Manufacturing Blog: Innovating with the Government

The F-35 is the most advanced piece of military hardware ever developed. The high-tech stealth supersonic fighter jet will be studied for years to come—not just by adversaries trying to understand its secrets, but also by graduate students who want to learn how to avoid the development program’s decade of delays, spiraling cost overruns, and setbacks.
 
It may also become a case study in intellectual property (IP) as it relates to government procurement.
 
Lockheed Martin, the prime contractor on the F-35 program, has asserted IP rights for its maintenance and logistics system of the F-35 as well as in certain software associated with a flight system simulation package. The Pentagon disagrees and obviously desires clear title to these aspects of the F-35. How this dispute gets resolved could affect government contracting for years to come.
 
Through a variety of complex laws and regulations (some would argue too complex), there are times when government contractors retain title to their intellectual property even when the IP is developed using government funds under a contract award. The tax code-like complexity lies in the different regulations used by different branches of the government, different “alternate” versions of some regulations, different regulations that apply to different species of IP, and different regulations which apply to IP developed using government funds, at private expense, or even using mixed funding. There also are different rules for different kinds of contractors: Small businesses and universities are treated differently, for example, than large ones like Lockheed.
 
There are even different routes a contractor can use to fight an adverse finding by a government entity concerning the contractor’s IP. And, in any given contracting situation, the contractor can always try to negotiate a special deal which doesn’t adhere to the preset contractual provisions of the regulations.

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The details of the various regulations are too much to cover here, but the basic framework gives priority to the government’s need to freely utilize IP developed or delivered under a government contract and then considers the contractor’s desire to keep hold of as much of its IP as possible.
 
Let’s look at patentable inventions. The driving factor for an invention is whether it was made using government or contractor funds. If only contractor funds were used, then the government generally doesn’t have any rights to the invention. (Note the result can be different if the invention is software constituting a deliverable under the contract.) If the invention was “conceived or reduced to practice,” using any government funds, however, then in general the government and its other contractors receive a license to practice the invention for government (noncommercial) purposes. The contractor, in turn, retains the patent for the invention for commercial purposes provided the contractor adheres to the regulations and files certain reports on time.
 
You can see where this is going: If I am a government contractor about to be awarded a government contract for researching and developing a gizmo, I’ll file my patent for the gizmo before I take in any government funds. That way, the government will be hampered in any attempt to obtain the gizmo elsewhere.
 
Aside from the interesting question of why I needed the government’s money to research and develop a gizmo I have already protected with a patent, consider that I’ll also have to live with the fact that the government can always have another company copy and sell the gizmo to the government and my only recourse then is a lawsuit against the government in a specialized court in Washington, D.C., where the best outcome for me is a  “reasonable royalty” award.
 
How does this relate to Lockheed Martin? By certain reports, Lockheed is fighting over certain IP rights in the Autonomic Logistics Information System before the Armed Services Board of Contract Appeals. It is not easy getting your hands on the board’s docket to evaluate Lockheed’s claims. A Freedom of Information Act request is required which costs money and takes a long time to process.
 
We can learn about how these types of disputes generally play out when they reach the Court of Appeals for the Federal Circuit, whose docket is publicly available.
 
For instance, Boeing has an ongoing dispute with the Air Force concerning Boeing’s contract to deliver an electronic warfare suite for the F-15 Strike Eagle. This “Eagle Passive Active Warning Survivability System” (it’s both passive and active?) equips the F-15 with advanced capabilities to jam radar, detect and locate threats to the aircraft, and fire anti-aircraft missiles and other countermeasures. Deliverables under the contract include CAD drawings and 3-D models for the EPAWSS technology.

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In its opening brief, Boeing conceded the government, under the applicable contract, has unlimited rights. However, Boeing retained ownership of the drawings and the right to commercialize its EPAWSS technology for sales to foreign allies. Accordingly, Boeing marked the drawings with notices concerning the government’s unlimited rights but also warning that non-U.S. government recipients could only disclose or use the drawings if authorized by Boeing or the U.S. government.
 
The government asserted such notices are not in accordance with the regulations; Boeing said they were. Boeing lost at the board and appealed to the federal circuit. The government has filed its brief and Boeing will then reply. Oral arguments were held on November 4 and the court should rule soon.
 
We can expect a similar appeal if Lockheed loses at the board level or a settlement is not reached.
 
There would certainly be less litigation if the government simply refused to contract with any entity asserting IP rights. But, as Boeing points out in its opening brief, this practice would make industry “increasingly reluctant to do business with the government.” Such a practice could also result in the government not getting the latest best technology.
 
The other simple choice would be to let the contractors always retain their IP. That result, however, could (and history shows it did) hamper the government’s ability to develop and use weapon systems while also leading to abuses in spare parts procurement.
 
So, the current regulations are an attempt at balancing the contractor’s and the government’s needs. Any time such a compromise is made, however, expect a set of byzantine regulations—and courtroom battles.
 
Congress last looked at the problem in 1995, when it established a joint DOD-industry committee which recommended new regulations. Perhaps it is time to take another look, especially if the goal of a regulation is to avoid litigation. The first step should be to study all the litigation in this area and shore up the regulations accordingly. Congress should also make the board’s docket publicly accessible.
 
Kirk Teska is the managing partner of Iandiorio, Teska, and Coleman, LLP in Waltham, MA, an adjunct professor at Suffolk Law, and the author of two books: Patent Savvy for Managers (NOLO) and Patent Project Management (ASME Press).