Data Rights Valuation in Software Acquisitions

The right of the federal government to reuse, modify, reproduce, perform, display, release, and disclose data - particularly computer software - has become an important topic in contract negotiations. We describe the valuation methods used by DOD and industry to estimate software development costs and to assign value to data rights licenses that are broader than the default license described in DFARS. We find that the benefit to DOD arises from the impact of such licenses on future competition and costs. Two things must occur for expanded licenses to be worth the additional cost to DOD: the additional information covered by the license must be transferrable to alternative suppliers, either competing commercial companies or organic DOD facilities. Second, the information covered by the license must be useful to alternative suppliers, to the extent that it actually lowers their production costs.