## United States Court of Appeals for the Federal Circuit

05-1522 WESLEYAN COMPANY, INC., Appellant,

v. Francis J. Harvey, SECRETARY OF THE ARMY, Appellee.

Richard L. Moorhouse , Greenberg Traurig, LLP, of McLean, Virginia, argued for appellant. With him on the br ief was L. James D’Agostino

. David A. Harrington , Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, of Washington, DC, argued for appellee. On the brief were Peter D. Keisler , Assistant Attorney General, David M. Cohen , Director, Brian M. Simkin , Assistant Director, and Tara K. Hogan , Trial Attorney. Of counsel on the brief was Craig S. Clarke , Supervisory Trial Attorney, Contract Appeals Division, Offi ce of the Judge Advocate General, United States Department of the Army, of Arlington, Virginia. Appealed from: Armed Servic es Board of Contract Appeals

## United States Court of Appeals for the Federal Circuit

05-1522 WESLEYAN COMPANY, INC., Appellant,

v. Francis J. Harvey, SECRETARY OF THE ARMY, Appellee.

_________________________ DECIDED: July 17, 2006

_________________________ Before MICHEL, Chief Judge , NEWMAN and MAYER, Circuit Judges

. Opinion for the court filed by Chief Judge MICHEL. Dissenting opi nion filed by Circuit Judge NEWMAN. MICHEL, Chief Judge

. Wesleyan Company, Inc. (“Wesleyan”) appeals the decision of the Armed Services Board of Contract Appeals (“Board”) dismissing for lack of subject matter jurisdiction its breach of contract clai m against the United St ates. Wesleyan Co. , ASBCA No. 53896, 05-1 BCA P32,950 (April 22, 2005). Because the Board erred in concluding that the Contract Disputes Act of 1978, § 3(a) , 41 U.S.C. § 602(a) (“CDA”), does not confer subject matter jurisdiction over a portion of Wesleyan’s claim, we reverse and remand.I In the early 1980s, Wesleyan communica ted to the United St ates Army its concepts for its “FIST/FLEX” drinking system, which allows a soldier to consume liquid from a can t een without removing his protec tive mask, and its “FIST Fountain” system, design ed to enable soldiers to fill empty canteens in a contaminated environme nt (collectively, “Wesleyan syst em”). Beginning in early 1983, and acting upon the Army’s advice, Wesleyan sent the first o f three unsolicited proposals fo r the Wesleyan system to multiple Army components. The U. S. Army’s Soldier and Biological Chemical Command, U.S. Army Soldier Sy stem Center in Natic k , Massachusetts (“N atick Labs”) assumed responsibility for the a nalysis of t he Wesley an system. Natick Labs rejected Wesleyan’s proposal in Apr il 1983 becaus e it did not c ontain a Defense Acquis i tion Regulation (“DAR”) legend discus s ing gover nment use of the unsolicited information. After discussions with Natick Labs, Wesl eyan res ubmitted the unsolic ited proposal with DAR 3-507.1(a) included and executed a Memo randum of Understanding (“MoU"), b o th of which prohibited the gover nment from disclosi ng information in th e proposal t o third parties and from using the information for any purpose other than evaluating the proposal. 1

1 DAR 3-507.1(a) reads in relevant part: This data .

. . shall not be disclos ed outside the Government and shall no t be duplicat ed, used or disclosed in whol e or in part for any purpose other than to evaluate the proposal.

. . . This restriction does not limit the Government’s right to use information c ontained in the data if it is obtained from another source without restriction. . . . (cont.)

05-1522 2After determining that the Wesleyan system was technically feasible, Natick Labs requested in November 1983 that Wesleyan lend a pr ototype system to IL C Dover, a manufacturer of protective suits and masks , for incorporation into a prototype protectiv e suit. The bailment agreement, exec uted on December 1, 1983, was silent as to the safeguarding or use of proprie tary data in the Wesleyan syst em, but did state that the bailment was being made “for the limited purpo se” of determining “its use in demonstrating and te sting its ability to perfo rm the intended serv ices”. The bailment agreement express l y stated that the Wesley an system remai ned Wesleyan’s property. Beginning on May 10, 1984, the Army in itiated purchases of the Wesleyan systems, w h ich were used in field tests at Natick Labs and other Army units, including the Infantry School at Fort Benning, Georgia, and the Chemical School at Fort Leonard Wood, Missouri. The Army purch ased nine s ystems duri ng 1984. On January 15, 1985, the Army required W e sleyan to sign a Po licy Statement for continued evaluation of the Wesleyan sys tem. The Policy St atement contained t he following clause: 4. The voluntary submissions w ill b e han dled in acco rdance wit h established Government procedures for safeguarding such articles or information against unauthorized disclos ur e. In addition, the data forming a part of or constituting the submi ssion will not be discl osed outside the

