Carlos Plazas, Contributing Member 2020-2021Intellectual Property and Computer Law Journal
As part of the 2021 National Defense Authorization Act (NDAA), the United States government has budgeted a total of $242 billion for procurement, research, development, testing, and evaluation of new equipment for the United States military. This quantity is outside the sustainment, maintenance, and operation costs of already existing equipment which total over $255 billion. These numbers are not out of the ordinary for the U.S. government, which usually ranks at the top of defense spending amongst other countries. What is relatively recent is the regulation surrounding the acquisition of new equipment, research, development, testing, and evaluation in conjunction with civilian organizations such as corporations or universities.
The Patent and Trademark Law Amendments Act of 1980, or Bayh-Dole Act, governs the acquisition of new technology by the government and its subsequent use after coordinated development with the civilian sector. The key difference between the Bayh-Dole Act and previous military acquisition regulations is in the area of ownership of inventions that are funded by the federal government. Before the Bayh–Dole Act, contracts and grants between the government and the private sector obligated inventors to give the government full ownership of the invention. The Bayh-Dole Act allows a limited number of civilian institutions such as universities, small businesses, or non-profit institutions to pursue ownership over the intellectual property that they develop using government funds. The Act created a system whereby the government maintains exclusive use and ownership of the invention itself to stay ahead in the world technologically; in exchange, the civilian organization can retain the patent and technical data so it can profit from its sale on the civilian market.
The current relationship allows for both the government and the civilian sector to profit: (i) the government gets a new piece of technology, and (ii) the private sector can profit by maintaining the ownership over the invention and by receiving a sole contract from the government in the sustainment of the invention. Furthermore, barring a very specific request by an executive agency within the federal government, the civilian organization also retains ownership over the technical data, meaning every time the government wishes to conduct repairs or modify the product, it needs to pay the civilian organization for the technical data or the entire repair.
There is a new movement that wishes to do away with the idea that contractors can retain such a high level of ownership. Currently, the Federal Acquisitions Regulation (FAR) is the principal regulatory document that all executive agencies of the federal government must follow when acquiring new intellectual property or procuring contracts. The FAR became effective on April 1, 1984, and is issued within applicable laws under the joint authorities of the Administrator of General Services (GSA), the Secretary of Defense, and the Administrator for the National Aeronautics and Space Administration (NASA). The FAR supersedes all other agency regulations related to acquisitions that unnecessarily repeat, paraphrase, or restate parts of the FAR.
Currently, Section 52.227-14(b)(2)(ii) of the FAR provides the primary avenue for the government to maintain possession of technical data. There is support for the movement to take away some of the power from the contractors, as it would allow billions of dollars to shift between the different sections of the NDAA. The shift would allow for large sums of money to shift from procurement and acquisition to maintenance and sustainment which, in turn, would provide agencies and their field level technicians the tools they need. Instead, the current system forces government agencies to pay out every time they need to access technical data to try and repair an invention or sustain an invention in which the government has already invested. The warfighter deserves better, the ability to cut out the middleman and allow for organic maintenance and sustainment of government-funded intellectual property is the solution to the government’s current acquisitions and sustainment dilemma.
II. Current Regulation and Legislation Over Civil-Military IP
Much in the way that “all roads lead to Rome,” acquisition of new intellectual property for the government, and more specifically, the military, flows through the Federal Acquisitions Regulation (FAR). The FAR was created “for the codification and publication of uniform policies and procedures for acquisition by all executive agencies.” The government envisioned the FAR as a tool to aid acquisitions personnel in all areas of the executive branch, whether they be civilian departmental agencies or military branches, in purchasing the “best value product” for the customer (the government agency) while still maintaining trust with the public. Due to the large quantity of capital that goes into the defense apparatus of the U.S., as well as the delicate nature of acquiring military technology, the government has seen fit to create specific regulations for the Department of Defense (DOD) based on the FAR. The Defense Federal Acquisition Regulation Supplement (DFARS) is solely applicable to the DOD. The DFARS “implements and supplements the FAR, and as such, the DFARS should be read in conjunction with the primary set of rules in the FAR.” The purpose of the DFARS is “to manage the investments of the United States in technologies, programs, and product support necessary to achieve the national security strategy that the President prescribes pursuant to section 108 of the National Security Act of 1947 (50 U.S.C. 3043) and to support the United States Armed Forces.”
