Proposed Defense Legislation Could Change Who Controls Proprietary Technology

An amendment to the National Defense Authorization Act could give contractors greater freedom to use technology developed by others while limiting their ability to protect their own trade secrets.

A defense contractor develops proprietary diagnostic software for military equipment. The software gives the company a competitive advantage, and the company takes care to protect its source code and other technical information.

At the same time, the contractor wants to compete for maintenance work involving equipment manufactured by other companies. Winning those contracts may require access to technical information that the original manufacturers consider proprietary.

The company has an interest in protecting its own technology, but it also benefits when the government can make another company's technology available for authorized work.

Proposed federal legislation could affect both interests.

Senate Amendment 6301, introduced by Senators Tim Sheehy (R-MT) and Elizabeth Warren (D-MA) as part of the proposed National Defense Authorization Act for Fiscal Year 2027, would make two significant changes to the treatment of proprietary technology in government contracting. One would give the government a new means of compelling delivery of technical information required under defense contracts. The other would limit the remedies available for certain trade secret misappropriation involving the government and its contractors.

The amendment has not become law, but its potential consequences extend to companies developing software, manufacturing processes, technical data, and other proprietary technology for federal programs. The proposal comes amid broader efforts to improve military maintenance and repair capabilities by reducing dependence on original equipment manufacturers. Greater access to technical information could allow the government to use competing suppliers, potentially reducing costs and improving equipment readiness.

A New Way to Compel Delivery of Technical Information

Disagreements frequently arise over what technical information a defense contractor must deliver to the government. A company may agree to provide documentation necessary to operate or maintain a system while retaining control over proprietary source code or manufacturing processes. The government may interpret the contract differently, particularly when it wants another contractor to maintain, repair, or modify the equipment.

The amendment would add a provision to Title 10 permitting the government to bring an action in federal district court seeking delivery of information required under a Department of Defense contract or other covered agreement.

The procedure would become available when a contractor fails to deliver the information within 30 days after receiving a contracting officer's final decision requiring delivery. An appeal challenging the contracting officer's decision would not prevent or stay the government's separate action to compel delivery, although the district court would still have authority to determine the scope of the government's contractual rights.

The court would have authority to determine the scope of the government's rights and order the correction or removal of improper restrictions marked on the information.

The government would still have to establish its contractual entitlement to the material. The amendment would not automatically give it ownership of a contractor's intellectual property or unrestricted rights to use everything it receives.

Nevertheless, the proposed procedure could place contractors under greater pressure to resolve disagreements over delivery obligations. A contractor disputing whether its source code or technical data must be provided could face a lawsuit seeking to compel delivery before its separate contractual appeal is resolved. For companies whose competitive advantage depends on maintaining control over proprietary information, that is a consequential change.

Trade Secret Claims Could Become Claims for Compensation Rather Than Injunctions

The second provision would add trade secret misappropriation to 28 U.S.C. § 1498, which already limits remedies for certain patent and copyright infringement involving the federal government. Trade secret claims against the government are more complicated because sovereign immunity and existing statutory exceptions already restrict available remedies. The proposed amendment would establish an express compensation remedy for qualifying government misappropriation while making that remedy exclusive, potentially eliminating injunctions and other claims against government-authorized contractors that might otherwise be available under trade secret law.

This could provide meaningful protection to businesses performing government work. A contractor accused of misappropriating trade secrets in the course of authorized performance might avoid an injunction that would otherwise interrupt production, maintenance, or delivery.

The consequences for the trade secret owner would be quite different.

Trade secrets derive their value from remaining secret. A company may have deliberately chosen not to patent a manufacturing process or software algorithm because it wants to preserve exclusive control over the information. If another company obtains and uses that information, a damages award may not restore the lost competitive advantage.

Under the proposed provision, the owner could be limited to seeking compensation even where it would prefer to stop the use altogether. The protection would not necessarily extend to a contractor's unrelated commercial activities or conduct outside the government's authorization. Those limitations would remain important in determining whether the proposed statute applies.

The Same Contractor Could Benefit and Be Harmed

It would be a mistake to divide the affected businesses neatly into technology owners who oppose the change and competing suppliers who favor it. Many defense contractors occupy both positions.

