Technology Contracting for Transit Projects (2017)

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47 policy, an agency may fail to “retain[] ownership of the rights to potentially patentable products or processes developed by its employees working on state time using state resources.”688 Although the study discusses an agency’s need to know its rights under the patent laws, the same need for guidance pertains to other IP, i.e., copyrights, trademarks, and trade secrets.689 The California study identifies subjects that a guidance or policy on technology contracting should address, including products that may be IP, whether created by employees or contractors; when and whether to protect products as IP; whether, when- ever possible, copyrights or trademarks should be registered; when to allow others to use an agency’s IP; the need for an inventory of IP; and when and whether to pursue claims for infringement of an agency’s IP rights.690 CONCLUSION Although acquisitions of technology are not unlike procurements of other types of goods and services, the type of technology and the nature and purpose of an acquisition affect an agreement’s terms and conditions. Transit agencies also acquire technology through non-technology contracts, such as for construction projects or the purchase or lease of advanced technology vehicles. To the extent not addressed in state or local procurement laws, or in a transit agency’s technol- ogy agreement, disputes between a transit agency and a contractor, designer, developer, licensor, or vendor are likely to be decided under a state’s law on contracts and torts. Even though the use of software was not foreseen at the time of the states’ adoption of the UCC, the courts have applied Article 2 to disputes involving technology agreements, includ- ing to issues of contract formation, interpretation, performance, warranties, and remedies. Under the UCC, a formal declaration or promise, as well as an oral or written communication, may create a warranty. Implied warranties may arise under the UCC simply because a transaction occurred. Two important implied warranties are the UCC’s warranty of title and warranty against infringement. Transit agencies should be alert, however, to attempts by developers, vendors, and others to disclaim warranties in their agreements. This report identifies issues and clauses for transit agencies to consider when drafting technology agree- ments; discusses the development of performance- based, functional, and technical specifications; practices to ensure [that] an entity’s contracts meet the entity’s internal standards and those of a prudent party.”678 Matters to consider include appro- priate terms and conditions, peer review, audit compliance after contract execution, documentation of the process, and management of the relation- ship.679 However, only ten transit agencies respond- ing to the survey reported that their agency has developed written guidance and/or a set of best prac- tices for their agency’s technology contracting and projects.680 The Connecticut Department of Trans- portation observed that although “[t]here are clear basic procurement rules…[t]here are some disagree- ments about how clear the technology procurement rules are and how they are interpreted.” Although the report studied state agencies, a Cali- fornia State Auditor’s report on IP owned by Califor- nia state agencies found that the agencies were “not sufficiently knowledgeable about the intellectual property they own.”681 More than half of the state agencies surveyed owned some form of IP but were unaware of the extent of their ownership.682 The study discovered that “many state agencies have no written policies for intellectual property management.”683 Moreover, the agencies did not have guidance on when they could or should “capitalize on their intellectual property.”684 In fact, some agencies’ contracts with contractors, much to the chagrin of the state auditor, gave the “contractors a free license to use or sell intel- lectual property” that the agencies had paid to develop.685 Of five states’ practices analyzed for the study (Florida, Minnesota, New York, Texas, and Virginia), only Virginia “has a comprehensive written policy that authorizes its state agencies to own and protect patents and copyrights.”686 The study states that when an agency “does not know which items or processes it can protect or which rights it possesses under patent law, [the agency] may be unable to keep others from patent- ing items it rightfully owns.”687 In the absence of a 678 Classen 4th ed., supra note 195, at 264. 679 Classen 5th ed., supra note 257, at 511–23. 680 See Appendix C, transit agencies’ responses to question 20. The Louisiana Department of Transportation and Devel- opment/Public Transportation provided a link to http://www. doa.la.gov/Pages/ots/Procurement.aspx (last accessed Feb. 24, 2017). Twenty-nine agencies reported that they did not have written guidance or a set of best practices. Id. Three agencies did not respond to the question. Id. 681 State-Owned Intellectual Property, supra note 556, at 1. 682 Id. 683 Id. at 2. 684 Id. 685 Id. 686 Id. at 9. 687 Id. at 18. 688 Id. 689 Id. at 5. 690 Id. at 24.

48 an independent contractor would otherwise own the copyright in a work for a transit agency, agen- cies should include a work product clause in their technology agreements so that they own the copy- right in any works developed for them. With respect to experimental, developmental, or research work funded by the FTA, the federal government reserves a royalty-free, non-exclusive, and irrevocable license to reproduce, publish, or otherwise use, and to authorize others to use for the government’s purposes, any data, or copyright therein, that are subject to a funding agreement. The third branch of IP law is patent law, which may apply to technology procured or developed by transit agencies. The purpose of Bayh–Dole is to promote the utilization of inventions and discoveries that result from federally supported projects, includ- ing experimental, developmental, or research work. Electronic and other data collected by govern- ment-owned transit agencies may be subject to a state’s FOIA or similar law and must be produced unless an exception applies. The cases are divided on whether an agency may require a requester to sign an end-user agreement to preclude further distribution or use of data provided to a requester. Several state statutes were located for this report that permit negotiations with developers, licensors, vendors, and others when government agencies are procuring technology, such as section 6611 of the California Public Contract Code that authorizes the use of a “negotiation process.” If permitted by state or local law, the FTA may permit the use of competi- tive proposals or RFPs under the conditions set forth in the FTA Circular on third party contracts noted in this report. As one source recommends, agencies should have a quality assurance program for technology contract- ing. Best practices include having appropriate terms and conditions, peer review, audit compliance after contract execution, documentation of the process, and management of the relationship. It is recom- mended, when appropriate, that an agency’s guid- ance or policy identify any IP that the agency owns. and emphasizes the importance of new technology being able to interface with existing legacy or proprietary technology. Because cloud computing and services differ from traditional licensing, typical technology agreements may not deal adequately with the risks that cloud computing presents. Privacy and security issues exist, in part, because a transit agency’s data could reside anywhere in the world. This report separately discusses limitations on liability, indemnification, and representations and warranties that may not be subject to the UCC. A technology agreement should reflect the parties’ entire relationship. Therefore, transit agencies should be wary of clauses that limit the liability of a developer, licensor, vendor, or other supplier. An indemnification agreement should require any supplier of technology to defend and indemnify a transit agency and hold it harmless for claims except those that the parties agree to exclude. Because a general warranty of function is not sufficient, a transit agency should insist that an agreement warrant that the technology is fit for its intended purpose; that it will interface with legacy or proprietary technology, if applicable; and that it will safeguard data that a transit agency collects and uses. A developer, licensor, vendor, or other supplier should agree to indemnify a transit agency for damages incurred because of data breaches and privacy violations caused or not prevented by the technology being purchased. One branch of IP law is the law of trade secrets. Technology acquired or developed by transit agencies may be protected as a trade secret under the federal DTSA or a state’s UTSA. To preserve a trade secret, an owner must be careful to limit access to the infor- mation, which should be disclosed only in confidence. A second branch of IP law is the law of copy- rights, which applies to digital IP. The majority rule appears to be that, unless prohibited by state law, state and local agencies may seek copyright protection for works prepared by their employees. In the absence of a contractual provision, because