FARA:

I read Pacific Sky (34 Cont. Cas. Fed. (CCH) ¶ 75,371). Do me a favor and read it again. I believe that you have misstated that case. The decision does not say what you said it says. The plaintiff in that case did not argue that the drawings were not trade secrets because the government had unlimited rights and the court made no decision in that regard. Furthermore, the court held that the drawings were not trade secrets.

The district court's decision was a denial of cross motions for summary judgment. The plaintiff had argued that the drawings were not protected by the trade secret exemption of FOIA because the Air Force did not prove that they were the end product of innovation or substantial effort. The district court agreed with the plaintiff in that regard and held that the drawings were not trade secrets for that reason.

In reaching that holding, the court posed four tests for establishing whether the drawings were trade secrets:

(1) that they were secret;

(2) that they were commercially valuable;

(3) that they were used to make, prepare, compound, or process trade commodities; and

(4) that they were the end product of either innovation or substantial effort.

The court did not reach any holding about the secrecy of drawings delivered with unlimited rights. The plaintiff apparently did not make any argument about that and the court was silent on that matter. The court did hold that the drawings were commercially valuable and that they were used to make or prepare trade commodities. But it also held that the Air Force did not prove that they were the product of either innovation or substantial effort and said: "Therefore, the drawings are not exempt from disclosure on the basis that they constitute trade secrets."

In the end, the court denied both parties' motions for summary judgment. As far as I can tell, there was never a decision on the merits. The case cannot be cited as authority for the proposition that information delivered with unlimited rights can be a trade secret.

Do you have another case?

Vern

By Anonymous of Dec 19 on Thursday, December 26, 2002 - 12:20 pm:

By Vern Edwards on Thursday, December 26, 2002 - 01:26 pm:

Anonymous:

You are quite right--the clause authorizes the use of a copyright mark. I read that differently at first, because of something I saw in DFARS Part 227, but now I agree with you. And, in fact, I have seen copyright marks which have said that the government has a "fully paid up license" (or something like that) to copy certain materials.

Vern

By Anonymous of Dec 19 on Thursday, December 26, 2002 - 05:53 pm:

Then the correct application of copyright, trademark, and patent seem adequate to cover the strictly commercial rights issue. I think FARA's problem is minimized by the sensible allocation of the right protection to the right data.

In general "trade secret" seems most often to deal with a process or advantage in the making of something that can be copyrighted or patented. Of course corporate financials, structural advantages and such may also be trade secrets. "How do they do that!" with respect to producing a widget faster, better and cheaper than competitors gets at the nature of a trade secret advantage. There are exceptions, such as an as yet undisclosed invention. With a few, usually negotiable, exceptions I don't see a big problem with government wanting unlimited rights to that sort of information.

By Vern Edwards on Thursday, December 26, 2002 - 06:44 pm:

The Uniform Trade Secrets Act defines "trade secret" as follows:

"'Trade secret' means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not be readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

This is similar to the definition in the U.S. Code.

Many trade secrets have copyright protection, or are patentable, but not all. Although there is some overlap among trade secret, patent and copyright laws, the protections afforded by the different laws are somewhat different. It is up to the contractor to get legal advice about its intellectual property and what it must do to protect it.

If the government is entitled to unlimited rights in a contractor's intellectual property, then the contractor does not have much control over that property, since not only can the government use and disclose it as it sees fit, but it can authorize others to do so as well, even if the information is copyrighted. I think that since the government gets unlimited rights when it pays for the development of the intellectual property, the contractor doesn't have too much to cry about if the government chooses to disclose it, although I can understand why the contractor would prefer to keep the info from others.

If a contractor has valuable ideas that it doesn't want to share with others, then the best way for it to protect those ideas is to develop them at private expense, i.e., just say no to the government's money.

By FARA FASAT on Thursday, December 26, 2002 - 07:16 pm:

Vern, I'm at a slight disadvantage right now because I am working from home, my copy of Pacific Sky is at work, and I don't plan to drive 26 miles just to look at it. However, I don't recall it saying what you say it did. I specifically recall the argument being made that the data could not be a trade secet because it was delivered with unlimited rights, and the court rejecting that argument. Nevertheless, this will have to wait until I get back to work.

From your excerpts from Conax, the language does not sound encouraging, but it was under the old clauses, and the context was a FOIA case. It would be interesting to see if there is a case out there similar to my XYZ/ABC example.

To Anonymous, maybe saying "too bad" was too harsh, so in the spirit of the Christmas season I will retract it. Nevertheless the point remains the same. When a company receives information under a PIA or some other nondisclosure agreement, all it has is the proprietary legend to warn it that the information has restrictions on it. The viewer needs to find out what those restrictions are. I see no reason why government employees aren't capable of playing by those same rules.

Some have also claimed that if the information is so darned valuable, why not patent it. Rather than go into the factors why a company may not choose patent protection, let me just say: Coke formula.

