Federal Circuit Holds that Contractor May Use Non-Conforming Legends to Restrict Third Parties’ Rights in Technical Data Provided to Government; The Boeing Company v. Secretary of the Air Force, Fed. Cir. No. 2019-2147

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ASBCA decision rejecting contractor’s use of a restrictive marking on technical data provided to the government is reversed. The contract stated that the government had unlimited rights in technical data. The contractor, however, added a legend to the technical data that restricted the rights of non-governmental third parties. The government rejected the restrictive legend because it did not conform the types of legends authorized by DFARS 252-227-7013. The ASBCA upheld the government’s decision. But the Federal Circuit reversed, reasoning that, by its plain language, section 7013 only applies to legends that restrict the government’s rights to technical data, not to legends that restrict third parties’s rights. Thus, the contractor’s legend did not have to conform to section 7013’s authorized legends.

The Boeing Company had two contracts with the Air Force to support the F-15 Eagle Passive/Active Warning Survivability System. Both contracts required Boeing to deliver technical data to the Air Force with unlimited rights, which meant that the government had the right to use the data in any manner whatsoever.

Both contracts also included DFARS 252.227-7013, which requires a contractor that wants to restrict government rights in technical data to place restrictive markings on the data. Subsection f of that DFARS provision sets forth the general marking instructions and the specific authorized markings pertaining to each category of rights—e.g., government purpose, limited, special licenses—the government may have in the data delivered under the contract.

In performing the contract, Boeing marked the technical data it delivered to the Air Force with a legend that described the company’s rights with respect to third parties. The Air Force rejected the technical data deliverables due to Boeing’s legend. The Air Force reasoned that Boeing’s legend was nonconforming because it was not in the format authorized by Subsection 7013(f). Boeing submitted an alternative legend that, again, only described Boeing’s rights vis-à-vis third parties. The Air Force rejected the legend, too.

Boeing appealed the Air Force’s decision to the ASBCA. Boeing argued that subsection 7013(f) only applies to legends that restrict the government’s rights in technical data; it does not apply when, as here, the legend only restricts third parties’ rights in the data. The ASBCA, however, rejected Boeing’s argument reasoning that the legends listed in subsection 7013(f) are the only legends authorized for technical data provided to the government. Boeing’s legend was not on the list, so the Air Force properly rejected it as non-conforming. Boeing appealed the board’s decision to the Federal Circuit.

The Federal Circuit found Boeing’s argument persuasive. Subsection 7013(f) has two sentences. The first sentence states that the contractor may “assert restrictions on the Government’s right to use” technical data. The second sentence provides that only three types of legends are authorized. The court reasoned that the plain language of the first sentence makes it clear that the subsection only describes the way in which a contractor may assert restrictions on the government’s rights. Thus, the court agreed with Boeing that subsection 7013(f) only applies when to a legend that restricts government rights, not to a legend that seeks to restrict the rights of non-government third parties.

Indeed, the court reasoned, if it accepted the board’s reasoning, then the first sentence of subsection 7013(f) would be superfluous. If the subsection applied to all legends, even those that do not impact government rights, then there would have been no reason to include the first sentence in the subsection. But it is a cardinal principle of statutory interpretation that a statute ought to be construed as a whole so that no word or sentence is superfluous.

The court opined that its interpretation remained faithful to the purposes of the DFARS technical rights regulations. The court noted that other DFARS provisions refer to “restrictive markings.” The usage of that term in the regulations indisputably referred to markings that restrict the government’s rights.

The government attempted to argue that legends that restrict third party rights are necessarily non-conforming because they are not specifically authorized by subsection 7013(f). But the court found that this argument begged the question—it assumed as its premise that subsection 79013(f) applies to legends that restrict only third-party rights. That premise, however, was the exact question that was before the court.

The government argued that the regulatory history of subsection 7013(f) supported its view that legends restricting third-party rights are forbidden. The government claimed that the two sentences in subsection 7013(f) addressed two separate issues and should not be interpreted to limit each other. While the court acknowledged the complicated history of data rights regulations, and the fact that sentences in the regulations likely address a variety of purposes, none of that history was sufficient to convince the court to abandon the plain meaning of the subsection as written.

The government asserted that allowing contractors unbridled freedom to mark technical data with self-created legends would just confuse things and make it difficult for the government to exercise its rights. The court was not persuaded that the allowing contractors to mark their proprietary information would lead to “an epidemic of confusion.” In fact, Boeing represented that it been marking technical data with similar legends for years. The government failed to produce compelling evidence that these markings had created confusion.

Lastly, the government argued that Boeing’s legend, in fact, ended up restricting the government’s rights because it allowed Boeing to be an authority on the data’s further use and disclosure. The court found that whether the legend restricted the government’s rights was a factual issue. Although the court reversed the board with respect to the legal argument regarding the scope of 7013(f), it remanded to the board to consider the factual question of whether Boeing’s legend ultimately restricted the government’s unlimited rights.

Boeing is represented by Scott M. McCaleb, Scott A. Felder, Craig Smith, and Wesley Edenton Weeks of Wiley Rein, LLP as well as Suzette Derrevere of The Boeing Company. The government is represented by Corinne Anne Niosi, Jeffrey B. Clark, Robert Edward Kirschman, Jr., and Patricia M. McCarthy of the Department of Justice. The U.S. Chamber of Commerce, appearing as an amicus curiae, is represented by Matthew James Dowd of the Dowd Scheffel PLLC. The Professional Services Counsel, appearing as amicus curiae, is represented by Robert James Scheffel of Dowd Scheffel PLLC.

Boeing Company Fed. Cir.