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Marking of Data - Part 2
By FARA FASAT on Tuesday, December 31, 2002 - 02:37 am:

This discussion should be winding down, but I can't let it go without correcting some persistent misunderstandings and mischaracterizations of what I have said.

First of all, quit putting the chicken before the egg, or the cart before the horse, or something like that. I have never argued that a contractor should deliver data expecting it to be kept a trade secret. Any discussion based on that is simply answering a question never asked. Similarly, arguing that the contractor can't complain when the government decides to release the data, is correct but not the point. I don't disagree with any of those arguments, but they do not answer the original scenario.

On the contrary, I am only asking what a contractor can do when the government has chosen not to release the data. When the government has not released the data, it has not exercised its unlimited rights, the data has not been released publicly, and no one else has a license to it.

Second, some of Anon19's argument seems to be that the contractor does not own the data that was funded by government money. While I am always willing to learn something new, I think I am on firm ground when I say that this is simply wrong.

To both Vern and Anon19, are you saying that the whole world has a right to the data, even if the government has chosen not to release it? That seems to be the end result of your argument (which, unless I am misunderstanding it, is that the contractor has no right to protect it). If so, then why does the FAR call it a license? Why is the contractor allowed to retain ownership of it? In fact, what does the contractor own? Look at it another way: if the government decides not to release the data at all, then why shouldn't the owner of the data be able to enforce its ownership rights against an unauthorized user that misappropriated the data?

Of course, if you are arguing that, because the government has the right to release it the contractor can never protect it, whether the government exercises that right or not, then I'll accept that point but not agree with it. I think there's a chance that the way the government exercises its license may well determine what the contractor can then do with it. Of course, I'd like to hear a genuine IP attorney address this point. I don't think a tax court case will do it. And while analogies and parallels to trade secret law will be helpful, I think there are some important distinctions between common law trade secrets and data rights under government contracts.

Someone asked why the government would ever choose not to release the data it has unlimited rights to. I can give one answer to that: quality. That was the main reason for the limited release in the XYZ/ABC case I mentioned.

So in summary, if you think there is no difference between the potential to release data and the actual release, then I won't try to convince you otherwise. I happen to think that there is a difference, at least in the government context. And given the XYZ/ABC case, there are some in the government that agree.

An aside to Vern: yes, I did initially concede to you, because you were very forceful in asserting that no other mark was allowed. However, I have exercised my right to do a Gore. In light of the XYZ/ABC example, the answer is not so clear, and maybe the argument can be made that the word "proprietary" without more is not a restriction on the government's unlimited license.


By Vern Edwards on Tuesday, December 31, 2002 - 10:17 am:

FARA:

It's normal in any conversation for there to be misunderstandings about what has been said and intended. I have enjoyed this dialogue and I have learned some things. Isn't that what it's all about?

My understanding is that your original inquiry was about whether a contractor could mark unlimited rights data delivered to the government "XYZ Proprietary." You said: "[I]t seems that the contractor needs to mark the data it delivers to the government, or else it will lose its ability to claim it is a trade secret." Italics added.

I think: (a) that such a marking is unauthorized under the terms of the clause you cited, (b) that if the data are, in fact, trade secrets, then it is not necessary to mark those data delivered to the government in order claim trade secret protection, and (c) that "XYZ Proprietary" is vague and not particularly instructive.

As to whether the whole world has a right to unlimited rights data, that depends on what kind of data it is. DOD 5400.7-R and DODD 5230.25 say that DOD must release unclassified unlimited rights data upon request, unless public release is prohibited under export controls. So I guess that the whole world does have the right to some unlimited rights data.

There are four kinds of intellectual property protections: trade secret, patent, copyright, and trademark. I have been speculating about whether trade secret protection would be effective if the property owner has given the government the right to use the property and to disclose the property to anyone it chooses for any reason whatsoever and to give others the right to do so. And I have been quite frank in saying that I do not know the answer. I think it's an interesting question, that's all, and I have enjoyed thinking about it.

I do not think that the government's unlimited rights give third parties the right to engage in industrial espionage or to traffic in or use intellectual property that has been stolen from someone else's files. So, I think that if the owner of intellectual property learns that a third party is in possession of unlimited rights data from its files, and if that owner knows that the government has not released those data to anyone, then it should call its lawyer and notify the police. What will happen next is anybody's guess, but I assume that the third party will have some explaining to do.

As for "XYZ Proprietary," yesterday I asked Prof. Ralph C. Nash, who is one of the leading experts on rights in data under government contracts, and he opined that "XYZ Proprietary" is (1) an unauthorized restrictive marking and (2) vague. I understand that his opinion does not compel your agreement.

I agree that the discussion is winding down. I appreciate your raising of the issue and have enjoyed our dialogue. Happy New Year!

Vern


By formerfed on Tuesday, December 31, 2002 - 10:31 am:

This discussion/debate has been extremely interesting and informative for me. Just sitting here and reading the various arguments taught me a lot. Thanks to all.


By Lola Dickerman on Tuesday, December 31, 2002 - 10:32 am:

To All:

I just read this entire discussion and I was greatly amused by it. I wish all of you a Happy and Healthy New Year -- and a new topic for 2003!


By Vern Edwards on Tuesday, December 31, 2002 - 11:25 am:

FARA and Anon19:

Lola's a well-known attorney.

So, Lola, are we idiots, or what?

Vern


By Lola Dickerman on Tuesday, December 31, 2002 - 02:11 pm:

Vern:

It is my opinion that the Contractor has no property rights in data which is developed at Government expense in which the Government has unlimited rights. It follows, then, that the proposed "Proprietary" marking is a breach of the contract terms and a totally ineffective tool against a competitor.
Warm regards,
Lola


By Anon19 on Tuesday, December 31, 2002 - 06:02 pm:

Yes, it has been interesting. On to Happy New Subjects for 2003! Have a good one everyone!


By FARA FASAT on Wednesday, January 01, 2003 - 04:07 pm:

Darn, everything was wrapping up really well, and I didn't want this to be a battle of who gets the last word, but then Lola threw me for a loop. She said that the contractor has no property rights in data developed at government expense. However, I have several texts in my office that say the contractor owns the data and the government has a license. Even DoD says it in the "Intellectual Property: Navigating Commercial Waters" handbook. Since the rest of her opinion follows that statement, what then?

Just throwing that in for thought. It doesn't mean that I don't see the problems with the marking, as many have pointed them out. We enter uncharted territory trying to protect something that the government has unlimited rights in yet has decided not to disclose. The XYZ/ABC case is a problem, and even the government had an interest in seeing that ABC did not manufacture the parts.

I have nothing else new, so have a Happy New Year everyone.


By Anon19 on Wednesday, January 01, 2003 - 06:14 pm:

FARA, on ownership, note that in the Lockheed case the tax court seems to consider the contractor to have sold the rights.

The Tax Court in Ofria concluded that the transfer to the government of unlimited rights to use and disclose the data constituted a transfer of all substantial rights to the data (and therefore a sale) when the contractor did not retain the right to use or disclose the data, and its ability to use the data depended on the government's public disclosure of such data. Id. at 545 n.9.

I think we've beaten this to death with the result that the contractor's ownership, rights, and control (including any marking) is, in the Lockheed court's word, "insubstantial." Nothing prevents a contractor from differing, but based on the results of looking into this I have to conclude you probably go into that gunfight with an empty six shooter.


By John Ford on Thursday, January 02, 2003 - 12:29 pm:

Anon19, I do not want to prolong this any more than necessary, but I believe you have misread the Lockheed decision. The key to the Court's ruling is the fact that "the contractor did not retain the right to use or disclose the data, and its ability to use the data depended on the government's public disclosure of such data." Thus, the Court based its decision on the specific terms of Lockheed's contract, not a general principle of IP law. Therefore, as contracting professionals, we should adhere to the practice of reading the contract to find out what specific rights and obligations the parties have. In this regard, the standard FAR and DFARS clauses generally give the Government only a license to use IP, they do not confer actual ownership of the IP on the Government.


By Vern Edwards on Thursday, January 02, 2003 - 01:12 pm:

All:

We have not beaten this subject to death. Don't be so quick to declare the discussion at an end. There are still intelligent thoughts to be had and things to be said.

I think that there is some confusion about the relationship between the concepts of ownership and rights in data. According to Black's Law Dictionary, "Ownership implies the right to possess a thing, regardless of any actual or constructive control." I can own something but not control it, because I loaned it to someone else without any restriction on its use. As John Ford pointed out on Dec. 20, the real issue is control over the use and disclosure of the information on the drawings:

"A developer of intellectual property is given the right to protect its possible commercial interests in that property. In other words, the developer is generally given an exclusive right to control the commercial use that is made of its intellectual property. However, when IP is provided to the Government with unlimited rights, the developer loses the ability to control the commercial use of the property."

