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Emerging IT Government Contractors: Are Your Software Rights Protected?

 

Earlier this year, in May, the Department of Defense (DoD) amended DFARS to allow the government to give "support contractors" access to proprietary software and data belonging to defense contractors.  If your IT company contracts, or wants to contract, with the federal government, the amended rules clearly underscore the need for your business to control and manage the solutions it develops during a government procurement.

Indeed, tech companies that are new to government contracting often are surprised at the scope of rights the government inherits under FAR and DFARS in computer software or other data contractors create while working on a government contract.  For example, an agency can acquire "unlimited rights" in new software developed or delivered to the government during contract performance.  These unlimited rights not only permit an agency to use, modify, and reproduce the software in any manner and for any purpose, they give an agency the right to allow others to do so as well!  So that nifty program your company created during a procurement with an eye toward future commercialization can be disclosed by the government to anyone, including competitors.

In certain instances, however, the federal contracting rules allow businesses to negotiate for greater protections.  Therefore, if disclosure of software or data to outside parties presents a concern, a company should explore opportunities that may exist to obtain additional protections early on - during contract negotiations. Even in instances where the possibility of a disclosure of a solution cannot be eliminated, a business can try to protect itself from unauthorized use or duplication by third parties who stumble upon or become aware of the software by asserting a copyright. However, depending on whether the contract is subject to FARS or DFARS, a contractor may be required to first obtain written permission from the agency before asserting the copyright.

In the near future, I will be writing more about the FAR and DFAR rules and how businesses can protect their software and data. In the meantime, the law firm is making available a chart to assist companies to keep track of software and data rights for solutions they deliver to the government. (Feel free to download the pdf here, or to see a sample chart go here.) If you would like a copy of the chart in excel format, feel free to e-mail me at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

Using Employment Agreements To Safeguard Your Company's IP

 

Your small but innovative technology company has just become a crucial contractor on a large government project. In order to handle the tasks under that contract, along with existing commercial work, your company decides to staff up and add two more part-time or contract employees. Until now, your company’s only staff has comprised you and two other owners committed unreservedly to the success of the company. The thought of exposing your company’s research and innovations — some of which have not yet been brought to market — to new employees leaves you uneasy. There are, however, precautions your company can and should take to minimize unauthorized disclosures by employees.

Your company should implement safeguards to protect hardware, software, and documents to ensure they don't "leave the premises," physically, electronically, or metaphorically, without your knowledge. For employees working off-site, for example, that could include requiring employees to work only from secure networks or cloud spaces, or requiring employees to certify that copies of work materials will be immediately destroyed when assignments are completed.

But innovation and intellectual property often are not easily constrained, and physical limits may not be enough to stop employees from taking your company's ideas. Nevertheless, a carefully crafted employment or work agreement that includes some or all of the following provisions may go a long way in eliminating opportunities for newly-hired workers to "walk off" with a company's ideas.

Disclosures of Employee’s IP
Your agreement should require new employees to provide an inventory of all inventions and IP the employees believe they already own and that the employees developed before working for your company. This may head off future arguments from departed employees that inventions they worked on belong to them because they pre-existed employment at your company. Likewise, your agreement should also require employees to notify your company when they develop a new invention on their own time. This will enable your company to assess at the earliest possible moment whether an invention is unrelated to work employees engaged in on the job.

Assignments
Your agreement should ensure that intellectual property and innovations that employees work on at your company belong to your company. This can be accomplished with properly crafted provisions that immediately assign any rights to any invention employees work on during their employment with your company.

Confidentiality
Your agreements with workers should contain confidentiality and non-disclosure provisions that prohibit disclosure of information about your company's trade secrets and proprietary information to outside persons.

Non-Solicitation
Your agreement should also contain enforceable clauses that prevent departed employees from attempting to lure away one of the key sources of your company's innovation - your employees. Another valuable asset is your company's client base.  So where appropriate, the agreements should also prohibit employees from selling to your company's existing or potential customers and from working on behalf of your company's competitors. These provisions eliminate incentives for employees to walk away with your company's ideas by closing off avenues for the employees to market them.

Post-Termination Patents
Your agreement should require departed employees to alert your company of any patents they file during some period (e.g., 1 or 2 years) after their termination.

Lastly, the admonitions and restrictions contained in your agreements will be more effective if your employees are alerted to the possible consequences of any breaches of the agreement. Your agreement, therefore, should put employees on notice of, and should preserve, applicable remedies and lawful penalties.

 

Government Subcontractors: Avoid A Shut Out By Your Prime

 

Signs That Your Prime May Be Shutting You Out

Your company worked hard to establish a relationship with a prime contractor. It has already performed under one subcontract, and you and the prime contractor have successfully bid on another government contract. But you fear the prime contractor is shutting you out. And you didn't execute a teaming agreement to cover the most recent bid. In addition, your relationship with the prime contractor exhibits one or more of the following tell-tale signs that your company is being shut out of future work:

● The prime contractor never returns your calls to discuss the recently-awarded contract.