Final thought: why not take Anonymous' suggestion of "Copyright © 2002 by XYZ Corporation", but change it to "Proprietary, XYZ Corporation", and leave in the "Unlimited rights to use, modify,...." This still tells government employees that the government has unlimited rights, but tells the rest of the world that 1) XYZ owns it, and 2) only the government has the license.

And please don't forget that we are only talking about a case where the government does not release the data. The game is over if the government releases it, and we don't even have an issue. But when the government does not release it, then we have my XYZ/ABC example, which was a real case.

By Vern Edwards on Friday, December 27, 2002 - 01:04 am:

FARA:

I think that you are thinking about the sentences in section III of Pacific Sky in which the court says:

"Pacific Sky contends that Exemption 4 cannot apply to these drawings if the Air Force has obtained unlimited rightsd in them... . Even if the Air Force obtained unlimited rights in these drawings, Pesco, and then Sunstrand, were not divested of their rights in the drawings. The undisputed facts show that Sunstrand continues to profit from these drawings on a commercial basis."

Those sentences are not holdings in that case; they are dicta. The district court in Pacific Sky cites no precedent for its statement about the contractor's rights and does not say what kind of rights it is talking about. Commercial profitability alone is not sufficient to make intellectual property a trade secret, as the court itself explains in section IV. In section IV the court expressly rejects the argument that the drawings in question were trade secrets.

In any event, two months before Pacific Sky, in Conax, a circuit court of appeals, 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."

Both cases were under the old clauses, but only Pacific Sky was a FOIA case. Conax was an Administrative Procedures Act case alleging an impending violation of 18 U.S.C. § 1905, the Trade Secrets Act, which makes it more to the point.

Anyway, read them when you get a chance. I don't claim to know for certain what the rule is regarding trade secrets and unlimited rights. For all I know the two concepts are not legally incompatible.

As for "Proprietary XYZ Corporation" versus "Copyright 2002 XYZ Corporation," only the latter is authorized by 17 U.S.C. § 401, and thus by the clause at DFARS § 252.227-7013. Moreover, the "copyright" is very specific in terms of the kind of rights involved, whereas "proprietary" is vague. Copyright would prohibit only copying of data; it would not prohibit the use of a process or design described in the data. It is not clear what "proprietary" means.

Your contractor needs legal advice about the kind of intellectual property it has and the best way to protect it. Trade secret protection only works for secrets. Copyright prohibits copying, but not the use of ideas. Patent and trade secret protection are incompatible.

It seems to me that once the government (the government, not just the original contracting agency) has unlimited rights in data a contractor would be foolish to rely on trade secret protection, since the government has the right to disclose the secret and to authorize others to disclose it, and doesn't need the contractor's permission before it discloses or authorizes others to disclose.

Surely, you can see the sense in what I'm saying.

Let's review:

At one time you agreed with me that "XYZ Proprietary" was an unauthorized marking. I still think that it is and, as a contracting officer, would order its removal from any data delivered to the government. I'm not sure whether you still agree or not.

You have argued that allowing the contractor to mark the data "XYZ Proprietary" would protect the contractor's trade secret interest in the data. I doubt that it would, for the following reasons: (a) such a marking, in and of itself, is not sufficient to establish the existence of a trade secret, and (b) the government's possession of unlimited rights may effectively void trade secret protection.

I don't know where to go from here. Maybe we've exhausted the discussion, or at least our resources.

Vern

By Vern Edwards on Friday, December 27, 2002 - 12:36 pm:

FARA and Anonymous:

The interesting thing about the Pacific Sky case is this: Why did the Air Force try to prevent disclosure of the drawings? The government had unlimited rights in the drawings, which means that the things depicted in the drawings (aircraft engine pumps) were developed at government expense, not at private expense. Right? Yet the Air Force claimed that the drawings were trade secrets, an argument rejected by the court.

If the nobody else had the information in the drawings, then the contractor was a sole source for certain spare parts. If the government had the drawings with unlimited rights, isn't it possible that disclosure would have produced competition?

I don't get it.

By Anonymous of Dec 19 on Friday, December 27, 2002 - 08:59 pm:

FARA, you ask why government employees can't read "proprietary" just like your corporate colleagues can. I'll try to give an idea.

First, the reaction "proprietary" triggers in a corporation simply does not apply to this category within government. In fact, the government person should not have the protective reaction when it is in the government's interest to distribute the information. Unlike the corporate person, the government person acting in their official capacity has authority to pass the information to anyone else. That extends even to authorizing those to further distribute the information. The only corresponding situation I can think of in the corporate world is one corporation handing another the data over without markings or conditions. (That is why I once asked what is you don't understand about "unlimited" in this context. Now I suspect you actually did not fully understand this peculiar government position.)

Second, there may be a "false positive" in government. The government employees who will deal with this issue will most probably be in contracting. They are required to attend "ethics" and legal briefings on their responsibilities to protect Bid or Proposal Information and Source Selection Information. Unlike contractor provided data to which the government has obtained unlimited rights, release of these data results in severe penalties. Many dire warnings are given in training.