In government contracting, it does not say much to say that the government or a contractor "owns" some data. Drawings depict data. If a contractor delivers drawings to the government, then the government owns those drawings, not the contractor. The issue is not who owns them, but what the government can do with them.

If the government owns drawings to which it has unlimited rights, which are the rights "to use, modify, reproduce, perform, display, release, or disclose technical data in whole or in part, in any manner, and for any purpose whatsoever, and to have or authorize others to do so," then the contractor not only does not own the drawings, but it has no control over their use or disclosure. If the government owns the drawings, but has only limited rights, then the contractor has some control over their use and disclosure.

In this context it is important to understand that the government can have rights in data which it does not possess. The DFARS clause at § 252.227-7013, paragraph (b)(1), gives the government unlimited rights in "data pertaining to an item, component, or process which has been or will be developed exclusively with government funds." The government gets those rights whether the data are to be delivered to the government or not. However, that clause does not require the delivery of those data, and unlimited rights do not include the right to compel delivery. If the government wants to possess, i.e., own, any such data, then the contract schedule must identify and specify its delivery; see: DOD 5010.12-M, Procedure for the Acquisition and Management of Technical Data, May 1993, and DFARS §§ 227.7103-1(b)(1) and (3) and 227.7103-2(a) and (b). DOD usually specifies data delivery on DD Form 1423, Contract Data Requirements List (CDRL).

If the contract does not identify and specify delivery of data in which the government has rights, then the contractor does not have to deliver the data and the government cannot contractually compel the contractor to do so, unless the contract includes a clause like DFARS 252.227-7027, Deferred Ordering of Technical Data or Computer Software. Thus, the government can have rights in data which it does not own. (In my discussion with Prof. Nash, he emphasized the importance of this point.)

The government's rights in data are effective only with respect to data which it possesses, i.e., owns. If a contract does not specify delivery of data to which the government has unlimited rights, then the government does not own any data which it can use or give to others and has no effective control over the data. When the government does not possess data to which it is entitled to unlimited rights and cannot compel a contractor to deliver it, it makes no sense to say that the government "owns" the data.

So, I do not agree with Lola when she says that a contractor has no property rights "in data which is developed at Government expense in which the Government has unlimited rights." If the government does not possess the data and thus cannot control its use and disclosure, then I think that the data may be subject to trade secret protection. However, I do not believe that a contractor has property rights in data which it has delivered to the government with unlimited rights.

Make sense?


By Anon19 on Thursday, January 02, 2003 - 04:49 pm:

John, I do not believe I misread the decision. I believe you have not caught the key point of the particular and peculiar effect of an unlimited rights grant despite some of the contract provisions in this case.

Note that following a quote from Black's Law Dictionary the court discusses "General principles of property law regarding the rights associated with property ownership provide guidance as to the types of rights that may be deemed substantial" with a key one being "the right to prevent unauthorized use or disclosure is a substantial right which, if retained by the transferor, will preclude the transfer from being deemed a sale." Admittedly this tax case is not precisely one determining contract issues and special circumstances do intrude; however, it is telling in some key respects:

In this case, the government's unlimited right to use and disclose plaintiff's technical data considerably diminished, if not destroyed, the commercial value of plaintiff's right to use the results of its research, a right derived from the competitive advantage to the researcher over others. Cf. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1011 (1984) (economic value of property right in trade secret lies in competitive advantage over others, by virtue of its exclusive access to the data; disclosure or use by others destroys that competitive edge). The government's power to exercise an unlimited right to use and disclose the technical data destroys plaintiff's competitive advantage.

The potential destruction of plaintiff's competitive advantage caused by the government's exercise of its unlimited rights to technical data is demonstrated by the government's disclosure of technical data to second sources, which enabled plaintiff's competitors to compete successfully under at least two programs: the Patriot Canister and the VLS programs.

[bold italics added]

I believe those and similar parts of the discussion and decision are not dependent on the peculiar "security classifications and export restrictions" that are discussed in refuting one of the plaintiff's arguments.

Of course the contract terms are the key. Only when the contract requires unlimited rights transfer to the government do these cases indicate the contractor retains nothing really "substantial" as far as control and even ownership. In any case where the government gets less than unlimited rights those other issues obviously apply.

Vern, the "security classifications and export restrictions" mentioned in the tax case are interesting in light of your point about delivery and ownership. Let's take a classic example. The corporations developing nuclear weapons might not have delivered all the data. The government certainly has "security classifications and export restrictions" on those data despite that fact. The company is (We must hope!) not free to go off and use that undelivered expertise wherever it can make a profit.

Your point about undelivered data that is not under such extraordinary government control is interesting. I tend to agree. It also touches on something mentioned in the tax case ("Therefore, plaintiff does not retain substantial rights in the research solely by virtue of the experience gained as a result of performing that research, even if the experience may be useful or valuable in obtaining and performing other projects") and of interest to me for further discussion as I propose at the end.

I do think we've beaten to death this particular aspect of corporate latitude when it has complied with an unlimited rights requirement. Its rights and latitude are equivocal. In particular, I think contractors should note your previous observation that it is not just their contracting agency who can do this to their supposedly secret commercial advantage. Relying on that slim thread for an advantage is probably about as useful as relying on not being misquoted somewhere and sometime after a news interview!

Another possible and profitable discussion line are the factors to be considered by both government and contractor in any unlimited rights requirement.

For example, I've dealt with cases where the requirement is unlimited rights, but the contractor offers cost savings by including previously done work and techniques where rights were retained by the company. We sat down and parsed our requirements and their commercial needs to mutual satisfaction and a classic win-win. Another program got terribly wrapped around this axle with a long and costly dispute. In the first, one of the key issues was delivery of maintenance techniques without the company losing commercial advantage of its experience and the unique techniques that gave it a corporate advantage. That is but one example of the possibilities.


By John Ford on Friday, January 03, 2003 - 03:46 pm:

Vern and Anon19, I understand where you are coming from, but I suggest that a company retains a property interest, albeit diminished, in data it has delivered to the Government with unlimited rights. While the Government has the right to do what it wants with that data, as a general proposition so does the company. Absent unusual circumstances such as classified data or export restrictions,such as were present in the Lockheed case and upon which the Court's decision seems to be based, the contractor is free to commercially exploit that data. It has this right not under a grant of right or a license from the Government which merely has a license granted by the contractor to use the data, but because it owns the data (i.e., has a legally protectable property interest in the data) and can use it for its own advantage. Further, I believe these rights are legally protectable against unauthorized use by third parties. If the Government does not release the data or authorize others to release the data, but some party comes into possession of the data and attempts to use it without authorization, either direct or indirect, from the Government or the contractor, I believe the contractor can take legal steps to prevent that unauthorized use, particularly if the data is copyrighted by the contractor. I doubt that the Government could take such steps as it is merely a licensee and its license is not compromised by the unauthorized use of the data. Whether we want to call the contractor's property interest ownership or place some other label upon it, I nevertheless belief the contractor retains a legally protectable property interest in unlimited rights data it has provided to the Government, in the absence of unusual circumstances as mentioned above.


By Anon19 on Friday, January 03, 2003 - 08:07 pm:

John, I understand your point and agree, with reservations. The tax case is not the only place I've noted the "potential" of government release as being a factor in diluting a corporation's claim. I suspect you may be technically correct in a purest sense. On a practical basis I believe a company trying to enforce its diluted rights would have a tough course to run.

Such data is not accountable. There is no definitive tracking system that I know of for ordinary, unclassified, "unlimited rights" data. Agency "A" obtains it under contract, passes it to agencies "B" and "C" who then pass it to (??). Two years after the delivery company "X" has and is using the data and I'm going to court to protect my rights! (Remember, copyright has very limited use here and does not keep anyone from reading and applying the information.)

Unless I have some proof they obtained it by riffling my office I'm probably lost at the start. Can I prove they did not get it by some form of government release? Remember, a GS-13 over in agency "Y" who got it from any agency up in the alphabet may have given it to company "Z" authorizing further distribution as needed. Company "X" will claim they got it from someone with authority unless they are unusually honest and have a guilty conscience.