The MoU reads in relevant part: It is understood that the Department of the Army has accepted the above proposal for the purpose of evaluatin g it and advis ing of any possible Army interest. It is further under stood that such acceptance does not imply or cr eate: .

. . any relationship , contractual or ot herwise, such as would render the Government liable to pay for or to give up any legal right or assume any obligation for dis c losure or use of any information in the proposal to which the Government w ould otherwise lawfully be entitled. Two other unsolicited proposals were submitted at later dates.

05-1522 3Government or be duplicated, us ed or di sclosed in wh ole or in part by the Government, except for record pur poses or to evaluate the proposal. Following exec ution of this Policy Statement, the Army pur chased an additional twent y Wesleyan systems during 1985 . In January 1986, the Army required Wesleyan t o

exec ute a second, similar Poli c y Statement. Following exec ution of this second Policy Statement, the Army purchased thirty-th r ee systems in 1988, and sixty-eight systems in 1989, for a total of 130 systems. The Army purchases were gover ned by s i x purchase orders, a ll of which were silent as t o the safeguarding or use of proprietary data. However, four of the six purchase orders stated that the purchases were being made for evaluative or demonstrative purpos es. 2 In 1992, the Army completed its testing and terminated consideration of the Wesleyan sy stem. Beginning in 1996, Natick Labs initiat ed development of the Land Warrior / Modular Lightweight Load Carry Equipmen t system (“MOLLE”), which included a hydration s ystem, and awarded a primary cont ract for MOLLE in May 1997 to Specialty Plastic Products of PA, Inc. (“S pecialty”). The commercial hy dration system then used in MOLLE was received poorly by users, and the Marine Corps noted that a large number of Marines instead were purchasing a commercially available hydration system produced by CamelBak Products, Inc. (“CamelBa k”). Specialty replaced the hydration system in MOLLE with CamelBak’s hydration system in 1998.

2 One purchase order stated that the “[i]tems are needed at the Infantry School for a limited us er evaluati on”, another indicated that “[t]h is item is being procured as NDI prototypes, for initia l ev aluation to determine its a cceptability with respect to the Mask Drink i ng System SN-CIE”, a third not ed t hat “[t]he items are ur gently required for the upcoming p 2 NBC 2 Demo in April 1985” , and the four th specified that “[t]hese items are required for the upcomi ng Natick/HEL 1985 New Thrust Demo i n August 1985.”

05-1522 4On April 1 5 , 2002, W e sleyan su bmitted a claim for n early $21 million to Natick Labs, alleging that the Army im properly discl osed Wesleyan’s proprietary data to nongovernmental third parties, and that its proprietary in formation was subsequently incorporated into the CamelB ak system. The Army Contra cting Officer (“C O”) issued a final decis i on denying Wesleyan’s claim for la ck of jurisdiction under the CDA on July 19, 2002, and Wesley an appeale d to the Board. On May 7, 2004, the Board granted the Army’s motion for partial summary judgment, holding that, to the extent any proprietary data was disclosed public ly in Wesleyan’s patents, 3 the Army was entitled to disseminate that information. In other words, the Board held that all inf o rmation disclosed to the Army and not taught by the patents was to be protected from third parties. The Board also determined that the Army’s acceptance of Wesley an’s unsolicited proposals created a contract pe rmitting the gov ernment to use the proposal data “ i n accordanc e with the DAR legend and memor anda of understanding.” The Board then held that the resulting conf identiality agreement applied only to the unsolicited proposals, not to the subs equent bailment agreement or purchases, and s ua spont e requested the parties to brie f whether the Board posse ssed subject matter jurisdiction over the dispute. Following the submission of briefs, t he Army moved to dismiss for lack of subject matter jurisdiction, and the Board granted that moti on on April 22, 2005. Wesleyan appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(10).

