DOD in securing such data. We are here concerned with the data acquisition phase, not the management, retrieval, and dissemination phases of the total problem.

The great bulk of the data acquired annually is obtained from American industry and the procedures we use for data acquisition and for determination of rights therein are of great concern to them.

I do not think that I need to stress that finding an acceptable, equitable, and workable method for determining the rights to use this industry-originated data has proved in recent years to be a most thorny and sensitive problem. This fact was recognized by the Defense Industry Advisory Council and acted upon when the Secretary appointed a subgroup of DIAC in the summer of 1963 in a further effort to find and equitable and administrable solution.

This group, composed of knowledgeable and experienced people in Government and industry produced this new regulation. In giving my approval and endorsement to this the new policy, as expressed in Defense Procurement Circular No. 6, I urge you to study and understand it. It must be skillfully applied and enforced. There must be no overreaching on the part of the Government personnel to secure data to which we are not entitled for use in competitive reprocurement. Procedures which we believe are fair to industry and Government are provided, and if data rights cannot be obtained by proper application of these procedures, then the rights should not be obtained. Respect for the duties and obligations of both Government and industry are necessary to successful execution of the new policy and much depends on that.

Mr. Bannerman will now discuss the highlights of that policy. Thank you.

MR. BANNERMAN-TV PRESENTATION

Acknowledgments and panel introduction

Thank you, Secretary Morris.

Before I start the discussion I would like to introduce R. Tenney Johnson, Acting General Counsel, Department of the Army; B. Lee Bird, Associate Counsel, Bureau of Naval Weapons; William Munves, Assistant General Counsel, Department of the Air Force; Maurice Paradis, Legal Member, ASPR Committee and Defense Supply Agency.

(As they are introduced flash their name and affiliation on the screen.) The DPC No. 6 and ASPR IX, part 2

First, we would like to believe that by now you have all become thoroughly familiar with Defense Procurement Circular No. 6 which expresses the new revision of our policy on acquiring rights in technical data-ASPR IX, Part 2. You now have two regulations covering the same subject matter of data and rights in data. Since the new regulation is for optional use for a considerable period, you must choose one or the other for use in contracts calling for data. They may not be mixed. While both are ASPR, if the DPC 6 regulation is used it must be used in its entirety and vice versa if the present ASPR is used. The reason is that fundamental concepts underlying the two regulations are quite different and are incompatible. They have in common-subject matter and paragraph numbers-and not much else.

As a matter of convenience and to avoid misunderstanding. We will refer to the new revision as DPC (Defense Procurement Circular) and the present ASPR coverage as ASPR.

Now I would like to note briefly the main points of the data policy in DPC: (1) DPC establishes rights in data-not requirements for data as does ASPR.

(2) It provides procedures for acquisition of needed data. There are no restraints as in ASPR.

(3) DPC drops proprietary data and substitutes private expense as the qualifying test for limited rights in data.

(4) All data rights fall into two groups: Unlimited, use for any purpose; limited, cannot be used for competitive reprocurement.

(5) DPC provides for predetermination of rights in negotiated contracts as a matter of administrative convenience where this may be practical. (6) New procedures are provided for the protection of subcontractors. (7) Procedures are established for the deferred selection, oder, and delivery of data.

(8) Finally it provides a special and exceptional procedure for the acquisition of privately developed data with unlimited rights for use in competitive reprocurement.

JOHNSON (1). DPC relates only to acquisition of rights in data. It does not deal with requirements for data or the determination of what data will be called for in the contract as does the present ASPR, as, for example, where it provides that we shall get all manufacturing data stemming from R. & D. contracts. There will be other documents, probably not covered in ASPR, which will set policy and procedure for the determination of the kind and amount of data to be acquired in different contractual situations.

BIRD (2). DPC provides procedures for acquisition of the data determined to be required. It provides no limitations on data acquisition as is done in the present ASPR. As you know, the present ASPR deliberately relieves the contractor from furnishing proprietary data relating to standard commercial items and to other items incorporated in models developed under R. & D. contracts, if these items were previously sold or offered for sale. Moreover, proprietary data cannot be obtained by means of formal advertising. ASPR is a policy of exclusions and limitations on proprietary data acquisition-DPC is not.