Can I prove they did not? Will there be a transmittal document trail still existing (Heh, heh, ha, ha!) that will allow my investigators to trace through all those offices and get the goods for the trial? Just because they didn't find one does that mean that GS-12 over there didn't release the data? Will a judge allow me to presume nefarious possession under these circumstances? The mention of the potential release aspect in some of these cases makes me think that is a fool's hope. Really, do I spend the big bucks on a suit standing on that ground?

All this is an interesting discussion. If I'm a company with trade secrets to protect I'm going to gain the knowledge and spend the time and effort to fully understand what I must protect and what contract circumstances might jeopardize that. I'm going to be sure that when an unlimited rights requirement stares me in the face I'm going to know how to negotiate my way through that hazard and protect my corporate gold.

I will, for example, know that proposed programmer "B" worked on a very similar project done at my expense and I therefore have a source code leakage risk between internal funded and government funded projects. Once "B" somehow innocently mixes my secret short cut into that unlimited deliverable code I'm probably toast. There are ways to either keep that from happening or protect the product with negotiated less than unlimited rights if it is sure to happen. To put it plainly, any company venturing into an unlimited rights deliverable without doing a red team IP risk scrub is probably just naked and ready to be skinned. I have little or no sympathy for whining after being careless.

I think a further discussion of what can be done to recognize and mitigate risks has merit. I'm not sure one about whether the careless have very thin or just thin legal armor is profitable now.


By FARA FASAT on Saturday, January 04, 2003 - 03:06 am:

Who said anything about careless releases of company-funded data? It's not a profitable discussion because it's simply not the issue. Furthermore Anon, your list of all the difficulties of proving a case is fine in the abstract but is largely irrelevant. If the data is released there is no case, and we're off issue again. In the XYZ/ABC case, the AF quite willingly affirmed that they did not release the data, so the proof was not difficult.

John, thanks for the return to sanity.

Vern, your last post threw me more than Lola's. Are you seriously equating possession with ownership? You said it a couple of times. That would kind of destroy the concept of licenses, wouldn't it?

I'm trying to keep these short because I'm doing this over a phone line, and it took over 90 seconds to open this thread. Besides, I'm from Ohio and I have some celebrating to do.


By Vern Edwards on Saturday, January 04, 2003 - 04:11 pm:

John and FARA:

John -- Yes, the contractor has the right to exploit the data commercially. No question. The question is to what extent, if at all, it can stop others from doing so. You say: "I believe [the contractor's] rights are legally protectable against unauthorized use by third parties." On what basis: Trade secret? Copyright? Patent?

18 U.S.C. § 1839 and the Uniform Trade Secrets Act define "trade secret." One of the criteria for trade secrecy is that the owner thereof has taken reasonable measures to keep such information secret. How can a contractor claim that data are secret if it has given the data to the government and given the government unlimited rights to disclose the data and to let others disclose it?

I do not believe that a contractor can claim trade secret protection for data that it has delivered to the government with unlimited rights. I think that by giving the data to the government and licensing the government to disclose the data to anyone for any reason, and to authorize others to do so, the contractor has surrendered any claim of secrecy, whether the government has actually released the data or not.

Also, the DOD data rights clause cited by FARA, DFARS § 252.227-7013, includes the following paragraph:

"(c) Contractor rights in technical data. All rights not granted to the Government are retained by the contractor."

I'm not sure what that means, but I think that one could argue that it means the contractor has surrendered any claim to secrecy, because it has granted to the government the unlimited right to disclose and to allow others to do so.

The contractor may have copyright rights, or patent rights to inventions described in technical data, but I don't think it has trade secret rights in data which it has delivered to the government with unlimited rights.

FARA--I think you rely entirely too much on the fact that the DFARS descrobes unlimited rights as "license" rights. For one thing, you seem to think that a licensee is not an "owner" of a trade secret. Take a look at 18 U.S.C. § 1839(4), which provides as follows:

"[T]he term 'owner', with respect to a trade secret, means the person or entity in whom or in which rightful legal or equitable title to or license in, the trade secret is reposed."

Underlining added.

What do you make of that?

My point it that the concept of "ownership" is not clear or especially helpful to us in discussing the topic at hand. The issue is what control the contractor can exercise over data delivered to the government with unlimited rights. The question is whether a contractor can successfully pursue a trade secret infringement action with regard to data that have been delivered to the government with unlimited rights. I don't know the answer, but I believe that such an action is unlikely to be successful, for the reasons I have given.

Vern


By Vern Edwards on Saturday, January 04, 2003 - 04:16 pm:

John and FARA:

Keep in mind that copyright protection will enable the contractor to prevent others only from making literal copies of its data. It cannot be used to prevent others from using the ideas or technology described in the data.

Vern


By Anon19 on Sunday, January 05, 2003 - 01:35 pm:

I think Vern has pointed out the major weaknesses of FARA's argument "In the XYZ/ABC case" [Pacific Sky]. I must also point out that the Air Force was not defending one contractor's claim against another. They were trying to avoid their being forced into a FOIA release. Their particular claim of these deliverables being someone else's "trade secrets" was solely in aid of the Air Force's peculiar internal interests. We can be almost certain an opposite argument would have been made if Air Force had not been involved in a FOIA case and had wanted to disseminate the drawings to its fellow government agencies and contractors.

In addition, I believe some companies confuse dealing with a particular agency as equivalent to dealing with another company. I've personally dealt with and disposed of that argument in one case. That may be a habitual mistake from a commercial viewpoint, but it is a false assumption. The Air Force is not the government in the sense of these rights.

I will grant this: It may not be the intention of the unlimited rights clause to effectively place such data effectively in the public domain, particularly with respect to commercial entities not doing business with the government. What I'm seeing in several court cases is that having delivered data under such a clause seriously undermines any future claim that it remains a "trade secret."

FARA, you asked, "Who said anything about careless releases of company-funded data?" and my response is that discussions may bring in topics you might not have introduced. That makes them no less valid. I have introduced the issue of companies misunderstanding or blundering into IP issues in these contracts. I think you and yours might be on that road if you keep relying on your interpretation of Pacific Sky. Perhaps, if you exercise your freedom here, you will make clear new case law for us.

I have a a little experience with companies dealing with the issues of protecting trade secrets while meeting unlimited rights deliverables. I've seen some do so elegantly (much to our relief) and some blunder into a pitiful mess. It was partly my job to see their accident didn't become our mess and that our government rights were enforced. I am introducing what might be a profitable continuation since, as far as I am concerned, FARA's contentions have been covered and pretty firmly shot down. The considerations and steps both government and industry can take to minimize IP confusion are worth discussing further.

The following references are not strictly on FARA's topic, but illustrate the need to know, understand, plan for and absolutely follow the rules of this game. They most definitely do involve marking requirements and hazards of not complying absolutely.

One example of a company getting wrapped around the rights issue is seen in ASBCA No. 49196 in which a company did not strictly follow the instructions. One showing just how detailed compliance must be is seen in United States Court of Appeals for the Federal Circuit, 01-5055, Feb. 4, 2002 (Xerxe Group, Inc.). Picky? Yes, even to me. That is just the way it is.

A discussion by Kimberly C. Welch (Protecting the Crown Jewels) is on line and contains this advice:

Companies whose crown jewels are technical data and software must understand the strings that come attached to federal funding in the form of government rights in that technical data and software. In seeking federal funds to advance technology, companies must weigh the allure of federal money against their ownership interests in their intellectual property assets and strategize to minimize the risk.

That is simply one of many such web sites. The market for training in this area and the numerous legal web sites discussing the subject do not exist due to corporate America's fine understanding of the issues and avoidance of problems.


By Vern Edwards on Sunday, January 05, 2003 - 03:11 pm:

All:

It might be useful at this point to make sure that we're all talking about the same thing.

As I understand it, we're discussing a contractor's ability to prevent a third party from using data that the contractor had delivered to the government with unlimited rights. The specific issue is whether a contractor can go to court to get an injunction prohibiting a third party from using data (a) developed by the contractor entirely at government expense, (b) to which the government has unlimited rights, and (c) which the government did not disclose to that third party through official channels.

Is everyone on the same wavelength or am I alone in left field?

If I'm on the right track, then I think the question boils down to this: On what basis can the contractor seek injunctive relief to prevent the third party from using the data? There are four types of intellectual property protection: (1) trade secret, (2) copyright, (3) trademark, and (4) patent. Each affords different protections.

Under trade secret law, the contractor could obtain an injunction to prevent the third party from using trade secrets described in the data.

Under copyright law, the contractor can obtain an injunction to prevent the third party from making literal copies of the data, but not from using the ideas, technologies or inventions described in the data.