In addition, Title 10 of the U.S. Code, which governs the armed forces, and Title 37 of the Code of Federal Regulations have roles in developing intellectual property through government acquisition in conjunction with civilian assistance. The relevant Title 10 provisions are sections 2430-2443 within Chapter 144 which cover Major Defense Acquisition Programs. Of note, Section 2439 deals with the government’s ability to negotiate with the contractor over technical data regardless of the ownership of the asset. Furthermore, sections 2431 and 2431a are critical in understanding the acquisition process and the integration of regulations such as the FAR, DFARS, and the NDAA into procurement, sustainment, and research of new technologies between the government and civilian agencies.
Title 37 of the Code of Federal Regulations, specifically Parts 401 and 404, provide additional guidelines about the rights and licensing between the government and the civil sector regarding inventions and their funding. Part 401 relates to the rights that non-profit organizations, small business firms, and other organizations have over inventions that federal government grants fund. Part 401 is important because prior to its implementation, the government failed to implement sufficient conditions on research using private facilities “which would preclude them from accepting research funding from other sources to expand, to aid in completing or to conduct separate investigations closely related to research activities sponsored by the government.”Although Part 401 covers the broader scope of inventions and asset ownership, Part 404 is more niche as it only applies to the licensing of government-owned inventions.
The importance of the licensing and ownership of inventions ties into the acquisition regulations because an analysis of the owner dictates the level of rights the end-user receives, in this case, the government. Ownership of the invention or asset is important in the realm of tech data because the level of ownership that the government has over the invention has a strong correlation to the access that the end-user has to the technical data. Here is where the dispute arises: with the quantity of capital the government spends on defense annually, as referenced above, one would think that the government would fully own its new fighter jet or ship. However, the restriction on technical data means that the contractor ties the government indefinitely, whether the contractor is a university or non-profit organization, in order to use the technical data for maintenance and sustainability.
Lastly, the primary statute regarding sustainment for procured military intellectual property is 10 U.S.C. § 2464, which outlines the Defense Department’s requirements to maintain core logistics capabilities for its assets. There are two key statutes that relate to the conflict between the government and civilian contractors when it comes to sustainment and maintenance of intellectual property and associated technical data. The first statute is the “50/50” rule within 10 U.S.C. § 2466, which requires that “not more than 50 percent of the funds made available in a fiscal year to a military department or a Defense Agency for depot level maintenance and repair workload may be used to contract for the performance by non-Federal Government personnel.”Although this limits the direct funding for assistance by contractors, the work is often limited either because contractors refuse to agree to provide the data and rights of the asset, or because of budget, time, and staffing constraints on the Project Management Office of the specific Defense agency.
The second statute is Section 2464 itself with its requirement for the government to hold a certain level of involvement in depot level maintenance and sustainment. This is called the “Core Law” of maintenance sustainment. The Core Law and the 50/50 rule differ in that the 50/50 rule is limited to depot level maintenance, while the Core Law applies to the Defense Department’s overall ability to provide technicians and tools to repair its assets. Depot level maintenance is the highest level reserved for major equipment overhauls;  this means that at the field level of maintenance there is no limit to the expenses that the government can incur regarding contractor support for intellectual property.
III. Current Avenues of Recourse for the Government
A. The Initial Negotiation
The government does have several avenues to prevent itself from being married to a contractor in the future when it procures new technology and inventions. First, the government can assert during the contract stage the ownership of the asset or, at the very least, its patent. It is important to note what organization is dealing with the government in the development and acquisition of the asset since certain types of contractors receive additional rights and protections. 35 U.S.C. § 201(c) defines a “contractor” as “any person, small business firm, or nonprofit organization that is a party to a funding agreement.” If the contractor is a small business, non-profit organization, or university, it receives additional rights to their inventions under 37 CFR Part 401. Within 37 CFR § 401.5(e), the government is allowed to amend and modify the agreement if the performance of the contract extends over an excessive period of time. Lastly, during initial negotiations, the government can state that based on its level of funding and involvement it “owns” the invention and licenses for use of the invention.
