Amicus Curiae Brief — International Engineering Co. v. Rumsfeld

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TABLE OF CONTENTS

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PEE CUEING 5b. boa a deb o 0 0dcesensens aces 1

SE eV seh bi wad caus saws bee ae becen es 2

i TE iv ccipeetskbbees cheb ieee eeare 2

The Statutes and Contractual Provisions Involved ... 4

The Interest of the National Security Industrial Asso-

ne Ph ear oni svat aan blade W ae oc ocb.8 4

rea eee atk cays knee Pk ome RRO Kw 15

Reasons for Granting the Writ ..................... 17

1. The Holding Below Fails To Recognize That the

Limitation Upon the Power of the Court of

Claims to the Granting of Solely Monetary Re-

lief Does Not Arise Because of Limitations

Upon the Waiver of Sovereign Immunity in

That Regard but as the Result of a Limitation

Upon the Powers of That Particular Court as

MU CEERGA bad cpecank pe dsxdnese true aked> 17

2. Conflicting Claims of Ownership Based Upon

Procurement Regulations Deeply Rooted in the

Public Interest Should Be Addressed Under the

Administrative Procedure Act Notwithstanding

That They Are Presented in the Context of a

ND: SEI Ss Sis kos cvs kane vave sxswe es 25

I nr es, here's dpe Choe k co 29

ii Table of Contents Continued

TABLE OF CITATIONS

Page

CASEs:

Glidden Co. v. Zdanok, 370 U.S. 530 (1962) ......... 21, 23

Kewanee Oil Company v. Bicron Corporation, 416 U.S.

a Bs | RR a cry ore sone ye eee es 8, 25

Seanwell Laboratories, Inc. v. Shaffer, 424 F.2d 859

SA DETED ae acnese ver eudigectnak ny Madueh 21, 28

Sears Roebuck & Co. v. General Services Administra-

tion, 384 F. Supp. 996 (D.D.C. 1974) ........... 19, 25

Sears Roebuck & Co. v. General Services Administra-

tion, 500 F.2d 527 (D.C. Cir. 1974) 2... ccc eee 19

STATUTES:

ae rr Pe Ch auhweiech hast Aeacedis bye bos 2

ROE web Se 2. eer errr ey er 22

Oe ee ae ee a 22

Bs SE RATOE ico v'e so dsnetivcwanedsteacess- 7

ee See. ee ePID 5 oes hse ob dkS ea enenae eee 2, 4, 20

Res CUE occ vib capa wianaabweoes

Be Ree EE ee ARTO ohne abn on tia naked Pew cucaes 20

- Act of November 26, 1969, Pub. L. No. 91-129, 83 Stat.

Wa tieecwaurlidawes SNALRRE ZENE ROS ew ead ReRS 18

REGULATIONS:

EE oy iG bcs os ek end vs aa as 5, 16, 26, 27

Es ohh Fo Pada oS ake Fane RA 5, 16, 26

Pog ee reer Emrye = Se

OtruerR AUTHORITIES:

CompTROLLER GENERAL Deciston, Rutes or LAw on

Tecnxican Data (Machinery and Allied Products

Institute (Library of Congress Card Catalogue

FPR. FT MED 6 cba vews eu cusk sy nivcens ss 9

ComMPTROLLER GENERAL Report No. B-167034, April 16,

EMS Ave Aad Wh CUAEEKAS RUSE ET Chad PERE RE Lb 18

Derense [npustry Butietix, August 1965 .......... 15

EE PERL RI I TRAE OI OE IE LE DEE HOLST R TELS SE GN, I TAS AE: BU 2 TEIN. SS, PLE Ae

Table of Contents Continued iii

Page

Ilearings Before Subcommittee No. 2 (Proprietary

Rights and Data) of the House Select Committee

on the Problems of Small Business, 86th Cong.,

me CN, CEE: 40 bdo bee RAKE eRe Rees 5, 9, 10, 19

Howland, Technical Data and Patents Under Gov-

ernment Contracts, 1963 INstiruTE ON GovERN-

MENT Contracts, SouTHWESTERN LeGaL Founpa-

Tion, Commerce Clearing House, Inc. 1964 ...... 9,13

H.R. Rep. No. 1380, 88d Cong., 2d Sess. (1954) ...... 20

Memorandum of the Director of Procurement Policy,

Office of the Assistant Secretary of Defense (Sup-

SEF ME SAME oko ce de aNGKLUN Reed Wekeman 12

4 Report or THE CoMMISSION ON GOVERNMENT PROCURE-

MENT Part J, Problems In Acquisition and Use of

BR: CERISE. yk tr VARA EC ak Pree ee eben ebereess 18

Seript of Department of Defense film, ‘‘Rights in

gg a RS Pee ean ee Ree oth Gra a 14

IN THE

Supreme Court of the United States

OcTOBER TERM, 1975

No, 75-422

INTERNATIONAL ENGINEERING COMPANY, a Division of

A-T-O, Inc., Petitioner

Vv.

AMES R. SCHLESINGER, Secretary of Defense, Er A1..,

Respondent

On Petition for a Writ of Certiorari to the United States

Court of Appeals, District of Columbia Circuit

SRIEF OF THE NATIONAL SECURITY INDUSTRIAL

ASSOCIATION AS AMICUS CURIAE IN SUPPORT

OF THE PETITION

PRELIMINARY STATEMENT

This brief is filed by the National Security Indus-

rial Association (hereinafter NSTA) as amicus curiae,

ursuant to the written consent of the Petitioner and

tespondent which are on file with the Court. NSIA

s a non-profit association of approximately two hun-

red fifty American industrial and research companies.

gin 2 RLS aE

‘

Its membership includes both large and small com-

panies providing products and services to the United

States Government.

OPINION BELOW

The opinion of the United States Court of Appeals

for the District of Columbia Circuit is reported at

512 F.2d 573 and is also reproduced in Appendix A

of the Petition for a Writ of Certiorari. There were

no dissenting opinions. The opinion reversed a deci-

sion of the United States District Court for the Dis-

trict of Columbia reported at 867 F.Supp. 640. The

Court below remanded to the District Court to vacate

a preliminary injunction that had been issued by that

Court. The Court below found that the District Court

lacked subject matter jurisdiction of the controversy.

