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The Procurement Lawyer Archives

Not All Information is “Technical Data”: The Court of Federal Claims Rebuffs DoD Efforts to Expand the DoD Data Rights Regime to Proprietary Supply Chain Information

Zachary David Prince and Daniel Hart Ramish

Summary

  • Discusses Court of Federal Claims decision of first impression in Raytheon Company v. United States considering what constitutes technical data
  • Discusses contractor data rights and government licensing of contractors' data rights
  • Analyzes DOD's assertion of additional data rights and attempted restriction of contractors' rights
Not All Information is “Technical Data”: The Court of Federal Claims Rebuffs DoD Efforts to Expand the DoD Data Rights Regime to Proprietary Supply Chain Information
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The Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) provide complex, mutually exclusive frameworks for determining contractor and government intellectual property rights in “technical data.” Under the civilian and defense data rights schemes, the contractor generally retains title or ownership of technical data, and the government receives a license. The scope of the license depends on such factors as whether development was accomplished at private or government expense, whether the technical data pertain to a commercial or noncommercial product or service, and whether the technical data fall into a category in which the government automatically receives unlimited rights (such as form, fit, and function data and technical data necessary for operations, maintenance, installation, and training activities (OMIT data)).

Not all information generated by a contractor in the performance of a government contract is “technical data.” Even information that must be submitted to the government in a contract deliverable does not necessarily qualify. Statutory provisions and procurement regulations identify categories of information that are expressly excluded from “technical data”:

[T]he term “technical data” means recorded information (regardless of the form or method of the recording) of a scientific or technical nature (including computer software documentation) relating to supplies procured by an agency. Such term does not include computer software or financial, administrative, cost or pricing, or management data or other information incidental to contract administration.

The line between technical data and the excluded categories of data and information had not been previously litigated.

In Raytheon Company v. United States, the U.S. Court of Federal Claims considered the definition of “technical data” for the first time. The Raytheon case involved a series of U.S. Army contracts under which Raytheon provided engineering services supporting the Patriot weapons system. The vendor lists at issue identified suppliers from which Raytheon had purchased parts for the missile system during the preceding two years. The Data Item Description (DID), DI-MGMT-80894, stated the purpose of vendor lists was “[t]o identify a complete listing of all sources used . . . in procuring any subcontracted item” and to provide “a means for the government to track parts selection, qualification, and identification of parts.” The DID instructed the contractor to obtain the information for the deliverable from “contractor invoices, purchase orders, etc., and not from existing Government[-]furnished documentation.” The lists included generic descriptors of the parts purchased with numerical identifiers, as well as the identities, addresses, and DUNS numbers of the suppliers or manufacturers that sold the parts to Raytheon.

Raytheon marked the vendor lists with proprietary legends that did not conform to the restrictive markings prescribed for noncommercial technical data in the DFARS. The Army asserted that the vendor lists were “technical data” and demanded they be resubmitted without the allegedly nonconforming proprietary legends. Raytheon refused. In a final decision, the contracting officer stated the Army “strongly considers the [vendor lists] to be ‘technical data’ within the meaning of applicable regulations” because they contain “a list of technical parts, part numbers, and sources.” She urged that the vendor lists both “independently provide necessary technical information” and “are also used in conjunction with other technical data (such as technical drawings) to maintain essential Army systems and databases” and that the lists are necessary “to perform essential technical functions related to the repair and replacement of parts.” Raytheon appealed this contracting officer’s final decision to the U.S. Court of Federal Claims.

To assess whether the vendor lists were technical data, the court first considered the plain language of the definition of “technical data” at DFARS 252.227-7013(a)(15). Noting the regulation does not define the phrase “information … of a … technical nature,” the court looked to the Oxford English Dictionary, observing “technical” means “of or pertaining to the mechanical arts and applied sciences generally” and “nature” means “[t]he essential qualities or properties of a thing [that are] inherent [and] giv[e] it its fundamental character.” The court was unconvinced the information in the vendor lists was “inherently or essentially technical in nature.” Rather, the court concluded, “the vendor lists are just what their name implies—lists of the vendors from which Raytheon purchased parts used in the missile system.”