3 Mr. Wesley Schneider, the president of Wesl eyan, obtained patents on the FIST/FLEX and FIST Fountain s ystems in 1985 and 1987, respectively.

05-1522 5II The sole is sue on appeal is whether the pleaded contra cts are covered by the CDA. Statutory interpretation is a ques tion of law that we review de novo . Minn. Power and Light Co. v. United States , 782 F.2d 167, 169 (Fed. Cir. 1986). We begin our analys is with the language of the statut e. Institut Pa steur v. Unit ed States , 814 F.2d 624, 627 (Fed. Cir. 1987). Pursuant to the CDA, the Board has subject matter jurisdiction over “ any expres s or implied contract .

. . entered into by an

exec utive agency for—(1) the pr ocurement of property, other than real property in being.” 41 U.S.C. § 602(a). “P rocurement” is “the acquisition by purchase, lease or barter, of property or services for the direct benefit or use of the Federal Government.” New Era Constr. v. United States , 890 F.2d 1152, 1157 (Fed. Cir. 1989) (emphasis in origina l ). Here, three types of agreements are at i ssue: the unsolicited proposals ; the bailment agreement; and the purchase orders. Although the bailment agreement does involv e, and the unsolic ited proposals ar guably inv o lve, the transfer of “property”, neither inv o lve “acquisition .

. . by such means as .

. . renting [or] leasing”, as Wesleya n did not rec e ive any v a lue in exchange. As s u ch, the unsolic ited proposals and bailment agreement were donat ive in nature. The purchase orders, in contrast, involv e the exchange of pr operty for money, and thus involve “procurement”. The Board erred by ignoring this critical exchange. Accordingly, the Board erred by categorizing Wesleyan as a “bidder”, and thus in rely ing on our dec ision in Coasta l Corp. v. United States , 713 F.2d 728 (Fed. Cir. 1983). In Coastal Corp. , the Army had not engaged in any “p rocurement” activities, and had

05-1522 6instead cancelled a bid solicitation pr ior to awarding a contract. Id. at 729. We held that the CDA “deals with c ontractors, not with dis appointed bidders.” Id. at 730. Wesleyan, however, is more than a disappointed bidd er. Although here, the Army had not yet awarded Wesleyan a final contract to provi de the FIST/FLEX s ystem to soldiers, the Army had purchased FIST/FLEX prototypes for test ing. This purchasing ac tivity was sufficient to transform the Army ’s relationship with Wes l eyan from that of evaluator and bidder to that of buyer and seller . Accordingly, Coastal Corp. is distinguishable. We turn now to the question of whet her the infor m ation contained in the purchase orders was sufficient to constitute a procurement “contract”. The purchas e orders specify the parties in volv ed, deliv ery instructions, price, payment terms, and transportati on instructions. No essential ter m is missing. 4 Although Wesley an did not sign the purchase orders, it performed, wh ich clearly signals acceptance. Taken together, the purchase orders and Wesleyan’s performance contain all essential contract terms and demonstrate mutual ass ent to a procurement contract. Thus, pur suant to the CDA, the B oard possesses limited subject matter jurisdiction over this suit insofar as Wesl ey an’s claim involves a breach of the purchas e orders, which constitute procurement contract s. Becaus e Wesleyan alleges a breach of the confidentiality agreement, however, Wesl eyan has stated a clai m upon which relief may be granted only if the confidentialit y agreement wa s incorporated into the procurement contracts. On remand, the B oard should first dete rmine whether langua ge on four of the six purchase orders indica ting that the Wesleyan systems are being

4 The complete exc hange between the par ties is no doubt even more robust than the information contained in the record . For example, oral disc ussions ar e referenced on the purchase order s, and the reco rd does not include the content of those discussions.