QUESTIONS PRESENTED

The controversy involves whether the threatened dis-

closure by the Air Force of technical information of a

proprietary character may be enjoined under the Ad-

ministrative Procedure Act, 5 U.S.C, § 701 et seq.,

(1970) where the right to disclose is alleged to have

arisen under a contract between the Parties and the

submitter of the data disputes the existence of that

right.

The Court below characterized the issues as sound-

ing solely in the law of vontracts related to a unilateral

decision of a Contracting Officer as to the application

of the Rights in Data Clause of the contract. The

Court below concluded that jurisdiction to afford re-

lief as to such disputes arose exclusively under the

Tucker Act, 28 U.S.C. § 1491 (1970). The Tucker Act

provides that action upon contract matters be com-

Brome

menced in the Court of Claims. District Court juris-

dietion under the Tucker Act is concurrent with that

of the Court of Claims, since the Court of Claims is

without the inherent power to grant injunctive relief,

the District Court could not do so. The Court, there-

fore, found that the sole avenue of relief available to

the Petitioner was a post-disclosure remedy in mone-

tary damages for breach of contract by action in the

Court of Claims under the Tucker Act.

The opinion below forecloses government contractors

from an injunctive remedy in such circumstances which

would be generally available to them under the com-

mon law. Underlying all of the issues, therefore, is

the basie question of whether the peculiar immunity

of the sovercign is intended to permit it to take actions

in the guise of the exercise of a contractual right which,

if taken by a private citizen, would be subject to in-

junctive relief in an appropriate case.

The questions involved include the following:

1. Is the Tucker Act the exclusive source of re-

medial jurisdiction for the breach by the Government

of a contract for which breach monetary damages are

not an adequate remedy to preserve the property in-

terest involved ?

2. If 1 above is answered in the affirmative, was

the Court below correct in characterizing the issues in

the controversy at bar as constituting solely a contract

dispute ?

3. If the question in 2 above is answered in the

negative, does jurisdiction to enjoin the threatened

disclosure by the Government exist under the Admin-

istrative Procedure Act?

THE STATUTES AND CONTRACTUAL PROVISIONS

INVOLVED

1. The Act of June 25, 1948, 62 Stat. 940 (The

Tucker Act), 28 U.S.C. § 1491 (1970) provides:

**$ 1491. Claims Against the United States Gen-

erally; Actions Involving Tennessee

Valley Authority

The Court of Claims shall have jurisdiction to

render judgment upon any claim against the

United States founded either upon the Constitu-

tion, or any Act of Congress, or any regulation of

an executive department, or upon any express or

implied contract with the United States, or for

liquidated or unliquidated damages in cases not

sounding in tort... .”

2. The Administrative Procedure Act is set forth

in Appendix E to the Petition.

3. The applicable procurement regulations and

contractual clauses are set forth in Appendix E to the

Petition.

THE INTEREST OF THE NATIONAL SECURITY

INDUSTRIAL ASSOCIATION

The decision below threatens the effective nullifica-

tion of a compromise between the Government and

American Industry which was made in the interests

of the public. By virtue of that compromise the Gov-

ernment has been able to obtain effective access to the

Industry inventory of technological innovation repre-

sented by proprietary and trade secret data developed

by Industry at the expense of its stockholders, Nulli-

fication of that compromise threatens to deprive the

publie of the innovative genius of our society at a time

in the affairs of our nation when we can least afford to

be second best in any area of national concern. NSIA

was deeply involved in the formulation of that com-

promise, and therefore, believes it appropriate that it

should become involved in the effort to preserve it.

The contract clause in issue is a verbatim implemen-

tation in the specific contract of a regulatory plan? in

the formulation of which NSTA played a material role

'Section 7 of the Armed Services Procurement Regulation

(ASPR) from whence the contract clause ASPR 7-104.9(a) was

taken does not establish procurement policy. Section 7(a) merely

collects in one place standard, contract clauses which are to be used

when applicable. Policy regulating where such clauses are to be

used and their intended function and applicability are contained in

other Sections of the ASPR, in the case at bar, in the provisions

of Section 9, Part 2 and more specifically ASPR 9-202 and 9-

203. Comparison of the contract language prescribed by ASPR

9-203(b) with that contained in the standard. specific contract

clause in ASPR 7-104.9(a) reveals that the source of the standard

clause is the language prescribed by the regulation.

* See e.g., Hearings Before Subcommittee No. 2 (Proprietary

Rights and Data) of the House Sclect Committce on the Problems

of Small Business, 86th Cong.,.2d Sess. (1960), Testimony of G. C.

Bannerman, then Director of Procurement Policy, Office of the

Assistant Secretary of Defense ( Supply and Logisties) at p. 139.

Mr. Bannerman stated:

“‘Before we issue segments of the ‘Armed Service Procure-

ment Regulations’ that have a significant impact on indus-

try, and clearly this one did, it is our normal practice to co-

ordinate the work that we have prepared with industry

through usually a variety of industry associations. For in-

stance, this policy was co-ordinated through not only the

Strategie Industries Association . . . but also the National

Security Industrial Association, the automobile manufacturers,

the electronics industry, machinery and allied products in-

dustry and a number of others.

The data section of ASPR was thoroughly coordinated over

a period of years before it was issued, and even after it was

issued in 1957 we found changes that we thought needed to

be made to protect some of the interests that have beon dis-

cussed in these hearings, and I am sure you know, as we dis-

cussed the changes made in 1958, to sharpen this up. We are

willing and ready to make additional revisions, but we have

not had general criticism of this policy in the intervening

year and a half.’’

“,

aid

That regulatory plan was painstakingly evolved over

two decades of Government-Industry dialog. The con-

tent of the contract clause is not, therefore, the prod-

uct of specific negotiations conducted between Peti-

tioner and Respondent with respect to this particular

contract. Consequently the issues presented have an

origin and impact beyond the parameters of the inten-

tion of these particular parties in this particular con-

tract. The issues involve the threatened expropriation

by public disclosure of proprietary technical informa-

tion of Petitioner which was submitted to the Govern-

ment under restrictions contemplated by the procure-

ment regulations which, if honored, would render such

disclosure wrongful. While it is true that upon one

level the issues involve a breach of the particular con-

tract, it is also true that they involve a breach of an

Industry-Government compromise reflected in regula-

tions governing overall procurement policy in these

regards. The issues raise vital aspects of govern-

mental integrity and ability to effectively honor the

commitments which it has made to its citizens. Those

who deal in the marketplace recognize that good faith

and integrity are vital elements in the willingness of

others to continue to do business. The issues cannot

properly be understood in all of their ramifications

apart from the historical background in which they

arose.

