FEDERAL CONTRACT LAW

Navy learns that limited rights means just that

Joseph J. Petrillo

Federal regulations for acquiring intellectual property, such as software and technical data, are notoriously complex. Sellers encounter lengthy contract clauses and buyers with detailed rules on how to use them. Two sets of clauses and rules apply'one for Defense Department and one for civilian agencies.

There are few judicial and administrative decisions interpreting the regulations, especially for rights to computer software. The parties to most disputes about the government's rights seem to have resolved them without full-blown litigation, depriving both sides of the light judicial decisions could shed on this murky subject.

Thus, a recent decision of the Armed Services Board of Contract Appeals is worth noticing. In Ship Analytics International Inc., case No. 50,914, the board ruled on a dispute over the extent of the Navy's restricted rights to software.

The contract at issue in Ship Analytics covered computer hardware and software for a ship bridge simulator. The software was developed at private expense and was licensed commercially.

The solicitation included a standard DOD clause, called Rights in Data, which provides for restricted rights in the acquisition of privately developed software.

As permitted under the regulations, however, the Navy crafted a companion clause, which permitted the government to disclose the software to a third party to let the third party perform services for the government on or with the software.

The parties agreed that the Navy would have restricted rights to the software. During negotiations, the Navy insisted that the contractor supply both source and executable code.
Ship Analytics reluctantly agreed. In a letter, the contractor said it understood '[the Navy's] concern that the government have adequate ability to support and maintain the ' software for the life of the trainer.' Subsequently, the parties reiterated that the source code was intended for support and maintenance.

Then the Navy awarded a contract to a third party to alter the software to give users a more realistic simulation. The Navy handed over the source code and program documentation to the contractor'over the objections of Ship Analytics.

The board ruled in favor of Ship Analytics. The decision turned on the meaning of the
word 'services' in the special rights clause authorizing disclosure to third parties. The Navy argued that the term applied to any services including extensive enhancements.

The contractor sought to limit services to support and maintain the software. Its interpretation was supported by communications between the parties before any dispute arose. In addition, the board looked to the term 'services' as used elsewhere in the contract, which was consistent with the support-and-maintenance restriction.

Finally the board found that this limited reading of the term was more in line with the generally accepted meaning of restricted rights in computer software.

The board stopped short of ordering the Navy to quit using the modified software, holding that it lacked the power to do so.

The rules for acquiring software have evolved, offering better protection to contractors.

I presume federal agencies respect limitations in software licenses. The Ship Analytics decision, however, shows that some will stretch contract language to suit their changing needs.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.

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