Reviewing categories of technical data described in the DFARS, the court noted the vendor lists did not include information about the technical aspects of the parts, such as their physical, functional, or performance requirements, so they were not “[f]orm, fit and function data” under DFARS 252.227-7013(a)(11). Nor did the vendor lists include any information about the design, manufacture, or assembly of any of the parts, so they were not “detailed manufacturing or process data” per DFARS 252.227-7013(a)(6). Indeed, the court concluded that “contrary to the government’s assertion, the lists [did] not even ‘describe’ the purchased parts in any meaningful way.” The vendor lists merely included generic labels for the parts (e.g., “cable assembly,” “sleeving,” “connector”) coupled with “material numbers,” “identifiers assigned to the engineering drawings for each of the parts.” It was not possible to identify a part or distinguish it from other parts using the information in the vendor lists alone. One had to use the material numbers to refer to the contract engineering drawings for each part.

The Army characterized the vendor lists as “qualified supplier lists” used by its engineers to identify qualified suppliers. The Army argued the lists were “technical in nature” because they “demonstrate[d] … that the particular part was qualified to be in the Patriot weapon system.” The court was not persuaded, noting Raytheon’s vendor lists “include no certification regarding the qualifications of the listed suppliers.” The lists did not include all parts in the Patriot weapons system because some parts had not been purchased in the prior two years. With a two-year “look-back period,” it was possible there were suppliers on the lists that had gone out of business since they supplied the parts, or were otherwise no longer qualified.

The court was similarly unmoved by government arguments that the vendor lists were technical data because engineering drawings referred to the parts and suppliers on the vendor lists, or because the lists were “used by persons with technical expertise to accomplish technical tasks of ensuring that all parts of the Patriot System are properly maintained, replaced and/or repaired, such that this weapon system functions as required.” There was no dispute that the engineering drawings were technical data. That the drawings referred to parts and suppliers on the vendor lists did not render the vendor lists themselves “technical data.” As the court observed: “[t]he regulations define technical data as information that is of a technical ‘nature,’ and not, more broadly, as information that is useful to those who perform technical tasks.”

The court stressed that the source of the information on the vendor lists weighed against the lists constituting technical data:

The Court also finds it telling that the information on the lists was not derived from technical sources or prepared by technical experts. Instead, as instructed by DI-MGMT-80894, Raytheon was to assemble the lists from information contained in contractor invoices and purchase orders. … In other words, the information on the vendor lists was derived from precisely the type of “financial, administrative, cost or pricing, or management data or other information incidental to contract administration” that is expressly excluded from the statutory definition of technical data.

For all those reasons, the court held the information on the vendor lists “is not, by its nature, inherently technical, and therefore is not ‘technical data’ within the plain meaning of the regulation.”

The court also looked to the Department of Defense’s (DoD) interpretation of the prior regulatory language and the regulatory objectives to confirm that the vendor lists were not “technical data.” The Armed Services Procurement Regulation (ASPR), the predecessor regulation to the DFARS, included additional descriptions and examples of technical data. Reviewing the explanatory material contained in the ASPR, the court found that the examples of technical data were “qualitatively different from the information on the vendor lists”:

In short, all of the examples of technical data cited in the prior regulations consist of information that—unlike the vendor lists—relate to the design of an item or process, how an item was manufactured or assembled, or its physical and functional requirements. The information on the vendor lists, on the other hand, concerns the procurement of finished parts. The information on the lists cannot be used to design, manufacture, operate or reproduce a part, as could a drawing, technical manual, or standards and specifications.

Therefore, the court concluded “the prior regulations provide support for the conclusion that the information on the vendor lists is not technical data.”

In addition, the court considered the “purpose” of the technical data regulations. The court traced the history of data rights policy back to the 1940s, when data rights rules were prescribed in DoD issuances, which “balanced the interests of individual defense contractors in protecting their trade secrets and the interests of the government in promoting competition.” In 1984, Congress enacted technical data provisions as part of the Defense Procurement Reform Act. Concerned about inadequate competition for spare parts procurements, Congress sought to ensure the government had adequate rights in “technical data” to support competitive reprocurements.

