Protecting Your Tech Company’s Intellectual Property in a Government Contract

HOST: Hello everyone and thank you for joining us for this fifth episode of a series focusing on how and why technology companies can successfully work with the federal government as a contractor.

HOST: So far we've explored why a technology company may want to consider working with the government, how to win that work, and important steps to take once the contract is awarded. Today our focus again is on technology companies. We're diving deeper into the crucial elements of the contract—those that you should pay attention to if your company has proprietary software or intellectual property you may want to protect.

HOST: Joining me today is someone who knows a great deal on this subject: my colleague Brendan Halleran. Brendan is a senior manager in Cherry Bekaert's Risk Advisory practice and focuses on serving clients who are government contractors. Brendan has spent a number of years working with the government in the DCMA. Brendan, welcome.

BRENDAN HALLERAN: Thanks, Greg. Glad to be here.

HOST: To kick off right away, I thought we could share an example of the importance of really knowing what a company's contract with the government says and allows, and really to avoid any surprises down the road. Do you have any examples of when a company has used its interpretation of regulations to protect its IP or data rights with the government?

BRENDAN HALLERAN: Yes. One recent example that received a lot of attention was Boeing versus the Air Force. The background is that, as part of the contract, the government had unlimited rights to some of the data associated with that contract, and there was a prescribed way of marking the associated documentation and files.

BRENDAN HALLERAN: Boeing implemented its own marking legend and added a component outside of what was prescribed by the government. It required that if a third party were going to have access, either the government or Boeing had to give approval. The Air Force took exception because it wasn't in line with the marking guide.

BRENDAN HALLERAN: The dispute worked its way through the ASBCA and then to federal court. The ASBCA found in favor of the Air Force, concluding that Boeing had asserted an additional requirement around data rights outside of the contract. The federal court later ruled against the ASBCA's decision and found that Boeing was asserting the requirement against the third party, not the government.

BRENDAN HALLERAN: It was very interesting and telling that a significant government contractor like Boeing was looking for a way to put some provision around how loosely the government could provide data to a third party. I think it empowers government contractors to read the fine details and understand how to apply them in the operation of their contracts.

BRENDAN HALLERAN: More broadly, with technical data and data rights there are many types of information covered—drawings, instructions, software source code, and other computer-related aspects. It's important for companies to think ahead about how the data could be used after the contract term. For example, will the government continue to use the software? Is there support or maintenance involved? There are many details companies need to be aware of when entering into a contract or marketing their technology.

HOST: You're really keying in on how being aware can be super helpful. What should a contractor be mindful of when proposing or negotiating a contract with respect to protection of IP, which is important to the company's value and future commercialization?

BRENDAN HALLERAN: Contractors should evaluate IP protection right at the inception. If there's a government RFP or solicitation, they should review it carefully and call out exceptions in their proposal if they believe the government would have more extensive rights to technical data than is appropriate.

BRENDAN HALLERAN: It's important to do that at the proposal stage so an amendment can be made or the issue is memorialized. Companies should also recognize that rights might apply to a component or portion of a technology or software, not necessarily everything. You can tailor rights accordingly rather than accepting a one-shot deal where the government has rights to everything.

BRENDAN HALLERAN: During negotiation, understand what's in the contract, how you'll track and document data, and ensure technical data packages or drawings are properly marked. Failing to mark technical data correctly can result in losing rights to it, so documentation details are key to protecting assets.

HOST: There has been a lot of talk around Independent Research and Development, or IR&D. How does that play into this discussion?

BRENDAN HALLERAN: IR&D has been a hot topic, particularly with the Department of Defense, because major contractors have significant IR&D programs that are key to the DoD mission. There's a lot of oversight and attention, and the requirements for classifying something as independent research and development can be a moving target.

BRENDAN HALLERAN: The key with IR&D is that IP and data rights generally follow the funding. Did the government pay for the work from inception, or did they pay only for modifications? That funding trail determines what rights the government might have.

BRENDAN HALLERAN: IR&D allows companies to get some costs reimbursed through their indirect rates without associating the work with a direct government contract. Classifying and tracking projects as IR&D, and having a systematic approach to when a technical pursuit started and whether it was used on a government contract, helps draw the line to protect the company's position.

BRENDAN HALLERAN: Properly leveraging IR&D can benefit companies by allowing them to pursue projects for commercial or government markets while potentially getting some indirect investment from the government. Companies should stay abreast of current requirements because there are typically documentation and reporting obligations at the onset and annually, which help defend the IR&D classification and support cost reimbursement.

HOST: Thanks so much, Brendan. Super insight on these topics. It feels like we've just touched the surface and could speak much longer.

HOST: While the government isn't out there to intentionally take contractors' IP, being aware and dealing with contractual issues on the front end can help ensure a good outcome for both parties. To that end, we at Cherry Bekaert are ready to help navigate contracts as they're awarded or as you're bidding on work.

HOST: Brendan, thank you again for your time. If folks want to contact you directly, please email Brendan at brendan.halleran@cb.com.

BRENDAN HALLERAN: Thanks, everyone.