United States: Protective Legends On Proprietary Data: Use Them Or "Waive" Your Rights Goodbye

On the one hand, federal contractors must always be judicious in what data they mark as "Proprietary" under applicable data rights FAR clauses. If contractors over-designate data as "proprietary", the Government may be able to disregard those designations. See 48 C.F.R. § 52.227-14(e). On the other hand, data "delivered to the Government without any restrictive markings shall be deemed to have been furnished with unlimited rights." 48 C.F.R. § 52.227-14(f)(1).  DynCorp International, LLC v. United States, No. 15-1397C (March 7, 2016), a recent U.S. Court of Federal Claims decision, provides a practical example of the perils of not designating certain profit and pricing data as "proprietary."

DynCorp was the incumbent contractor on the U.S. Air Force's War Reserve Material ("WRM") program. DynCorp had been the incumbent contractor on the initial WRM I contract and the follow-on WRM II contract. As part of its work on the WRM II contract, DynCorp submitted life cycle report spreadsheets to the Government that "identified the date on which the Government purchased certain tools (such as pressure washers, wrenches, battery chargers . . . ), how much the Government paid for those tools at the time they were purchased, and the projected date and cost when the Air Force would have to buy replacements." And, those same spreadsheets also included "DynCorp's indirect rate and award fee data." DynCorp 's life cycle report spreadsheets, however, contained "no proprietary markings" and no other efforts were made contemporaneously with submitting these reports to the Government to assert that the indirect rate and award fee data was confidential or that the reports contained any proprietary information.

In March 2015, the Air Force posted the solicitation for WRM III, the successor contract to DynCorp's WRM II contract. To demonstrate the kind of life cycle reports contractors would be required to provide as part of their scope of work under WRM III, the Air Force included various DynCorp life cycle reports as part of the solicitation documents. None the life cycle reports provided by DynCorp had any restrictive legends. The life cycle reports the Air Force included in the solicitation and posted on FedBizOpps contained DynCorp's profit and pricing data, all without restrictive legends.

DynCorp ultimately learned about the Air Force's "disclosure" of DynCorp's indirect rate and fee data in the publicly posted solicitation and filed a pre-award bid protest. In its protest, DynCorp sought the cancellation of WRM III and a five year extension of its WRM II contract. DynCorp's original protest with the U.S. Government Accountability Office was denied as untimely. DynCorp then refiled its pre-award bid protest with the U.S. Court of Federal Claims, seeking the same relief based on the Air Force's disclosure of DynCorp's indirect rate and fee data in the life cycle reports as part of the WRM III solicitation materials.

The U.S. Court of Federal Claims found that DynCorp had waived any rights it may have had in its indirect rate and fee data by failing to properly mark such data as part of its life cycle report submissions to the Government:

This Court has held that a contractor's failure to properly mark deliverable data with the appropriate restrictive indicators will result in the government gaining full use of that data. A restrictive marking or legend "alert[s] all government officials—even those unfamiliar with the data rights of the contractor—that data is considered proprietary and is inappropriate for dissemination. . . . The least cost burden in such instances rests with the contractor, who can easily apply an appropriate legend to the proprietary data." Accordingly, by failing to appropriately identify data a contractor considers proprietary, a contractor who has both the knowledge and ability to do so can forfeit its right to claim that data should be subject to protection.

Slip Op. at 8 (citations omitted).

The moral of this story is that contractors should continually analyze what data they are giving to the Government. If as part of this regular reassessment process they discover that certain data should be deemed proprietary, contractors should mark all proprietary, trade secret or business confidential data with appropriate restrictive legends to avoid giving the Government "unlimited rights" in that data. See 48 C.F.R. § 52.227-14. As this case demonstrates, once the Government acquires "unlimited rights" in data, contractors will likely be unsuccessful in bid protests based on government disclosure of such data.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.