MUNVES (3). DPC eliminates the definition and use of the term "proprietary data" now in ASPR for the reason that the "proprietary data" concept has proved to be impossible to administer in any consistent, repeatable manner.

In dropping the ASPR "proprietary data" concept, we have substituted, in part, a "private expense" concept as the basis for limiting use of data because we believe "private expense" has more meaning to more people than "proprietary data." More on this later.

PARADIS (4). DPC provides that all data furnished will fall within two groups: that which the Government may disclose and use for any purpose (unlimited rights) and that which the Government will contractually agree not to disclose for use in competitive procurement (limited rights).

If ordered, technical data in the following categories shall be obtained with unlimited rights:

(a) Technical data resulting directly from performance of Government contracts in which experimental, developmental, or research work is specified as an element of contract performance.

(b) Technical data necessary to enable manufacture by others of items (and performance of processes) developed under Government contracts in which experimental, developmental, or research work was specified as an element of contract performance, except that data pertaining to components developed at private expense incorporated in the developed item is subject to limited rights if the contractor furnishes, with unlimited rights, what we call form, fit, and function data.

(c) Technical data constituting corrections or changes to Governmentfurnished data.

(d) Data prepared for the purpose of identifying source, size, configuration, functional, and attachment characteristics and performance requirements-the so-called form, fit, and function data;

(e) Operation and maintenance manuals.

(f) Data normally furnished by contractors without restriction.

Except for the categories of data which I have just enumerated, all other data pertaining to end items, components, or processes developed at private expense will, if ordered, be acquired with limited rights. There is no requirement in DPC, as there is in the present ASPR, for a showing of a prior sale or offer to sell such items, to qualify for furnishing such data with limited rights.

JOHNSON (5). In DPC we have provided a procedure, which has previously been tried experimentally in various forms, called predetermination of rights in data. This procedure is for optional use. The purpose is to arrive at advance agreements in negotiated contracts as to what data will be delivered with unlimited rights and what with limited rights. This is a matter of administrative convenience to avoid arguments and delays which might otherwise occur at the time the data is delivered. It must not be used, either through listing broad classes of unidentified data, or otherwise, to expand the amount of data which is to be acquired with unlimited rights beyond those categories which Mr. Paradis has just listed.

Additionally, where the contract specifies experimental, developmental, or research work, the contract may include a clause which obligates the contractor to advise the contracting officer when he intends to use end items, components, or processes for which any required data would be furnished with limited rights. This notice is not required if the component is a commercial item manufac

tured by more than one source of supply. Apart from the factor of administrative convenience previously mentioned, this information as to limited rights in data is requisite to trigger any Government decision as to whether to invoke an exceptional procedure for separate purchasing of unlimited rights in privately owned data. We will discuss this procedure a little later.

BIRD (6). As you know, there have been many complaints from subcontractors under ASPR. Complaints of the pirating of data by higher tier contractors and vendor data refusals were frequent. Under DPC, the subcontractor may transmit data subject to limited rights directly to the Government, which may protect him from potential competitors. By virtue of the "flowdown" provisions in the data clauses, the subcontractor should know in a precise way his duties and obligations with respect to data rights and act accordingly. We believe that this is a definite improvement over ASPR.

MUNVES (7). DPC provides for the deferment of selection, ordering, and delivery of the data specified in the contract until requirements can be economically determined.

This approach is totally different from the ASPR which requires that all data necessary to reproduce or manufacture the item developed under a R. & D. contract be obtained irrespective of whether the developed item will or will not be reproduced. The new procedure thus provides a method of buying only what is needed.

With respect to the pricing of data under the deferred procedure, the price of the contract covers the right to order the data and the rights therein, but not the cost of converting the data to the format specified in the deferred order. This data cost, if incurred, will be covered by equitable adjustment of the contract price or by other means.

