UPDATE: 12/11/06 - This case has been appealed to the United States Court of Appeals for the Federal Circuit 06-5048 [View Details]

The U.S. Court of Federal Claims issued a decision in the Night Vision Corp (Plaintiff) v The United States of America (Defendant) case that is sending shock waves into parts of the SBIR community. The ramifications of this decision include loss of SBIR data rights, and use of the SBIR work product given to a competing entity to produce the product and sell back to the government, in essence circumventing what should have been an SBIR phase III opportunity.

The Night Vision Corp (NVC) had received an SBIR phase I award from the Air Force to develop a single prototype of NVC's "Panoramic Night Vision Goggles" (PNVG), and a phase II award whereby NVC arranged for the production of twelve developmental night vision goggle prototypes with the help of a subcontractor, Insight Technology Inc. The relationship between NVC and Insight during the Phase II project was at best ,"strained." At one point the relationship became so dysfunctional that the Air Force became concerned about the completion of the promising night vision project.

The phase II SBIR was completed and the Air Force showed a strong "interest" in moving it to phase III, but no firm commitments were made. Instead, the Air Force announced its intention to pursue development of the PNVG through a competitive procurement and the Air Force wanted to obtain "government purpose rights" to NVC's proprietary data.

NVC delivered the final data package for its SBIR Phase II contract to the Air Force which included both technical information (such as drawing and schematics) and prototypes of the goggles. NVC claims that it marked all technical data that it delivered to the Air Force with data rights legends indicating that the data was proprietary. Nonetheless, it is uncontroverted that NVC did not affix such legends to the actual goggles that it delivered to the Air Force along with the technical documents (a significant factor in the judge's ruling against NVC).

The Air Force published a "Potential Sources Sought" notice seeking possible developers of a "night vision goggle" and the related descriptions in the document seemed to correspond with NVC's PNVG I and PNVG II configurations.

At that time, Insight, the former subcontractor to NVC, was preparing to compete directly against NVC to further develop the PNVG system. Insight executed an agreement with ITT Industries, Inc. to partner towards obtaining a PNVG competitive procurement contract.

The Air Force sent several PNVG prototypes that NVC had delivered under the SBIR Phase II contract, to Insight. Insight apparently retained some of these PNVG units for several days or weeks while shipping other units back to the Air Force only a few days after receiving them.

The Air Force posted a Program Research and Development Announcement (PRDA) of their intention to award a negotiated, 24-month Advanced Technology Demonstration (ATD) contract for what the they termed an Integrated Panoramic Night Vision Goggles. Only three firms responded (NVC, Insight and Litton) and Insight was awarded the contract.

NVC filed a five part complaint against the government alleging:

1. That the defendant breached the SBIR contracts with the plaintiff by disclosing proprietary technical data to Insight;
   
2. That the defendant breached a provision allegedly incorporated by law into the SBIR contracts with the plaintiff, which required defendant to award plaintiff an SBIR Phase III contract;
   
3. That the defendant breached an oral contract with plaintiff by not awarding plaintiff a SBIR Phase III contract;
   
4. That the defendant violated a duty of good faith and fair dealing owed to plaintiff throughout the procurement process:
   
5. A bid protest challenging the award of the contract to Insight instead of NVC.

The court ruled against NVC on all counts. However, most notable to small businesses engaging in SBIR are the rulings on counts 1 and 2.

Count 1 - Since plaintiff did not attach the SBIR data rights legend to the PNVG prototypes, no restrictions applied to defendant's use of the prototypes. Defendant was thus within its rights when it shipped the PNVG prototypes to Insight and is therefore entitled to summary judgment dismissal of count 1.

Count 2 - Unless the item is covered by a patent, or is otherwise restricted by contract, the Government may use the item to reverse engineer its design or may provide it to a competitor to do the same.

Jere Glover, SBTC's executive director was shocked by this ruling. He referred to it as one of the worst SBIR decisions in over 20 years. The SBTC board will be meeting via telecon this week to discuss the fallout from this ruling. Glover is urging his SBTC members to mark all prototypes as "proprietary" as well as written descriptions submitted as part of SBIR phase I or II. SBTC will have a report on their web site at www.sbtc.org

Commentary: This synopsis does not reflect the fact that the Air Force presented a good deal of information that cast doubt concerning NVC's ability to perform well for a phase III opportunity. The Air Force's primary interest was to get those night vision goggles to the war fighter asap. Many of us shun the methods the Air Force used concerning data rights, but it does point out the extent they were willing to go to in order to achieve their goals. By the same token, we have seen cautionary signs in SBIR training presentations, such as those presented by SBIR legal guru, David Metzger, Esq., (Holland ∓ Knight) referring to "agency defense against phase IIIs," suggesting that an agency is not always pro SBIR phase III.

Coincidentally, but nonetheless interesting, is the fact that the new awardee, Insight, founded and run by a former DoD employee, had enough "juice" to get [then] candidate for president, George W. Bush to visit Insight and pose for photographs holding prototypes of the goggles designed by NVC under its Phase II SBIR contract.

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