If the contract between the government and the contractor falls within the realm of the Bayh-Dole Act, then the contract between the federal agency and the contractor specifies the source of funding and provisions for retention of ownership.Within the authority of Bayh-Dole, the recipient can choose to retain title to federally funded inventions. However, if the contractor chooses this option, then they must follow strict rules regarding patents and subsequent rights to the invention or procured asset. The primary responsibility that the contractor has is a requirement to file a patent application in the U.S. and grant the government a “nonexclusive, nontransferable, irrevocable, paid-up license to practice . . . any subject invention throughout the world.” To facilitate the transfer of ownership to the recipients of government funding, the Bayh-Dole requires that the government assign any inventions made using federal funds to the organization with which the inventor is affiliated; this is usually a university or a non-profit organization. From there, that organization can grant exclusive or non-exclusive licenses for these inventions at its discretion. The goal of the Bayh-Dole Act was to create an incentive for contractors seeking government funding to have the ability to commercialize inventions after receiving substantial monetary assistance from the government in boosting initial development.
The final way that the government can acquire the data during negotiation is to get the contractor to fail to attach a notice that states that the contractor only conveys the rights stated in FAR 52.227-19. Under FAR 52.227-19, the government has certain rights to the technical data associated with the procured invention which include:
(i) Data first produced in the performance of this contract; (ii) form, fit, and function data delivered under this contract; (iii) data delivered under this contract (except for restricted computer software) that constitute manuals or instructional and training material for installation, operation, or routine maintenance and repair of items, components, or processes delivered or furnished for use under this contract; and (iv) all other data delivered under this contract unless provided otherwise for limited rights data or restricted computer software in accordance with paragraph (g) of this clause.
However, the Department of Defense has additional steps under DFARS 252.227-7015, which prevent the government from having such omnipotent rights over the data. Specifically, DFARS 252.227-7015 restricts the government’s ability to share the data outside the government, say with another contractor in order to assist with improving sustainment, procurement, or maintenance. For the Department of Defense to take greater ownership of the data, it must follow the 10 U.S.C. § 2439 responsibility to negotiate for the price of acquiring the technical data from the contractor for “development, production, or sustainment.” This is rarely the case as the DOD oftentimes prefers to speed up the process of procurement and avoids the possibility of souring relations with the contractor by negotiating the technical data away from the contractor.
B. Post-Contract Negotiation
After the government and contractor sign the funding agreement, the government maintains a singular avenue to try and recover ownership over the technology it sponsored, this is the government’s “march-in” rights. To exercise its “march-in” rights, Bayh-Dole and internal intellectual property and procurement regulations require the government to meet the requirements of 35 U.S.C. § 203. The government can only request “march-in” rights if:
(1) Action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;
(2) Action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;
(3) Action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or
(4) Action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.
Furthermore, if the contract falls within the Bayh-Dole realm, the Act restricts the government’s “march-in” ability further. Under Bayh-Dole, the government must give the contractor sufficient time to remedy the situation and is required to fill out a series of forms establishing the grounds for their “march-in.” Even if the government is successful with the “march-in,” the ownership of the invention still does not transfer to the injured agency, instead, it is transferred to a third-party contractor. In the entire history of the Bayh-Dole Act, the government has never attempted to enforce the “march-in” provision against a contractor. The exercise of “march-in” rights does not alter the state of the patent, such as its ownership or validity; instead, that patent remains in play and the contractor still holds the ability to enforce the patent against organizations that were not involved in the “march-in.”
Notably, “march-in” rights are separate from the government’s ability to hold an unlimited use right under the Bayh-Dole Act. 35 U.S.C. § 202(c)(4) defines unlimited use rights: “the Federal agency shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.” Yet, all these rights focus on the invention and the intellectual property associated with it, there is little discussion regarding the technical data that goes alongside the invention the exception of FAR 27.404-1. Theoretically, under this FAR provision, the government also has unlimited access to the data; however, the funding agreement and the contract must contain wording to give the government such right, otherwise, the rights remain primarily with the contractor.
