Technical Data Rights Protections Eroded by FY19 NDAA

Scott Arnold and Carolyn Cody-Jones

The Fiscal Year (“FY”) 2019 National Defense Authorization Act (“NDAA”), H.R. 5515, 115th Cong., 2d Sess. (2018), passed both chambers of Congress at breakneck speed this year, the fastest pace in approximately 20 years, and was presented to President Trump on August 3, 2018. The bill enjoyed substantial bipartisan support in both the Senate and the House. It authorizes a $717 billion national defense budget and also reforms certain practices.

One change is to the Department of Defense’s (“DoD”) technical data rights disputes process under Title 10, section 2321 of the United States Code. The change grants DoD an exception to the injunctive-like relief in the current procedure for resolving how DoD may use the data. This relief essentially “freezes” DoD’s use of the disputed technical data until a final decision is issued by the agency Board of Contract Appeals or the U.S. Court of Federal Claims. Government contractors who develop products with components utilizing proprietary information should note that this exception will enable the Government to release disputed technical data before litigation is concluded, even though the contactor’s limited rights assertions, which generally preclude such release, may ultimately be upheld.

The operative language for the exception is found in Section 866, Continuation of Technical Data Rights During Challenges, which amends section 2321 paragraph (i) to state that the Secretary of Defense, or Secretary of a military department for programs with delegated milestone decision authority, may authorize the military’s use of disputed technical data before the final administrative or judicial decision:

(1) Upon filing of a suit or appeal under the contract dispute statute by a contractor or subcontractor in an agency Board of Contract Appeals or United States Claims Court related to a decision made by a contracting officer under subsection (g), the Secretary of Defense, or a Secretary of a military department for programs for which milestone decision authority has been delegated, on a nondelegable basis, may, following notice to the contractor or subcontractor, authorize use of the technical data in dispute if the Secretary determines in writing that compelling mission readiness requirements will not permit awaiting the final decision by the agency Board of Contract Appeals or the United States Claims Court.

This new language signals a substantial shift in risk to the government contractor during the disputes process. Where a high-level decision within DoD determines that use of the technical data is necessary for compelling missions readiness, the contractor must contend with the prospect that its proprietary data may potentially be released by DoD during the disputes process. Although a contractor still retains the right to seek damages if it prevails, consistent with section 2321(i)(2) (to be subparagraph (3) in the amended version of the statute), its now-exclusive remedy still requires it to bear the burden of suing for and proving such damages as opposed to immediate injunctive relief.

Significantly, the final version of the amendment to 10 U.S.C. § 2321(i) is moderate compared to an early version passed by the Senate. That version did not restrict DoD’s decision to release technical data during disputes to high-level officials, provided the exception could be exercised for mere “mission requirements,” and limited the contractor’s right to damages where the government did not act in “good faith” in using the technical data—a difficult, if not impossible, to prove standard that would hamper any recovery efforts.

The fact that this language was not retained in the final version of the amendment indicates that DoD’s application of this exception will likely be limited, both in who can decide to implement and what missions qualify for the exception, and successful contractors will still have a viable chance at recovering monetary damages where their data is released notwithstanding the assertion of valid limited rights restrictions. Thus, the final version in the FY19 NDAA limits the scope of DoD’s use of this exception and retains potential for some meaningful remedy for contractors undertaking the technical data disputes process.

The effective date of this amendment to 10 U.S.C. § 2321(i) will be the earlier of the interim or final rule publication date, which DoD must do within 180 days of enactment. The amendment will apply to all DoD solicitations after that date unless an agency senior procurement executive grants waiver on a case-by-case basis.