05-1522 7purchased for evaluative or demonstrative purpos es is sufficient to in corporate by reference previously executed documents rela ting to the eva l uativ e process, namely the confidentiality provisions of the DAR legend, MoU, and Policy Statements. If the Board answers this question affirmatively, then it may entertain only those portions of Wesleyan’s complaint alleging a breach of t he confidentialit y a g reement as incorporate d into the procurement contract s. Accordingly, we turn next to Wesleyan’s specific allegations of breach. Wesleyan alleges four specif ic instances of breach in its complaint. First, Wesleyan alleges that conceptual informa tion disclosed to the Army’s Chemical Systems Laboratory at Aber deen Proving Grounds, Maryland (“Aberdeen Proving Grounds”) prior to the submission of its first unsolicited proposal was di vulged to a direc t competitor. Specific ally, Wesleyan allege s that “the head of the [Army] Chemical Systems Laboratory’s Mask Man agement Office was consulted regarding the viability of Wesleyan’s hydration system s concepts” and that “[u]pon information and belief, this indiv i dual later was employed by .

. . ILC Dove r, Inc.” (Compl. ¶ 11 -13.) Because, as explained above, a CDA c ontract would not have arisen u n til the Ar my procured prototypes, the Board does not have jurisdiction over this portion of Wesleyan’s claim. We address Wesleyan’s sec ond, third, and fourth allegations together. Wesleyan’s second allegation is t hat prior to June 1985, the Army improperly disclos ed and conv eyed concepts from th e Wesleyan system to the Battelle Memorial Institute, a contractor at Aberdeen Proving Grounds. Wesleyan alleges that Battelle use d Wesleyan’s concepts in its June 1985 repor t “regarding the need to im prove the Army’s mask drinking system”, and fu rther alleges that “Battelle in turn revealed Wesleyan’s

05-1522 8proprietary concepts to other contractors responsible for mask deployment and soldier hydration.” (Compl. ¶ 25-27.) Third, Wesl eyan alleges that “in 1986 employ ees of the Army’s Ch emical Res earch and Developme n t Center (“CRDC”) [a precedes sor to the Army’s Chemical System s Laboratory at Aberdeen Pr oving Grounds] released Wesleyan’s proprietary information direct ly to employees of ILC Dover without permission from Wesleyan.” (Compl. ¶ 38.) Wesleyan explains that ILC Dover “wa s working with CRDC to develop a competing conce p t with the FIST/FLEX dev ice.” (Compl. ¶ 39.) Fourth, Wesleyan asserts t hat becaus e Army files from the early 1990 s contained Camelbak ’s brochure for its drinki ng system, which disc losed certain features of the FIS T /FLEX design, t he Army improperly disclosed to Camelbak “concepts and intellectual property contained in Wesleyan’s unsolicited pr oposals and in the prototypes submitted for testing purposes under the above-dis c ussed bailment agreement and purchase orders.” (Compl. ¶ 60.) Because the Army pur chased some of t he prototype Wesleyan systems prior to these alleged disclosures, the Board posse sses jurisdiction to decide Wesleyan ’s remaining allegations. As explained above, the unsolicit ed proposals and prototype submitted pursuant to the bailment agreement do not fall wit hin the Board’s j u risdiction. To succeed, then, Wesleyan must prove t hat the Army obtai ned the confidential information that it later disclos ed improperly not from the unsolicited proposals, nor from the bailment, but solely from the prototypes purchased and ev aluated. In other words, to the extent Wesleyan alleges t hat the inf o rmation disclosed improperly by the Army was gleaned solely from t he prototypes purchased by the Army, the Board may entertain Wesleyan’s claim.

05-1522 9III Wesleyan made a strategic dec ision to pur sue its claim befor e the Board, and this forum choice has signific antly limited t he scope of its potential relief. Had Wesleya n desired to pursue all allegations contained in its complaint, it could have brought suit in the United States Court of Federal Claims under the Tucker Act, 28 U.S.C. § 1491(b)(1), which grants jurisdiction over dis putes inv o lving “any express or implied contract with the United States”. Indeed, bec ause, unlike the CDA, the Tuck er Act does not require that the contract with the United States relate to procurement, the Court of Federal Claims would have possessed subject matter jurisdiction here even if the Army had not purchased any Wesleyan systems, and had br eached the co nfidentiality agreement solely by disclosing information c ontained in the unsolic ited propos als and/or bailment. By opting to pursue its claim befor e the Board, Wesleyan limited the scope of its dispute to the CDA, and thus to th e prototypes obtained through t he purchase orders. Nonetheless, Wesley an is entitled to a full and fair determination of the procurement-related portion of it s claim before the Board.
IV In sum, the Board possesses subject ma tter jurisdiction ov er a subs et of Wesleyan’s claim. Because the unsolic ited proposal and ba ilment agreement do not involv e procurement, those agr eements are not subj ect to the CDA. Acc o rdingly, the Board does not have jurisdiction to hear allegations of breach aris ing from disclosure of information acquired from the uns olic ited propos als or the prototype loaned pursuant to the bailment agreement.