Under trademark law, the contractor can obtain an injunction to prevent the third party from using any trademark that appears in the data.

And under patent law, the contractor can obtain an injunction to prevent the third party from making, using or selling any patented invention described in the data.

Based on the above, I think that the issue boils down to whether or not the contractor can claim that the data are trade secrets despite the fact that it has delivered the data to the government with unlimited rights to use and disclose it and to let others use and disclose it. I don't see any point in arguing about who "owns" the data, since ownership, whatever it means, does not necessarily include the right to control use and disclosure.

Now, suppose that a third party has obtained unlimited rights data from a government employee who did not go through proper channels before releasing it, as prescribed, for instance, by DODD 5230.9, Clearance of DOD Information for Public Release. The data are not classified and are not subject to export controls. The government employee was properly in possession of the data and the third party did not engage in any criminal behavior in order to obtain the data from the government employee. The contractor considers the data to be trade secrets, the data have never before been disclosed to the public, and they are of economic value to the contractor. Pursuant to DODD 5230.25, Withholding of Unclassified Technical Data from Public Disclosure, the government could have authorized disclosure of the data upon request, since it had unlimited rights, but, in fact, it did not.

Can the contractor get a trade secret injunction?

Vern


By Anon19 on Sunday, January 05, 2003 - 05:11 pm:

Interesting way to spend a snowy post holiday Sunday afternoon I suppose.

Vern, that is an excellent summary of the situation and the key question. I think we can dispose of patent and trade mark questions. There are also specific directions for deciding on patent in these cases. I believe it roughly tracks the data rights on funding source. I see no need to open that can now.

Copyright is also pretty much a non issue. We have stipulated the contractor can add copyright notices and also know the government has specific rights of reproduction and distribution under the authorized notices. Copyright would only preclude a third party, not having obtained the material under one of the government rights, from sale and copying outside "fair use" rules. Those might not preclude a company from making certain extracts, not for sale, to enable it to better distribute ideas contained in the material internally. That is another can of worms we don't need to get into here.

What remains is the question of trade secret status as you have described. I suggest we concentrate on your scenario. A party outside the government obtains the material when there has been no blanket, public release by government and there is no explicit release to that party.

DODD 5230.9 is a low hurdle in my opinion. Policy statement three, "The public release of official DOD information is limited only as necessary to safeguard information requiring protection in the interest of national security or other legitimate governmental interest, as authorized by references (g) through (t)" [italics added] is instructive. It essentially requires official information to go through public affairs and cautions one to look at those references in preparing to do so. It is entirely silent on the subject we are discussing.

DODD 5230.25 is limited: "the application of this Directive is limited only to such technical data that disclose critical technology with military or space application" and "such technical data" appears to refer to data falling under the Arms Export Control Act. It explicitly mentions only the classes of rights not under discussion. It mentions data rights as we are discussing them only as follows:

2.2.5. Does not alter the responsibilities of DoD Components to protect proprietary data of a private party in which the Department of Defense has "limited rights" or "restricted rights" (as defined in subsections 9-201(c) and 9-601(j) of the DoD Federal Acquisition Regulation Supplement, reference or which are authorized to be withheld from public disclosure under 5 U.S.C. 552(b) (4) (reference (i)). [italics added]

DODD 5230.24, one of the references in 5230.9, only specifies distribution statements. "Statement A" is of particular interest [all emphasis added]:

E3.1.1.1. DISTRIBUTION STATEMENT A. Approved for public release; distribution is unlimited.

E3.1.1.1.1. This statement may be used only on unclassified technical documents that have been cleared for public release by competent authority in accordance with DoD Directive 5230.9 (reference (f)). Technical documents resulting from contracted fundamental research efforts will normally be assigned Distribution Statement A, except for those rare and exceptional circumstances where there is a high likelihood of disclosing performance characteristics of military systems, or of manufacturing technologies that are unique and critical to defense, and agreement on this situation has been recorded in the contract or grant.

E3.1.1.1.2. Technical documents with this statement may be made available or sold to the public and foreign nationals, companies, and governments, including adversary governments, and may be exported.

E3.1.1.1.3. This statement may not be used on technical documents that formerly were classified unless such documents are cleared for public release in accordance with reference (f).

E3.1.1.1.4. This statement shall not be used on classified technical documents or documents containing export-controlled technical data as provided in DoD Directive 5230.25 (reference (c)).

Then we get into the restrictive categories. Note the comment for Distribution Statement B concerning proprietary information: "To protect information not owned by the U.S. Government and protected by a contractor's "limited rights" statement, or received with the understanding that it not be routinely transmitted outside the U.S. Government. That condition is explicitly nullified by the unlimited rights statements.

From this, and my experience with these statements, unlimited rights data would likely be marked with Distribution Statement A. It provides adequately in 6.3.3 and Distribution Statement B for those limited rights statements we are not discussing.

From this I have to conclude that unlimited rights data in government hands is under the weakest "protection" one can imagine. If I have ten copies of a document with Statement A I can simply hand them out, in Heathrow Airport if I choose. Sir George, XYZ's fierce competitor, can then take the thing and tear the cover off along with that cute little form in the back. That would be foolish, because if XYZ challenges him he has torn off immediate protection.

Let's say he did tear the statement off. Let's even say he found something left in the trash that had no distribution statement and even had not been "officially released." His defense finds the data released with the unlimited rights we are discussing. Those court discussions mentioning "potential" release to the world and dilution of "trade secret" status by granting of unlimited rights of this sort come into play. There seem to be a number of judges saying "What secret?" in this situation as the precedents are examined.

Murder gets acquittal. The innocent are found on death row. Despite our desires the justice system is an uncertain thing. It is not impossible XYZ would not prevail, but I'd say XYZ is in a crap shoot and very likely with dice loaded against them if they choose to pursue the matter.


By FARA FASAT on Monday, January 06, 2003 - 01:21 am:

Vern, I'm asking a different question. Your (c) assumes that the government released the data but did not go through proper channels. To simplify things, I'll agree that there is little chance of protecting the data in that situation. However, my XYZ/ABC scenario assumes that the government does not want the data released. I think it makes a difference because now the third party has no right to it. After all, misappropriation occurs when one takes something without a right to do so.
By the way, I still don't think that possession = ownership. I certainly do seem to think that a licensee is not the owner of a trade secret, and I am somewhat surprised that you think a licensee is. I am sure that Microsoft (not to mention, oh, maybe all software companies), would also be surprised. However, further response must wait until I get back Monday and have access to my resources and a high speed connection.

Anon, you spent a lot of time discussing a reg that says the government may release unlimited rights data. That doesn't prove that the contractor has no rights in it, nor does it prove that a third party is entitled to it no matter whether the government wants it released. Now if the reg said that the government must release unlimited rights data, this whole discussion would be over. Fortunately, it's more fun than that.
Yep, it's probably a crap shoot, but if I owned it and the government didn't release it, I'd sure try everything possible to stop a misappropriator from using it. After all, my brains created it, not the third party's.


By Vern Edwards on Monday, January 06, 2003 - 09:45 am:

FARA:

You know, I think that you've stopped reading anybody's comments but your own.

When did I say that possession equals ownership? Please show me the quote. Are you talking about my comments of Jan 2 at 1:12? If so, please go back and read them again, carefully, this time.

I do not think that possession and ownership are the same thing. I do not think it and I did not say it. What I said was that ownership is a confusing idea in intellectual property. What I said was that the government owns the drawings that the contractor delivered to it, and depending on what rights the government gets, the contractor might not be able to control what the government does with the drawings, or what others do who got the drawings from the government. What I said was that rights in data without possession of the data gives the government no control. What I said was that instead of arguing about ownership, we would do better to talk about the power to control. What good does it do to say that a contractor "owns" data when the government controls its disclosure and use by itself and others, subject to no restraint by the contractor?

And I didn't say that a licensee is an owner; I quoted a federal statute that says it. And I asked you what you thought about that statute. Well, what do you think?

In your XYZ/ABC example, why doesn't the government want the unlimited rights data released? Even if data are classified or subject to export controls, some contractors can get it; it just depends on who they are. If a third party is in possession of data that the government does not want it to have, that does not give the contractor a right of action against that third party. The government may plan to release or already have released the data to other third parties, and a court may decide for that reason that the data are not trade secrets. And the third party may have come into possession of the data inadvertently and innocently, which would mean that they did not misappropriate it.

And you are not paying attention to what Anon19 and I have been saying about DOD regulations governing the release of unlimited rights data. Have you read those regulations?

