ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Monday, February 28, 2011

Air Force Found Liable for $1.2 Million for Breach of Confidentiality Agreement

AirForce On February 14th, the Court of Federal Claims unsealed its opinion in Spectrum Sciences and Software, Inc. v. U.S., in which it found on behalf of Spectrum to the tune of $1.2 million on its breach of contract claim.  In October 2000, Spectrum entered into a cooperative research and development agreement (CRADA) with the Air Force, designed to facilitate the sharing of information between the parties and to help improve conveyor technology that the Air Force used for the assembly of aerial bombs.  In a prior opinion, the Court held that the Air Force had violated the CRADA through the unauthorized release of Spectrum's proprietary information to third  parties, including some of Spectrum's competitors.  See Spectrum Sciences & Software, Inc. v. United States, 84 Fed. Cl. 716 (2008). 

The parties worked together in 2001, and in 2002, Spectrum offered to produce four redesigned munitions assembly conveyors (MACs) per month.  The Air Force instead put together its own procurement team, which included people who had access to Spectrum's proprietary information disclosed through the CRADA, to design a new generation of MACs.  The Air Force then used information gathered by Spectrum to put out a Request for Proposals (RFP) for new MACs.  Based on Spectrum's research, but without attribution, the RFP suggested improvements to the old MAC system.  Although Spectrum submitted its proposal, the contract was awarded to a rival, D&D Machinery.   After trial, the court reached what it called the inescapable conclusion that "that the Air Force repeatedly breached its confidentiality obligations under the agreement."  Following further discovery, a second trial was held in January 2010 on the subject of damages.

Spectrum sought damages equal to the value of its lost income-producing asset – the proprietary information regarding the MAC  – as of the time of the breach.  The government tried unsuccessfully to characterize plaintiff's theory of damages as an attempt to collect lost profits on contracts it might have had if its proposal had been selected or with third parties.  The court rejected this characterization.  The case is about a lost asset, not about lost profits, and the court's task is to determine what a third party would have paid for Spectrum's proprietary information at the time of its improper disclosure.  The harm attendant to the breach was clearly foreseeable to the parties at the time they entered into the CRADA and was in fact the purpose of that agreement's confidentiality provisions.


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