Precious Secrets

n February 1997, B.E. Meyers & Co., a Washington state manufacturer of night vision equipment used by the Navy Seals, filed suit against the government. The company charged that during competition for a contract for infrared weapons sights, the Navy gave secret information about Meyers' product to a competitor, Insight Technology, which went on to win the contract.

Meyers alleged that Insight convinced Navy procurement officials to share drawings that showed how Meyers had built its technology. Insight said that with the drawings in hand it could build the sights for half the cost, Meyers charged. The case was settled in 2001. Sensitive information about products and services often is revealed during the federal procurement process, according to Tom Winland, a partner with Finnegan, Henderson, Farabow, Garrett & Dunner, a leading intellectual property law firm based in Washington. Winland, who consulted on the Meyers case, says that agencies often reward government contracting officers and other acquisition personnel for attracting additional firms to compete for contracts. This tempts federal employees to leak secret information to enable more companies to bid.

For more than 30 years, leading companies have been scared away from doing business with the government, and the Defense Department in particular, for fear of ending up in situations such as the one described in the Meyers lawsuit. Firms such as 3M, the inventor of Scotch Tape and Post-It notes, and W.L. Gore & Associates, the maker of GORE-TEX water resistant fabric, eschew potentially lucrative government work, believing that its risks outweigh the rewards.

But since Sept. 11, attracting innovative firms, especially technology companies, has taken on new urgency for federal agencies. In October, the Defense Department issued a plea to technology companies and inventors for cutting-edge concepts and technologies that could be developed quickly to combat terrorism. Responses were due Dec. 23. The government's lax control over intellectual property-the copyrights, patents, trademarks and trade secrets that are a company's lifeblood-may be part of the reason the Pentagon doesn't already have many of the innovative products it sought in October. Some firms may have refused to sell to agencies or engage in federally sponsored research and development because of fears about losing control of their intellectual property rights.

Federal technology contracts often lay exclusive claim to the intellectual property born out of companies' research and development work, even if the government didn't fund that critical phase. Agencies historically wrote contracts that limited companies' use of their intellectual property and often prevented them from selling their products and services to other agencies or on the commercial market. The potential loss of those markets has made many firms shy away from federal contracts.

Bringing Business Back

To entice skittish technology companies to do business with the government, federal purchasing experts are attempting to mend the government's ways. The move has been a long time coming. Presidents Kennedy, Nixon and Reagan all issued ineffective policy statements urging agencies to relinquish control over intellectual property and protect corporate interests. Thirty years later, Defense and the CIA in particular are trying to write contracts that succeed where three administrations have failed.

In October, the Office of the Undersecretary of Defense for Acquisition, Technology and Logistics published a guide entitled "Intellectual Property: Navigating Through Commercial Waters,"(www.acq.osd.mil/ar/doc/intelprop.pdf) to identify the legal provisions that allow compromise on thorny intellectual property issues and to teach Defense contracting officers and procurement and program managers how to use them.

Defense was prompted to act not just because of industry's concerns, but also because the department has fallen behind dramatically in the past three decades in funding private research and development, thus preventing the Pentagon from gaining access to new technologies.

In the early 1960s, Defense was the leader in bringing technology to life, paying for two-thirds of all private research and development. But by 1999, the tables had turned, with private businesses paying for nearly 70 percent of research and development on their own, at a cost of about $166 billion out of $248 billion. Defense's share of the bill dropped to 16 percent-about $40 billion.

In the past, when the government put up the lion's share of money to move products off the drawing board, it had a legitimate right to control how intellectual property was used. Not anymore, says Leantha Sumpter, the Pentagon's deputy director of acquisition initiatives. If a company pays for the research and development, Defense is "in a completely different negotiating posture," she says.

Now that many firms won't participate in Defense-funded research, or even sell their services or products to agencies, the government is being forced to compete with the private sector to obtain the technology it needs, according to Richard Carroll, Chairman of the Small Business Technology Coalition, who testified before the House Government Reform Subcommittee on Technology and Procurement in July.

Lt. Col. Gregory Redick, assistant for acquisition process and policies in the Defense Secretary's acquisition initiatives office, helped craft the intellectual property guide. Redick says the department must limit its claims to ownership of intellectual property to bring new companies into the contracting fold. "The government needs to contract only for the data, the information, the rights that it truly needs and that are essential to [each] acquisition, not for everything, as we historically have in the past," he says.

For example, the government need not own every piece of information resulting from a product's development. Rather, an agency can simply buy a finished product, and assure the company that developed and built it that it still will control rights to the invention. Redick says the government could even pay to develop a technology but forgo the ownership of the intellectual property rights.

Defense's Sumpter says employees must change a mind-set that reasons that because of its size and importance, the government should be able to use intellectual property however it wants. Agencies have to look for ways to secure only the minimum rights to use a technology, she says.

"The Department of Defense has taken a very good first step in developing appropriate guidance," Jack Brock, the managing director of acquisition and sourcing management at the General Accounting Office, told the House subcommittee in July. "However, the next steps are more critical: providing the training and assurances that the guidance will be appropriately implemented."

Sumpter agrees that "the community that is fluently knowledgeable in [intellectual property] is extremely thin," but she says her office, with help from industry, is developing a series of learning modules about intellectual property. "Our challenge is breaking it down in a manner in which we can make it plain," she says.

Rising Interest

The effort to loosen government's hold on intellectual property rights extends beyond the Defense Department. The intellectual property "issue is shared by most of the agencies at one point or another," says Redick.

In 1999, the CIA created In-Q-Tel, an agency-funded nonprofit organization that invests in upstart technology companies. Its charter allows In-Q-Tel to impose only the narrowest of intellectual property restrictions on companies. Firms can sign nonexclusive contracts with the CIA through In-Q-Tel that allow them to sell their products to other government agencies. In a number of cases, the CIA granted such arrangements when companies refused to sign contracts unless they were given control over their intellectual property.

An independent panel that evaluated In-Q-Tel's acquisition practices in June found that it "uses all its options and authorities to negotiate the best deal for the government." The panel acknowledged that intellectual property rights are a major element of negotiation between In-Q-Tel and the companies in its investment portfolio.

But to date, Defense is alone in trying to reeducate an entire acquisition workforce. In fact, the Pentagon is so far ahead that civilian agencies are turning to Defense's guide to instruct their own procurement personnel. The Commerce Department and numerous nonprofit associations have posted the Defense manual on their Web sites. Defense's Redick also says interest is high. Officials throughout the government have called him to learn more about intellectual property restrictions.

irms fiercely defend certain forms of information, known as intellectual property, related to the creation or marketing of their products and services. For example:

• Copyright protects the expression of a piece of work. A copyrighted work is most obvious by the symbol that indicates ownership of a book, a piece of music or drawings and blueprints.
• Trademark distinguishes a "source" of goods with a symbol or identifier. The Coca-Cola "wave" and the shape of its bottle or the McDonald's golden arches are examples.
• Patent gives its owner the right to exclude others from making, using or selling the patented invention for a limited time in the United States. A patent doesn't give its owner the exclusive right to use the invention.
• Trade secret covers intellectual property that is kept confidential. A company or inventor must make reasonable efforts to keep the secret out of the public domain. The recipe for Coca-Cola is an example. The formula is not patented, but is a secret known only to a limited number of people.