05-1522 10Howev e r, the Army also purchased prot otypes from Wesleyan pursuant to purchase orders containing all es sential cont ra ct te rms. Accordingly, that porti on of the dispute arises under a procur ement contract, which the Board has jurisdiction over pursuant to the CDA. Because Wesley an asserts a breach of the confidentiality provisions, it has stated a claim upon wh ich relief may be granted only if the procurement contracts at issue here—the purchase order s—incorporate by reference the previously executed confidentiality prov is ions. To s u cceed on the merits, Wesleyan must prove that the Army obtained confidenti al information later disclos ed improperly not from the unsolic ited propos als, and not from the bailm ent, but solely from the prototypes purchased. We thus reverse the decision of the Boar d dismissing Wesleyan ’s claim for lack of jurisdiction, and remand for further pr oceedings consistent with this opinion.
REV E RS E D AND RE MANDE D.

05-1522 11

## United States Court of Appeals for the Federal Circuit

05-1522

WESLEYAN COMPANY, INC., Appellant,

v. Francis J. Harvey, SECRETARY OF THE ARMY, Appellee.

NEWMAN, Circuit Judge , dissenting.

I respectfully dissent. The Board of Cont ract Appeals has jurisdiction and authority to decide all of the asserted breaches of the confidentiality provisions related to the contracts between Wesleyan and the Army with res pect to this drinking mask. The court's decision, separating the various steps in this relatively simple proc urement, can have large consequences for dispute resolution. The Contract Disputes Act does not withhold from the boards of contract appeals the authority to consider the entiret y of the claim. There is no basis in the Contract Disputes Act for segregating the contract-based confidentia lity obligations that were incurred at the beginning and at the end of this procurement, from that in the middle. Many procurements start with an offer and then a prototype and then a larger-scale evaluation, all accompanied05-1522 2 by standard written confidentiality provisions. My concern with the panel majority's ruling is that it parses the various stages at which the offeror provided confidential information, when all of these stages are part of one overall supply pro position, and are part of one overall claim. The government required a c onfidentiality agreement when Wesleyan submitted the prototypes, and Wesleyan then resubmitt ed the prototypes with the appropriate confidentiality notices in the form of Defens e Acquisition Regulation legend 3-507.1(a) and a Memorandum of Understanding. We need not decide the effect of these confidentiality agreements in isolation, for the evaluation of Wesleyan's drinking system resulted in a procurement contract. The steps of the evaluation of Wesleyan's technology were part of the normal negotiation process, which in this case resulted in a contract for sale; each of the stages of the procurement were par t of one overall contracting process. The purpose of the Contract Disputes Act is to facilitate t he fair and efficient resolution of contract disputes. As explained in testimony during consideration of the Act: It is in the Government's selfish intere st to be fair in its dealings with its contractor citizens. Unfair procedures drive the most essential and efficient contractors out of competition for Go vernment contracts, and cause those who remain, to submit consistently hi gher prices which neither the taxpayer nor the Nation can any longer afford. T he cost of diminished competition is not readily measurable, but it is unquestionably huge. Testimony of Judge L. Spector, Contract Disputes: Hearings Before the Subcommittee on Administrative Law and Governmental Relati ons of the Committee on the Judiciary 95th Cong. First Session on H.R. 664 and Related Bills at 107 (1978). Fairness requires not only protection of the proprietary information of contractors, but also the right to litigate the issues of proprietary informati on if the ensuing contract is litigated. The confidentiality05-1522 3 provisions herein are part of an integrated procurement, an d the Contract Disputes Act gives the Board jurisdiction over disputes ar ising anywhere in the process. From the court's failure to recognize and authorize the Board to resolve a ll of the disputes associated with the contract I must, respectfully, dissent.