Piliero Mazza &
Pargament, PLLC

Vol. V, Issue 8
November 1999

An Update for Federal Contractors and Commercial Businesses


Monitoring Use
of Copyrighted Material

Recent Changes
To FAR Under
Federal Acquisition
Circular 97-14

Business Should Avoid
Oral Agreements

Question & Answer Topic:
Veterans Entrepreneurship

and Small Business Act
of 1999



Monitoring Use of Copyrighted Material

Every company has copyrighted materials and other intellectual property that bring considerable value to its business. These materials may range from software programs to personnel manuals to contract proposals. Holding the copyright in these materials entitles the owner to important exclusive rights, including the right to copy, display, distribute and prepare derivative works of the materials.

With the rapid growth of e-commerce, businesses now frequently publish copyrighted materials over the Internet or display them on their Web sites. Unquestionably, the potential for infringement and abuse is greatly enhanced in today’s electronic business environment.

As most business owners recognize, it is important to take appropriate precautions to protect intellectual property, particularly if it is published on the Internet. However, companies should not assume that using copyright notices and "clickwrap" license agreements on Web sites is all that is necessary to preserve the exclusive rights attendant to copyright and trademark ownership. Under certain circumstances, courts will find that the copyright holder has waived and/or abandoned valuable rights by failing to take action to enjoin infringing conduct by third parties. To avoid this disastrous result, companies should closely monitor the use of their intellectual property to ensure that their rights are preserved.

Although laws specific to e-commerce are far from clear at this point, common law principles of waiver, abandonment and estoppel have previously been applied to intellectual property rights by many courts.

Under certain circumstances, a company is deemed to have waived or abandoned its exclusive right to distribute or publish its copyrighted material. Waiver or abandonment occurs when a copyright owner intends to surrender its proprietary interests in certain works. Although waiver or abandonment generally must be manifested by some overt act indicative of an intent to surrender one’s rights, companies should be careful in granting casual and open-ended permission to others to use their intellectual property.

For example, a company may give verbal permission to another to use certain intellectual property not believed to be particularly valuable. If, in years to come, that property takes on new meaning or value, the user may be able to defend against an infringement claim by arguing that the company waived its rights to the material. Therefore, the best practice is to avoid verbal authorizations and use written license agreements with fixed durations.

In addition, a copyright owner may experience difficulty in pursing an infringement action against another company if the owner was aware that the other company was using or disseminating its property, and failed to take action to enforce its rights, thereby acquiescing in such wrongful use.

Under such circumstances, the defense of "estoppel" may be raised. In order to show that a copyright owner should be "estopped" from enjoining allegedly infringing use of copyrighted material, a defendant must demonstrate that: (1) the owner knew of the defendant’s infringing conduct; (2) the owner implied induced the defendant to use the material (e.g., through acquiescence over a period of time); (3) the defendant relied on the owner’s conduct in using the copyrighted material (e.g., invested money in the development and use of the material); and (4) the defendant was unaware that the owner held a copyright or other proprietary interest in the material.

Again, businesses are treading in very dangerous territory when they acquiesce in another’s infringing use of copyrighted material, even if for a brief period of time. Written license agreements should be used. Also, the appearance of a copyright notice will help defeat an estoppel defense.

Finally, companies should be aware of the possibility that acquiescence in another’s distribution of copyrighted material through one medium may constitute an implied license to that party to engage in widespread dissemination of the material through other mediums. For example, if a copyright owner acquiesces in another’s distribution of copyrighted material in hard copy format, it is possible that such acquiescence may be deemed to constitute an implied license to publish and distribute the materials over the Internet.

Therefore, companies should be careful not to take for granted the value of the exclusive rights that stem from copyright ownership. To preserve and protect these valuable rights, businesses should take the following steps: (1) take inventory of all copyrighted materials owned by the business; (2) determine who has access to these materials and how they are being used; (3) make sure that permitted use of the materials is through written license agreements, or "clickwrap" license agreements if the use is over the Internet; (4) use copyright notices; (5) regularly monitor misuse of copyrighted material, particularly over the Internet; (6) if infringing conduct is identified, take immediate corrective action, including "cease and desist" letters, commencement of litigation, or negotiation of a written license agreement with the user; and, most importantly: (7) do not acquiesce to infringing use of copyrighted material.