Finally, do you know how the law defines "misappropiration"? If not, I suggest that you look it up. I have already acknowledged that a third party cannot commission or commit burglary, but there are many ways in which a third party can come into unauthorized possession of data that do not constitute theft or misappropriation. Unauthorized possession by a third party is not necessarily the result of misappropriation by the third party.

Finally, the issue is not what you would want to do to prevent a third party from using data; the issue is what you would be able to do to prevent it.

And by the way, FARA, I did not like your comment about John restoring sanity to this conversation. I am not insane and Anon19 does not sound insane. We disagree with you (as do others) and we have been trying to explain why in a respectful way. What John did was to make a bunch of unsupported assertions, such as:

"If the Government does not release the data or authorize others to release the data, but some party comes into possession of the data and attempts to use it without authorization, either direct or indirect, from the Government or the contractor, I believe the contractor can take legal steps to prevent that unauthorized use, particularly if the data is copyrighted by the contractor."

He doesn't say why he believes what he believes. He cites no law and no court decision. He describes no legal theory. He may be right, but he has yet to prove it or even make a good case.

And copyright cannot prevent use; it can only prevent copying.

Vern


By Anon19 on Monday, January 06, 2003 - 10:52 am:

FARA is hanging on a slender thread here: "However, my XYZ/ABC scenario assumes that the government does not want the data released " and is using an example when the contracting agency, for its own purposes, does not want something released. That agency is not "the government." Though quaint, the courts still largely hold that our government represents the public and its information is public information with certain reasoned reservations for such things as national security, which we've stipulated is not the case here.

FARA says, "After all, my brains created it, not the third party's," ignoring the fact that his brains, as applied to this effort, were being entirely funded by the public's purse. Moreover, he performed the work under a contract clause making it abundantly clear he was to deliver that product without strings attached as to the public use of that product. Lola mentioned "breach of the contract terms" in connection with an attempt to undermine the clear conditions of those contract terms. I agree.

Let's get something clear. Unlimited rights only apply when the public purse has paid for the development. They do not apply when the work has been funded by corporate or a mix of corporate and public funds. In both those cases the less than unlimited rights conditions apply. So, let's stipulate that FARA's contention only applies when FARA has been hired, put on notice in advance that the work will be essentially the public's to use as its representative (government) sees fit and has agreed to apply "my brains" to that delivery.

After agreeing and performing this contracted work FARA relies on the contracting agency to be "the government" and not want to release this publicly funded work to the public. He cites in support an Air Force case where an Air Force agency resisted a FOIA action using the "trade secret" argument. Agencies sometimes tend to get their backs up, in my opinion forgetting just who they really work for, in FOIA cases. I've so far been unable to locate a copy of the ruling, but trust Vern's detailed work and noted on Friday, December 27, 2002 - 01:04 that FARA has misread the case in the first place and quotes Conax: "a higher court in the same jurisdiction (District of Columbia) as the Pacific Sky district court, said: '[I]f the drawings belong to the government without limitation, [the contractor] has no trade secrets to be protected.'"

A premise of trade secret protection is that it is a secret and can be protected by the originator. For example, there is common legal opinion that a trade secret cannot reside in physical articles easily subject to reverse engineering. One must rely on revealing the secret and seek a patent for such items. Now, in FARA's case the intellectual work was done under clear conditions that the company or individual was under hire to the government and was to deliver the product of their brains with rights vested in the government to potentially absolutely divulge any secrets it might contain. Conax wording that there are "no trade secrets to be protected" applies.

FARA will say, "My contracting agency is protecting them by not releasing them" to which I state again that an agency or even a Department is not the government. If they have their own reasons for keeping the "secret" they must justify that on national security or other such grounds as there is no evidence in directives that unlimited rights data can be protected under trade secret grounds. Another clause would have to have been in place for that to happen. FARA is safe only so long as one agency succeeds in making arguments that are quite weak.

FARA, if pigs had wings they could fly. If your agency succeeds in dragging its feet long enough you might have a trade secret. FARA says "I'd sure try everything possible to stop a misappropriator from using it" It is obvious your secret's fate is entirely in the hands of others. Some courts appear to have stated that alone is enough to make it not your secret. Your competitor, rather than being a "misappropriator," is actually among those funding your work and buying the unlimited rights.

I thus believe FARA's competitor could possibly even join in an action against FARA's agency with a claim that the work must be made public unless it can prove it must "safeguard information requiring protection in the interest of national security or other legitimate governmental interest" as stated in 4.3 of 5230.9. That should make for some interesting cases. They are only one among millions of others and higher authority that have means of forcing your cooperative agency to change its mind. You are relying on a most slender thread of "secrecy." FARA might as well recite the "secret" in Times Square and hope no one hears. Then it appears FARA doesn't hear much and persists in the fantasy.


By Anon19 on Monday, January 06, 2003 - 01:32 pm:

Vern, There is little point in trying to convince FARA. I've had more success in talking to the snow and making it leave my drive so it is easy to find other diversions. I also contend we've exhausted the specifics of FARA's question. Neither has FARA offered evidence to extend thinking on the subject. I'm not willing to argue the constant "clarifications" and reiteration of the same worn proposition. I do agree there is more interesting thinking on the subject of IP and strategy for both industry and government.

FARA and those sharing the view would be better served to invest in internal development where other clauses apply and not rely on slender chances to control what is really out of their control. They would also be better served if they thought of those things they can leverage even when they have done the work under unlimited rights for the government.

The Lockheed case offers an example: "Incidental benefits to the taxpayer from performance of the research (for example, increased experience in a field of research) do not constitute substantial rights in the research . . ."

The data one develops under an unlimited rights clause may not be a dependable trade secret; however, the insubstantial experience gained can be quite valuable. A company is probably far wiser to concentrate on leveraging this rather than on the ability to hold essentially public information secret. One that accepts the fact that its "secret" really is out of its control and concentrates on using its experience to do whatever better, faster and cheaper will probably grow and survive while the one clinging to straws is consumed in survival of the fittest.

I'm definitely cheering the wolves here. Or maybe it is the squirrels. Remember that wonderful and short run add about the running of the squirrels? Forget the bulls, fast, nimble squirrels are the ones to worry about.


By Vern Edwards on Monday, January 06, 2003 - 01:48 pm:

All:

I don't know the answer to the question that I asked at the end of my post on Jan 5.

To me, this is about sharing information and ideas in an attempt to get to some kind of an answer, even if only tentative. I don't consider this discussion a contest and I'm not trying to win. I'm not trying to defend a position or attack anyone else's. I'm not on any side. I just want to reason my way to a conclusion of some kind, if that's possible, with the help of my colleagues.

I enjoy conversation and debate and since I don't work in an office I miss the opportunity to do that with colleagues. But this discussion is taking a turn toward the sophomoric. I can be as sophomoric as the next guy, but I've made a New Year's resolution to be intelligent. So, if we're not going to proceed in an orderly and collegial way, then I'm done.

Vern


By FARA FASAT on Monday, January 06, 2003 - 07:00 pm:

I guess the only way to respond to the last couple of posts is to take the accusations in order. That doesn't allow for a logical sequence but, oh well. Also, sorry about the sanity comment, but it was meant to lightheartedly commend John for succinctly summarizing the issue and bringing the discussion back to the original question, from which it had digressed. (Vern, your summary of 1/5 was also good, so thanks for that ‘sanity’ also.).

Vern, you seem miffed that I think you equated possession with ownership, and told me to go back and read your post "carefully" and to "please show me the quote." Well I did, and here are your words: "If the government wants to possess, i.e., own, any such data...." "The government's rights in data are effective only with respect to data which it possesses, i.e., owns." Finally, you said that I “seem to think that a licensee is not an owner of a trade secret.” How else am I supposed to interpret those words? I didn't make them up, and I didn't stop reading everyone's comments but my own. I certainly read yours, and you seemed to be saying something contrary to my basic understandings.

I am glad you now say that you do not think possession and ownership are the same thing, but I hope you can see why I thought so from your comments. I agree that the power to control the data is more important than outright ownership. Nevertheless, ownership is still important. After all, the owner has the inherent right to authorize others to use the data through a license. A licensee can only authorize others if the licensor gives him that right.

