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Commercial Item Procurement Reforms

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Commercial Item Procurement Reforms Powered By Docstoc
					Intellectual Property Issues

        William C. Anderson
 Chief Intellectual Property Counsel
    United Launch Alliance, LLC
 Commercial Item “Revolutionaries”
   “Boston Tea Party”
 President Reagan Defense Buildup during 1980’s
   Drive to have the best of everything drove up prices for
    weapons systems
 Mid- to late-1980‘s well-publicized procurement
 scandals
   $600 toilet seats
   $1,000 coffee pots and hammers
 Great pressure to “get out of the news”
 Initial DoD response was to seek reprocurement data
  with reprocurement rights
 Secretary of Defense Weinberger deviation approvals
   Sansone Clause
   Orr Clause
 Government study showed that data rights not the
  “root cause” to the problem of high cost spare parts
 Industry coalesced around business interests
   Large & small OEM business “revolt”
   Replicator contractors supported Government position
 Series of DoD data rights statutes
   Defense Procurement Reform Act of 1984, Pub. L. No.
    98-525, 1201-1252, 98 Stat. 2588
   Defense Acquisition Improvement Act of 1986 (Pub. L.
    No. 99-661, 953, 100 Stat. 3910, 3949 (1986))
   National Defense Authorization Act for Fiscal Year 1988,
    Pub. L. No. 100-180, 807-808, 101 Stat. 1128, (1987)
 Data rights allocations codified in 10 U.S.C. 2320 (41
  U.S.C. 418a)
 Validation statutes codified in 10 U.S.C. 2321 (41 U.S.C.
  418b)
 Plethora of proposed DoD data rules

    50 Fed. Reg. 32,870 (1985) (proposed Aug. 15, 1985)
    52 Fed. Reg. 2082 (1987) (proposed Jan. 16, 1987/effective May 18, 1987
     (see See 52 Fed. Reg. 12,390 (1987) ).
    53 Fed. Reg. 10,780 (1988) (proposed April 1, 1988)
    53 Fed. Reg. 51,557, 51,559 (1988) (rights in computer software to be
     codified at DFARS 227.473-2) (proposed June 6, 1988).
    53 Fed. Reg. 43,698 (1988) (to be codified at 48 C.F.R. pts. 227, 252)
     (proposed Oct. 28, 1988)
        Interim from October 1988 until June 1995
    55 Fed. Reg. 41,788 (1990) (Advance Notice of Proposed Rulemaking; a
     joint effort of the DOD, the National Aeronautics and Space
     Administration ("NASA"), and the General Services Administration
     ("GSA") to create a single, government-wide regulation for data rights
     in computer software and technical data)
 1985 Reagan impaneled Blue Ribbon Commission on
 Defense Management (the "Packard Commission")
   Commission highlighted the need for DoD to expand its
    use of commercial products and processes and to
    eliminate barriers that discouraged application of
    innovative technology to DoD contracts
 Section 800 Committee (See National Defense
 Authorization Act of 1990, Pub. L. No. 101-510, 800, 104
 Stat. 1587 (1990))
   Recommended new exemptions to technical data
    requirements in commercial item acquisitions
Pre-1995 Commercial Item Procurement Impediments to the
acquisition of commercial data

 Data acquisition issues
   Quantum/types of data required by Government generally
     greater than that furnished to commercial customers
 Allocation of rights
   License “entitlements” greater than those granted commercial
     customers
 Administrative Burdens
   Segregation of data to preserve rights
   Record keeping relating to previous license grants and private
    expense developments
   Unique restrictive legends for data deliverables
Pre-1995 Commercial Item Procurement Impediments:
to acquiring commercial data (continued)