Recent Changes to FAR Under Federal
Acquisition Circular 97-14

On September 14, 1999, Federal Acquisition Circular ("FAC") 97-14 was issued. FAC 97-14 included a number of final and interim rules affecting the Federal Acquisition Regulations including rules relating to the very small business pilot program, use of competitive proposals, determination of price reasonable-ness and late offers. The following is a brief summary of the final and interim rules issued under FAC 97-14.

Determination of Price Reasonableness in Commerciality

The interim rule was initiated to implement sections 803 and 808 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999. Section 803 of the Act provides guidance on the appropriate use of various price analysis tools and the circumstances under which contracting officers should require offerors to provide information "other than cost or pricing data" for commercial items. Section 808 provides guidance on "procedures associated with obtaining information other than cost or pricing data." It is reported that Congress enacted sections 803 and 808 because of reports of the Defense Department "paying more for spare parts under the new price analysis mandate than it did previously, as well as contractor concerns that some contracting officers continued to require certified cost or pricing data when it is not necessary under law or regulation."

The rule emphasizes that the preferred price analysis techniques for ensuring price reasonableness are: (1) comparison of proposed prices received in response to the solicitation; and (2) comparison of previously proposed prices in previous government and commercial contracts with proposed prices for the same and similar items, provided that both the validity of the comparison and the reasonableness of the previous price can be established. The rule makes it clear, however, that if the contracting officer cannot obtain sufficient information by these methods that he or she may use "any of the remaining techniques as appropriate to the circumstances applicable to the acquisition."

In achieving these objectives, the interim rule adds language to FAR section 15.403-1. Under these revisions, although a contracting officer is responsible for obtaining information that is adequate for evaluating the reasonableness of the price or determining cost realism, the contracting officer should not obtain more information than is necessary. A contractor must submit, at a minimum, appropriate information on the prices at which the same items or similar items have previously been sold, so that there is an adequate basis for determining the reasonableness of the price.

Compensation for Senior Executives

The final rule implements the interim rule that revised the definition of senior executives to be "the five most highly compensated employees in management positions at each home office in each segment of the contractor" even though the home office or segment might not report directly to the contractor’s headquarters.

Late Offers

This final rule provides uniform guidance for receipt of late offers on sealed bids and negotiated acquisitions. Specifically the rule provides for consideration of late offers if the government mishandles an offer.

Uncompensated Overtime

The final rule provides guidance on the evaluation of proposals that include uncompensated overtime hours. Under the rule, FAR sections 15.305 and 37.115-2 are amended by including a requirement that contracting officers must ensure that the use of uncompensated overtime in contracts to acquire services on the basis on the number of hours provided will not degrade the level of technical expertise required to fulfill the government’s requirements. The rule requires contracting officers to conduct risk assessments and evaluate any proposals that are received that reflect: (1) unrealistically low labor rates or other costs that may result in quality or service shortfalls; or (2) unbalanced distribution of uncompensated overtime among skill levels and its use in key technical positions.

Use of Competitive Proposals

As set forth in FAC 97-14, the final rule is intended to streamline the acquisition process by eliminating the requirement for contracting officers to explain in writing their rationale for choosing to use competitive proposals rather than sealed bidding.

Very Small Business Pilot Programs

The final rule in FAC 97-14 implements the interim rule that initially set this program into place. The purpose of the very small business pilot program is to improve access to government contract opportunities for concerns that are substantially below SBA size standards, by reserving certain acquisitions for competition. Very small business concerns are defined as small businesses that have 15 or fewer employees together with average annual receipts that do not exceed 1 million. Under the revised regulations, procurements may be set aside for very small business concerns if they have anticipated dollar values exceeding $2500 but not greater than $50,000. In certain circumstances, contracting officers must set aside such procurements for very small business concerns if there is a reasonable expectation of obtaining fair and reasonable offers from two or more very small business concerns within a geographical area served by a designated SBA district.