In essence, the conflict between Industry and Govern-

ment over the matter of the right to acquire and use

privately developed proprietary technical data arose in

the context of the pressure of historical events of dra-

matic impact upon our society. As the conflict of ide-

ologies evolved, it became increasingly apparent that

the need of the Government to procure a broad spee-

trum of goods and services, particularly in the area of

national defense, would become a permanent and ever-

increasing part of the American social and economic

scene, Congress properly mandated that such procure-

ment be accomplished to the maximum extent possible

by the process of advertised bidding. 41 USC § 252(e)

(1970) ; 10 USC § 2304 (1970). In doing so Congress

demonstrated its firm belief that the free enterprise sys-

tem and its essential premise of free and open competi-

tion would produce the best products and services at

the lowest cost to the taxpayers. In order to comply

with this Congressional mandate to employ and expand

competitive procurement, it was necessary for the Gov-

ernment to be able to evolve Government specifications

and drawings for the products it needed and to dissem-

inate them to as broad a base of qualified bidders as pos-

sible. This procedure permitted bidders who had not

previously produced the product involved to nonetheless

offer to do so based upon the detailed information furn-

ished to them by the Government. The Governmental

objective, therefore, was to acquire or develop the de-

tailed technical information it required free of any re-

strictions upon its use in specifications and drawings

which could be publicly issued in connection with ad-

vertised procurements. ‘‘Competition’”? for Govern-

mental purposes as purchaser was measured by the

number of qualified bidders it could obtain for the

manufacture of the goods and performance of the serv-

ices it required.

“‘Competition”’ from the Industry standpoint as sel-

lers necessarily had a different context. For Industry

‘‘competition’’ meant beating competitors in the market

= caith Dee sai ain aa ba

eG ace LN ES ee See ES BAC RES

Pathe Ties

by lawful means. The essence of such lawful means

was the skill, ingenuity, and innovativeness of the par-

ticular company. If it could build a better product

than its competitors at an equal or lower cost, it would

necessarily outsell such competitors. To obtain such a

position companies were constantly investing the funds

of their stockholders in research and development.

Since reduction of cost and improvement of existing

products were objectives as well as the development of

new products, much of the tangible results of that in-

vestment were in the nature of unpatentable material.

Nonetheless, both the companies and the law, see e.g.,

Kewance Oil Company v. Bicron Corporation, 416 U.S.

470 (1974), recognized the substantial economic value

of this body of proprietary assets. ‘‘ Know-how”’ in the

techniques and processes of manufacture, utilization

and processing of raw materials and similar areas, of-

ten developed at substantial investment of time and

money, frequently was the foundation of the super-

ior competitive position of many companies.

It was inevitable, therefore, that these two opposing

views of the essence of ‘competition’? would come into

conflict. The Government could not ‘‘re-invent the

wheel’’ in order to achieve expanded competitive bid-

ding. Industry refusal to surrender its proprietary

know-how in ‘*‘wheel-making,’’ developed at the expense

of its stockholders, was also urged in terms of the prem-

ises of fostering ‘‘ecompetition.’’ As the Government

demand for the acquisition of unlimited rights to all the

technical information which it would require to aecom-

plish future advertised procurement increased, the

resistance of Industry to furnishing such data with such

unlimited rights similarly increased.’ In essence, un-

limited rights are the equivalent of ownership. Limited

rights, in essence, permit Governmental use but not

public disclosure and use. It became apparent that a

uniform and published procurement policy was _ re-

quired in this vitally important area. The Department

of Defense, although starting such efforts in 1955, ul-

timately issued the first truly definitive such policy reg-

ulations in 1958. Those regulations were published as

Section IX, Part 2 of the Armed Services Procure-

ment Regulation (ASPR).

Growing Industry dissatisfaction with that regula-

tory policy erupted in open dissension by 1960. Al-

though the problems were complex, in essence they

centered about two primary issues. The first was the

complaint that Contracting Officers and other procure-

ment officials were demanding the submission of pro-

-prietary data with unlimited rights even in cireum-

* stances where the regulations stated that no such

demands should be made. The second was the com-

plaint as to the regulatory definition of ‘‘ proprietary

data’’ which was either not to be demanded or, if re-

quired, was to be either purchased at a negotiated price

(where needed for future competitive procurement) or

furnished under ‘‘limited rights’’ (where needed only

to facilitate the operation and maintenance of the pur-

3 See e.g., Nowland, Technical Data and Patents Under Govern-

ment Contracts, 1963 INsTITUTE ON GOVERNMENT CONTRACTS,

SOUTHWESTERN LEGAL FOUNDATION, at 103 (Commerce Clearing

House, Ine., Chicago 1964) ; see also, CompTROLLER GENERAL DEcI-

sion, RuLES or Law on TecunicaL Data, at 1 (Machinery and

Allied Products Institute (Library of Congress catalog card

number 72-164978) 1971); Hearings before Subcommittee No. 2

(Proprictary Rights and Data) of the House Select Committee on

The Problems of Small Business, supra note 2.

peat a

Piste tinicrse Sa WANE RAIMA REAR RN 0

chased equipment by the Government). JTearings Be-

fore Subcommittee No. 2 (Proprietary Rights and

Data) of the House Select Comiittee on The Problems

of Small Business, supra note 2. The definition of

‘*proprietary data’’ excluded many concepts, techni-

ques, processes etc. which could be discovered by tech-

nical analysis, t.e., ‘‘reverse enginecring.’? Industry

complained that the issue was not whether a competitor

could discover the proprietary asset by investment of

the same time, ingenuity and money as the originator

thereof but whether the competitor had, in fact, done

so. Its complaint was that the regulatory definition

had the effect of prejudicing the innovative company

by transferring its proprietary assets free of charge to

competitors while the originator had to either absorb

the costs of the development of that asset or include

them in its price whereas the competitor had no such

costs to recover. These serious complaints were

brought to the attention of Congress in March of 1960

in hearings before a special subcommittee of the House

Select Committee on the Problems of Small Business.