PARADIS (8). We have already mentioned that DPC provides special procedures for the purchase of privately owned data with unlimited rights. The use of this procedure is an exception to the normal limitations on obtaining data with unlimited rights. To invoke this procedure there must be a prior finding by the head of procuring activity or his designee, that there is

(i) A clear reprocurement need;

(ii) No suitable alternative;

(iii) The data to be purchased is adequate for use by other competent manufacturers; and

(iv) Anticipated net savings in reprocurements will exceed the acquisition cost of the data and rights therein.

The above findings and analysis must specifically identify each component and the particular data therefor which is to be purchased. This procedure cannot be invoked on a blanket basis.

It is apparent that this procedure will be invoked only when it is desirable to establish a competitive procurement environment with respect to a particular product and then only if it can be economically justified. Economic value of the data to the Government is equated with the savings to be realized by reprocurement of the item at reduced prices. Economic value to the owner of the data is a different matter and can be substantially more than the value to the Government. Under such circumstances unlimited rights in such data should not be obtained. This result should be understood and accepted.

Pitfalls and injunctions

BANNERMAN. I will now discuss some of the pitfalls of DPC and some do's and

don'ts.

1. First, I want to call your attention to the necessity to specify experimental, developmental, or research work in the contract, where such work is, in fact, required. This is required by DPC. If such work is not specified the Government may not obtain the unlimited rights to which it would otherwise be entitled. The requirement to specify cannot be satisfied by inferences that can be drawn from the nature of the work. In short, contracts should be drafted carefully and they should consistently specify experimental, developmental, or research work, where such work is to be performed. I also wish to emphasize that such specification is not-repeat-not to be used for the purpose of acquiring unlimited rights where the Government is not, in fact, paying for R. & D. work.

2. Turning now to "Predetermination of Rights in Data," we believe this section has the most potential for trouble and maladministration, as we see it now,

of any of the new concepts in the DPC. This view is based on initial industry reaction. They fear that, through the economic power of granting or refusing a contract, contracting officers will require contractors to agree to a predetemination that all, or most, data required will be furnished with unlimited rights. If this were done it would vitiate the whole effort. It is essential that the predetrmination process, if used, be solely for the purpose of identifying that data to which the Government is entitled to unlimited rights under the normal policy rules we have already discussed. Predetermination must not be used to expand the amount of data which will be obtained with unlimited rights beyond that to which the Government is normally entitled.

As Secretary Morris has already stated, there must be no overreaching on the part of Defense personnel.

Those of you in contract administration who have responsibilities for the review of contractors' purchasing systems or approval of subcontracts, must assure that prime contractors also do not overreach in dealing with their subcontractors. Our past experience has shown that prime contractors will frequently word their purchase orders so that all data which they are to obtain from subcontractors is to be with unlimited rights. This is sometimes done simply to avoid the effort of having the contractor's purchasing department distinguish different data and rights requirements in their different prime contracts. We suspect that it may also be done in the future to make it unnecessary to give the Government the required notice when items subject to limited rights are to be incorporated in the developed end item. In either case it destroys our policy as to when we will get unlimited rights and this must not be allowed to happen. In short, we need intelligent execution of the whole policy both by the Government and its prime contractors. In particular, we need skill and understanding with respect to this part.

Accordingly, I urge that you study and understand the new regulation and apply it skillfully. If this is done we believe that, perhaps for the first time, we will have a workable regulation which is fair to the Government and fair to industry.

QUESTIONS AND ANSWERS

Mr. Bannerman to Mr. Johnson.

(1) What do you consider one of the more important changes?

JOHNSON. Obviously, dropping the proprietary data definition as a test of determining what data is subject to limited rights. The private expense concept recognizes the economic value of the data to the originator.

BIRD (2). What advantages do you see in this change?

JOHNSON. Better administration through avoidance of endless arguments over what data is proprietary.

PARADIS (3). Some pople consider applying the private expense test may be as difficult as the proprietary data test.

JOHNSON. Do not agree; the proprietary data test is far more difficult ot apply. It involves analysis of legal considerations associated with trade secrets and for most people this aspect has made it difficult to administer.

BANNERMAN (4). Since it is obvious that most items developed under a Government R. & D. contract will contain components developed at private expense, how will the rights in data shake out?

