From Commercial to Government and Back Again: Inverse Licensing Regimes

A number of our legal clients begin as government contractors and move into commercial sales or vice versa.  There are many potential stumbling blocks in this transition, but one of the most subtle and potentially most harmful is the difference in how the government licenses technical data and software (or at least non-commercial software).

The government has three main data rights clauses that it uses in its contracts: Federal Acquisition Regulation (FAR) clause 52.227-14 and Defense FAR Supplement (DFARS) clauses 252.227-7013 and 252.227-7014.  While these clauses have some important differences, they all default to unlimited data rights for the government.  This is the opposite of a typical commercial transaction.

A surface reading of these clauses gives a different impression because the clauses provide tests to determine the applicable government right.  This reading is incorrect, however, as the government requires the contractor to claim and properly mark all data provided under these clauses or else grant the government unlimited rights.  Unwary contractors can give unlimited rights to the government when the government has paid for much less.  While the contractor still technically owns the data, the commercial value may be eliminated.

With unlimited data rights, the government can provide the data or software to a competitor of the company that developed the data.  This lowers the cost of future purchases for the government but harms the company that initially developed the data.  In cases where the government paid for all of the development (which is when the government should receive unlimited rights under the relevant clauses), this is not catastrophic.  In cases where the government paid only for a part, or none, of the development, it can be.

Further complicating this issue are IP rights, list of deliverables, and other government contracting provisions that may or may not have equivalents in the commercial sector.

Commercial contracts function much differently; usually, the licensing organization only receives the specific rights provided in the license agreement and no more.  There are also far more ways to license data and software, with creative lawyers constantly developing new ways to monetize data.  As data rights and licensing techniques continue to evolve, the distance between the way the government licenses data and corporations do will continue to increase.

The government adopted the current data rights clauses, in part, after years of negotiation with industry.  But the terms were set years ago.  Industry has evolved.  The gap between government contracting and commercial licensing is larger than ever.  Companies seeking to move between the two must be cautious and ensure they’ve properly taken these issues into account.

Centre Law & Consulting is a leading law firm with a renown technology practice to support your need. Contact our team to consult with our experts in all data rights and software licensing legal issues as a federal contractor.