I don't think I am reading too much into the description of the government's rights as a “license.” Here is what others have to say about it:

From the DoD guide "Intellectual Property: Navigating Through Commercial Waters": "As a general rule under government contracts, the contractor-developer is allowed to retain ownership of the technical data and computer software it developed; and the Government receives only a license to use that technical data and computer software. DoD does not "own" the technical data and computer software included in deliverables, even if the Department paid for 100 percent of the development costs." (page 1-4).
"Contractors are generally permitted to retain ownership (e.g., title) of the IP rights governing the technologies/information that they develop or deliver under DoD contracts; and DoD receives only a (nonexclusive) license to use that IP...." (page 2-2).
"In general, the contractor-developer retains title to the IP, and the Government receives a nonexclusive license to use, reproduce, modify, release, perform, display, or disclose the data or software." (page 2-3).
"The Government may own the delivered physical medium on which the IP resides, but it generally will not own the IP rights." (page 2-7).
From the Fed Pubs “Rights in Technical Data & Computer Software” (1995): “Under the regulations, the Government obtains rights in technical data under an irrevocable license granted or obtained for the Government by the contractor. The contractor (licensor) retains all rights in the data not granted to the Government. That means that the contractor “owns” the technical data and, in general, may do anything with the data it wishes. (pp. A-70-71).

Enough on that. You then asked what I think of 18 U.S.C. 1839, which seems to define an owner as including a licensee. Frankly, I don’t know, but I’m holding “Milgrim on Trade Secrets” and it seems to have no problem distinguishing between an owner and a licensee of a trade secret. Maybe Congress meant the definition of an owner to be all-encompassing, like “person” is defined to include “corporation.” It’s not accurate and it makes no literal sense, but it substitutes one word where several would have to be used otherwise.

Next up: you asked “In your XYZ/ABC example, why doesn't the government want the unlimited rights data released?” I don’t know but I will find out. I put a call in to the attorney who handled it, and will post the answer up here if possible.

Am I paying attention to the regulations you and Anon cited, and have I read them? Yes and yes. While I have not immersed myself in them, I have scanned through them, and I don’t believe they require the government to release unlimited rights data. Thus, it seems that the government can choose not to release the data, which happens to be my scenario and question. Make no mistake about it – once the data is out it is out, and there is no protecting it. It doesn’t matter whether the data comes out through a voluntary release, a FOIA request, a license, or any other authorized way. I have never argued anything different.

Do I know how the law defines misappropriation? I think so. And while you say that “unauthorized possession by a third party is not necessarily the result of misappropriation by the third party,” I would direct your attention to the definition of theft in 18 U.S.C. 1832 (the same chapter you went to for your definition of “owner”). Note that all three of the substantive subsections include the term “without authorization” (the last two subsections are attempts and conspiracies). There may be some examples of innocent unauthorized possession, but the definition sure covers a lot of territory. Besides, my scenario assumes misappropriation, not innocent or authorized possession.

Vern asked the right question on 1/5 and 1/6. For a start at the answer, let me turn to the master himself, Ralph Nash. In “Intellectual Property in Government Contracts” volume 2, he discusses unlimited rights at chapter 1.I.B.6. On page 71 he states: “The right to disclose the data in any manner as specified by the definition of unlimited rights clearly gives the Government the right to extinguish any trade secret by such disclosure including the right to use such data for competitive procurement purposes. However, much of the technical data delivered to the Government may not be disclosed to other contractors for many years or ever.” (I note that he said ‘right to disclose’ leads to the ‘right to extinguish, not ‘has extinguished’). He then refers to an argument made in another text that “the mere giving of unlimited rights to the Government does not in itself constitute relinquishment of a trade secret through disclosure” and analogizes it to a Supreme Court case in which a trade secret license was upheld even though the secret later became public. He ends the paragraph with: “Similarly, licensing agreements for technical data, to which the Government has a right of disclosure, should not be invalidated after disclosure by the Government so long as they are reached prior to the time the data comes into the public domain….”

Isn’t this what I have been asking, whether the contractor has a protectable interest as long as the government has not released the data? Doesn’t Professor Nash distinguish between the right to release data vs. the actual release? If the contractor can license the data before the Government releases it, doesn’t there have to be a property interest there to license? And if there is a property interest, why can’t the contractor protect it? In short, if you can license it why can't you protect it? I think one answer may be in the potential release vs. actual release.

I hope that’s enough thought for now. If the above is considered sophomoric, then I hope I have included enough references to be in good company.

I don’t have time to address Anon’s comments, which surely need it but which, at any rate, I find rude, insulting and condescending (“talking to snow”; “if pigs had wings”; indeed). Oh heck, I just have to, so here goes.

If an agency or department is not the government ("I state again that an agency or even a Department is not the government"), then what is? You imply that it is the public, but if so, then every reference to “government” in the US Code and CFR takes on an entirely new meaning. Can we just substitute the word “public” for “ Government” every where it shows up?

You also said that my competitor funded my work (presumably through tax dollars) and bought the unlimited rights. Where in the FAR, DFARS, or any reference does it say that the public has the unlimited rights license? Everything I read says the government has it.

There’s more, but now I truly am out of time. Too much work not done over the holidays. Once more, just to be clear: I agree that unlimited rights and data protection may be inconsistent, and I don't have a "position" on it. I'm just raising issues, and I haven't seen a definitive debunking yet. In particular, Professor Nash's comments are interesting, and I would like to see some discussion of them.


By Vern Edwards on Monday, January 06, 2003 - 07:51 pm:

FARA:

Good comments.

I don't want to focus on the past, but I want to say that you took two of my sentences about possession and ownership out of context and reached the wrong conclusion about what I meant. Enough said about that, since you now understand my thinking in that regard.

As for your disagreement with the defintion of "owner: in 18 U.S.C. § 1839(4), all I can say is that it says what it says, whether you and Milgrim agree or not. I don't know why it says what it says, but there it is. However, I will say that it reinforces my position that it doesn't make much sense to talk about ownership in the context of data rights under government contracts. The data rights clauses speak for themselves and what they speak about is the right to control (use, disclose, etc.), not ownership. In fact, if the Find function on my computer is working properly, the words "own," "owner," and "ownership" do not appear anywhere in DFARS Part 227 or in any of the data rights clauses.

Misappropriation is an important idea. I think that a party can come into unauthorized possession of data without having misappropriated it, if they didn't know that they were not authorized to have it. I reread 18 U.S.C. § 1832 at your suggestion. "Knowing" and "knowingly" are important words in that section. For instance, look at item (3): "receives, buys or possess such information knowing the same to have been stolen or appropriated, obtained, or converted without authorization." In the scenario that I sketched earlier, the third party who received the data from a government employee might not know that the employee had not followed proper release procedures. Indeed, the employee may not have known it. I believe that in such a case there was no misappropriation by the third party.

What I find informative, however, are your quotes from Nash and Rawicz, and I intend to study that text closely during the next few days. I've also obtained some other texts that I'm going to look at. (It appears from the quotes that you provided that Nash and Rawicz did not cite any case law in support. Is that correct?) Nash has told me that very few contractors have pursued trade secret infringement litigation with regard to data that they'd given to the government with unlimited rights.

As for licenses made before the government releases the data, they are enforceable as contracts, regardless of whether or not the data remain trade secrets. I saw a case to that effect, but I cannot remember it. This means little, to me, because the issue lies with a third party which has obtained the data without prior agreement with the contractor.

I'm hung up on the idea that it doesn't make sense for a contractor to claim that something is a trade secret and that disclosure could damage its interests when the government could release it to anybody at any time and authorize others to do so, whether the government has actually done so or not. Moreover, I question whether a contractor is entitled to rely on the government's internal policies about release in making a claim of trade secret infringement. I think that any lawyer defending someone in a trade secret infringement case would raise these questions.

You've made some good points in this last post of yours and you've given me some things to read and to think about. I'll get back to you in a day or so.

You and Anon19 are on your own for a while. Try to behave yourselves.

Vern


By Anonymous on Tuesday, January 07, 2003 - 10:49 am:

I have been following this very interesting thread from the sidelines but would like to add my $0.02. To me, the question of whether the "owner" in FARA's hypo (the contractor that delivered the unlimited rights data to the Govt) could bring an injunctive action against a private party who mysteriously winds up with the data even though the Govt says it did not intend to, and believes it did not, disclose the data to the private party, hinges on whether the data constitute a trade secret at the time the private party came into possession of it.

In private actions for injunctive relief, whether or not the data are a trade secret is a matter of state law. (In 1996, trade secret misappropriation was federalized to an extent; it is now a felony under the Economic Espionage Act of 1996.) Different states have different laws, but most states define trade secret similar to the EEA definition (which was based on the Uniform Trade Secrets Act), which provides that a trade secret is:

"all forms and types of financial, business, scientific, technical, economic, or engineering information . . . if--
(A) the owner thereof has taken reasonable measures to keep such information secret; and
(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public . . . ."

