As with any industry sector, intellectual property (IP) issues have the potential to impact significantly on all stakeholders operating in the defence space.

IP ownership (including joint ventures and collaborations), invention harvesting, the decision to protect (or not), and subsequent commercialisation (eg. licensing versus outright sale), are just some of the issues that require on-going consideration in order to maximize one’s use of IP laws (domestic or foreign).

We are seeing more and more the significance of the role that IP plays in the commercial world.  We believe that the significance of IP will only increase as technology barriers continue to be overcome allowing innovation to seed in areas we never imagined possible.

IP, whether it be registrable (eg. patents, designs, trade marks) or not (copyright, trade secrets), has the potential to provide significant commercial leverage to its owner(s) if used properly.  It follows that knowledge and awareness of one’s current IP position, and how this relates to commercial strategy, is surely mandatory in being able to harness the power of IP laws both domestically and globally.

The types of IP rights most commonly encountered in defence and related industries can be generally categorized into two main groups. The first group comprises patents (which are used to protect inventions, which may be directed to products and processes), registered designs (used to protect the visual shape/appearance of an article or product), and registered trademarks (used to protect words/logos that are used in branding exercises/projects). Patents and registered designs both have finite terms of commercial value (after which their technical content falls into the public domain), but registered trademarks can have an on-going commercial value provided they are timely renewed. These rights are formally granted by a government authority – in Australia’s case, IP Australia (https://www.ipaustralia.gov.au/).

The second group comprises copyright, confidential information, trade secrets and know-how. These IP rights are not formally registerable in Australia.

We are finding that registrable IP is being used increasingly as a form of ‘currency’ to gain access to key target markets (domestic or foreign), and/or to help engineer key partnerships for collaborative projects.

A good example of a defence related collaboration which highlights the significance of the role IP can play is the F-35 joint strike fighter (JSF) program. The Australian government committed to purchase at least 72 F-35 JSF (F-35) aircraft for three operational squadrons of the RAAF. Australia’s first two F-35s arrived at RAAF Base Williamstown in NSW on 10 December 2018. At an estimated cost of $17bn, Australia’s purchase has been described as the largest acquisition in the history of the RAAF.

Briefly, the JSF program sought to develop a short take off vertical lift (STOVL) aircraft to replace the ageing F-16 and F-18C/D aircraft.  The program was to develop an aircraft suitable for use by all three defence services.

Significantly, and indeed relevantly, Australian businesses have also been part of the F-35’s development and production, with more than 50 Australian companies directly sharing in $1.2bn in production contracts.

The frontrunners in the JSF design contest included Lockheed Martin and Boeing. Lockheed Martin’s X-35 demonstrator was ultimately successful, following which the JSF program was acquired by the Pentagon (in 2001).  The JSF program has since been subject to intense criticism for both technical/performance deficiencies and unexpected cost overruns.

In 2016, US Congress mandated an inquiry into US technical data rights laws with the view to assessing the scope of legal basis for determining entitlement to technical rights to products procured for military purposes.

During the inquiry it became clear that a contributing factor in delays and cost overruns was due to a lack of initial understanding as to the ownership of IP intrinsic to the F-35, being largely technical data and software code.  It was felt that during the acquisition process (by the Pentagon), little attention had been paid to who legally owned the rights to the technical data and IP associated with the aircraft.  This meant that the aircraft could not operate without the consent from the owners of the relevant IP rights.

In commencing the JSF program, the US Department of Defence (US-DoD), in effect, adopted what is generally referred to as a total systems performance responsibility (TSPR) approach, in which development was driven by industry collaborators, rather than the government – the thinking being that development would occur faster and cheaper when incubated in an industry environment.  This ‘hand-off approach’, in effect, handed ownership of significant IP in the aircraft to industry.

Downstream, where information was needed for operational purposes, the Pentagon began to experience limitations in access and use of proprietary information (the rights of which were owned by private stakeholders) which, in many cases, necessitated additional cost and caused unplanned operational delays.

Air Force Lt. Gen. Christopher Bogdan, who was in charge of the F-35 program at the time of Congress’ review, considered that, in hindsight, had the US government laid down rules on IP rights in the original F-35 contract awarded to the prime contractors (Lockheed Martin and Pratt & Whitney), the Pentagon could have avoided massive expenditures over the projected 50-year life of the program. Bogdan considered that, because contractors and subcontractors have tight control of the intellectual property — from the software to major components and spare parts — the US-DoD has limited authority to, for example, integrate new systems into the aircraft or do routine maintenance work in government depots.

Bogdan noted: “What I’m experiencing is the classic example that if you don’t think about this upfront you’re dead in the water at the back end of this … We didn’t think much about this upfront in the F-35. We didn’t write anything into the contract very well.”

Significantly, Bogdan added that, “… we don’t train our program managers, contracting officers, or even our lawyers that advise us on what this monster is.”

The Australian Department of Defence (ADoD) introduced a revised IP strategy in December 2016, commencing a new regime which sets out guidelines which, in our view, seek to facilitate a ‘balance’ when embarking on collaborations with industry.

On their face, these revised IP guidelines seek to avoid collaborative projects developing problematic IP issues between stakeholders/collaborators, such as those seen to date with the JSF program.

We see the ADoD’s initiative as a positive step for the defence community in Australia (and indeed the tax payer) when engaging in collaborative projects.  Ultimately, it is in Australia’s interests that such collaborations (which may not proceed otherwise) progress successfully in the most efficient manner (in time and cost) possible to ensure that its interests are protected, including its defence industry sector. As noted above, more than 50 Australian companies directly benefit from the $1.2bn in production contracts related to the F-35 project.

However, we do see concerns where the commercial objectives of an industry partner may depart from, or conflict with, the interests of the ADoD.  If collaborative agreements with the ADoD are not considered carefully for the interests of both parties, desired commercial objectives could be hindered by uncertainties inherent in any formal commitments being made in accordance with the revised IP strategy.  A failure on a commercial level could, ultimately, spell a larger loss for Australia in stifling opportunity not to profit from exportable domestic IP.

Accordingly, we strongly recommend that industry partners work to fully understand their respective IP and commercial strategies when engaging in collaborative projects with the ADoD to avoid pitfalls that could compromise the interests of both parties, and potentially Australia.