See Hearings, supra note 2.

The testimony of Industry and Government witnesses

at the hearings, among other things, convinced both

parties that the existing regulatory plan required re-

consideration. It also introduced into the concepts to be

considered that of determining the nature of the rights

in technical data to be acquired upon the basis of which

party had paid the costs of developing such data rather

than whether it was ‘‘proprietary”’’ in the terms of a

definition as to which no consensus of opinion could be

achieved.*

*The Industry proposal to that effect is set out in the three

concluding paragraphs of Appendix 13 to the transcript of the

Congressional Hearings, supra note 2. The Government recogni-

Subsequent to the hearings Industry and Govern-

ment entered into a continuing dialog upon the formu-

lation of a new regulatory policy. NSLA, for its part,

established a special Task Group to interface with the

Department of Defense in the study of the problem.

All of the leading associations representing Industry

also participated. As a result of Industry-Government

meetings during November and December 1960, the

Department of Defense issued a new draft of ASPR

Section LX, part 2. That draft adopted the concept pro-

posed by Industry that all technical data developed at

private expense be furnished with rights which limited

its use to specific governmental purposes not including

use for reprocurement and which prohibited its general

publie disclosure.

The problems of product improvement contracts

arose. Such contracts would involve government fund-

ed research and development as well as the delivery of

the improved product. In the course of such contracts

it was conceivable, indeed, probable that the contractor

would incorporate components or processes in the de-

tion of the possible utility of such an approach is foreshadowed

in the following remarks of Mr. Bannerman appearing at p. 134

of the transcript:

““T would like to say that it may well be that where all we

want data for is for maintenance purposes, as distinguished

from reprocurement or manufacturing purposes, we may find

out that we have got to provide some way of getting that

data with the limited right to use it. I am reluctant to do

that for a variety of reasons, and one is that this places

a limited right in the Government by contract with re-

spect to a lot of data which, for the most part is not pro-

prietary at all and I do not know that the Government ought

to restrict itself in that respect.

But nevertheless, it is certainly one possibility and one that

will be thoroughly considered.’’

sign and manufacture of the end item which would be

based upon proprietary technical data which it had

previously developed at its own expense. The Govern-

ment, having paid for at least some portion of the de-

velopment cost of the improved product, both desired

and was clearly entitled to the information necessary

to permit the product to be competitively procured in

the future. At the same time, the contractor should not

be expected to forego the future exclusive exploitation

of its proprietary asset by disclosure thereof to the

Government with unlimited rights. The 1960 draft pro-

posed that the only solution to this problem was that

the contractor, at its election, either fund the product

improvement developmental aspect of the contract at

its own expense or sell to the Government its proprie-

tary asset to be incorporated so that the entire data

package would be furnished either with only limited or

unlimited rights.” As will be seen, this ‘‘all or none’’

position was ultimately recognized not to be in the best

interest of the Government and was modified. That

modification is highly germane to the issues in the con-

troversy at bar.

The 1960 draft did not meet with Industry approval

and was withdrawn. The dialog between Industry and

Government continued. A special subcommittee of the

Defense Industry Advisory Council was established as

the vehicle for this continuing dialog. A further draft

* Memorandum of the Director of Procurement Policy, Office of

the Assistant Secretary of Defense (Supply and Logistics) com-

menting upon the draft of the proposed new ASPR Section IX,

Part 2 attached to the memorandum. The particular comment

referred to appears at the top of page 4 of the memorandum

which bears the date November 14, 1960.

ete

was issued in May 1963 and also rejected.® Finally, in

May 1964 the progenitor of the regulatory plan in-

volved here was issued upon an optional trial basis.

That plan was adopted as the new ASPR Section IX,

Part 2 effective April 1, 1965." The plan, as pertinent

here, was that technical data developed at private ex-

pense would be generally furnished with limited rights

only. That rule was modified in the situation where

such data related to components and processes which

were incorporated into an end item the overall develop-

ment of which had been paid by the Government. In

that circumstance data which revealed the contractor’s

proprietary design or know-how could be submitted un-

® Howland, Technical Data and Patents Under Government

Contracts, note 3 supra at 123-126. Mr. Howland was the Chair-

man of NSIA Task Group No. 6 referred to in the text.

7 See Addresses of the Hon. Paul R. Ignatius, then Assistant

Secretary of Defense (Installation and Logistics) and the Hon.

John M. Malloy, then Deputy Assistant Secretary of Defense

(Procurement) before the Joint Department of Defense—NSIA

Technical Information Symposium held at Los Angeles, California

in July 1965. Pertinent excerpts from those addresses are pub-

lished in Derense INpusrry BULLETIN, August, 1965. In com-

menting upon the proposal that only limited rights be afforded the

Government in technical data developed at the sole expense of

the contractor Mr. Malloy stated (BULLETIN at pp. 15-18) :

‘I consider that an outstanding contribution to a rational

resolution of the rights problem is embodied in the concept

that he who has paid the product development cost has the

dominant interest in the rights in the technical data pertaining

to that product .... Simply stated, if the Government pays

for the development work, it is entitled to unlimited rights

in that which is paid for. On the other hand, if the product

is developed at private expense then the Government—with

certain exceptions, such as ‘form, fit and function’ data—

must be satisfied with limited rights if it orders technical

data pertaining to such privately developed products, unless,

of course, it negotiates for and pays for the data separately.

This result is fair if it is understood and accepted by the

Government.”’

DE POGD I Ow:

ATT

ene w

der limited rights provided that the contractor fur-

nished with unlimited rights, data as to the configura-

tion of the proprietary components, the place and di-

mensions ete. wherein they fitted into the end item,

and the functional and performance requirements the

component had to achieve.” In that way the Govern-

ment could still procure the end item competitively by

utilization of the data which it owned together with

specifying the details as to the proprietary components

necessary for the bidders to evolve their own design

for such components or purchase them from the de-

velopment contractor or some other external source.