IV. Current Proposed Solutions
Starting with the 2018 NDAA, several government agencies, particularly the Department of Defense have sought out ways to change the dynamic between government agencies and contractors. The Department of Defense’s proposed revisions, primarily revolve around amendments to the Defense Federal Acquisition Regulation Supplement (DFARS). The proposed changes are designed to shift the intellectual property rights terms from the current standard, which tends to favor the contractor’s ability to maintain ownership, to terms that are more favorable to the government. Some of the proposed changes include new rules which will require contractors to assign a monetary value to their technical data and computer software in proposals. The new rules also will encourage the government to negotiate for special license rights, because current rules only provide the government with the option to negotiate but do not encourage negotiation for data rights.
There have been some advances in implementing change, specifically within the Department of Defense and 10 U.S.C. §2320(f), which states that the Secretary of Defense shall, “to the maximum extent practicable, negotiate and enter into a contract with a contractor for a specially negotiated license for technical data to support the product support strategy of a major weapon system or subsystem of a major weapon system.” However, this still limits the application to “major weapon systems” or “subsystems” and is seldom used as the contracting officers sometimes find it impractical.  Negotiations are often limited to times where competition creates greater profit, a rule outlined in Department of Defense Instruction 5000.44. The proposed change by the Department of the Defense is to change the words from “shall to the maximum extent” to “must negotiate.”
A further revision change is to the DFARS, specifically 215.470(e). The proposed revision aims to direct contracting officers to require contract offerors to give the government price estimates of the associated technical data and license rights to give the government a better long-term picture of its investment. The revision states that “before making a source selection decision or awarding a sole-source contract, the contracting officer shall negotiate a price for data (including technical data and computer software) and associated license rights to be . . . provided under a contract for the development, production, or sustainment of a system, subsystem, or component; or services.” This provision empowers the contracting officers in the field, who are closer to where the actual invention will be implemented, to make a decision that not only saves costs for the government in Washington but also for stretched-out military unit budgets.
The Department of Defense is not the only organization proposing changes to the outdated policies, several members of academia propose changes that aim to reduce the waste of government expenses and recirculate the funds to other sources or back to the public. The first proposal is to require universities that make substantial profits on products developed with the help of federal aid to pay some of the money back to the sponsoring government agency. This practice existed prior to Bayh-Dole and still exists in some forms today. Section 204 of the original Bayh-Dole bill allowed the government to recoup part or all of its investment in the research and development of intellectual property after the invention generates a specific profit; however, the actual law did not codify this provision. This proposal only helps the government at the highest levels. It does not help the field level technician at the mercy of contractors holding onto technical data. Additionally, the amount of universities that would fall within this category is insignificant and would generate little to no profit.
The second proposal is to simply do away with barriers and provide an avenue for contractors to access all intellectual property that receives government funding. Under this proposal, regardless of the licensing status of the product, the amended law gives government contractors access to every publicly funded invention for undertaking government research or procurement. This route would provide three distinct positive outcomes for the government and the public sector. First, government scientists could use the license to conduct research without having to pay for the license from a university or contractor if the research is already within the realm of a previous government-funded project. Second, by breaking down the barriers, the government can allow contractors, such as university recipients of federal funds, to conduct follow-on research, or “even independent research, where rights to an underlying invention might be particularly useful.” Lastly, the proposal grants the government the ability to procure inventions on its behalf; for example, it could “receive less expensive versions of pharmaceuticals administered through the Medicare or Department of Veterans Affairs programs.” Yet, neither of these proposals fully target the issue of contractors holding on to tech data; the focus is on the invention itself which will just perpetuate the cycle of maintenance and sustainment being ignored for more expensive procurements.
V. What is a Realistic Solution?
The solution this blog proposes is a combined effort between amending Bayh-Dole and empowering the agency Project Management Offices to negotiate better with contractors relating to technical data in all projects through 10 U.S.C. §§ 2464, 2466, and 2320. The change to Bayh-Dole would revolve around amending the “march-in” provision to include the government’s ability to retrieve technical data, not just the patent and ownership of the assets. Additionally, instead of going to a third-party contractor as 35 U.S.C. § 203 requires, the invention could remain with the contractor while the technical data can shift to the government during the dispute and the appeals process is finalized. Furthermore, government employees, military and civilian, should receive better training in the ability to acquire intellectual property and associated tech data for sustainment.Since current studies show that individuals in these positions are failing to exercise the negotiation rights for technical data in the FAR and DFARS.