Consider a small company that develops proprietary software for military vehicles but also competes to maintain systems manufactured by larger contractors.

If the government authorizes the small company to perform maintenance using technology developed by an original equipment manufacturer, the proposed provision could protect the small company from an injunction based on trade secret misappropriation. Of course, if the government already has sufficient rights to authorize that use, there may be no misappropriation in the first place.

That same company might later discover that the government has authorized another supplier to use its proprietary diagnostic software. If the use constitutes covered trade secret misappropriation, the company could be limited to a compensation claim against the United States.

The amendment could therefore help a contractor compete for new work while reducing its ability to protect the exclusivity of technology it developed. Large defense contractors face a similar tradeoff. A prime contractor may benefit when accessing technology needed to support a government program but lose leverage when the government wants another company to maintain or modify the prime's proprietary systems.

The commercial impact depends less on company size than on the role the company occupies in a particular transaction. There is also a potentially broader consequence. The proposed trade secret provision is not limited to technology originally supplied under a government contract. A trade secret owner with no contractual relationship with the government could potentially be affected if its information is misappropriated in qualifying government-authorized activity.

That makes the proposal relevant beyond the traditional defense contracting community, including to companies supplying AI, software, and other technology used in government programs.

Existing Contract Rights Would Still Matter

The amendment would not eliminate the contractual distinctions between delivering technical information and granting the government rights to use or disclose that information.

Under applicable Federal Acquisition Regulation and Defense Federal Acquisition Regulation Supplement provisions, the government's rights in technical data and computer software can depend on development funding, the nature of the information, contractual terms, and properly supported restrictive markings.

A requirement to deliver software documentation, for example, does not necessarily establish unlimited government rights in the underlying source code. Nor does government possession of proprietary information necessarily permit its unrestricted disclosure to other contractors.

The proposed delivery procedure would give courts authority to resolve disputes over the government's contractual rights. It would not eliminate the need to determine what those rights actually are.

The trade secret provision raises a separate question. Even where the government lacks authority to use particular information, the owner's remedy for qualifying misappropriation could be limited to compensation.

That distinction is important. A contractor could prevail on the question of whether the government had a right to use its technology yet still be unable to obtain an injunction against covered misappropriation.

The amendment would also direct the Court of Federal Claims to develop federal precedent in trade secret cases rather than be bound by state trade secret law. How courts would calculate compensation for technology that an owner never intended to license could become an important issue.

The amendment would also generally preclude recovery for misappropriation occurring more than three years before suit is filed, although time spent pursuing certain administrative compensation claims would be excluded from that period.

What Contractors Should Consider Before the Law Changes

The proposal does not require companies to change their contracting practices immediately. It does, however, underscore the importance of resolving intellectual property issues before disputes arise.

Businesses developing proprietary technology for government programs should pay particular attention to what their contracts require them to deliver. Obligations concerning software, technical documentation, manufacturing information, and source code should be understood before the company agrees to them.

Particular attention should be paid to contracts under which the government may demand additional technical data or source code after initial delivery, especially where the contractor believes privately developed technology was excluded from its delivery obligations.

Contractors should also verify that restrictions on government use and disclosure are supported by the applicable contract terms and properly documented. Development funding records, appropriate markings, and subcontract provisions can be important in determining the rights the government receives.

Companies relying on third-party technology should examine the other side of the transaction. Government authorization may become a significant defense to injunctive relief in covered trade secret disputes, but it should not be assumed to protect activities beyond the government's authorization.

Finally, businesses should consider how they would establish the commercial value of their trade secrets if compensation became the available remedy. For a company whose technology has never been licensed, proving its value after unauthorized use or disclosure may be difficult.

A Different Balance Between Access and Exclusivity

The proposed amendment reflects an important tension in government contracting. The practical effect would depend on the contractor's position in a particular transaction. A company could gain opportunities to perform work using technology developed by others while facing reduced protection when its own trade secrets are used for government purposes. Contractors should therefore consider both sides of the issue when negotiating technical-data rights and assessing the commercial value of their proprietary technology.