Resolving Data-Rights Markings a Legal Battlefield

Stephanie Burris and Howard Harris

Events Leading to the Battle

Suppose a Department of Defense (DoD) program office has received noncommercial technical data and noncommercial computer software (henceforth called “data”). The team inspects the data-rights markings (also referred to as “legends”) and identifies a problem—they are not in the correct format and inappropriately restrict the DoD’s rights. The DoD contracting officer notifies the prime contractor by letter that the data deliverables include “nonconforming” markings, but the prime contractor disagrees and doubles down on its position that the markings are indeed correct.

This type of disagreement, which plays out often in DoD contracting and appears relatively easy to resolve, frequently leads to contentious, drawn-out battles. DoD personnel and their contracting partners’ battle over the rules contractors must follow to restrict the DoD’s use and sharing of technical data delivered in response to a procurement contract and the markings themselves. DoD points to the seemingly clear mandates set forth in the Defense Federal Acquisition Regulation Supplement (DFARS), while contractors seek the maximum protections for their data.

Due to its complexity, we plan to write two separate articles on this topic. This first article discusses issues with nonconforming data-rights markings. It includes examples of nonconforming markings and guidance on the process and timing to correct these markings, as well as where to get assistance. The second article will discuss unjustified data- rights markings, which often lead to a much more complex dispute.

For background, the DoD acquires data in every major systems acquisition. The underlying data are critical for almost every aspect of a program—from design and testing to manufacturing and sustainment. On the other hand, contractors fiercely guard their intellectual property (IP) as the lifeblood of their company and often a primary source of profit.

Under the statute governing rights in technical data—Title 10 United States Code (U.S.C.) §2320—and the DFARS implementation of this statute, the DoD receives a license to technical data that a contractor delivers to the DoD under an acquisition contract. The scope of DoD’s license rights generally depends on the source of the funding (i.e., exclusively government, exclusively private, or mixed), the type of data (e.g., form, fit, and function data), the nature of the data (commercial or noncommercial) and any negotiated terms of the contract.

In addition to granting the DoD the rights to use and, in some instances, share such data, the DFARS identifies certain markings a contractor must place on data deliverables if it seeks to impose any restrictions on the DoD’s ability to use or share the data. When a contractor places a marking that is not in the format authorized by the contract on noncommercial technical data or noncommercial computer software that it delivered or otherwise furnished to the DoD, it is deemed to be a “nonconforming” marking. See DFARS 252.227–7013(h)(2) and DFARS 252.227–7014(h)(2). An “unjustified” marking, to be discussed in the subsequent article, is a “marking that does not depict accurately restrictions applicable to the Government’s use, modification, reproduction, release, performance, display, or disclosure of the marked technical data” or computer software. See DFARS 227.7103—12(b)(1) and DFARS 227.7203—12(b)(1).
As shown in Figure 1, contractors also are required to include markings that are unrelated to data rights on data delivered to DoD. These additional markings may include export control notices, destruction notices, classification notices, and distribution statements.

Figure 1. Assorted DoD Markings

The Battlefield Maps

Authorized data-rights legends required by the DFARS are analogous to battlefield maps. Skirmishes erupt on the battlefield over the wording and format of the legends—i.e., whether the delivered data are marked in a correct manner. The exact format and language of legends the DFARS authorizes contractors to place on data to restrict the DoD’s ability to use and share the data are listed at these three links:

Any marking applied to a data deliverable by a contractor that restricts the DoD’s rights to use or share data but does not use the authorized wording and format specified in the DFARS is a nonconforming marking. Examples of nonconforming markings include legends such as “Proprietary” or “Company Confidential.” These types of markings lead to confusion in both the DoD and contractor workforce, as well as ambiguity about the DoD’s ability to share and even to use the marked deliverable. Such confusion and ambiguity cost programs time and productivity that should instead be used to execute the program’s mission.

Figure 2 and Figure 3 are examples of real-world nonconforming markings that have been included on data delivered to DoD program offices. (Identifying information has been removed from all examples, which have been placed on mock deliverables).

