Minutes of the Research and Development and Intellectual Property Committee, September 23, 2004

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Minutes of the Research and Development and Intellectual

Property Committee, September 23, 2004
Co-chair John McCarthy called the meeting to order at 12:17 P.M. Present also were Richard Lambert, Fernand Lavallee, Herman Levy, Michael Love, Rod Marvin, Paul McQuade, John Raubitschek, Jerry Walz, and Sy Weinstock. Participating by telephone were Daniel Allemeier, Daniel Doogan, David Glater, Paul Gottlieb, Richard Gray, Robert Huffman, John Jones, Harry Lupulow, Frank Peterson, John Propescu, Wayne Prochniak, Glenn Rowley, Jeff Schwartz, and Holly Svetz.
Handouts were as follows:

  1. Draft – September 23, 2004, Open Source Software in Federal Procurement, Issues Outline (Fern Lavallee and Rod Marvin);

  2. DFARS 227.7106, Contracts for Special Works;

  3. Minutes of the August 8, 2004, meeting (Annual Meeting, Atlanta GA);

  4. McDonnell Douglas Corporation v. United States, No.5342, D.C. Cir. July 27, 2004);

  5. Annual Report of the Committee to the Council, Section of Public Contract Law, July 9, 2004;

  6. National Aeronautics and Space Administration proposed rule, Final Scientific and Technical Reports-SBIR and STTR Contracts, 69 Fed. Reg. 49845 (August 12, 2004); and

  7. Appeal of Wesleyan Company, Inc., ASBCA No. 53896.

John McCarthy called on Glenn Rowley to report on McDonnell Douglas v. United States (Handout # 4). The case involved a Freedom of Information Act (FOIA) request by Lockheed Martin for McDonnell Douglas’s contract for “maintenance and repair of KC 10 and KDC-10 aircraft.” The contract contained, in pertinent part, “detailed pricing information both for the base year of the proposed contract and for subsequent years in which the Air Force would have the option to renew the contract.” McDonnell Douglas agreed to release, among others, bottom–line base-year prices; nevertheless, it objected to releasing option-year prices and those for Vendor Pricing and Over and Above Work Contractor Line-items (CLINs) as coming under Exemption 4 of the FOIA (“trade secrets and commercial or financial information obtained from a person and privileged or confidential”).