Does FARA's information meet this definition? Let's deal with criterion (B) first. Even assuming that information mysteriously showing up in one private party's possession is not "generally known to ... the public," it seems to me that if the information was obtainable under FOIA it would be "readily ascertainable through proper means by the public" and therefore would not meet the definition of trade secret. And even if the Govt does not "want" to release the data to the public, it cannot withhold it in the face of a valid FOIA request unless one of the FOIA exemptions is met.

Exemption 4 -- the trade secret exemption -- probably would not permit the Govt to withhold the data because that exemption is limited to information that is privileged or confidential, and I would think that the contractor's willingness to give the Govt unlimited rights in the data would negate any claim of privilege or confidentiality. Although I haven't researched this point, think of it this way: assume the Govt WANTED to release the data, and the contractor filed a "reverse FOIA" lawsuit to block the Govt's action, contending that exemption 4 prohibited release. I'd think the Govt would win in a slam dunk based on the fact that it had been given unlimited rights to release the data to anyone. If this is true, then it seems to me that the contractor would have a hard time showing that the data constituted an exemption 4 trade secret even if the Govt didn't want to relase it.

Exemption 1 -- the national security exemption -- might apply. If so, then the Govt wouldn't be required to release the data under FOIA and criterion (B) of the trade secret definition would be met.

Criterion (A) of the trade secret definition is more problematic. Even using a broad defintion of the word "secret," it would be tough to contend that a contractor who has given the Govt unlimited rights to release the data to the world "has taken reasonable measures to keep such information secret." (I'm not aware of any case law on this question.) I understand that sharing data with a large number of people does not necessarily negate "secrecy"; companies can disclose trade secrets to a large number of people (employees, customers, suppliers) under nondisclosure agreements and still maintain trade secret protection. But here there is no nondisclosure agreement preventing the Govt from disclosing the secret to others; in fact, it's just the opposite: the Govt has unlimited rights to disclose the data to anyone it wishes, and for any reason.

So I think FARA's hypothetical contractor would have a tough time obtaining an injuction (or damages) for misappropriation of a trade secret under the law of most states. FARA, are there any other torts you can think of that might apply here? Tortious interference with contract perhaps (recognized in smome states)? By obtaining the data without an authorized Govt release, is the private party interfering with the contract (license) negotiated by the Govt and contractor? If so, would the fact that the data might be obtainable under FOIA be relevant?


By FARA FASAT on Tuesday, January 07, 2003 - 12:27 pm:

Thanks for the post Vern. Here are a few more thoughts.
The more I think about it, the more I think that the definition of owner in 18 USC is just a one-word substitution meant to cover all persons from whom a trade secret can be taken, much as "person" is meant to cover all individuals and business entities. A corporation is not a person, but the word person is what the law uses. And while control may be more important than actual ownership, we can't forget that the contractor is the owner. It might be useful in the analysis down the road.
Since my whole scenario is based on the case where the government does not release the data, the Nash comments are interesting. They appear to draw a line at the release: before the release the data can be licensed by the owner; after the release, no. This partially helps with Anonymous 1/7's question as to whether the contractor can be said to have taken reasonable steps to protect the data if it gives an unlimited rights license. I think that if the contractor takes all other regular steps to protect it, AND the government does not release it, then the contractor might meet this test. Again, "could release" vs. "did release."

Whether the government has the discretion to not release data is of course an important issue. I don't think the contractor's chances are good in a reverse-FOIA action over unlimited rights data. Nevertheless, my scenario assumes no release, and what to do with an unauthorized user. (I'll exclude innocent unauthorized users, but once you notify them they no longer are operating without knowledge).


By Vern Edwards on Tuesday, January 07, 2003 - 01:12 pm:

FARA:

I acknowledge the distinction you are making between "could release" and "did release", but what is your reaction to the following comments of Anonymous of 1/7 at 10:49am:

"Even using a broad defintion of the word 'secret,' it would be tough to contend that a contractor who has given the Govt unlimited rights to release the data to the world 'has taken reasonable measures to keep such information secret.' (I'm not aware of any case law on this question.) I understand that sharing data with a large number of people does not necessarily negate 'secrecy'; companies can disclose trade secrets to a large number of people (employees, customers, suppliers) under nondisclosure agreements and still maintain trade secret protection. But here there is no nondisclosure agreement preventing the Govt from disclosing the secret to others; in fact, it's just the opposite: the Govt has unlimited rights to disclose the data to anyone it wishes, and for any reason"?

He/she is thinking along the same lines that I am, which is that once a contractor has given the data to someone and told them that they can use it in any way they see fit, disclose it to anyone they choose (including a competitor of the contractor) for any reason whatsoever, and authorize others to do the same, it is inconsistent to later claim trade secrecy, even if the person to whom you gave the data has not yet disclosed it to anyone.

A contractor who gives data to the government with unlimited rights is not entitled to demand that the government use any formal procedure to authorize its use or disclosure or to take care in the way that it uses or discloses it. The contractor is not entitled to any remedy if the government is careless in its approach to use and disclosure.

Moreover, we know from DOD FOIA policy that DOD agencies are not to refuse FOIA release of unlimited rights data on the basis of trade secrecy. Indeed, DOD agencies are to refuse such release only on the grounds of national security (classified or export-controlled) and not on the basis of the contractor's business interests.

These considerations strike me as powerful defenses against trade secret infringement litigation. I do not argue that a third party has the right to break into a contractor's files or to hire a burglar, or to pay someone to breach a nondisclosure agreement. But if a third party gets unlimited rights data through a government source, either directly or from a government contractor or subcontractor, whether release was authorized or not, I doubt that the contractor can persuade a court to issue a TRO or an injunction on the basis of misappropriation/theft of a trade secret.

What do you think?

Vern


By Anon19 on Tuesday, January 07, 2003 - 03:41 pm:

I will only quote one of the many references on the web and literature discussing the UTSA "reasonable protection" requirements. In "Can You Keep A Secret?" (Contract Management / October 2002; by Kenneth B. Weckstein and Tammy Hopkins) the following advice is applicable:

Trade secrets should be marked as such, and employees should be informed of the company's specific protocol for treatment of trade secrets. (Note that marking documents as trade secrets will not meet the requirements of the Federal Acquisition Regulation and contractual requirements for preserving rights in data.)

Access to such information should be on a "need-to-know" basis. Moreover, the public or other third parties generally should not be given access to the information. Where third party access is required, specific measures should be employed to ensure that the party is under a duty not to disclose the information. [Emphasis added]

Clearly no such duty can be imposed under the unlimited rights clause.

Here is the key. How would plaintiff answer the almost certain defense question:

Has the information ever been given to another party without restrictive conditions placed upon them to treat it as a trade secret?

An answer of "Yes" would appear to be nullification of "trade secret" protection requirements as the information has been exposed without any "duty not to disclose."

Short of perjury, plaintiff must answer "Yes." Defense would then obtain the exact details of the unlimited rights clause, the likelihood of eventual release, potential of official release at any unknown moment (without even a prior notification requirement), probable compelled release under FOIA, and so on. We cannot predict firmly, but I believe Justice's scales would tilt--at least a bit.

After the "misappropriation" comment I did a matrix against the UTSA "Misappropriation" statements. As a result I believe plaintiff would have to prove, with prior knowledge of the unlimited rights situation, that:

(1) The defendant knew the data was obtained by "theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means"

(2) "prove the negative" that it did not come from anyone in government or any person authorized by the government to be in possession of the unlimited rights data. This would thus presume the government treats "Distribution Statement A" data as accountable!

Do the matrix yourselves. I'd be interested in any substantial and logical alternatives. I will not argue that a case exists where there is proof the data came into the hands of someone through their own "improper means" (theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means) actions. That has not been posed and they probably have a little problem with EEA there.


By Anon19 on Tuesday, January 07, 2003 - 04:36 pm:

FARA, I read back and see you have specific complaints. I cannot just let them pass. They go way beyond the importance of simple contracting.

If an agency or department is not the government ("I state again that an agency or even a Department is not the government"), then what is?

To a contractor reading contract documents it may seem the agency is "the government" and the agency may presume that mantle for contract purposes yet among the agencies and particularly the Executive, Legislative and Judicial branch officials it is just an agency and your first step in these decisions. Civics 101.

You also said that my competitor funded my work (presumably through tax dollars) and bought the unlimited rights. Where in the FAR, DFARS, or any reference does it say that the public has the unlimited rights license? Everything I read says the government has it.

