convene a group of government and industry experts — including traditional defense contractors and commercial firms — to “review existing laws regarding rights in technical data.”
The 16-member group, led by former Pentagon acquisition official Richard Ginman, has to examine current technical data rights law — U.S. Code Title 10, sections 2320 and 2321 — that serves as the legal basis for deciding whether the Pentagon is entitled to technical rights to products that it is buying for military use. One immediate problem with the current law is that it was written more than 20 years ago — when software was an afterthought in military systems. Many, if not most, defense IP disputes today stem from rights to software code.
The panel also has to examine the Pentagon’s own regulations for the acquisition of technical data and the rights to use, modify or disclose technical data.
“We owe it to Congress to be clear,” Ginman said at the opening meeting of the advisory panel June 7. “We need to articulate what we need technical rights for, and why.”
DoD managers often have a hard time explaining the reasons why they must have rights to a company’s data, Ginman said. They often ask for the rights to an entire system’s technical data even if only portions of it are really needed.
Defense procurement regulations require that programs have an “IP strategy,” although that has been difficult to implement, Ginman said. There is little guidance available, and the Pentagon is increasingly under pressure to work with nontraditional tech companies that generally refuse to do business with the Pentagon if IP issues in any way compromise their ability to sell to commercial buyers.
“We do need additional training,” said Army acquisition official Roger D. Hamerlinck, a member of the advisory panel. The Pentagon is working with the Defense Acquisition University and other agencies to expand access to training and provide guidance on IP strategy, but it is difficult, he said. “We have found you almost have to be a patent attorney to understand the issues.”
The majority of IP concerns now come from maintenance depots, where managers are finding that they cannot compete repair and upgrade contracts because the equipment’s original manufacturer will not authorize use of technical data. Part of the IP strategy that DoD wants would set a fair price for that IP so the Pentagon can acquire the rights upfront. A lot of the maintenance work these days is very software intensive. The pressure is on depots to determine what specific rights they need to get the maintenance work done.
In a sector that is dominated by single-source manufacturers, the Defense Department needs “rights in technical data” in order to compete the aftermarket work. When the Pentagon buys a weapon system, it retains unlimited rights to the data if the item was designed with government funds. When a product is financed by a private company, the firm keeps full control of the intellectual property and the government is simply a buyer.
As the Pentagon in recent decades has become more dependent on the private sector for high-tech equipment, it now realizes that many of the existing arrangements restrict the government from seeking competing bids for maintenance or production of that equipment unless the manufacturers grant data rights. For most suppliers, that equates to killing the goose that lays the golden eggs.
“Most of the issues in the field are about software,” defense procurement expert and industry consultant Jonathan Etherton told National Defense. When technical data rights laws were written in 1995, he said, software was not a big issue. In a rapidly changing market, DoD and the Hill have “chiseled away at these statutes” to fix problems piecemeal. The question now is whether the statutes still work, “Or do we need to make issues around software more explicit?”
The NDAA language keeps changing in the absence of broader guidance, Etherton said. Congressional staffers hear complaints from Pentagon officials or industry executives and put language in the bill, which sometimes they have to go back and redo. “That’s not the way to do this,” he said. “We can’t have people running to the Hill every time there are disagreements and persuade staffers to slip language into legislation.”
The advisory panel’s final report and recommendations are due Sept. 30.