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Selling Software to the Government? Let the Seller Beware

January 1991

It’s no secret that the Government is the biggest purchaser of goods and services in America. For any company that has sold anything to the Government, it’s also no secret that every order comes with volumes of paperwork and fine print.

But what is not so well known is that buried in that paperwork are contract clauses that can dump a seller’s proprietary software into the “public domain.”

Government regulations for purchases of software state that the government generally must obtain one of two sets of “rights”: unlimited rights, which are pretty much equivalent to saying that anyone in the world can have access to the software, or “restricted rights,” which impose license-like limits on the Government.

Although In most cases, a vendor’s standard license agreement can become part of the government contract, there is a hidden trap: First, any restrictions on the Government’s rights will be invalid to the extent they prohibit fulfillment of Government needs as described in the contract. More critically, the software and documentation must contain certain language, called “Restricted Rights Legends,” which state that the software is proprietary. According to the regulations, failure to label the software with these legends permits the Government to disregard any other statement in the contract.

As a result of these regulations, software companies should consider including appropriate “restricted rights” language in their documentation and in standard license agreements. This is particularly advisable for those companies who, because they use “shrink wrap” licenses or because they sell through distributors, do not control the contracting process with each individual customer.

TLB Comment : Similar rules apply to any transfer of technology to the Government. Companies taking on research and development projects, or licensing technology other than software, must carefully analyze their government contracts to avoid inadvertently parting with ownership of key technology. In many cases, the contract clauses are not spelled out in full in the contract documents, but instead are incorporated by reference to a regulation