The Government drawings would set forth the form,

fit and function details as to such components but not

the details of their design or manufacture. They would

designate the development contractor’s part number

but provide that the bidders had the option of provid-

ing an *‘equal,”’ ie. a part of their own which met the

form, tit and functional requirements specified.

This was the compromise of conflicting interests

which was mutually evolved between Industry and

Government over the vears. That it was not entirely

satisfactory to either party serves merely to corrobo-

‘Seript of Department of Defense film entitled ‘‘ Rights in Tech-

nical Data’’, comments of Mr. Paradis, pp. 6-7 explaining these

provisions.

“Tf ordered, technical data in the following categories shall

be obtained with unlimited rights:

(b) Technical data necessary to enable manufacture by

others of items (and performance of processes) developed

under Government contracts in which experimental, devel-

opmental or research work was specified as an element of con-

tract performance, except that data pertaining to components

developed at private expense incorporated in the developed

item is smbiect to limited rights, if the contractor furnishes

with unlimited rights, what we call form, fit and function

data.”’

rate its character as a compromise. It is upon that

compromise that the contractual provisions of the in-

stant contract are founded rather than upon a specific

bargain fashioned by the individual negotiations and

intentions of the parties. That compromise is essential

to the recognition, protection and preservation of a

socially and economically valuable property interest the

nature of which is such that a single disclosure into

the mainstream of commerce is tantamount to destrue-

tion of the interest itself.

The characterization of such issues as being solely

related to a specific dispute under a specific contraci,

should it thereby bar a remedy adequate to preserve

the overal! compromise, is an oversimplification of dire

consequence.

Because it was instrumental in formulating that com-

promise and in encouraging industry acceptance of it,

NSIA considers that it is both appropriate and morally

obligatory upon it to appear herein as amicus curiae.

Its interest is not properly in the effect of the opinion

below upon the individual affairs of Petitioner nor in

whether the detriment to Petitioner is real or fanciful,

minor or substantial. Its interest in the matter before

the Court is in the rule of law pronounced by the

Court below and its disastrous effects upon the gov-

ernment contract industry as a whole.

STATEMENT

There is no need for NSIA to burden the Court

with a detailed statement of the background of the

‘ase since that will be accomplished in the briefs of

the parties.

The essential elements of the case ean be stated

briefly albeit in somewhat oversimplified fashion. The

Bee tn

Petitioner at its own expense had developed proprie-

tary data of a trade secret character related to com-

ponents developed by it for use in a guidance system.

It proposed and ultimately entered into a contract

with the Air Force to fabricate a **breadboard”’ sys-

tem incorporating its proprietary processes and com-

ponents; to test the system to demonstrate the im-

provements brought about by the use of is components,

and to submit a Final Report stating the results of

the tests. During the course of the contract the Air

Force, stating that it required the information in order

to properly evaluate the test results, requested Peti-

tioner to furnish operational details with respect to

the system being tested. The information requested

included details of the mathematical equations and

logic diagrams of Petitioner’s proprietary components.

Petitioner furnished the information in a special re-

port not required by the contract. Petitioner placed

a legend upon that report restricting its use and dis-

closure by the Government to disclosure solely within

the Government and solely for purposes of evaluation.

The use of such a legend is provided for in applicable

procurement regulations, ASPR = 9-202-3 whieh, in

turn, are reflected in the provisions of the contract,

ASPR 7-104.9(a).

The Air Foree did not object to the legend upon the

special report. However when that same data was

included in the reports required to be submitted under

the contract and the Petitioner utilized a similar re-

strictive legend upon those reports related to the por-

tions thereof disclosing the proprietary data, the Air

Force objected. Ultimately the Air Force, without

affording the Petitioner the opportunity to test and

evaluate the propriety of its support for doing so,

determined that the entire contents of the reports, in-

e ene ce ae

cluding the proprietary data, were its sole property in

which it had unlimited rights of disclosure and use.

Public disclosure became imminent through the trans-

mission of the reports to the Defense Documentation

Center, a Department of Defense activity which dis-

seminates information and documents to the general

public including competing defense contractors.

Petitioner commenced action in the District Court

seeking a preliminary and permanent injunction

against disclosure of the proprietary data. The Gov-

ernment moved to dismiss the action for lack of juris-

diction. By memorandum opinion dated July 10, 1973

the District Court retained jurisdiction. The Court

issued a preliminary injunction. The Government ap-

pealed. The Circuit Court reversed and remanded the

matter for vacation of the injunction upon the ground

that the District Court lacked subject matter juris-

diction.

REASONS FOR GRANTING THE WRIT

The Most Compelling Reasons of Public Policy Suggest That

the Court Grant the Writ To Clarify That the Tucker Act

and the Administrative Procedure Act Are Not Mutually

Exclusive Enactments But Are Sister Statutes Intended

To Provide Adequate and Meaningful Relief Against the

Sovereign as Appropriate to the Circumstances.

1. The holding below fails to recognize that the limitation

upon the power of the Court of Claims to the granting

of solely monetary relief does not arise because of limi-

tations upon the waiver of sovereign immunity in that

regard but as the result of a limitation upon the powers

of that particular court as such.

We are faced with a situation in which a vital ele-

ment of Governmental procurement policy deeply

rooted in the public interest and evolved over two

decades of Government dialog with American Industry

- a

is threatened with nullification. That policy reflects

a finely tuned balance between the need of the Gov-

ernment to have access to and use of proprietary tech-

nical information in the national interest and the

fiduciary duty of the managers of industry to preserve

proprietary assets developed at the substantial and

continuing investment of stockholder funds.’ A few

companies, if faced with the legal proposition that

they are powerless to prevent Government disclosure

of their proprietary assets will withdraw from the

Government market entirely. Many more companies

will become increasingly selective with respect to their

continued participation therein. That is a shocking

but very real possibility." Should it occur, substan-

® Due to legal and other restrictions industry statistics upon the

level of industry investment in privately financed research and

development are not readily available. However, the Comptroller

General conducted a survey of the 77 major companies involved

in the defense industry alone. During the four-year period be-

tween 1968 and 1972, those companies expended two billion six

hundred seven million dollars in privately funded research, de-

velopment and bid and proposal costs. Based upon that study

and expanding its scope to all companies involved in all types of

activity, it seems fair to estimate that private investment in re-

search and development involves an investment level well in ex-

cess of one billion dollars a year. COMPTROLLER GENERAL Report

No. B-167034, April 16, 1973.