The D.C. Circuit majority opinion held that the district court applied the correct standard on this matter, that of National Parks and Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974): “financial information is ‘confidential’ and therefore within the scope of Exemption 4 if it is required to be submitted to the Government and if its disclosure is ‘likely . . . to cause substantial harm to the competitive position of the [submitter].’” McDonnell Douglas failed to contend before the agency that release of the option year prices would afford its competitors the argument that the agency should “rebid the contract rather than exercise its option” to renew. Nevertheless, the court found the agency’s decision to release the option year prices “was contrary to law,” on the ground that “release . . . would likely cause McDonnell Douglas substantial competitive harm because it would significantly increase the probability McDonnell Douglas’s competitors would underbid it in the event the Air Force rebids the contract.” The court found arbitrary and capricious the agency’s release of the Vendor Pricing CLINs. As for release of the Over and Above Work CLINS, however, the court found that McDonnell Douglas had not carried its burden of showing likelihood of substantial competitive harm. Further, the court noted that McDonnell Douglas failed to argue before the agency that release of the information would enable a competitor to underbid it.
The admonition of the court’s opinion is: assert all specific arguments at the agency level.
In dissenting, Judge Garland contended that the majority has shifted the burden of proof of showing likelihood of substantial competitive harm from the contractor to the agency. Under Judge Garland’s interpretation, the majority opinion would place on the agency the burden of showing that release would not likely cause substantial competitive harm.
John McCarthy then noted NFS Final Scientific and Technical Reports-SBIR and STTR Contracts (Handout # 6). It would add “an Alternate III to the ‘Final Scientific and Technical Reports’ clause for use in contracts awarded under the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs.” He then discussed Appeal of Wesleyan Company, Inc. (Handout # 7), which involved cross-motions for summary judgment regarding three Wesleyan unsolicited proposals. Wesleyan “alleged improper disclosure and use by the [G]overnment,” claiming royalties on projected sales. Wesleyan was issued patents on the devices in question. Following the contracting officer’s denial of the claim, Wesleyan appealed to the ASBCA. The ASBCA held that “[t]o the extent proprietary data in Wesleyan’s proposals was disclosed in the two patents, the [G]overnment was lawfully entitled to disclose that data after the patents were issued.” Nevertheless, the ASBCA left open the possibility that Wesleyan might sue for patent infringement under 28 U.S.C. § 1498.
John McCarthy also mentioned the Information Technology Association of America white paper on open source software. It is finalized and on ITAA’s web site. Joseph Tasker Jr., ITAAS’s Senior Vice President, Government Affairs, and General Counsel, was the Committee’s guest speaker in June.
Fern then noted that Dick Kuyath has raised the issue of nonstandard clauses for IP contracts; he said that the Committee will schedule the matter for further discussion when Dick will be present. Presently there is no handout on the subject; the Committee will issue one later if Dick approves. Fern said that the issue of standard or nonstandard clauses for IP in government contracts has arisen where generally one would not expect it, e.g., in situations where the standard rights in data clauses adequately address the allocation of rights. Some agencies are inserting the Rights in Special Works clause where the anticipated deliverables are tech data and software, but not video or other special works. Allocation of rights in special works clauses (nonstandard) differs from that in the standard Rights in Data clauses. Fern also noted the use of special “one-off” clauses, often tucked into Section H of the contract, that contain an allocation of rights in IP inimical to rights in commercial items even when the contract contemplates a FAR Part 12-type commercial item acquisition. John McCarthy noted that contracts combine FAR and DFARS clauses; some are for commercial items and have no reason to have nonstandard clauses.
Fern observed that the initiative behind DoD’s IP Guide apparently has been abandoned, or at least set back. For interesting clauses one should look at those at the Transportation Security Agency. TSA uses a mixture of FAR, DFARS, and Acquisition Management System (Federal Aviation Administration and TSA) clauses. John Jones noted that the counsel at Navy has inserted special works rights into the data clause. Paul McQuade observed that “unlimited rights” provides a variety of rights. John Raubitschek noted that the DFARS clause gives royalty rights to contractors, which the FAR clause does not. Dick Lambert noted also that the DFARS clause gives contractors the right to request rights.
Holly noted that LtCol Gregory Redick’s post at the Air Force no longer exists; Richard Gray said that other officers have general knowledge of the IP area. John Raubitschek reported that now there is more flexibility in agency granting of deviations than formerly. Mike suggested that the Committee could draft guidance for use of standard clauses; the regulations are inadequate. Jerry suggested that a class on clauses could provide Continuing Legal Education credit. John McCarthy called on the Committee to visit the clause issue at the next meeting and address what it could do.
John McCarthy then called on Richard Gray for a report on the DFARS rewrite. Richard reported that his group is actively working on it and is shooting to have a draft ready in mid-October. As for the “Plain Language” Part 27, Richard said that his group has taken steps to have it published; his guess, however, is that it will not be published until 2005. The group also is trying to place Part 12 material in the DFARS. John Raubitschek reported that the Civilian Activities Acquisition Council (CAAC) has issued Part 27 clauses; he is unsure of the Part 12 clauses.
John McCarthy called on Fern, who in turn invited Rod, to discuss the Committee white paper on open source software (OSS). When Fern’s working group started on the project, it was primarily focused on the issue of copyrights in software under the FAR and DFARS; now it has expanded into a white paper on OSS and may expand further into a monograph. Fern and Rod took the lead in putting an outline (Handout # 1) together; it is primarily a setting forth of issues rather than an outline of the monograph itself. Rod and Fern hope to set full drafting of the white paper in motion in short order. The working group already has done some background work and seeks input, e.g., in sections. Rod said that the first part is nearly done and he seeks input on matters not yet set forth in the outline. John McCarthy said that as of now he has not encountered a pro-OSS contractor; in the interest of fairness, however, the Committee should seek input from such entities. He reported that he had discussions with people at IBM during the past summer and would review other material available to the Committee. He will circulate the outline to the entire Committee mailing list.

John McCarthy said that he will try to have at least one Committee meeting hosted outside of Washington DC in order to take advantage of people out there and draw in new members. Dan Allemeier suggested holding one meeting in Detroit and another in California. Dan also suggested that the Committee discuss adjusting meeting dates in November and December because of the holidays. John McCarthy suggested moving those meetings back to the third Wednesday in lieu of the fourth Thursday in the month (November 17 and December 15). He will circulate proposed dates and invites response. John Raubitschek suggested trying to dovetail Committee meetings outside DC with other professional meetings (e.g., patent lawyers’ events).

The next meeting will be on October 28. The meeting adjourned at 1:22 P.M.
Respectfully submitted,

Herman D. Levy

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