The two markings are not the language authorized by a contract that includes DFARS 252.227–7013(f) or DFARS 252.227–7014(f), and are therefore not appropriate to restrict the DoD’s ability to use and share data deliverables. The language of these markings also purports to restrict the DoD’s right to use and share the data deliverables. Restrictions such as “Not to be duplicated, used, or disclosed—in whole or in part—other than to evaluate the data contained herein” and “The Government may use such information solely for the Weapon X Program …” are inconsistent with even the lowest level of license rights in data deliverables that DFARS 252.227–7013 and DFARS 252.227–7014 grant to the DoD. Therefore, the markings are, on their face, nonconforming.

Figure 2. Technical Report Nonconforming Marking

Figure 3. Noncommercial Technical Drawing Nonconforming Marking

Reasons for the Battle

Instead of presenting a rare data-rights area where the contractor and the DoD can agree, contractors show abundant creativity in developing a variety of markings to be placed on the DoD’s data deliverables. As a result, and despite the contractually binding direction in the DFARS, nonconforming markings present a major conflict point for contractors and the DoD. Unfortunately, nonconforming markings on data delivered to the DoD can also have a profound and negative effect on cost, schedule, and performance of weapon systems. These impacts may include the following:

Interference with the DoD’s ability to perform statutorily mandated maintenance (depot, intermediate, and organizational). Title 10 U.S.C. §2466, the so-called “50-50 rule,” requires that no more than 50 percent of the funding for depot maintenance workload may be contracted to private sources. This provision is measured in dollars and must be met each year unless a waiver is granted by the Secretary of Defense. Likewise, 10 U.S.C. §2464 requires that the DoD sustain the ability to perform certain “core” logistics capabilities.
Third parties’ refusal to accept documents with nonconforming, restrictive markings. This refusal can create a sole-source environment and increase the risk of suboptimal outcomes.
An enormous loss of time, effort, and taxpayer dollars spent by DoD personnel addressing and resolving disputes with contractors over nonconforming markings. This also leads to a loss of productivity and efficiency in executing critical programs.
Interference with DoD’s ability to use data in competitive procurements, potentially interfering with the DoD’s ability to comply with competition requirements in the Competition in Contracting Act, 41 U.S.C. §253, and FAR Part 6, Competition Requirements.
An inability to modify, update, or correct software source code.
An inability to disclose data to foreign military entities, which is often a necessary component of a foreign military sales contract.

Nonconforming markings such as those identified above thus interfere with the DoD’s ability to operate. Another critical problem, however, is that they also interfere with the government-contractor relationship. Instead of working together to execute a program, the parties end up wasting productive time and goodwill by battling over this issue. While resolution of these battles generally should be “self-executing” in that the DFARS clause specifies procedures that the contracting officer can follow to correct nonconforming markings, disputes not only waste everyone’s time and resources but can also lead to protracted litigation.

In 2018, OshKosh Defense, LLC, filed suit against the U.S. Marine Corps (USMC) in the Court of Federal Claims, 18–404 C (March 16, 2018). The complaint describes almost a decade of back and forth between the USMC and OshKosh related to thousands of technical drawings for the Medium Tactical Vehicle Replacement. The parties battled over both nonconforming and unjustified markings on those drawings. The litany of interactions between the parties is an example of the wasted resources and squandered goodwill brought about by disputes.

Likewise, the U.S. Air Force and The Boeing Company have been engaged in protracted litigation over nonconforming markings on technical data for a system installed on the F-15 fighter jet. The Armed Services Board of Contract Appeals (ASBCA) agreed that markings placed by Boeing on technical data delivered to the Air Force were nonconforming under DFARS. The case can be found at the ASBCA website, Appeal of The Boeing Company, ASBCA No. 61387 (Nov. 28, 2018).

Boeing appealed to the U.S. Court of Appeals for the Federal Circuit, which interpreted the restrictions on markings in DFARS 252.227–7013(f) to apply only to markings that restrict the DoD’s rights (and not to markings that restrict only third parties’ rights). Consequently, the court reasoned that the DFARS provisions and clauses allow markings that impose restrictions on third parties but not on the DoD. See the the U.S. Court of Appeals for the Federal Circuit website: The Boeing Company v. Secretary of the Air Force, 19-2147, Dec 21. 2019.

So what markings, other than those set forth in DFARS, can a contractor place on data without violating the prohibition on nonconforming markings? Unfortunately, the Federal Circuit did not provide guidance on this issue. Instead, the court remanded the case to the ASBCA for further proceedings to determine whether the marking(s) Boeing sought to use did, in fact, improperly restrict the DoD’s rights.