MUNVES. The Government will obtain data with unlimited rights, if ordered. required to manufacture or reproduce the developed item. This will not be equally true as to components incorporated therein which were developed at private expense. This result is deliberate and is to be accepted.

BIRD. However, under the optional predetermination of rights procedure, the Government may require notice of such cases and it can take action in accordance with policy

Buy unlimited rights.

Accept the result.

Get a substitute item with unlimited rights but this does not mean inferior equipment just to get unlimited rights.

JOHNSON (5). How would the data rights question be resolved where there is a mix of private and Government funds?

BANNERMAN. The developed item or resulting work cannot be said to have been developed at private expense. Hence, where there is a an investment mix of this sort it does not work out that the rights will be allocated on an investment

percentage basis. They will be 100 percent unlimited except as to privately developed components. This is illustrated in a case where the contractor proposes Government assistance in completing an article he has 90 percent developed. Here he must either sell the data or if he wishes to retain his rights he must at his own expense complete the development.

PARADIS. On the other hand, if it was an R. & D. improvement to a privately developed item, then we get unlimited right in the modification or improvement and limited rights in the data pertaining to the basic item.

BANNERMAN (6). Assuming that private expense is the opposite of Government expense, what is data developed at Government expense?

JOHNSON. Some examples are

Data generated under Government-sponsored R. & D.

Specific purchase of privately developed data with unlimited rights.

Data generated by Government in-house.

On the other hand, Government expense does not include support of the contractor's independent research and development program and obviously does not include the contractor's use of capital funds or profits derived from Government business.

BANNERMAN. Apart from this we can use for any purpose any data in possession of the Government which is not restricted as to use.

(7). I think we have had enough on that and should move on. The data clause says that we get unlimited rights in data "under this or any other Government contract" if R. & D. work was specified. Does this mean we can ask for unlimited rights in data generated under a NASA or AEC contract?

BIRD. Yes. But, of course, the rights we get attach only to the technical data specified to be delivered. Therefore, the contractor can protect his interests by giving some thought to the data he agrees to deliver. In other words, the specification of data to be delivered is a matter requiring mutual agreement.

BANNERMAN. Your answer suggests that the clause does not by itself require the contractor to furnish all the data that may be generated under a contract. BIRD. Yes; that is correct. We can expect to obtain only that data specified in the contract, and that data will be furnished with either limited or unlimited rights, according to the criteria in the clause.

PARADIS. We do not intend this paragraph of the clause to be the basis of a data fishing expedition. Rather it was intended as a means of preserving data rights without the necessity of ordering the data in the contract under which the data was generated.

BANNERMAN (8). This raises a question of responsibility for data ordering. We are concerned that data will be overordered solely for insurance or fireproofing reasons.

JOHNSON (9). Before we close, I would like to briefly touch on subcontractors. How do you see the subcontractor problem under DPC?

MUNVES. The right of subcontractor or vendor to furnish his data directly to the Government, if it is subject to limited rights, is a big step forward.

JOHNSON (10). Suppose that the prime rather than the Government may need this data for quality control or systems management purposes or any other legitimate need, what can he do about it?

BIRD. There is nothing in the new DPC which is against any business arrangement the prime and subcontractor may wish to make for legitimate reasons— what is barred is unfairly using the economic leverage of power to award subcontracts as vehicle for the acquisition of rights solely for the private benefit of the prime.

PARADIS. It is also important to note that sub will have exactly the same clause as his prime through the flow-down or data-clause provisions. He can read the clause and determine his rights and duties directly and precisely rather than have such matters determined by the prime, as now frequency done. Moreover, DPC preempts the field of data rights in that the services may not use any clause which enlarges or diminishes the rights in data acquired-non-ASPR service clauses which seek such enlargement of rights have forced primes to demand data from vendors to meet these special clause requirements. If these such clauses are eliminated, much of the irritant will vanish.

Mr. BANNERMAN (ad lib, gist of remarks). If trouble is encountered do not use special clauses to fix the situation but refer the problem and any suggested solution to the ASPR Committee through channels for action.