Regarding 10 U.S.C. § 2464, the statute should evolve with the times and include how important the ability to retain technical data without contractor intervention is to the Defense Department’s capability to sustain assets vital to national defense. Second, Congress should amend 10 U.S.C. § 2466 to ensure that the 50/50 rule includes maintenance and sustainment at all levels, not just depot. Depot level maintenance is reserved for major overhauls and is only used after a long period of time or when a system’s manual requires it to receive maintenance at depot. With the amendments to § 2466, the field and intermediate levels of maintenance and sustainment will have some legal foundation to exercise 50/50 rights and stem the tide of contractor domination over these levels. Lastly, there should be a consolidation of these changes into the FAR, specifically section 52.227, since the FAR is the regulatory document for all executive agencies, including the Department of Defense.
Tackling a large military-industrial complex worth trillions of dollars such as the current American Department of Defense will take more than a few hopeful changes to statutes. However, the proposed changes are realistic and can eventually see positive changes for field level operators, contracting officers, and maintainers who are reliant upon contractor technical data to ensure missions get done. The legislation regarding ownership of intellectual property such as Bayh-Dole does not need to change so much, and universities, nonprofits, and other organizations can still benefit under these rules.However, by forcing the government agencies, and in this case, the Department of Defense, to constantly have to rely on contractors for technical data for sustainment and maintenance, the hands and pocketbooks of maintenance and sustainment personnel are tied to the contractors. Give the technical data to those who really need it.
 H.R. 6395, 116th Cong. Div. A, Title XCVII, § 111(a) (2021).
 Nan Tian et al., Trends in World Military Expenditure, 2019. (Feb. 13, 2021), available at https://www.sipri.org/sites/default/files/2020-04/fs_2020_04_milex_0_0.pdf.
 Ian Ayres & Lisa Larrimore Ouellette, A Market Test for Bayh-Dole Patents. (Mar. 12, 2021), available at https://www-cdn.law.stanford.edu/wp-content/uploads/2016/03/A-Market-Test-for-Bayh-Dole-Patents.pdf.
 Patent and Trademark Law Amendments Act, Pub. L. 96-517 (1980).
 H.R. 6933, 96th Cong., Title 35, § 42(a) (1980), available at https://www.govtrack.us/congress/bills/96/hr6933/text/enr.
 48 C.F.R. § 52.227-14(b)(2)(ii) (2014).
 Christina Nagel, DOD’s New IP Rules May Impact Contractors’ Rights in Computer Software and Technical Data, (Feb. 13, 2021), available athttps://www.hklaw.com/en/insights/publications/2020/12/dods-new-ip-rules-may-impact-contractors-rights-in-computer-software.
 48 C.F.R. § 3.502-1 (2019).
 § 3.502-1 (2019).
 Nagel, supra.
 H.R. 6395.
 § 52.227-14(b)(2)(ii) (2014).
 § 3.502-1 (2019).
 48 C.F.R. § 1.101 (2019).
 Id at 1.102.
 48 C.F.R. § 201.301.
 Federal Register, Defense Federal Acquisitions Regulation Supplement, (Feb. 14, 2021), available at https://www.federalregister.gov/defense-federal-acquisition-regulation-supplement-dfars-.
 48 C.F.R. § 201.101.
 Federal Laboratory Consortium for Technology Transfer, Federal Technology Transfer Legislation and Policy 7-8 (2018), available athttps://www.federallabs.org/download/file/fid/34317.
 10 U.S.C. § 2430-2443.
 Id. at § 2439.
 Id. at § 2431, 2431a.
 Federal Technology Transfer Legislation and Policy at 6.
 Id. at 55.
 Id. at 81.
 48 C.F.R. § 252.227-7013(b)(1), 7013(b)(1)(vii), 7014(b)(1), 7014(b)(1)(iv).
 48 § 52.227-14.
