When technical data (TD) and computer software (CS) are delivered under a Department of Defense (DoD) contract, the Government inspects them for any restrictive markings and, if found, verifies that the TD/CS is listed on the assertions list attached to the contract. The contractor is prohibited from delivering any data with restrictive markings unless the data is listed in the attachment. Upon inspection, if the Government finds reasonable grounds to question the current validity of the restrictive markings, then, at its discretion, the Government may issue a pre-challenge request for information rather than going directly to a formal challenge. The pre-challenge notice requests a contractor provide a written explanation (i.e., a statement of facts accompanied by supporting documentation) for any restriction asserted by it or its subcontractor on the right of the Government or others to use the TD/CS. Although not the same as a formal challenge, the pre-challenge triggers a series of steps, some to be taken by the contractor and some by the Government. If the contractor’s response to a pre-challenge request for information is satisfactory, the Government may ultimately forgo a formal challenge and continue to abide by the restrictive legend the contractor placed on the TD/CS. A presumption exists that a commercial item was developed exclusively at private expense, and the contractor’s asserted restrictions are justified. Thus, normally the Government will not issue a challenge in a commercial item case unless there are reasonable grounds to question whether the item was, in fact, developed exclusively at private expense. For example, the Government may have knowledge or record of its funding of some or all of the development of one or more parts of the item under one or more prior government contracts.
The following briefly describes common scenarios and typical steps triggered by the Government’s issuance of a pre-challenge request for information:
1. The contractor may fail to respond within the time required by the Government or provide a response that leaves the Contracting Officer (CO) still unable to ascertain the basis of the restrictive marking. If the contractor fails to respond in time, the CO may determine that continued adherence to the marking would make the subsequent competitive acquisition of the underlying item related to the TD impractical, and the CO may institute a formal challenge. If the contractor responds but its response still leaves the CO with questions regarding the basis of the restrictive marking, he/she may decide to give the contractor another chance to submit additional information before deciding to institute a formal challenge.
2. If the CO decides to mount a formal challenge, he/she sends the contractor a written challenge notice stating the specific grounds for challenging the asserted restriction, requiring, within a certain time, a response that justifies and provides sufficient evidence as to the current validity of the asserted restriction and informing that failure to respond may result in the issuance of CO’s final decision (COFD).
3. The following are three likely scenarios after a formal challenge is instituted:
a. The contractor fails to submit any response to the challenge notice, leading to a COFD denying the validity of the restrictions.
b. The contractor submits a written response, but it is insufficient to substantiate the restrictions. The CO can issue COFD denying the validity of the restrictions and stating the contractor’s appeal rights.
In both scenarios, to sustain a challenge on commercial items (i.e., deny the validity of the contractor’s asserted restrictions), the CO must provide information demonstrating that the commercial item was not developed exclusively at private expense.
c. The contractor submits a written response sufficient to substantiate and justify its restrictions. Then CO issues a COFD sustaining the validity of the restrictive marking and stating the Government will continue to be bound by the marking.
Even if the COFD is to deny the validity of the contractor’s restrictions, the Government will continue to be bound by the marking for 90 days from the issuance of the COFD. During this period, if the contractor decides to appeal, it must either file an appeal at the Armed Services Board of Contract Appeals (for DoD contracts) or give notice to the CO of its intent to file suit in the Court of Federal Claims. If the contractor fails to appeal, file suit, or provide a notice of intent to file suit within the 90 days, the Government may cancel or ignore the restrictive markings, and the failure of the contractor to take the required action constitutes agreement with such Government action. After giving its notice of intent, the contractor has one year from the issuance of the COFD to file its suit. Where an appeal or suit is filed pursuant to the Contract Disputes statute, the Government agrees to be bound by the restrictive marking until final disposition by the Board of Contract Appeals or the Court of Federal Claims.
If the restrictive marking is found not to be substantially justified and the Government wins the appeal, the contractor’s restrictive marking will be canceled and the contractor will be liable for the Government’s costs related to the challenge. If the contractor wins the appeal, the Government will continue to be bound by the markings. If the challenge by the Government is found not to have been made in good faith, the Government is liable for the contractor’s fees and other expenses in defending the marking.
At any time during the challenge process or appeal, the parties may enter into discussions for settlement. If successful, this will usually result in a specially negotiated license (SNL) agreement for the contested TD/CS rights; settlement agreement; modification of the contract, under which the TD/CS dispute arose, to incorporate the SNL and settlement agreement; and dismissal of the challenge or the appeal.
If you are facing a formal challenge against the rights restriction of your TD/CS, contact us at Whitcomb Selinsky, PC. Our government contracts and intellectual property attorneys will review the challenge and the documentation supporting the assertion of your restricted rights and defend your case at the Board of Contract Appeals or the Court of Federal Claims.