Protecting public IP is key to avoid driving away commercial industry and small contractors that feed into the DIB

IP and data rights are crucial to the companies that design, manufacture, apply, and maintain the cutting-edge technologies, systems, and platforms our armed forces rely upon to deter aggression and defend our nation and its interests. Protection of these rights is also essential to the Department’s ability to incentivize investment in innovation, to gain access to new suppliers at the prime and subcontractor levels, and to maintain access to the information and technical data necessary to support military equipment throughout its lifecycle. Simply put, respecting the private sector’s IP rights protects the long-term interests of the Department. Over the last eight years, the legal and regulatory landscape related to the allocation of IP rights and to the Department’s approach toward managing IP has been carefully reformed52 in the pursuit of balancing the legitimate needs of both DoD and industry. The importance of this balance is reflected in the core principles of DoD’s IP policy, which directs the Department to “negotiate specialized provisions…whenever doing so will more effectively balance DoD and industry interests” and “respect and protect IP resulting from technology development investments.”53 Recently, the Department has been working to implement the statutory changes to IP rights contained in the FY2017 and FY2018 NDAAs.54 However, more work is needed, including promulgating these statutes in regulation,55 staffing and resourcing the Department’s IP cadres to support the acquisition workforce, and training and educating the workforce on new approaches and best practices for IP. This work will continue to be supported by a growing body of study examining IP issues and exploring new models and techniques for managing IP. This includes the Section 813 Panel,56 various studies by the Acquisition Innovation Research Center (AIRC),57 and several congressionally directed pilot programs.58 The Department has also outlined goals to increase access to IP and data rights within the flexible acquisition59 pillar of the 2023 NDIS.60 The Department seeks to implement its goals by fully integrating IP planning into acquisition strategies that will protect core DoD interests over the entire lifecycle of the acquisition.61 The means by which the Department seeks to implement these actions is through the use of modular open systems approaches (MOSA)62 and mitigating IP restrictions on proprietary components by negotiating specialized license agreements.63 The Department is also focusing on modernizing IP acquisition regulations and related guidance, updating and approving the delivery of IP training for the acquisition workforce, and expanding the IP knowledge base of the acquisition workforce.64 The Department also intends to augment the recent creation of the IP Cadre offices in the Office of the Secretary of Defense (OSD) and the Military Services.65Furthermore, Congress remains actively engaged on IP rights and deliverables for a range of issues, including maintaining equipment in conflict zones and austere operating environments,66 ensuring the proper return on investments in federal R&D, retaining the ability to re-compete sustainment of programs to control costs or improve quality, exercising better control over program sustainment costs, and helping DoD better leverage industry’s faster pace of innovation.67 As the discussions around IP and data rights continue and the Department moves towards implementation of the 2023 NDIS, it is essential to maintain the balance of serving the needs of the DoD without unduly harming and driving away industry. NDIA is diligently working through public rulemaking68 and legislative engagement69 to ensure the delicate balance that serves the needs of both government and industry is maintained while adapting to changes in technology and industry best practices. Failure to fairly protect and secure the IP of small and large organizations will almost certainly limit the Department’s access to game-changing innovation. For example, many small businesses develop and provide cutting-edge technology through the Small Business Innovation Research (SBIR), Small Business Technology Transfer (STTR), or other programs, which in turn feed into larger procurements and operations and maintenance (O&M) efforts. The SBIR program has specific rights that protect IP, and small businesses can usually commercialize and/ or adapt these solutions for large government programs of record, creating real value for the Department and small businesses. However, without acceptable protections, small businesses—whose participation in the DIB has declined by over 40% in the last decade70—will be disincentivized to develop new ideas and/or will simply decline to do business with the federal government altogether, depriving DoD from accessing innovative capabilities and technologies. Inadequate IP and data rights protections can also have unintended consequences for the Department’s ability to utilize innovative commercial products. Companies that supply products with both military and commercial applications often develop and rely upon the same detailed manufacturing and process data to manufacture both military and commercial products. Policies that compel commercial companies to disclose sensitive IP data increase the risk of IP leaking to competitors and disincentivize participation in the federal market. Commercial companies and nontraditional contractors at all tiers of the supply chain prioritize protecting their sensitive trade secrets against disclosure. Faced with the choice of disclosing IP and putting future revenue streams at risk or walking away from certain government contracts, many of these companies will choose to protect their IP and commercial business. For example, at a recent government-industry forum, one small business succinctly explained the challenge. First, the company representative made it clear small businesses take pride in and do want to meet the unique requirements of U.S. warfighters. At the same time, the company representative explained it is difficult for small commercial businesses to offer cutting-edge technology when its IP, developed with private funds, could end up in the hands of competitors due to government regulation. In addition, if the small business accepted private investment, the small business would expect its investors to reduce the value of the product or technology in which they are investing because they would assess the value of the company’s IP had been diluted. For companies with this business context, the company may decide to develop two different versions of a product: one for the government and one for the commercial sectors. This could result in a better product going into a commercial offering or to another commercial entity that may or may not be willing to sell to the government, depending on outside investor decisions. Under these circumstances, the company strongly encouraged other participating companies and the government to focus on developing IP policies and regulations comparable to those in the U.S. commercial sector. The most effective way for DoD to maximize its access to IP is to ensure the Department is a fair, collaborative partner with industry in the shared mission to provide our servicemembers the most advanced, best-maintained equipment possible. The more companies seek to work with the DoD, the more access the Department will have to capabilities that are innovative, cutting-edge, and driven by IP. Without consistent policies that proportionally protect the IP and data rights of industry, companies are driven away from their ability to partner with the DoD, further shrinking the U.S. DIB and the Department’s capabilities. Given the profound importance of this issue, NDIA tracked industry views on IP in the Vital Signs 2024 Survey. Even considering the changes in statute and DoD policy intended to balance the interests of DoD and industry over the last eight years, the results of the Vital Signs 2024 Survey demonstrate companies within the DIB still fear significant risks to their IP when contracting with the DoD. Nearly a quarter (21%) of private sector respondents chose not to bid on certain DoD contracts out of fear DoD requirements for IP would put a company’s rights at risk (see Q55 and Q56 Charts). In addition, in the follow-up question asking if there were instances in which companies did not include certain technologies in bids due to concerns over IP protection, 28% of private sector respondents said their company decided not to include certain technologies in bids because of IP concerns. Most alarming, 61% of the private sector respondents in the Vital Signs 2024 Survey who choose not to bid on certain DoD contracts out of fear that DoD requirements for IP will put their company’s rights at risk identified as small businesses.