Pentagon's intellectual property debate with industry poised to continue

By Tony Bertuca  / January 16, 2019

The Defense Department has received final recommendations from a special advisory panel on intellectual property rights indicating the struggle between defense contractors and the Pentagon over ownership and access to technical data is far from over.

Though the congressionally mandated panel composed of government and industry personnel reached consensus on a host of topics, they identified three areas in which the debate over ownership and access to intellectual property remains unresolved, according to a 191-page report sent to the Office of the Secretary of Defense.

The "tension points" stem from recommendations written by seven panel members, of whom six are officials from industry and one from government, that are at odds with the "minority position" of five government officials on the panel.

The first "tension point" identified in the report involves funding the development of new technology versus funding for adaptation.

"In a data rights construct that is based largely on development funding, a tension arises whenever DOD funding is used to modify a privately funded or commercial technology, and it is not clear whether the modifications constitute development," the report states.

The majority supports re-writing federal acquisition law to allow for greater negotiation between government and industry on intellectual property developed with government funding.

The minority, in a scathing response, writes they "see no value in rewarding industry for creative lawyering or creative accounting."

"The Majority members seek to further remove any risk from the contractor and to transfer that risk to the Government with this proposal," the minority writes. "It is important to note that the contractor, not the Government, controls the technical approach and the decision of whether or not to use Government or contractor funding during a Government contractor. This proposal, if adopted, would allow a contractor, through negotiation, to transfer all R&D risk to the Government, accept billions of dollars in Government funding, and retain all IP rights without providing any IP rights to the Government."

The minority also argues that altering acquisition law to allow for greater flexibility over the government's ownership and access to technical data developed wholly or in part with government funds "unduly increases vendor-lock," does not serve the needs of the warfighter and "does not serve the interest of the American taxpayer."

A second tension point for the panel is the extent to which technical data statutes should apply to all commercial items procured at the contract or subcontract level.

The majority proposes legislative changes that would, among other impacts, indirectly eliminate mandatory "flow-down" intellectual property requirements for commercially available off-the-shelf items and require negotiations for data rights on those items.

Again, the minority provides robust opposition.

"The Majority members encourage the Government to abandon a uniform approach for data rights validation for any commercial item," the minority states. "The supposed better practice is to make data rights validation a case-by-case determination that excludes some vendors, lets others 'opt in,' and leaves the rest entirely up to the discretion of the parties. No examples are provided to illustrate why this hodgepodge approach could be a better practice or would lead to more cost-effective reprocurement, sustainment, or related activities. Again, the Majority member position is not supported by any evidence."

A third tension point for the panel involves limiting to six years the government's current perpetual right to "deferred ordering" of technical data.

The majority recommends a statutory change that would allow the government to exempt, at its discretion, data from deferred ordering, which is consistent with the current regulation.

The minority, however, objects to the change on the grounds that it "substantially decreases industry's risk and maximizes its profit margin, while it critically increases DOD's risk for organic sustainment of its weapon systems, and adversely impacts readiness."

Way ahead

Crafting recommendations for intellectual property reform clearly proved challenging for the panel, which was initially required by the Fiscal Year 2016 National Defense Authorization Act no later than Sept. 30, 2016.

"The complexity of the topic and competing demands on time have contributed to the length of time it has taken to develop the report," a DOD spokesman said in October. "The ability to work through these factors over time is resulting in a more robust panel final report."

Now that the panel has delivered its report to OSD, it falls to Pentagon leadership to craft intellectual property policy and request legislative changes from Congress where desired.

Ellen Lord, the under secretary of defense of acquisition and sustainment, will be one of the primary architects of a new DOD-wide intellectual property policy.

Lord told reporters in December she will work in the coming year to craft a consistent intellectual property policy for the entire department and noted the Army has led the way, recently releasing its own policy.

When it comes to government rights to technology developed with government funds, the Army's new policy states that the government will have "unlimited rights." Contractors, meanwhile, may restrict government rights to intellectual property developed exclusively at private expense.

For intellectual property developed with a mix of government and private funding, however, "the rights will be negotiated as early as possible (preferably during contract negotiations), except in any case where negotiations would not be practicable," the Army policy states. "The establishment of negotiated rights will be based on small business innovation, interest in increasing competition and lowering costs by developing alternative sources of supply, interest in encouraging contractors to develop at private expense for use by the Government, and other factors the Secretary of the Army identified."