In discussing the probable effect of such a situation the Com-

mission on Government Procurement established by Congress under

the Act of November 26, 1969, Pub. L. No. 91-129, 83 Stat. 269

stated :

**TA]n inadequate system for safeguarding protectable data

adversely affects a contractor’s willingness to aecede to the

Government's requirements for data and the willingness of

some firms to participate in Government procurement.’’

4 Report OF THE COMMISSION ON GOVERNMENT PROCUREMENT Pt. TI,

Problems In Acquisition and Use of Data at 129 (1973).

Similar concerns were recognized by both industry and govern-

ment witnesses in the 1960 Congressional hearings upon the subject.

tial and irreparable detriment to the public interest

will be the inevitable result.

The decisions of the Court below present a curious

anomaly, That same Court was among the first to

recognize the right of the owner of proprietary data

submitted to the Government in a non-contractual con-

text to enjoin its disclosure by action under the Ad-

ministrative Procedure Act." It here holds that the

unilateral claim of a Contracting Officer of ownership

of such data by virtue of his judicially unreviewed

determination of a question of law is sufficient to di-

vest the Petitioner of a preventive remedy to which it

Moreover the testimony at those hearings emphasized the quandary

of small, highly specialized businesses the economic survival of

Which may depend upon doing government business even at the

cost of the expropriation of their proprietary assets. Larger com-

panies with stronger commercial positions necessarily have greater

freedom of choice and greater opportunity to be more restrictive

and selective in their participation in the government market.

See, Hearings Before Subcommitice No. 2 (Proprictary Rights and

Data) of the House Select Committec on the Problems of Small

Business, 86th Cong., 2d. Sess, (1960).

"In Sears Rocbuck & Co. v. General Services Administration,

334 F.Supp. 996 (D.D.C. 1974) the District Court for the Dis-

trict of Columbia held that jurisdiction of an action by the sub-

mitter of proprietary data to enjoin its publie disclosure by the

Government existed under the Administrative Procedure Act.

Partial summary judgment was granted to the Government. The

plaintiff appealed and, in connection with that appeal, sought and

obtained a stay of disclosure pending appeal. Subsequently the

Court below vacated the stay previously granted by it in an opin-

ion published at 509 F.2d 527 (D.C. Cir. 1974). It is significant

that the Court below stressed the careful evaluation which it had

made of the case and of the decision of the District Court which

it characterized as ‘‘an extremely careful and thorough opinion.”

509 F.2d at 528. One must conclude, therefore, that the Court

below agreed with the District Court as to the bases of its juris-

diction in the matter,

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would be entitled except for its egregious error in

entering into a contract with the Government. Thus

the Court below has relegated the vital aspect of ade-

quate remedy, not to the existence or non-existence of

the conflicting rights claimed, but rather to the unin-

structive fact of whether or not the parties entered

into a contract. In doing so it restores to the law of

Government contracts a new form of the ‘‘tyranniecal’’

power of Contracting Officers over a contractor’s busi-

ness which Congress saw fit to denounce, H.R. Rep.

No. 1380, 83d Cong., 2d Sess. (1954), and eliminate by

enactment of the Wunderlich Act, 41 U.S.C. §§ 321-22

(1970).

Assuming pro arguendo that the decision of the Con-

tracting Officer involves solely a determination of con-

tractual rights which, if mistaken, constitutes merely

a breach of contract, the question remains whether

monetary damages are the Congressionally mandated

exclusive remedy against the Sovereign for such

breach.

The Court below has so held by implication. Exam-

ination of the bases of that holding, however, reveals

some degree of doubt as to its accuracy. Nowhere in

the express provisions of the Tucker Act is such a Con-

gressional pronouncement found. That statute is ad-

dressed solely to ‘‘claims against the United States.”’

It does not identify the claims intended as those seek-

ing only monetary relief. Moreover it includes claims

founded upon ‘‘any regulations of an executive de-

partment’’. 28 U.S.C. § 1491 (1970). Logically one

might conelude that such elaims are also under the

exclusive jurisdictional umbrella of the Tucker Act

vet the Court below has entertained an injunctive ac-

tion under the Administrative Procedure Act with

respect to a claim of breach of such a regulation.

Scanwell Laboratories, Ine. v. Shaffer, 424 F.2d 859

(D.C. Cir. 1970). What the Tucker Act does do, how-

ever, is to designate the Court of Claims as the forum

in which action upon such claims shall be brought. As

nu matter of the historical origins of the Court of

Claims, see Glidden Co. v. Z danok, 370 U.S. 530, 552-

598 (1962), rather than of express Congressional limi-

tation upon the waiver of sovereign immunity, the

Court of Claims lacks the inherent power to grant

equitable relief. It might be argued that, in selecting

such a forum for contract claims, Congress thereby by

implication limited such waiver to actions for mone-

tary damages. But why would Congress withhold

injunctive relief in such matters when it is clearly

recognized that in other respects, including the award

of contracts, Scanwell Laboratories, Ine. vy. Shaffer,

424 F.2d 859 (D.C. Cir. 1970), the Sovereign should

be subject to injunctive remedy? Why should uni-

lateral agency action in matters of contract have been

considered by Congress any more sacrosanct than uni-

lateral agency action in other respects subject to the

injunctive remedies of the Administrative Procedure

Act? It is respectfully submitted that Congress did

not so intend.

Certainly it cannot be said that Congress contem-

plated that vital Government procurement activity

could be disrupted upon a regular basis by a plethora

of injunctions issued with respect to the decisions of

its Contracting Officers. That conclusion of the Court

below is eminently sound. The question, however, is

the nature of the statutory device which Congress em-

ployed to prevent such a situation. The Court below

held that such device lay in the case by ease content

ater’,

to be judicially given to the provision of the Adminis-

trative Procedure Act making it applicable to ‘agency

action’, 5 U.S.C. § 702 (1970). It would seem, how-

ever, that all Congress intended by that provision was

to prevent the unauthorized and undirected conduct of

a lower level government employee from being con-

strued as the action of his agency. In that context it is

indisputable that, in matters of contract, the Contract-

ing Officer is not only an authorized person but the

only person authorized to act for the agency. It is a

strained interpretation of that provision and = one

fraught with potential ambiguity to stress the par-

ticular nature of the action in question as determina-

tive of that particular statutory criterion.