● Communications with the prime are dotted with vague but unsubstantiated suggestions that your company did not perform adequately in the past.

● The prime contractor refuses to meet or engage in detailed discussions about your company's work.

● The prime contractor has engaged in discussions with your key employees that cross over into recruiting expeditions.

Avoiding The Shut Out

There are five precautions that a subcontractor can take to minimize the chance that it will be shut out by a prime contractor on the next contract.

1. Have a Teaming Agreement in Place For Each of Your Bids
The teaming agreement should have enforceable exclusivity provisions that ensure your company will get work on any contract that it bids on with the prime contractor. The agreement should also cover future enhancements or task orders. If your company and the prime contractor bid on additional contracts, either the existing teaming agreement should cover those contracts or you should enter into a new teaming agreement with the prime contractor.

2. Protect Your Intellectual Property And Proprietary Information
Aside from obtaining appropriate patents and copyrights, your company should have agreements with the prime contractor that prevent disclosures of proprietary information to third parties. In addition, your agreements should clearly allocate rights among your company and the prime contractor to data and software.

3. Use Employee Non-Solicitation Clauses
Your teaming agreement and any subcontracting agreement should contain provisions that prevent the prime contractor from recruiting your employees during the bidding process and before, during, and after any contract is awarded.

4. Keep Channels of Communication Open With the Agency or Contracting Officer
Avoid contract provisions that prevent your company from communicating with the agency or contracting officer during the contract performance period. You may be able to dispel vague complaints from the prime about the quality of your company's work by talking directly to the agency or contracting officer.

5. Be Familiar With Rules That May Prevent the Prime From Dropping a Subcontractor
In some instances, a prime contractor cannot simply walk away from a subcontractor after it has been awarded a contract. For example, under the Small Business Jobs Act of 2010, in contracts requiring a subcontracting plan, a prime contractor must make a good faith effort to use the subcontractor identified in the proposal and provide a written explanation to the contracting officer if there is a change in how the proposed subcontracted work will be performed.

 

New Maryland MBE Subgoals

 

If you missed it, in July 2011, the Maryland Governor’s Office of Minority Affairs (GOMA) issued a directive setting “recommended subgoals” for spending by Maryland agencies under the state’s Minority Business Enterprise (MBE) Program.  Under Maryland’s MBE Program, to be eligible for certification as an MBE firm, a business must be at least 51% owned and controlled by one or more socially and economically disadvantaged individuals.  An individual is presumed to be socially and economically disadvantaged if that individual is African American, Hispanic American, Asian American, Native American, a woman, or disabled.

Under GOMA’s July 2011 directive, for the first time in the State’s history, state agencies have subgoals for contracting with Hispanic-owned businesses.  GOMA’s directive also provides subgoals for the following subgroups: African American-, Asian American-, and Women-owned businesses.

GOMA’s directive implements substantial changes to Maryland’s MBE Program that were made earlier this year in legislation that was signed into law in May 2011.  That legislation extended Maryland’s MBE Program until July 2012.   The legislation, however, also made significant changes to the MBE Program.  Before the legislation was enacted, MBE law dictated that government agencies set an overall goal of spending 25% of their contracting dollars with women and minority-owned businesses.  State agencies also were required to set subgoals of spending 7% and 10% of their contracting dollars with African American-owned businesses and women-owned businesses, respectively.  Under the May 2011 legislation, agencies must still try to meet the overall goal of spending 25% of their procurement dollars with minority and women-owned businesses.  However, the legislation eliminated the statutory subgoals for women-owned and African American-owned companies.  This change to MBE law in Maryland was prompted by a lawsuit in Maryland (which was eventually voluntarily dismissed) challenging the constitutionality of Maryland’s subgoals and a federal court of appeals decision that found North Carolina’s subgoal requirements were unconstitutional.

Under the May 2011 legislation, GOMA was required to issue recommended subgoals to replace the statutory subgoals, which GOMA did in its July 2011 directive.  Importantly, GOMA’s directive establishes subgoals to be applied on a contract by contract basis that vary depending on the goods or services provided.    For example, the directive sets the following subgoals for contracts with Hispanic-owned businesses:

  • Architectural & Engineering and Construction Related Services (2%)
  • IT Services and IT Supplies & Equipment (2%)
  • Maintenance (3%)

And an agency is only required to try to meet subgoals on a contract only after the agency has met overall goals for participation by all MBE’s.   MBE participation goals range from 13% (Construction contracts) to 25% (Contracts for Human, Education and other Services).   GOMA’s directive can be found here.

Companies that have teamed together in the past should examine carefully how MBE participation goals are allocated among different MBE subgroups in the contracts they compete for.