Simply put, the word really has two different meanings in this specific context. To apply the corporate person's definition in this case would be false and possibly directly against the government's interest. That is another reason your substitution of "proprietary" for "copyright" with the rights clause does not fit. It would perhaps trigger false reactions in corporate recipients upon government distribution to them.

Vern, I have one suspicion as to why AF would pull that defense of trade secret in such a case. The AF couldn't or hadn't classified the drawings, they wished they could or had, they did not want their competitors (other air forces) to see them and one defense against FOIA is a trade secret designation. They grabbed a straw and it failed. The other possibility is just fuzzy reasoning or a blunder.

By Vern Edwards on Saturday, December 28, 2002 - 11:31 am:

Anonymous:

You might be right about the USAF's reasons, but data need not be classified in order to be withheld from public release. See DOD Directive 5230.25, Withholding of Unclassified Technical Data from Public Disclosure.

Depending on the nature of the data involved in the Pacific Sky case, the USAF might have been able to cite 10 U.S.C. § 140c and FOIA exemption 3 [5 U.S.C. § 552(b)(3)] as the bases for nondisclosure.

By Anonymous - I suppose the only one here on Saturday, December 28, 2002 - 01:05 pm:

Vern,

I've seen too many of these things develop. Sometimes I've watched it develop like an avalanche with a sense of despair and mild horror. The worst cases were those in which some charismatic amateur (technology expertise from "today's news" or last week's technology fair) rode over those dull, Cassandra like experts droning on with facts; boring everyone and being negative. There went a few more millions!

From those experiences I'd guess a combination of grasping at an obvious straw and blundering in this case. Then, there may be some entirely different background to the AF action.

We all may apply casual thinking to problems. We do it more frequently in a casual forum such as this. We tend to grab a solution we know and ignore those solutions more suited to the problem. We blunder if we carry that casualness into an issue for which we are paid to form a real solution with real consequences if we fail.

I tried not to do that and sometimes still found myself trapped by an assumption. More often I'd review the outcome of some meeting to find someone offered a poor pet solution that was accepted without any research and study to find one that would actually work.

I can almost see the bright idea of supporting trade secret claims taking hold in an AF meeting without consideration of what regulations might apply and actually work in avoiding that release. I can see it advancing with banners and trumpets until it met reality in the court. It is a costly blunder companies might make in dealing with FARA's issue.

By Vern Edwards on Saturday, December 28, 2002 - 01:20 pm:

FARA and Anonymous:

With regard to the question of whether data submitted to the government with unlimited rights can be considered trade secret information, take a look at DOD 5400.7-R (September 1998), DOD Freedom of Information Act Program. Chapter 3 of that regulation provides guidance about the application of the FOIA exemptions. Paragraph C3.2.1, FOIA Exemptions, provides as follows:

"The following types of records may be withheld in whole or in part from public disclosure under the FOIA, unless otherwise prescribed by law...

"C3.2.1.4. Number 4. (5 U.S.C. 552(b)(4)) (reference (a)). Those containing trade secrets or commercial or financial information that a DoD Component receives from a person or organization outside the Government with the understanding that the information or record will be retained on a privileged or confidential basis in accordance with customary handling of such records...

"C3.2.1.4.6. Technical or scientific data developed by a contractor or subcontractor exclusively at private expense, and technical or scientific data developed in part with Federal funds and in part at private expense, where the contractor or subcontractor has retained legitimate proprietary interests in such data in accordance with 10 U.S.C. 2320-2321 (reference (r)) and DoD Federal Acquisition Regulation Supplement (DFARS), Chapter 2 of 48 C.F.R., Subpart 227.71 - 227.72 (reference (s)). Technical data developed exclusively with Federal funds may be withheld under Exemption Number 3 if it meets the criteria of 10 U.S.C. 130 (reference (k)) and DoD Directive 5230.25 (reference (l)) (see subsection C3.2.1., Number 3 C3.2.1.3.5., above)."

Italics added for emphasis.

Thus, DoD policy is that FOIA exemption 4 -- the trade secret or confidential commercial or financial information exemption -- is to be used only when (1) DoD agrees to keep data confidential and (2) when the data were not developed exclusively at government expense. Those conditions ordinarily do not apply to data obtained with unlimited rights. See DFARS § 227.7103-5(a). Thus, it appears that DoD does not consider data delivered with unlimited rights to be trade secrets.

I do not consider DoD policy to be necessarily determinative of the issue, but it does seem to lend weight to the argument that data delivered with unlimited rights are not trade secrets.

What do you think?

Vern

By Anon19 on Saturday, December 28, 2002 - 04:27 pm:

By Vern Edwards on Monday, December 30, 2002 - 10:00 am:

Anon19:

That's an interesting case. It seems to be based on a rather common sense question: How can a company claim that information is secret when someone else has the right to tell it to anyone for any reason and without permission?

I know someone who is a bona fide expert in this field, and I'm going to ask him about this if I get a chance.

By Anon19 on Monday, December 30, 2002 - 12:07 pm: