FEDERAL CONTRACT LAW

DOD seeks to improve intellectual property buys

Joseph J. Petrillo

The Defense Department recently issued a second draft of its guide for procurement personnel, Intellectual Property: Navigating Through Commercial Waters. The draft aims at changing DOD conduct on the procurement of intellectual property, including software, with the goal of encouraging more commercial companies to make their technology available for defense purposes.

The draft's surprising frankness begins with the admission that private spending on R&D has outstripped DOD's for decades and that the gap is widening. DOD needs the technology of industry. In the words of the draft, 'the Defense-unique marketplace is not large enough to support a unique industrial base and infrastructure.'

The perception and reality of Defense contract provisions dealing with intellectual property are obstacles to DOD's ability to buy the best commercial technology. Thus, a goal of the guide is to suggest ways to assure industry it is safe to enter Defense contracts for technology.

The draft noted that the easiest and best way to provide flexibility in procuring intellectual property is to use the commercial item rules in Part 12 of the Federal Acquisition Regulation. These rules avoid the boilerplate but annoying government data rights clauses. They allow for commercial terms and conditions, including licenses.

If a contract doesn't qualify for the commercial item rules, the guide offers several other ways to provide flexibility in negotiating intellectual property rights. One is the use of so-called special license rights, which lets the parties craft their own license, within certain parameters. The government must obtain at least limited rights in the deal, which include, for instance, the right to disclose the data to others for emergency repair purposes.

Another method proposed by the guide is the result of a new logistics philosophy. Traditionally, DOD would use contractor data to competitively procure spare parts for fielded systems. The guide said this obsolete strategy is being replaced by contractor-administered support programs. If a contractor can convince DOD that it will be able to support and maintain the equipment during its life, this can obviate the need for DOD to obtain the right to disclose data to third parties.

When the intellectual property is the result of a jointly funded effort, the regulations also provide for another type of contracting, called government purpose license rights.

The basic idea is that the contractor retains the rights for commercial exploitation of the intellectual property, at least for a period of time. Industry has various complaints about this type of license, but the draft offers some innovative solutions. The contractor and the procuring agency can agree to limit the distribution of data to a particular program or agency, and to provide it on a need-to-know basis.

The draft cautioned that intellectual property is not an 'issue that can be negotiated apart from the contract performance requirements or price/cost issues.' This calls into question the common practice of negotiating software licenses shortly before delivery, but well after award.

There is much more to the 75-page draft. All in all, it is a step forward for DOD acquisition policy. But this town has more experts in formulating policy than implementing it. Getting the message to the front lines and making it work will be the toughest job.

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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