 Mandatory flowdown to subcontractors
   Re-opening pre-existing subcontracts to include unique
    Government requirements
 Data rights challenges
   Potential loss of rights and competitive advantages for
    failing to prove “exclusive private development” of the
    commercial item
 Government usually not willing to negotiate
  Impediment               Pre- 1995 DFARS
   Removed?
                   Prime                     Subcontractor
Data Acquisition    NO                              NO
Allocation of       NO                              NO
Rights
Administrative      NO                              NO
Burdens
Flowdown to         NO                              NO
Subcontractor
Interdivisional     NO                              NO
Transfers
Data rights         NO                              NO
challenges
Negotiation         NO                              NO
 Contract regulation infractions which were previously
  considered noncriminal were "criminalized" by
  enactment of new federal contracting statutes.
 By the late 1980's, 440 statutes and regulations dealing
  with federal procurement contractor fraud were
  enacted by Congress and an outside study showed that
  more than 300,000 different federal regulations had
  been criminalized
“The number of inspections, oversight, and redundancy that are
required by regulation and specification in the production of
military equipment increase our overheads (sic) to the point that
we are simply unable to match or beat the prices of the commercial
environment. A case in point. A supplier called me last month and
said he didn't want any more of our business. He said he'd made
the decision to get out of defense because of the cost accounting
procedures and other requirements are simply adding too much to
his overheads (sic) and he was having difficulty competing
elsewhere.“ (emphasis added)

June 1992 testimony to the U.S. Senate Small Business Committee
by Mr. Stephen Rash of BMY-Combat Systems Division of Harsco
Corporation
 Section 807 Committee (See National Defense
  Authorization Act for Fiscal Years 1992 and 1993, Pub. L.
  No. 102-190, 807, 105 Stat. 1421 (1991))
 Battle between “OEM’s” and “Replicators”
   “Private Expense Test”
   Acquisition of reprocurement data
   Data repositories
 Committee met between July 1992 until December 1993
   Proposed rules published for comment in June 1994
 60 Fed. Reg. at 33,464 (1995) (effective June 30, 1995, but
  only applied to solicitations issued on or after September
  29, 1995)
 Section 807 Committee mostly focused on non-
  commercial items and non-commercial computer software
 At first, the Committee did not fully recognize emerging
  forces that would ultimately influence Federal
  procurement reforms:
   Decreasing Federal Budgets
   Defense Industry consolidation
   Persian (First) Gulf War
      Motorola reluctance to sell satellite telephones to U.S. Government
        Commercial sale to Japanese Government
   Commercial technologies becoming of increasing great value
    to the Government
 Federal Acquisition Streamlining Act of 1994 (Pub. L. No.
  103-355, tit. VIII, § 8001(a), 108 Stat. 3243, 3384 (1994)
  (adding 41 U.S.C. § 403(12))).
   Defined “Commercial Item” (Id. tit. VIII, § 8102, 108 Stat. at
    3390)
   Strong preference for commercial item acquisition (Id. tit.
    VIII, § 8104, 108 Stat. at 3390 (adding 10 U.S.C. § 2377))
   Defined “subcontract” to include a transfer of commercial
    items between divisions, subsidiaries, or affiliates of a
    contractor or subcontractor (Id. tit. VIII, § 8002, para. (b)(5),
    108 Stat. at 3390)
   Mandated waiver of Federal statutes inapplicable to
    commercial item subcontracts (Id. tit. VIII, § 8003, 108 Stat.
    at 3390)
 While pending in Congress, the Federal Acquisition
  Streamlining Act influenced data rules being drafted by
  Section 807 Panel
   Special clause for commercial data: DFARS 252.227-7015,
    Rights in Technical Data – Commercial Items (1995)
   Definition of “commercial computer software”
   No commercial computer software clause prescribed for
    either prime contractor or subcontractor
 FASA caused delay in implementing Section 807
  Committee data rules:
   Definition of commercial item
   FAR Part 12/DFARS Part 227 Regulatory text
   FAR Part 12/DFARS Part 212 statutory waivers for commercial
    item subcontractors
The term `commercial item' means any of the following:
(A) Any item, other than real property, that is of a type customarily used by the general
   public or by nongovernmental entities for purposes other than governmental purposes,
   and that--`(i) has been sold, leased, or licensed to the general public; or (ii) has been
   offered for sale, lease, or license to the general public.
(B) Any item that evolved from an item described in subparagraph (A) through advances in
   technology or performance and that is not yet available in the commercial marketplace,
   but will be available in the commercial marketplace in time to satisfy the delivery
   requirements under a Federal Government solicitation.
(C) Any item that, but for--(i) modifications of a type customarily available in the
   commercial marketplace, or (ii) minor modifications made to meet Federal
   Government requirements, would satisfy the criteria in subparagraph (A) or (B).
(D) Any combination of items meeting the requirements of subparagraph (A), (B), (C), or
   (E) that are of a type customarily combined and sold in combination to the general
   public., etc.

