Key Takeaways from Boeing's Recent Data Rights Win at the Federal Circuit
The U.S. Court of Appeals for the Federal Circuit issued a key decision this week in which it upheld a longstanding, common-sense practice to prevent unauthorized use of contractor technical data by nongovernment third parties. The Court's ruling in The Boeing Co. v. Secretary of the Air Force, Fed. Cir. 2019-2147 (Dec. 21, 2020) confirms the ability of contractors to mark proprietary technical data with tailored protective legends that restrict only the rights of third parties. The Court found this practice to be consistent with Defense Federal Acquisition Regulation Supplement (DFARS) 252.227-7013 (the -7013 clause), which dictates the markings a contractor may use to restrict the government's rights in technical data pertaining to noncommercial items. The decision does not end the case, however. The Court remanded the matter to the Armed Services Board of Contract Appeals (the Board) to determine if, in fact, Boeing's proprietary legend impermissibly restricts the government's rights in the company's technical data, making Boeing a "must-watch" government contracts case in 2021.
Background: Boeing Data Rights Dispute
Subsection (f) of the -7013 clause includes a list of authorized markings that can be used by contractors to restrict the government's rights in noncommercial technical data. Boeing and the U.S. Air Force entered into two contracts for work relating to the F-15 Eagle Passive/Active Warning Survivability System. Both contracts incorporated the -7013 clause and required Boeing to deliver technical data with "unlimited rights," which granted the Air Force the right to "use, modify, reproduce, perform, display, release, or disclose [the] technical data in whole or in part, in any manner, and for any purpose whatsoever, and to have or authorize others to do so." See DFARS 252.227-7013(a)(16). Boeing marked each technical data delivery with a protective legend that required nongovernment third parties to receive permission from either Boeing or the U.S. government before using or disclosing the data. The Air Force issued a final decision rejecting the use of Boeing's legend because it was not one of the standard markings expressly authorized by subsection (f) of the -7013 clause. Boeing appealed to the Board, which ultimately adopted the rationale in the government's final decision on summary judgment. Boeing's Federal Circuit appeal followed.
The Federal Circuit's Decision
At the Court, the government argued that contractors are prohibited from marking technical data with any protective legend not specifically enumerated in the regulations, relying heavily on one sentence in subsection (f) of the -7013 clause. Boeing argued that, when read in its totality, subsection (f) of the -7013 clause is silent on what markings can be used to limit use and disclosure by nongovernment third parties. On this key issue, the Court agreed with Boeing and reversed and remanded the dispute to the Board for further proceedings. In so doing, the Court made several significant points:
- First, having adopted Boeing's interpretation of the -7013 clause, the Court used expansive language to explain why its holding was "faithful to the overall purpose of the -7013 clause and the broader technical data rights regulations in DFARS parts 227 and 252." Id. at 12. According to the Court, all of the technical data rights provisions in DFARS parts 227 and 252, including the -7013 clause, "govern the allocation of data rights between contractors and the government," and the government "cite[d] nothing in the DFARS (or anywhere else) to suggest that the DoD intended the technical data rights regulations—or specifically intended Subsection 7013(f)—to have a broader impact that could affect a contractor's relationship with third parties." Id. (emphasis added). Further, though the Court "recognize[d] the complicated history of the technical data rights regulations," it found that the government's view of that regulatory history did not undermine the Court's ruling on the plain meaning of -7013 subsection (f).
- Second, in considering policy-based arguments raised by the parties, the Court observed that its interpretation of the -7013 clause was consistent with the fact that Boeing retains ownership of its technical data, even if the government obtains unlimited rights, as defined in DFARS 252.227-7013(a)(16). The government's interpretation, on the other hand, would result in "Boeing de facto losing all rights in any technical data it delivers to the government" because it would deny Boeing even the basic ability to "to notify the public of its ownership such data." Id. at 18. The Court also was "not persuaded that allowing contractors to mark technical data with proprietary legends will lead to an epidemic of confusion that would broadly prevent the government from exercising its license rights under government contracts." Id. at 19. Boeing represented that it had been marking proprietary noncommercial technical data since as early as 2002 without objection from the government. Id. at 20. But the Court found that the government "was unable to counter that representation with compelling evidence that confusion from unclear markings has created serious burdens for the government." See id.
- Third, despite ruling that the -7013 clause does not prohibit contractors from marking technical data to restrict the rights of third parties, the Court remanded to the Board to determine if Boeing's proprietary legend, in effect, "restricts" the government's unlimited rights by requiring it to "authorize" third-party use of Boeing's technical data. See id. at 20-22. According to the Court, the Board did not reach this "factual" question on summary judgment, even though the Board had found that the applicable definition of "unlimited rights" requires such government authorization. See id. at 20-21 (citing DFARS 252.227-7013(a)(16)).
There are several key takeaways from the Court's decision in Boeing, including:
- Regulations Must be Interpreted as a Whole. In addressing the parties' competing interpretations, the Court had little trouble disposing of the government's argument relying only on the second sentence of -7013(f). The Federal Circuit, perhaps more than other appellate courts, has consistently applied the "plain meaning" rule to interpret regulations as a whole and, to the greatest extent possible, harmonize even arguably conflicting text. The decision is a good reminder that, when presenting argument on regulatory interpretation to the Federal Circuit, litigants must always attempt to reconcile the language that both helps and hurts their case. And, in the absence of a principled plain meaning argument, a party cannot count on regulatory history or policy-based arguments to save the day.
- Boeing Could Have a Broader Impact in Commercial Intellectual Property Disputes. In relatively sweeping language, the Court found that the DFARS provisions governing technical data rights, as a whole, are not intended to "have a broader impact that could affect a contractor's relationship with third parties." See Fed. Cir. Op. at 12. The Court's statements in this regard could prove significant in infringement or misappropriation lawsuits brought by contractors against third parties because such suits can often turn on the mechanics and meaning of the technical data provisions in DFARS parts 227 and 252.
- Boeing is a Must-Watch Government Contracts Case in 2021. The Court's decision to remand Boeing tees up the following question: Does a proprietary legend requiring the government to "authorize" third-party use of Boeing technical data impose a burden so significant that it effectively restricts the government's unlimited rights? Multiple factors highlighted in the Federal Circuit's opinion strongly suggest that the answer to this question should and will be "No." First, the Board previously recognized on summary judgment that the pertinent definition of "unlimited rights" requires the government to "authorize" a third-party's use of contractor technical data (DFARS 227.7101(b) and DFARS 252.227-7013(a)(16)). Given this finding, the Board may already be inclined to hold that Boeing's protective legend does not impose a burden that the government has not already imposed on itself. Second, during oral argument to the Court, Boeing represented that it has utilized similar markings for almost two decades without government objection. In light of this, the government's claim of undue burden could be in even greater jeopardy on remand, particularly since the Board already found the government's evidence on this point "to be tenuous at best." See Fed. Cir. Op. at 20. Together, these open questions make Boeing a must-watch government contracts case in the new year.
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