It is respectfully submitted that the control device

intended by Congress lies instead in the provision of

the Administrative Procedure Act making it inappli-

‘able where an ‘‘other adequate remedy in a court”

exists. 5 U.S.C. § 704 (1970). The vast majority of

contract disputes necessarily would involve matters

for which damages in the Court of Claims under the

Tucker Act would be a demonstrably adequate remedy.

Moreover the granting or withholding of injunctive

relief is addressed to the discretion of the Court. A

demonstrated matter of paramount national interest

and urgeney would be a proper basis for the exercise

of discretion to deny injunctive relief even where

monetary damages would not generally be as adequate

relief as an injunetion. Contractors, faced with the

substantial legal obstacles to the obtaining of injune-

tive relief, would not likely be encouraged to seek it

when relief by way of monetary damages is both rea-

sonably adequate and more easily available. It is

proper to conclude that Congress intended that eiti-

zens be afforded meaningful redress against the sov-

ereign upon its contracts. Sueh redress includes in-

junctive relief where such is the only adequate and

meaningful relief in the circumstances,”

If it be granted that the decision of a Contracting

Officer constitutes “ageney action,”’ the issue becomes

whether the remedy under the Tucker Act, necessarily

to be sought in the Court of Claims, and for that rea-

son alone limited to monetary damages, is adequate in

the case of a disclosure of proprietary data. Consid-

eration of the distinction between patents and pro-

prietary data serves to demonstrate that such a remedy

is wholly inadequate to preserve the property interest

in such data.

The essence of patents is public disclosure. The

property right in patents cannot be established with-

out such disclosure. The essenee of proprietary data

is non-disclosure. The nature of the legal wrong in pat-

ents is infringing use. Such use damages the value of

the patent but does not impair the basie property in-

terest in it. The nature of the legal wrong in proprie-

tary data is disclosure. Such disclosure as a practical

matter, not only damages the value of the data but, far

more importantly, is tantamount te destruction of the

property interest in it. Onee disclosure into the main-

stream of ecommerce has occurred. the owner of proprie-

"The progenitor of the present Tucker Act (24 Stat. 505

(1887)) provided that the Court of Claims has jurisdiction over

all claims upon whieh ‘ ‘the party would be entitled to redress

against the United States either in a eourt of law, equity, or ad-

miralty if the United States were suable ....’ ’? (emphasis added).

Glidden Co. v. Zdanok, 370 ULS. 530, 556 (1962). Congress in the

Administrative Procedure Act made the sovereign suable for in-

junetive relief in a court of equity.

PPeksrisiiedncnocra. whadinnn

tary data more often than not finds himself unable to

establish that he was the unique prior owner, Even if

he surmounts that obstacle he may not be able to estab-

lish the precise nature and degree of the damages he

suffered by the wrongful deprivation of such owner-

ship. Necessarily, since much of proprietary data,

while innovative, is within the state of the prior art

or otherwise unqualified for patent protection, the own-

er cannot be permitted to claim exclusive ownership

against the world simply because he establishes in one

action that the initial publie disclosure of his data was

wrongful. To do so would be to judicially create a pat-

ent which would not be obtainable under the statutes.

The practical result is that disclosure, whether volun-

tary or wrongful, effectively destroys the property in-

terest since it is no longer capable of continuing ex-

clusive exploitation.

It is readily apparent that a remedy which does not

even arise until after disclosure has, in fact, occurred

is wholly inadequate to protect the property interest

in proprietary data. In a case in which there is a dis-

pute over the ownership of property which, if disclosed,

will be destroyed, it seems appropriate that the Courts

be able to temporarily preserve that property by in-

junetion pending judicial determination of the conflict-

ing claims of ownership in it. If, as is not the case

here, substantial and urgent national interests would

be frustrated even by such temporary restraint, then

it is appropriate that the Court not grant such re-

straint and leave the purported owner to a remedy in

damages however inadequate it may be. If, on the other

hand, the claim of ownership of the party seeking to

disclose is determined to be unfounded, then the status

quo has been preserved and the vitality and value of

the property interest has been kept intact. Such a

proper resolution is available in the common law. See

€.g. Kewance Oil Co. vy. Bieron Corp., 416 U.S. 470

(1974),

Such a resolution is available against the Sovereign

Where the data in question was not submitted in a con-

tractual context. Scars, Roebuck & Co. vy. General

Services Administration, 384 F.Supp. 996 (D.D.C.

1974),

There is no basis in law or equity why such resolu-

tion should not be available against the Sovereign

simply because it claims ownership by virtue of con-

veyance under a contract where the complaining party

disputes that such conveyalice occurred. The Court

should grant the writ to clarify that property interests

of the type involved here can be preserved pending

resolution of conflicting claims of ownership notwith-

standing the context in which such claims of ownership

arise,

2. Conflicting claims of ownership based upon Procurement

Regulations deeply rooted in the public interest should

be addressed under the Administrative Procedure Act

notwithstanding that they are presented in the context of

a specific contract,

As relevant here, the only eontract language specifi-

eally negotiated between the parties is that contained

in the Statement of Work. The Statement of Work, as

relevant here, provides that the data to be delivered

under the contract shall “define . .. the functions and

operations of the major units of the system....’’ Such

language does not identify any specifie data or any

specific unit or component. In essence, it is nothing

PRE SM woe

more than a repetition of the language of the standard

contract clause ASPR 7-104.9, ASPR 9-203(b) :

*3(b)(1) The Government shall have unlimited

rights in:

(iv) technical data pertaining to end-items,

components or processes which was pre-

pared for the purpose of identifying

sources, size, configuration, mating and at-

tachment characteristics, functional char-

acteristics and performance requirements

(‘form, fit and function’ data, ¢.g., specifi-

cation coutrol drawings, catalog sheets, en-

velope drawings, ete.).”’