Raytheon’s vendor lists did not implicate the policy considerations underlying the data rights regulations, the court said. Raytheon’s competitors had no need for the vendor lists, nor did the Army need the vendor lists to find qualified suppliers. “[W]ith the drawings, specifications, and other information that is truly technical in nature, the government could find and qualify its own suppliers.”

The court noted the Defense Logistics Agency (DLA), the agency primarily responsible for procuring Patriot weapons system parts, used its own verification and qualification system for sourcing parts instead of using Raytheon’s vendor lists. The Army once had its own process for qualifying local parts suppliers as well. The Army’s process, however, was under-resourced and produced inconsistent results. After a serious quality issue occurred, Army engineers were directed to start using Raytheon’s vendor lists, which proved to be “cheaper and more reliable.” But again, the Army and Raytheon’s competitors didn’t need “a quicker and less resource-intensive way to identify suppliers” to ensure competition on the contracts. The court stated this reinforced its conclusion that the vendor lists were not “technical data.”

The Court of Federal Claims’ interpretation of the meaning of “technical data” in Raytheon applies to the use of that term throughout DFARS Subpart 227.71. It also applies to both the terms “technical data” and “data” (which encompasses both technical data and computer software), as used in the FAR.

As a result of the court’s determination that the vendor lists were not “technical data,” the government was not entitled to any data rights license in the vendor lists. Nor was Raytheon obligated to identify and assert restrictions on the vendor lists in advance, or to mark them in accordance with the specified DFARS legends. Notably, although the DFARS-prescribed markings are not required for proprietary information that is not “technical data,” contractors should include some form of proprietary marking, as Raytheon did. Proprietary legends are necessary to protect trade secrets. Proprietary markings also support exemption of information from release under the Freedom of Information Act (FOIA), Exemption 4.

In addition to the government’s license rights, the Raytheon decision may also affect the information the government can require contractors to deliver. The government can order or require delivery of technical data for up to three years after acceptance of all items delivered under the contract via the DFARS deferred delivery and deferred ordering clauses or the FAR additional data requirements clause when those clauses are included in a contract. But the clauses only authorize the government to order or require delivery of technical data, and do not extend to contractor proprietary information that is not “technical data.” Delivery was not at issue with Raytheon’s vendor lists because they were a contract deliverable, but it could be important in other circumstances.

It is not difficult to discern the government’s motives in cases like Raytheon. DoD procurement of major weapon systems has been frequently criticized for failing to secure sufficient rights in intellectual property to meet the Department’s long-term needs. A GAO report to congressional committees in late 2021 noted: “The Department of Defense (DOD) acquires and licenses intellectual property (IP)—such as computer software and technical data—for its cutting-edge weapon systems. Yet, DOD often does not acquire the IP it needs to operate and maintain those systems, which can lead to surging costs later.” As a result, DoD officials sometimes reflexively assert additional rights for the government and seek to restrict contractors’ rights.

DoD continues to view contractor intellectual property as a significant factor limiting competition in the defense industrial base. Commentators have raised the alarm in recent years that DoD is pressuring contractors to offer broader intellectual property rights and increasing data delivery requirements. As Raytheon illustrates, the government is not only taking the position that it is entitled to broader license rights within its “technical data” framework but is also trying to obtain additional rights in other ways, such as expanding categories of information in which DoD receives rights under that framework. The decision from the U.S. Court of Appeals for the Federal Circuit in The Boeing Company case in December 2020 is another recent example of an alternative front in the data rights struggle between the government and contractors. There, the Air Force challenged Boeing’s right to mark “unlimited rights” technical data with proprietary legends restricting third-party use of the data. The Circuit held that the DFARS regulatory marking prescriptions only barred the use of nonconforming legends restricting government rights, and did not preclude marks that only restricted the rights of nongovernment third parties.

It is more important than ever in this environment for contractors to vigilantly guard their intellectual property rights. That includes consistently marking proprietary information and pushing back against agency overreach. The Raytheon decision should help contractors resist government overreach and bolster attempts to assert rights in proprietary contractor information that is not properly within the bounds of “technical data.”

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