Co-written by Mr Frank K. Peterson
Federal procurement regulations contain detailed provisions about the protection of proprietary information. Contractors ignore those regulations at their peril, as many contractors have learned through bitter experience. A recent case issued by the United States Court of Appeals for the Federal Circuit, Xerxe Group, Inc. v. United States, decided February 4, 2002, illustrates what can happen when an offeror fails to properly identify its proprietary information in an unsolicited proposal to a federal agency.
Xerxe Group, Inc. submitted an unsolicited proposal to Patrick Air Force Base for the provision of electrical energy and services. The proposal was rejected, but the Air Force later published a request for information for the possible privatization of on-base utility services. Xerxe cried foul, claiming that the government had used proprietary information from its unsolicited proposal in the request for information. When the government failed to respond to Xerxe's $72 million damages claim, Xerxe filed suit in the Court of Federal Claims. When that court ruled against Xerxe, the company appealed to the Federal Circuit.
The Federal Circuit took little time in affirming the lower court's judgment. Xerxe contended that its proposal was a business plan that included a trade secret entitled to the protections afforded by the Federal Acquisition Regulation. The FAR prohibits government personnel from disclosing restrictively marked information in an unsolicited proposal. It goes on to state that to receive protection from disclosure an offeror must mark the title page and each sheet of data it wishes to restrict with legends spelled out in the FAR.
Xerxe had marked the title page of the proposal but failed to include a restrictive legend on each sheet of data it wanted restricted. As the court succinctly stated, "[i]ts failure to identify and clearly demonstrate what it considered restricted data was fatal to its claim."
The Trade Secrets Act imposes criminal penalties on government employees who make unauthorized disclosures of trade secrets and other confidential information coming into their possession during the course of their official duties. Because of the potential severity of the penalties for disclosure of trade secrets, the government requires anyone submitting purported trade secrets to the government to clearly delineate what constitutes the trade secret. If a person fails to do so, he or she will waive the protection found in statute or regulation and will receive no sympathy from the court.
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