See FAR 2.101
 Government policy to acquire only the technical data and the
  rights in that data customarily provided to the public with a
  commercial item or process (See FAR 12.211, Technical data)
 DFARS policy similar, but Government should also acquire
  technical data that (i) are form, fit and function data, (ii)
  required for repair or maintenance of commercial items or
  processes, or for the proper installation, operating, or handling
  of a commercial item, and (iii) describe the modifications made
  at Government expense to a commercial item or process in order
  to meet the requirements of a Government solicitation (See
  DFARS 227.7102-1 )
 Commercial item presumed to be developed exclusively at private
  expense (See P.L. No. 103-355 8106; 10 U.S.C. 2320(b)(1); 10 U.S.C.
  2321(f) and DFARS 252.227-7037(b))
 Certain laws made inapplicable to commercial item
  subcontracts (see DFARS 212.504)
   10 U.S.C. 2320, Rights in Technical Data
   10 U.S.C. 2321, Validation of Proprietary Data Restrictions
 Waivers drove changes to DFARS 227
   DFARS 252.227-7015, Right in Technical Data – Commercial
    items made inapplicable to commercial item subcontractors
    unless Government pays for development costs
      In such case use 252.227-7013, Rights in Technical Data--
       Noncommercial Items
      See DFARS 227.7102-3, Contract clause, paragraphs (a)(1) and (b)
   DFARS 252.227-7037, Validation of Restrictive Markings on
    Technical Data made inapplicable to commercial item
    subcontractors (See DFARS 227.7102-3 (c))
  Impediment               1995 DFARS
   Removed?
                   Prime                Subcontractor
Data Acquisition    NO                         NO
Allocation of       NO                        YES
Rights
Administrative      NO                        YES
Burdens
Flowdown to         YES                       YES
Subcontractor
Interdivisional     YES                       YES
Transfers
Data rights        MAYBE                      YES
challenges
Negotiation        MAYBE                      YES
 Commercial items and major weapons systems; see DFARS
  SUBPART 234.70
    Secretary of Defense must make determination that the major
     weapon system is a commercial item
    Congressional defense committees are notified
    Determination may not be delegated below the level of
     Deputy Secretary of Defense
 Subsystem of a major weapon system (other than COTS)
  treated as commercial item only if certain requirements
  are met
 Components and spare parts (other than COTS) treated as
  commercial item only if certain factors are satisfied
See 71 FR 58537, 10/4/2006, effective 10/4/2006; Final rule, 72 FR 51189,
9/6/2007, effective 9/6/2007; Interim rule, 74 FR 34263, 7/15/2006,
effective 7/15/2009
Presumption of exclusive private development of commercial item modified. See
section 802(b) of the National Defense Authorization Act (NDAA) for Fiscal Year
(FY) 2007 (Pub. L. 109–364); modified 10 U.S.C. 2321(f) with regard to the
presumption of development at private expense for major systems; and section
815(a)(2) of the NDAA for FY 2008 (Pub. L. 110–181) revised 10 U.S.C. 2321(f)(2) to
exempt commercially available off-the-shelf items from the requirements that
section 802(b) had established for major systems.
“(f) Presumption of Development Exclusively at Private Expense.— (1) Except as provided in
paragraph (2), in the case of a challenge to a use or release restriction that is asserted with respect to
technical data of a contractor or subcontractor under a contract for commercial items, the contracting
officer shall presume that the contractor or subcontractor has justified the restriction on the basis that
the item was developed exclusively at private expense, whether or not the contractor or subcontractor
submits a justification in response to the notice provided pursuant to subsection (d)(3). In such a case,
the challenge to the use or release restriction may be sustained only if information provided by the
Department of Defense demonstrates that the item was not developed exclusively at private expense.
(2) In the case of a challenge to a use or release restriction that is asserted with respect to technical data
of a contractor or subcontractor (other than technical data for a commercially available off-the-shelf item
as defined in section 35(c) of the Office of Federal Procurement Policy Act (41 U.S.C.431(c)) for a major
system or a subsystem or component thereof on the basis that the major system, subsystem or
component was developed exclusively at private expense, the challenge to the use or release restriction
shall be sustained unless information provided by the contractor or subcontractor demonstrates that the
item was developed exclusively at private expense.”(emphasis added)
 DFARS Case 2007-D003, Presumption of Development Exclusively at
  Private Expense.
    Implements Section 802(b) of the National Defense Authorization Act
      of Fiscal Year 2007 (Pub. L. 109-364) and section 815(a)(2) of the
      National Defense Authorization Act for Fiscal Year 2008 (Pub.L. 110-181)
        Section 802(b) addresses the presumption for commercial items of
          development exclusively at private expense, with new provisions
          relating to technical data for a major system or a subsystem of
          component thereof
        Section 815(a)(2) exempts COTS items from the requirements of
          section 802(b)
        Eliminates statutes previously waived for commercial item
          subcontractors
 Both ABA and Aerospace Industries Association objected to proposed rules
 Status: Report Due 10/13/2010 (2nd Ext.)
 DFARS Case 2010-D001, Proposed rewrite of DFARS Part
  227, Patents Data, and Copyrights. Follow-on to the DFARS
  Transformation case 2003-D049.
 See 75 Fed. Reg. 59,412 (2010) (proposed Sept. 27, 2010)
 Elimination of statutory waivers for commercial item
  subcontractors
    10 U.S.C. 2320, Rights in Technical Data
    10 U.S.C. 2321, Validation of Proprietary Data Restrictions
 Based on novel rationale
   “Special relationship” between Government and
    subcontractors
   Re-interpretation of applicability of DoD data rights statutes
 Regulatory text changes
   Revised DFARS 252-7015, Rights in Technical Data and
    Computer Software – Commercial (Date)
      Made applicable to commercial item subcontractors and
      lower tier subcontractors

