Proprietary Data in Defense Procurement

• Author: BY Williams Munves
• Pages: 06

1. ARMED SERVICES PROCUREMENT REGULATION DEFISITIOX OF PROPRIETARY DATA

   The Armed Services Procurement Regulation,' which will, for brevity's sake, be called the "Regulation," sets forth in Part 2, Section IX thereof, the Department of Defense policy. implementing instructions and contract clauses with respect to the acquisition and use of data. The key to the Regulation is to be found in the statement that "it is the policy of the Department of Defense to encourage inventiveness and to provide incentive therefor by honoring the 'proprietary data' resulting from private developments and hence to limit demands for data to that which is essential for Government purposes."l

   The term "proprietary data" is defined by the Regulation 8smeaning "data providing information concerning the details of a contractor's secrets of manufacture, such as may be contained in but not limited to its manufacturing methods or processes, treatment and chemical composition of materials, plant layout and tooling. to the extent that such information is not disclosed by inspection or analysis of the product itself and to the extent that the contractor has protected such information from unrestricted use by others."n This definition was introduced into the Regulation in the revision of October 15, 1958. It revised somewhat an earlier, similar definition prescribed in the initial Part 2 of April 9, 1957.' Both definitions are predicated an the common law

   * The Opinions and conclusions presented herein are those of the author and do not necessarily represent the ~lews of the Department of the Air Force, The Judge Advocate Generapa School nor any other governmental agency.

   ** Aaaistant General Counsel (Procurement), Department of the Air Force; J.I., 1936. Now York University; LL.&lI., 1950, George Washington University; Member of New York Bar.

   Armed Services Proeuremnt Reg. 5 9, pt. 1 (July 1, 1960) (heremafter cited as ASPR).

   -ASPR 9-102.l(a) (July 1, 1960).

   8 ASPR 9-201 (b) (July 1, 1960).'ASPR 9-201(c) (April 9, 1967). defined proprietary data as memmg "data providing information eoncsmmng the detads of the contractor's trade secrets or manufacturing procesie8 Which are not disclosed by the design itapif and which the contractor has B right to protect from use by others."

   concept of a trade secret.s Whether the current definition equates "proprietary data" with "trade secrets,'' or has introduced a substantial modification in the legal principles underlying trade secrets, will be reserved for later consideration. The objective, however, was to clmely identify the terms "proprietary data" and"trade secret" in formulating and implementing the basic procurement policy governing the acqui3ition of technical data. This recognition accorded proprietary rights in data by the Regulation represents the first such expression of policy by the Department of Defense.

   11. EXPERIENCE AND PROBLEMS UNDER THE REGULATION

   The experience of the five years that the Regulation has been in effect has revealed serious deficiencies. Elements of industry are still vociferously contending that the Government is not honoring Proprietary data. There is a widespread divergence of interpretation by industry of the definition of "proprietary data" as, used in the Regulation, both at the bargaining table and in discharging its contract obligations. AS a result, the Government is frequently not obtaining technical data in complete and usable form for its intended application or. at a minimum, is involved in end-lesa disputes 8s to its rights in data actually delivered because of questionable restrictive markings or claims of ownership even in the absence of such limiting legends.

   The principle of recognizing proprietary data is, of course, unassailable. This article will concentrate on the problems raised by the Regulation's treatment of proprietary data, with particular emphasis on the consequence of its inclusion as a term in the can-tract for the purpose of describing or identifying data to be delivered or omitted. It is not the purpose of this article to probe other facets of the Regulation which have given rise to a myriad of data problems in procurement and contract administration. For example, no attempt will be made to probe the basic questions arising from the conflict of interest engendered by the Depart-ment's commitments on the one hand to honor proprietary information by not calling far it, or taking it subject to limited use, and, on the other hand, to fulfill its assum.nces to the Congress to obtain complete data essential for reprocurement so 88 to

   __

   1 No substantive difference waa intended in changing to contractor's secrets

   of msnufaeture, etc. The revised deRnitlan substituted two categories of data, "proprietary" and "other" data. for the prenaua three catewries, "opera. tmnai." "deaiEn" and ''pmpr~tary'' data. The revlaion made It clear that desim and DroDrietsw data were not mutually exelua~~e.