FAR and DFARS are just agency regulations, not the Constitution or law. Start with the first answer and extrapolate to clearly stated policy extending from agency statements to our national documents and the public who puts the top levels in or out of office. Remember who, in this country still, the government "belongs to"? Without clear need to do otherwise (most commonly security related) anything purchased with public funds is presumed to be in the public's reach. Take a good look at FOIA. A little work with those court cases will also show you how that is commonly enforced upon those forgetting just who they are working for. From the above I'm a bit shocked at your views of just who you really work for when you are performing a government contract. Your contracting Agency is just the agent from a government perspective.

I'm mildly sorry you took offense. I think you have been stubbornly clinging to a position in spite of considerable evidence it is quite tenuous. I also think you are proposing a version of having and eating your cake since you have been proposing working fully funded by the taxpayer and then trying to make additional exploitation of doubtful validity. I have absolutely no problem with a contractor exploiting any advantage they can when so funded as long as it does not infringe on public rights. You most certainly have my full support to exploit experience and excellent performance so gained.


By FARA FASAT on Tuesday, January 07, 2003 - 07:34 pm:

Vern, here are my answers to your questions. By the way, I am and have been playing the role of the opposite side here; I don't necessarily think these arguments will win. I posed the original question out of genuine interest in the answer, and I am convinced that the hurdles are high. But hey, the idea here is to encourage debate.

One possible argument is to assert that an unlimited rights license to the government has no parallel under traditional IP law. It is unlikely that any IP owner would ever grant such a license; it should just sell it outright. Essentially, the contractor gives it because the law requires it, not because the contractor wants to or because it makes business sense. Absent the law applicable only to governent funding, a contractor could have its development work fully funded by a customer, with the contractor retaining ownership and the customer getting only a license for its own use.

For the above reason, I could argue an exception to the standard criteria for trade secret protection in that the unlimited rights license is compelled and not the result of arms-length negotiations, and that the contractor has fulfilled all other requirements to protect its data.

As for the FOIA arguments, I don't know. I could give it the old moot court try, but I have to research it a little. However, isn't the FOIA argument just a variation of the "could release" vs. "did release" argument? In other words, a requestor could submit a FOIA request, therefore the data can't be protected?

Now, here's a slight twist on the original question. Much data will never be delivered under the contract. For this data, does anyone dispute that the contractor owns it, can mark it, and protect it as a trade secret? I believe that in an earlier post, and in some of the reference materials, it is acknowledged that even though the government technically has unlimited rights in this data, those rights do not actually vest unless the data is delivered. If we agree that this data can be protected, is there much difference between data that is not delivered and data that is not released?

Just food for thought.


By Vern Edwards on Tuesday, January 07, 2003 - 08:34 pm:

FARA:

I think that if the contractor did not deliver the data to the government, it then controls the data absolutely and can maintain a trade secrets claim, even if the government has unlimited rights.

To me, the issue is control. So, I think that there is a difference between unlimited rights data that were not delivered to the government, and data that were delivered to the government with unlimited rights, but which the government has not disclosed. In the former case, the government has rights, but no control. In the latter case, the government has both unlimited rights and unlimited control, which is why I don't think the contractor can claim a trade secret.

But I'm still readin' and thinkin'.

Vern


By FARA FASAT on Thursday, January 23, 2003 - 04:37 pm:

It seems a shame to waste this new thread, so here goes.
There was a lot of opposition to the idea of marking unlimited rights data with the word "proprietary." I can buy that. However, I have talked to several people on this issue -- attorneys, senior contracts people -- and they all agree that the contractor needs to identify it as his in some way. The question then is, how do you mark it in a way that does not run afoul of the "nonconforming marking" rule in 227-7013? (Put aside the trade secrets argument for this question. We'll come back to it later).

After all, I think most if not all would agree that certain minimal information must go on data, such as date, part or drawing number, version, revision number, etc., and I hope that no one will assert that even these can not go on data. Does a contractor's name, "XYX", cross the line? What about "Property of XYZ"? "Created by XYZ"?

The answer may be in what a "marking" is. There is no definition in the DFARS, but there are hints. 227-7037 requires the contractor to justify the "markings that impose restrictions on the Government and others to use, duplicate, or disclose...." 227-7013(g) pairs the word "restrictive" with "markings" in most of that section. As I argued way back in the beginning of this discussion, the rule may only apply to markings that restrict the government's use. This was innovative to some; fraudulent to others. Nevertheless, it would allow the basic information to go on a drawing without violating the markings rule.

If you accept that, then how much can you put on before you restrict the government's use? I'll accept that the word "proprietary" could be read as a restriction. Now, what about the others I mentioned above?


By Ralph Nash on Tuesday, February 25, 2003 - 05:56 pm:

FARA -- It appears that you have exhausted the other commentators but your original question was an excellent one. You need a marking but the DFARS prohibits one. The only marking you can put on, apparently is a copyright notice. That is more valuable than the other folks believe because it prohibits not only copying but the making of derivative works.

What interest me is that the DFARS contains no guidance on how the Government transfers rights. There is little doubt that the unlimited right gives the Government the right to, in effect, destroy your trade secret but when does it do that? If the unlimited right is a license with a right to sublicense, as I believe it is, when does the Government actually sublicense others? I have never seen an actual license of this type. Is giving a FOIA requester the data with no markings a sublicense to use it for commercial purposes? I have my doubts. Is providing the data to a company for a specific purpose on a Government program a sublicense for commercial purposes? How would the normal contracting officer respond if a company asked for a license to use some unlimited rights data for commercial purposes? Would he or she worry about the accuracy of the data and whether the Government would have some liability if it was inaccurate? My guess is that many contracting officers would hesitate before actually giving such a sublicense.

In any event, thanks for the question and the interesting thread it created. I will add this issue to those discussed in our Intellectual Property series.


By FARA FASAT on Wednesday, February 26, 2003 - 06:20 pm:

Prof. Nash - thanks for joining in. All of us value your contributions. Those are all interesting points, and more evidence of the complications of applying the data rights provisions.

Since the last posting in this thread, I talked about this problem with a government contracts attorney who focusses on IP issues. He said that he would definitely mark the data with some sort of contractor identification to indicate that it belonged to the contractor, and maybe even further stating that it was being provided with unlimited rights to the government. His rationale: this is not a "restrictive" marking and thus is not prohibited by the DFARS. I guarantee that I didn't prompt him or use leading questions to get that out of him. I'm throwing that out to the general reading population since it got a heated reaction last time.


By Ralph Nash on Tuesday, March 04, 2003 - 05:05 pm:

FARA Interesting suggestion. Incidentally, for a case saying that a contractor retains an asset of value in unlimited rights data see Lockheed Martin Corp. v. U.S., 210 F.3d 1366 (Fed. Cir. 2000).


By Vern Edwards on Tuesday, March 04, 2003 - 07:08 pm:

Ralph:

The court did not say that Lockheed retained a trade secret interest in any data, which, as I recall, is what FARA has been asking about. The court said that Lockheed retained an interest in the data for tax credit purposes because the government's rights were not exclusive. Right?

"If the taxpayer [Lockheed] does not have the right to use or exploit the results of the research, its expenditures are not entitled to the tax credit regardless whether there is an agreement that the research will be paid for only if successful, and regardless whether the taxpayer receives some 'incidental benefit' such as increased experience. On the other hand, it follows that as long as exclusive rights are not vested in 'another person,' the taxpayer may retain substantial rights. Treasury Reg. § 1.41-5(d) thus implements the statute's purpose of giving a tax credit only to those taxpayers who themselves take on the financial burden of research and experimentation to develop new techniques, equipment, and products that they can use in their businesses."

The government had argued that the taxpayer retained substantial rights only if it had retained the right to prevent others from using the data. Lockheed actually opposed that argument and argued in response that it retained substantial rights as long as it could use the data, whether it could prevent others from using it or not.

The question before us has been whether or not a contractor retains a trade secret interest in data which it has delivered to the government with unlimited rights.


By FARA FASAT on Friday, March 07, 2003 - 09:28 pm:

Prof. Nash's point is interesting in that he is simply saying that the Court recognized an asset of value even in unlimited rights data. For that statement alone it is useful because some here have argued that the contractor retains nothing of value once it gives an unlimited rights license.

Since there do not appear to be any cases on the specific issue of a trade secret vs. unlimited rights in a government contract, one can only look to the rationale and discussion in similar cases and craft an analysis from them. If I were briefing this issue, I would look for any statements noting the value retained in unlimited rights data.

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