   Revised DFARS 252.227-7013, Rights in Technical Data
    and Computer Software – Non-Commercial,
      Made applicable to commercial item subcontractors and
      lower tier subcontractors when Government pays for
      development (current) or modifications (new)
 New “negotiated license rights” limitations
   No negotiation of rights in certain classes of technical
    data even if the technical data pertains to item
    developed exclusively at private expense. For example,
    the Government must always obtain unlimited rights in:
      Form, fit and function data
      Technical data necessary for installation, operation,
       maintenance, or training purposes (other than detailed
       manufacturing or process data)
   See DFARS 227.7104-3 (b)(1)
 Commercial computer software clause mandated. See DFARS
  252.227-7015
    Valuable forms of computer software treated as technical data
    If considered form, fit and function data, those elements would be
     subject to unlimited rights

 Off The Shelf commercial items enjoys modicum of special
  treatment; see DFARS 252.227-7015
    But, Contractor/Subcontractor at any tier probably will be obligated to
     provide Government with unlimited rights in certain classes of
     commercial data
      Form, fit and function data
      Technical data necessary for installation, maintenance, etc.
    Other technical data subject to “limited rights” which may be
     inconsistent with commercial licenses
    Mandatory flow down to subcontractors and lower tier subcontractors
    Data rights challenges still possible
 Completely ignores Congressional desire to eliminate
  impediments to acquisition of commercial items urged
  in Federal Acquisition Streamlining Act and Federal
  Acquisition Reform Act of 1996 (Pub. L. 104-106)
 If DFARS 252-227-7013 applies (likely if Government
  pays for “modifications”)
    Commercial item subcontractors will have to
     segregate data
    Data not segregated will be subject to Government
     purpose rights which expands to unlimited rights
 Administrative burdens will increase
   Unique restrictive legends if DFARS 252.227-7013
     applies
    Segregation required
    Record keeping and system for proving exclusive
     private development
 Interdivisional transfers subject to proposed rules
 Government less likely to negotiate data rights licenses
 Commercial item procurement reforms will be
  effectively overturned
  Impediment               Proposed DFARS
   Removed?
                   Prime                    Subcontractor
Data Acquisition    NO                             NO
Allocation of       NO                             NO
Rights
Administrative      NO                             NO
Burdens
Flowdown to         NO                             NO
Subcontractor
Interdivisional     NO                             NO
Transfers
Data rights         NO                             NO
challenges
Negotiation         NO                             NO

				
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