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Boeing, Raytheon Fight to Protect Data in Federal Contracts

April 6, 2020, 8:56 AM

The federal government can do whatever it pleases with a contractor’s technical data, including passing on prototypes to competitors, under the unlimited rights licenses that it makes many companies agree to if they want to work for the U.S., it told the Federal Circuit last week.

Two defense contractors, Boeing Co. and Raytheon Co., are directly challenging the government in court, saying it violated data rules when it limited their ability to put restrictive markings on their vendor lists and other propriety information.

Boeing claims it is allowed to use markings on F-15 Air Force jet contract documents, which warn third parties about unauthorized use.

But Boeing can’t show it retains trade secrets in data that it turns over to the Air Force fully knowing it isn’t required to maintain confidentiality, the government told the U.S. Court of Appeals for the Federal Circuit on March 30.

Raytheon, in a separate data dispute, similarly says the Army violated data rules when it ordered the removal of restrictive markings on its documents used to support the Patriot Missile system.

Federal agencies may take a tough stance on their contractors’ data in order to fulfill both short- and long-term needs, and so they don’t wind up being overly reliant on only a few companies, an attorney for federal contractors says.

But others say this approach can be overly aggressive and would end up hurting the government by dissuading contractors from pursuing innovations that defense agencies need.

It will be much harder to deter competitors from engaging in unauthorized data use if the government prevails in these cases, Alex Sarria of Miller & Chevalier Chtd. said.

A contractor’s ability to control proprietary data is at greater risk if it can’t put third parties on notice that the data may not be used without a paid license or other proper authorization, he said.

Government victories also could lead to “an increase in intellectual property litigation brought by contractors that want to protect and commercialize their proprietary data,” he said.

If a contractor can’t maintain the right to commercialize technical data, “a chilling effect could be created that causes certain contractors to reconsider doing business with certain government customers,” Aron C. Beezley of Bradley Arant Boult Cummings LLP said.

Too Aggressive

The government isn’t served by putting contractor data at risk, especially at a time when it is courting nontraditional defense contractors to deliver innovative commercial technology, Sarria said.

Aggressive positions on data could be explained by “a general lack of appreciation by certain federal agencies” about balancing government and contractor rights to technical data, Beezley said.

Another attorney said, however, that the markings dispute won’t affect the largest contractors and that the federal government has a number of reasons for wanting few restrictions on the data it gathers.

Agencies may see these disputes as “hand-fighting that is necessary to protect the government’s interests, but this will have little effect on whether major players continue to do business with the government,” Locke Bell of Morrison & Foerster LLP said.

Agencies worry about being beholden to a contractor for a system’s maintenance and sustainment needs, he said.

It’s very difficult to determine today what data, and what rights in data, an agency will need in 20 years, Bell said.

“Contracting officials more often err on the side of amassing as much data as possible, with as many rights as possible, even if it’s not exactly clear how the agency ultimately will use those data,” he said.

Contractors can push back on data provisions in solicitations by filing pre-award protests, such as how Sikorsky unsuccessfully challenged an Air Force helicopter procurement for demanding computer source code from bidders in 2018.

“But it’s often very tough for a prospective offeror to come around to the idea of suing their would-be customer at the outset of a competition” even if a data provision is unreasonable, he said.

“Still, the more agencies attempt to overreach, the more protests are likely to be filed,” he said.

Markings Claims

The Air Force said Boeing’s markings didn’t comply with a defense regulation and directed Boeing to correct them at Boeing’s expense.

The Armed Services Board of Contract Appeals backed the Air Force order but said it couldn’t determine whether the Air Force violated a statute that says the government may not impair a contractor’s intellectual property rights.

Boeing told the Federal Circuit in its opening brief that, if upheld, the board’s decision could lead to the “complete denial of any property rights at all,” and cause companies to give up on government contracts.

Boeing said its suppliers have claimed to possess, like the government, “at least unlimited rights” to Boeing’s data. If that viewpoint has legal backing, commercial sales will suffer, and Boeing will have to react by raising prices charged to the government, the company said.

Weeks before Boeing appealed to the Federal Circuit, Raytheon filed a June 2019 complaint at the U.S. Court of Federal Claims seeking a ruling that the Army improperly ordered the removal of restrictive markings on vendor lists submitted under contracts to support the Patriot missile weapon system.

The Army initially had no objection to the markings, but then decided government employees and contractors must have access to the lists in order to fulfill other contracts, Raytheon said.

The case is Boeing Co. v. Sec’y of the Air Force, Fed. Cir., No. 2019-2047, brief 3/30/20.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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