The regulation governing policy in the use and appliea-

tion of this clause (ASPR 9-202.2(¢)) provides in

part:

*(. . . Neither the foregoing statement of data

rights policy, nor its implementing paragraph (b)

(1) and(2) of the Basie Data Clause in 9-203(b),

establishes data requirements for a particular con-

tract... Contract clauses and the schedule estab-

lish the form and type of data to be furnished; the

categories into which such delivered data fall,

land) determine the rights to be obtained by the

government to use or publish such data)’ (em-

phasis in the original).

Subparagraph (d) then proeeeds to establish the

procedure by which the parties will mutually negotiate,

identify and categorize the data. Under that procedure

the parties mutually identify the data to he furnished

and list it specifically in the contract schedule, The

parties then agree, as to each item of data identified,

whether it is to be in the category of unlimited rights

data (which would inelude form, fit and function data

mutually agreed to be such) or in the category of limited

rights data.

There were no mutual negotiations by whieh the data

in question here was either specifically agreed to be

furnished or by which it was agreed that it constituted

form, fit and function data. The Petitioner negated any

implied agreement upon its part to that effect by sub-

mitting that data in a special report marked with a

limited rights legend. If, indeed, the Air Force believed

such data to be both required by the contract and data

which was recognized to be unlimited rights, form, fit

and function data, one would expect that it would have

objected to its submission at any time under any circum-

staunecs under a limited rights legend. It did not do so.

It was only when Petitiouer made the logieal but, in

hindsight, serious error of also including such data in

the report required by the Contract Statement of Work

that the Air Foree objected to the limited rights legend

with respect to it. Thus, from the outset, the Air Foree

conduet was contradictory, Such cireumstances consti-

tute a tacit acknowledgement that its assertion of such

ownership might be in violation of the procurement

regulation requiring it to specifically mutually identify

with the Petitioner precisely what data was required by

the contract and precisely what rights the Government

would be entitled to in the use and disclosure of that

data. The inconsistency of the Air Foree eonduct

demonstrates that its belated claim of ownership was

founded entirely upon the provisions of ASPR 7-104.9.

ASPR 9-203(b) reciting the standard language related

to form, fit and function data. As noted. the regulations

specifically provided that no claim of right in specifie

contract data may be properly premised upon the mere

provisions of the Basic Data Clause itself. Such rights

Ge oe = -

Bet weeks.

must be specifically aequired in speciffe data by mutual

agreement under the specifie contract.

Such requirements are integral and vital parts of the

regulatory plan evolved by Industry and Government to

protect the proper and legitimate interests of each in

technical data often, as here, involving proprietary mat-

ter of a trade seeret character. Each of these require-

ments represents a procedure mutually intended to re-

move the acquisition of rights in such data from the

purely unilateral decision of either of the parties. They

establish ground rules whereby the government can ob-

tain the data it needs and upon which the contractor can

rely that he cannot be forced to furnish such data un-

less he agrees to do so either under cireumstances of re-

stricted use and disclosure or compensation for convey-

ance of such data satisfactory to him. None of these

regulatory requirements were fulfilled here. Conse-

quently the unilateral decision of the Contracting Off-

cer to disclose the data in question constituted a threat-

ened breach of procurement regulations. Framing such

action in the context of a determination of the applica-

bility of a contract clause is clearly erroneous where the

regulations prohibit any such right from arising purely

under such standard elause. Moreover it elevates form

over substance with impermissibly detrimental impact

upon the publie interest.

Had the Court below properly reeognized the issues

as involving primarily a threatened violation of pro-

curement regulations deeply rooted in the publie inter-

est, its own prior decisions would have compelled it to

reach an opposite conclusion, See e.g., Scanwell Labo-

ratories, Ine. v. Shaffer, 424 F.2d 859 (D.C. Cir. 1970).

This Court should grant the Writ to prevent the nulli-

fication of the compromise of Industry and Government

made in the best interests of the publie and reflected in

the regulations which the Government proposes to

violate. Necessarily such conduct constitutes agency

action of the most significant impact. Post-diselosure

damages are wholly inadequate to prevent the destrue-

tion, not only of Petitioner’s particular property in-

terest, but of the carefully modulated compromise of

private and public rights whereby the Government has

been able to have access to the ingenuity and know-how

of Industry.

CONCLUSION

If the rule of law pronounced by the Court below

must stand, industry must necessarily reassess the al-

ready substantially greater risks to business privacy

involved in doing business with the Government. As a

result, highly innovative firms with substantial commer-

cial business may determine to become more selective

in the Government’s market. [Ironically a conflict

which was fostered by Government desire to inerease

the number of competitors in that market may very

well produce a diametrically opposite result. Not only

does a decreased number of competitors augur sub-

stantial increase in the cost of Government acquisition

of the goods and services it requires, but the Govern-

ment will be deprived of the benefits of the innovative

technological advances made and to be made by the

companies selectively retrenching from broad involve-

ment in the Government market.

If Congress has not waived the immunity of the

Sovereign to injunctive remedy in contract matters

where appropriate, and if the controversy at bar is

properly a contract matter, then redress must be sought

in Congress rather than in the Courts. But where

Congress has already provided adequate redress in

Po oe. AA 2 ne ABE Mig ATED OE ne, ithe ' Rist 2% —

existing statutes it is the duty of the judiciary to

properly apply such statutes to afford such redress.

NSLA believes that the case at bar falls into the latter

category and, therefore, urges the Court to grant the

Writ to clarify the proper forum in which future re-

dress must be sought; for adequate redress must be

had in the interests of Industry, the Government and

the Publie.

For all of the foregoing reasons, the writ should be

granted.

Respectfully submitted,

LAWRENCE R. Caruso

Wyatt Building, Suite 739

777 14th Street, N.W.

Washington, D. C. 20005

Counsel for National Security

Industrial Association,

Amicus Curiae

Of Counsel:

JAMES M. Botprna, Dallas, Texas

Grorce M. Newsome, Armonk, New York

Mavrice J. Gimucurist, Pittsburgh, Pa.

Warren C, Casey, Burlington, Vermont

Srvarr MacMackin, Utiea, New York

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.