Argument Recap

Yesterday, the Federal Circuit also heard oral argument in Boeing Co. v. Secretary of the Air Force. We have been following this case because it attracted an amicus brief. In it, the court is considering whether the Armed Services Board of Contract Appeals erred in holding that the Defense Federal Acquisition Regulation Supplement 252.227-7013 precludes government contractors from marking technical data delivered to the Government in a certain way. In particular, Boeing argues it should be permitted to mark technical data in a way that (a) recognizes the Government’s unlimited rights in the data, (b) does not restrict or impair the Government’s rights, and (c) restricts only the rights of third parties to use the data absent permission from the contractor or the Government. This is our argument recap.

Scott McCaleb argued for The Boeing Co. First, he argued “the court should reverse the [Board’s] decision and remand because the Board’s interpretation of 7013(f) suffers from three prejudicial errors.” First, he pointed out, the Board, “by the plain language of 7013(f) and by failing to read it as a whole, jettisoned . . . two complementary sentences, and, instead, . . . focuse[d] on nine words in the second sentence, thereby violating canons of interpretation to read adjacent sentences together and not in isolation.”

Before McCaleb could reach his second argument, Judge Lourie interrupted. “Those nine words are important; they say only legends authorized under this contract—pretty clear language isn’t it?” McCaleb responded by stating that, “if you were reading in isolation, then yes; but that is not what the law requires.” According to McCaleb, the law “requires a construction that takes into account the whole of the regulation, and the second sentence gives the only four legends that are affected by the restrictions of the first sentence.” McCaleb argued that, “if you read it harmony, . . . they do not speak to third party usage of technical data that contractors like Boeing own.”

Judge Chen pointed out that these “regulations have been around for 25 years.” He further indicated that, as far as he knew, “there hasn’t been any case law addressing these regulations before us.” He asked McCaleb to explain “what has been Boeing’s practice or other government contractors’ practice?” McCaleb responded “that Boeing’s markings were permissible, and Boeing had relied on that position since 2002.” Furthermore, according to McCaleb, “it wasn’t until 2017 in connection with [these proceedings] that the Air Force rejected it.” Notably, McCaleb pointed out that, “according to the amici, this is an issue of vital importance to contractors who are contracting with the Department of Defense so that they can protect their ownership rights.”

Judge Chen then asked whether the correct result is for the court “to remand this for the Board to consider the possibility that your markings are unjustified markings, and look at that through the 7037 procedure.” McCaleb quickly responded: “No, . . . we are talking about regulatory and contract interpretation, which this court can address as a matter of law.”

Judge Chen then asked McCaleb to respond to the government’s position: “The government position is that in these contracts with Boeing they contracted for unlimited rights, but these markings constrained their rights in how they interact with third parties.” According to McCaleb, the “Board rejected the government’s position . . . that the government has unlimited rights and government can grant authority to others.”

Corinee A. Niosi argued for the government. She argued “the Court should affirm the Board’s ruling that the contract between Boeing and the Air Force does not authorize Boeing to unilaterally apply its own legend to the technical data that Boeing delivered to the Air Force with an unlimited rights license.” According to Niosi, “the 7013 contract clause and the DFARS together provide that only four legends [are] authorized and all other data right legends [are] nonconforming.” Therefore, Niosi argued, “the Board correctly concluded that the Boeing legend is not contractually authorized.” She argued this conclusion “is supported by the plain language of the 7013(f) contract clause and the corresponding DFARS regulation in 227.7103-12(a).”

Judge Chen expressed some confusion with the government’s argument. He stated that, “when I look at 7013(f), and I look at it through the government’s understanding, I ask myself what independent work is the first sentence doing” He continued: “If we were to remove the first sentence, wouldn’t the scope be the same without that sentence?” Niosi responded that this was “a point of debate” in enacting the regulation. Judge Chen further pressed Niosi on this line of questioning: “Was it just a throat-clearing exercise?” According to Niosi, “the first sentence is not affecting which legends a contractor may apply, so in that regard if the first sentence did not appear in 7013(f), it would not affect legends a contractor may apply.” Furthermore, she asserted, “what it does indicate is that if a contractor is going to restrict the government’s rights, it must do so by marking.”

Judge Chen reiterated a line of questioning that was posed to McCaleb by asking if this “is the first time you are aware of a contractor who seeks not to restrict the government’s rights, but third parties rights?” Niosi responded that “the record does not contain any indication that this has been an issue in the last 25 years.” Further, she pointed out, “the Board did recognize that there is literature out there that is fully consistent with the government’s view.”

In rebuttal, McCaleb argued three points. First, he asserted that “the government correctly argued that there was no deference owed, and that is plain.” Second, he argued, the “regulatory history here is clear that the regulation is to expand the government’s rights, not to bar contractors from preventing third party rights.” Finally, he maintained, “what the government is really arguing is that the grant of [an] unlimited rights license is the same as placing technical data in the public domain, permitting third parties to use that data without authorization from anyone.” According to McCaleb, “that interpretation conflicts facially with 7013, which grants contractors ownership of their technical data even after granting unlimited rights license to the government.”

Judge Chen then posed one final set of questions: “How could Boeing claim to have a trade secret in the technical data when the government has unlimited rights to it? Is [the government] required in any way to maintain any confidentiality?” McCaleb responded that “Boeing believes that it does enjoy trade secret rights.” McCaleb argued that, “even if there is a disclosure to a third party without confidentiality, that data may in some states still maintain trade secret protection—but that is not the question here.” According to McCaleb, “the question here is whether Boeing can mark its electronic warfare technical data to notify third parties that it owns rights to the data.” He went on: “It is enough that Boeing has residual proprietary rights in those data because all rights not given to the Government are retained by the contractor under both 7103-4 and 7013.” That, he argued, “satisfies the [statutory] requirement that technical data regulations can’t impair any right of a contractor with respect to patents, copyrights, or any other rights in technical data established by law.” He continued, “Those rights, ownership rights, are established by law.”

We will keep track of this case and report on its disposition.