   The ambiguity

   hadbeen objeetibnsbie to Industry.156 *GO 68138

   PROPRIETARY DATAbroaden the field of competitive buying. Nor will any effort he made to delve into the metaphysics of predetermining at what point in time it will be economical in the constantly changing weapons systems, affected a8 they are by technological and engineering improvements and changes in missions, to obtain complete reprocurement data, or what price shouid be paid for proprietary data inevitably associated with such procurement data packages. Whatever be these problems and their solution, it is worth noting that their genesis is likewise to he found in the words "proprietary data."

   It is not to be presumed that the Regulation is solely to blame for the current dilemma. The problem of proprietary data long preceded the Regulation. For many years the rumblings were heard on the battle line of procurement-the "field," and finally, industry launched its critical attack upon the headquarters in the Pentagon.

   Industry pointed out that there was no published policy for data; that certain procurement offices were demanding full rights in all data, without according appropriate recognition to the con-tractor's proprietary rights in data; and that there was cansequently a lack of uniformity in the demands for data. The Regu-lation followed after years of study, industry consultation and interminable drafts. The initial Regulation published on April 9, 1957,1 was hardly in print when a clamor arose for revisiona. A year and a half later the present version was adapted.

   111. WHEN PROPRIETARY DATA REQUIRED

   How does the definition affect procurement? At the very outset a contractor may question the Government's requirement far data which the contractor regards as proprietary because the Regulation states, as basic policy, that "Generally it should not be neces-sary to obtain 'proprietary data' to satisfy Government's requirements."' In addition, in advertised procurement and in contracts and subcontracts for standard commercial items it is provided that proprietary data shall not he requested.' In the ease of a research and development contract, a contractor may demand payment for proprietary data for items which it has developed at its own expen~e but which it has not previously sold or offered for sale. Moreover, he is exempted both by the Regulation and the prescribed data clauses from providing proprietary information

   a ASPR 9-201!c) (April 9, 1957).AS?R 9-202 l!a) !July 1, 19601. The requirements for proprietary data BTe more prevalent In PrBct>ee than the polrcy would mdieafe end eonfrectora, reluctant to provide such data, have made th% an issui dunnq nezatiatians.

   .AS?R 8-202.l(ii iluly 1, 1960).

   A'O 6MBB 167

   for standard commercial items, or those which were developed at private expense and previously sold or offered for 8838.1 In the negotiated supply contracts he can omit proprietary information from the data to be delivered or, when specifically required by the contract, may supply it subject to limitation as to its use,'" or may provide it for reprocurement purposes far a price separarely negotiated."

   In summary, therefore, the contractor may, where the policy inhibits the procurement of proprietary data, challenge the Government's requirements for complete manufacturing data or, depending on the contract provisions, either omit proprietary data from the data package or furnish it subject to restrictive markings. In appropriate cases, the contractor may demand that the furnishing af proprietary data be the subject of a separate price negotiation.

   Because of the variety of circumstances in which it may be furnished-r omitted-there must be a common understanding or, in the basic tenet of contract law, "a meeting of the minds," as to what precisely constitutes proprietary data in a given procurement. Let us, therefore, examine the yardstick which the Regulation provides to Government and contractor personnel concerned and, in the case of disputes, to the Board of Contract Appeals, the definition of "Proprietary Data," and then evaluate the suitability of its use a8 a contract term.

   11'. RELATION OF PROPRIETARY DATA TO TRADE SECRET

   1. 1.V GEA'ERAL

      It was stated earlier that proprietary data is identified with the common law concept of a trade secret. Since the ASPR is not written for lawyers, but far the average contracting officer and buyer, it must define its terms in a manner that csn be commonly understood by nan-iawyers for practical application, and be appropriate regardless of the jurisdiction in which the contract is made or administered. It must be stated simply and concisely. The definition of proprietary data, therefore, does not purpoTto embrace fully ail factors and legal considerations that constitute

      B trade secret. AB a result it glasses over factors which are com- * ASPR 8-202.l(c) (July I, 1860).

      IOASPR 8-203.3 (Feb. 16, 1862). provirion (1) prescribed therm for addition to bsaie data elauae. Generally speaking, limitation as to m e precludes releaae outaide...