 10 U.S.C. § 2464.
 Bill Kroben, Core and the 50-50 Rule – A Study in Contrasts, (Mar. 13, 2021), available at https://www.dau.edu/training/career-development/logistics/blog/Core-and-the-50-50-Rule-%E2%80%93-A-Study-in-Contrasts#:~:text=other%20emergency%20requirements.-,10%20U.S.C.,50%2D50%20Rule%E2%80%9D%2010%20U.S.C.&text=Any%20such%20funds%20that%20are,of%20the%20Department%20of%20Defense.
 Richard Van Atta, Department of Defense Access to Intellectual Property for Weapon Systems Sustainment, (Mar. 13, 2021), available at Institute for Defense Analyses, https://apps.dtic.mil/dtic/tr/fulltext/u2/1038450.pdf.
 10 U.S.C. § 2464.
 Kroben, supra.
 For reference on levels of maintenance, see Air Force Instruction 21-101, Aircraft and Equipment Maintenance Management, para. 1.3.
 10 U.S.C. § 2431a.
 35 U.S.C. § 201(c).
 37 CFR § 401.1.
 37 CFR § 401.5(e).
 35 U.S.C. § 209.
 Michael Sweeney, Correcting Bayh-Dole’s Inefficiencies for the Taxpayer, 10 Nw.J. Tech. & Intell. Prop. 295 (2012).
 Id. at 5.
 Id. at 4.
 Susan Cassidy et al., What Every Company Should Know About IP Rights When Selling to the Government, American Bar Association (Feb. 17, 2021), available at https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2016-17/july-august/what-every-company-should-know-about-ip-rights-when-selling-us-government/#ref34.
 § 52.227-19(b)(1) (2014).
 48 C.F.R. § 252.227-7015(b).
 10 U.S.C. § 2439.
 Van Atta et al., Department of Defense Access to Intellectual Property for Weapon Systems Sustainment, (Apr. 16, 2021), available at https://apps.dtic.mil/dtic/tr/fulltext/u2/1038450.pdf.
 Susan Cassidy et al. What Every Company Should Know About IP Rights When Selling to the Government, American Bar Association, (Feb. 17, 2021), available at https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2016-17/july-august/what-every-company-should-know-about-ip-rights-when-selling-us-government/#ref34.
 37 C.F.R. 401.6(a).
 35 U.S.C. § 203.
 37 C.F.R. 401.6(b).
 35 U.S.C. § 203.
 Congressional Research Service, March-In Rights Under the Bayh-Dole Act, (Mar. 12, 2021), available athttps://crsreports.congress.gov/product/pdf/R/R44597/3.
 35 U.S.C.§ 202(c)(4).
 48 C.F.R. § 27.404-1.
 Christina Nagel, DOD’s New IP Rules May Impact Contractors’ Rights in Computer Software and Technical Data, (Mar. 12, 2021), available athttps://www.hklaw.com/en/insights/publications/2020/12/dods-new-ip-rules-may-impact-contractors-rights-in-computer-software.
 10 U.S.C. § 2320(f).
 U.S. Dep’t of Def., Dir. 5000.44(1.2)(b)(1), Department of Defense Instruction 5000.44(1.2)(b)(1).
 Nagel, supra.
 Sweeney, Correcting Bayh-Dole at 306.
 Id. at 307.
 H.R. 6395.
 37 C.F.R. 401.6(a).
 35 U.S.C. § 203.
 Van Atta, Department of Defense Access to Intellectual Property for Weapon Systems Sustainment at 8.
 10 U.S.C. § 2464.
 10 U.S.C. § 2466.
 U.S. Dep’t of Air Force, Instr. 21-101, Maintenance Cyber Discipline Requirements, (April 18, 2021) [hereinafter AFI 21-101].
 Van Atta, Department of Defense Access to Intellectual Property for Weapon Systems Sustainment at 9.
 § 52.227-19.
 H.R. 6395.
 Van Atta, Department of Defense Access to Intellectual Property for Weapon Systems Sustainment at 43.
 H.R. 6933.
 Van Atta, Department of Defense Access to Intellectual Property for Weapon Systems Sustainment at 9.