Businesses Should Avoid Oral Agreements

Businesses are often tempted to use oral agreements as a means of transacting business. In order to preserve a smooth working relationship with a customer, employee, contractor, or subcontractor, businesses may prefer the informality of oral agreements to the inconvenience of reducing agreements to writing. While such oral agreements may be convenient, they are extremely risky and should be avoided.

Many oral contracts are legally binding but difficult to enforce. In the absence of concrete evidence of the terms of the agreement and the intent of the parties, disputes over oral contracts often come down to a very subjective question of which party is the most believable. More importantly, however, many oral contracts are legally unenforceable due to a common law known as the Statute of Frauds.

The Statute of Frauds, which has been codified in most states, requires that certain kinds of agreements be put in writing to be enforceable. Contracts that are covered by the Statute of Frauds include
  • contracts not to be performed within one year from the making of the contract (e.g. a subcontract for services for a term of more than one year);
  • contracts for the sale of goods for the price of $500 or more (pursuant to the Uniform Commercial Code);
  • contracts to sell any interest in real estate;
  • promises to answer for the debt or duty of another; and
  • contracts not to be performed within the lifetime of the promisor.

The object of the Statute of Frauds is to prevent perjury in testimony regarding contracts that are deemed especially important. To be valid, contracts of the above nature must be put in writing and must include, at a minimum, (1) the identity of both contracting parties, (2) a clear statement of the subject matter of the contract, and (3) the essential terms and conditions of all of the promises constituting the contract and by whom and to whom the promises are made. An agreement subject to the Statute of Frauds that is not put in writing is not necessarily illegal, but it will not be enforced by the courts.

Businesses should put agreements in writing regardless of whether an agreement is covered by the Statute of Frauds. Parties to agreements often find themselves in a position of needing clarification of their obligations. The lack of a written agreement therefore often leads to disputes that could have been avoided if the parties had stated their intentions and obligations clearly in writing. Additionally, if a party to a contract believes that the other party has breached the agreement, the complaining party’s interests are best served if he or she can produce a written record of the agreement.

It has been said that "an oral contract is not worth the paper on which it was written." While this observation may be a slight overstatement, businesses should reduce all business agreements and contracts to a written instrument in order to ensure their validity and establish a written record regarding the terms and conditions of the agreement.



Veterans Entrepreneurship and Small Business Act of 1999

Q. What is the Veterans Entrepreneurship and Small Business Act of 1999 ("Act")?

A. This legislation was passed and signed into law on August 17, 1999. It establishes the office of Veterans Business Development which is responsible for establishing policies and programs that provide assistance to small businesses owned and controlled by veterans and service-disabled veterans.

Q. Does the Act provide any type of procurement assistance?

A. Although the Act does not provide for any direct procurement assistance, it mandates that veteran-owned small businesses be included within the federal contracting and subcontracting goals for small business owners and within goals for the participation of small businesses in federal procurement contracts. Additionally, the Act requires the head of each federal agency to establish procurement contracting goals for small businesses owned and controlled by service-disabled veterans.

Q. Does the Act provide for financial assistance?

A. Yes. The Act makes veteran-owned small businesses eligible for loans administered by the Small Business Administration ("SBA") under the Microloan Program, the Defense Economic Transition Loan Program and the State Development Company Program. The Act also renders service-disabled veterans eligible for SBA-guaranteed general business loans.

The SBA has recently established the Veterans’ Prequalification Program to assist veteran-owned small businesses with the loan application process. This Program assists with the preparation of the loan prequalification application, provides an SBA-guaranty commitment letter with the application and speeds lender consideration of the requested loan.

Q. Does the Act provide for technical assistance or business counseling services?

A. Yes. The Act establishes the National Veterans Business Development Corporation ("Corporation") to provide veterans with technical assistance regarding entrepreneurship and to assist them in the formation and expansion of small businesses. In furtherance of these goals, the Act specifically requires the Corporation to establish and maintain a network of veterans information and assistance centers.

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