These are but two cases where both contractors and the DoD expended vast amounts of time and effort to address the issue of nonconforming markings. Contractors continue to place markings on data deliverables, and in fact may intensify their marking efforts after the Federal Circuit’s opinion, arguing that the markings chosen do not restrict the DoD’s rights. In response, DoD program offices will continue to direct contractors to remove markings that are nonconforming and do restrict those rights.

So the data-rights battle continues, and it is imperative that DoD personnel understand the battle environment and what to expect.

Order of Battle

The order of battle over nonconforming markings should follow a predictable path. These are some of the steps program offices should follow to avoid and address nonconforming markings:

The data-rights battle begins long before the first deliverable is received. During acquisition planning, a well-thought-out and clear IP Strategy should be developed. Communication with industry on data rights (e.g., via an industry day) might help to mitigate risk. Ensuring that everyone understands the IP Strategy during acquisition planning not only provides information needed by industry to submit a responsive proposal, it can reduce issues after contract award, including issues with nonconforming markings.
The IP Strategy, which inevitably will evolve as the program progresses through its life cycle, should be a touchstone for program decisions and expectations regarding data deliverables. All program personnel should be aware of the details of the strategy, as well as the general rules that apply to contractor markings on data deliverables.
Programs should have a process to review data that a contractor delivers and that is subject to the DFARS data-rights clauses. These procedures should specify the program office personnel that are responsible for the review (subject-matter experts, configuration management, program management, legal, or contracting). The procedures also should require that the responsible personnel identify any data deliverable that includes markings that are not in the format required by the DFARS clauses and that restrict the DoD’s rights. This review should occur as soon as the data are delivered and before acceptance; a program’s leverage to achieve correction of nonconforming markings decreases after acceptance of a deliverable. Once a data deliverable is accepted, resolution of nonconforming markings can be difficult and burdensome.
The personnel responsible for inspecting the deliverable should notify the DoD contracting officer that the deliverables include nonconforming markings. After review of the information provided, if the contracting officer agrees that the markings are nonconforming, the contracting officer will usually attempt to resolve the issue by notifying the contractor of the problem. Ideally, the contractor will remove the improper markings, and the parties will move on to work together to execute the program.
If the contractor does not voluntarily remove the markings, in accordance with DFARS 252.227–7013(h)(2) or 252.227–7014(h)(2), the contracting officer may issue a letter formally notifying the contractor of the nonconforming markings. A sample of information to be included in a contracting officer notification is shown in Figure 4. For removal of nonconforming markings, the contracting officer need not follow the formal procedures set forth in DFARS 252.227–7019 and 252.227–7037. These procedures, which will be discussed in a subsequent article, are required only for challenges based on unjustified markings on data.
The contractor has 60 calendar days after this notification to remove or correct the markings. If the contractor fails to act, the DoD may ignore or, at the contractor’s expense, remove or correct the nonconforming markings. Keep in mind, however, that DoD personnel cannot remove, erase, or alter any nonconforming markings until the contracting officer resolves the markings issues and directs that markings be changed or removed.

Figure 4. Contracting Officer Letter

How to Get Assistance

The authors can provide a tailored hands-on workshop on data-rights markings, including the processes to review deliverables to ensure that all markings on data delivered to the DoD are correct and to address problems.

The Joint Tactical Networking Center (JTNC), a DoD organization, can assist program offices in reviewing deliverables. JTNC can verify data-rights markings via computer scans on both printed and digital media. They have the processes and tools to verify data-rights markings via computer scans of both noncommercial technical data and noncommercial computer software. Contact JTNC’s DoD Waveform Information Repository via email at [email protected].

In addition, DAU has an IP community that can assist your program in markings and other data-rights issues. Reach out to the DAU IP community of practice at [email protected].

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BURRIS is an acquisition attorney focusing on data rights at Headquarters Air Force Materiel Command at Wright–Patterson Air Force Base. She has more than 25 years of legal experience, a law degree from Cornell Law School, and a bachelor of arts degree from Purdue University.

HARRIS is a professor of Program Management at DAU. He has more than 20 years of program management experience.

The authors can be contacted at [email protected] and [email protected].

The views expressed in this article are those of the author alone and not the Department of Defense. Reproduction or reposting of articles from Defense Acquisition magazine should credit the authors and the magazine.

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