- within Insurance, Wealth Management and Compliance topic(s)
- with Inhouse Counsel
Intellectual property (IP) in the defence sector has a rather unique position in the international IP landscape. Quite often, IP is at the core of a company's products – it is a strategic asset and as such of high relevance for its competitiveness. Managing defence related IP, however, follows different rules than commercial IP; its protection, enforcement and commercialisation must be managed within a legal framework considering the interaction of export control laws, national security classifications, and government contracting rules. Consequently, an effective IP strategy needs to combine IP laws with the complexities of the regulatory regime governing the use, transfer and disclosure of defence-related technology.
IP protection – how secrecy orders and national security can influence IP strategy
While patent protection for a new technology may be the go-to option for many businesses to protect and maintain exclusivity of their developed technologies, filing patents for defence technologies comes with restrictions that need to be considered carefully.
Many jurisdictions provide for secrecy orders allowing authorities to withhold publication of a patent application and prohibit filing same patent application in other jurisdictions. In Germany, the German Patent Act provides for such a legal framework that may restrict the patent applicant's rights when state secrets are concerned. These are facts, objects or knowledge that are accessible only to a limited group of persons and must be kept secret from a foreign power to avert the risk of serious harm to Germany's external security. Patents that are deemed to include state secrets are not published. Instead, the information is treated as classified information and is entered in a special register for secret patents. Filing the same invention abroad is also subject to prior authorisation by the German Government. A patent application may be frozen, and international applications may be barred which can restrict commercial exploitation. Patent law's undeniable benefits – protection of a technology even though it is disclosed to the public and exclusion of third parties from use of the technology that is the subject of the patent – therefore need to be assessed differently and weighed against keeping the technology as a confidential trade secret.
As opposed to patents, the protection of a technology as a trade secret requires what the term explicitly states: secrecy. Under German law, trade secrets are not an exclusive right but protect the owner of the trade secret against illegal misappropriation of the protected information. Without a contractual basis however, reverse engineering is allowed and a third party may use the information if it was developed by that party independently. Trade secrets are also more difficult to enforce as difficulties to prove misappropriation and the risk of disclosure of the relevant piece of information for enforcement actions may limit legal options.
There is not a one-size-fits-all; what type of protection is most suitable depends on the individual case and the relevant technology and the IP strategy should weigh the benefits and disadvantages of the type of protection of a business' innovation against the commercial interests.
Regulatory requirements – the state may have a way in commercialising IP
One of the major regulatory frameworks in the defence sector is export control. While it is commonly known that products for military purposes are subject to different export regulations, these regulations and limitations can already apply for the commercialisation of intellectual property. While the licensing and assignment of intellectual property for commercial IP is a business transaction shaped by the parties' commercial interests, companies that develop and own IP for military or dual-use purposes may find themselves in a position of having to navigate regulatory complexities, obtain approvals or sometimes even facing outright prohibitions.
In Germany, various laws may apply, including the Foreign Trade and Payments Act (Außenwirtschaftsgesetz), the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung), the War Weapons Control Act (Kriegswaffenkontrollgesetz), which imposes especially stringent controls on items classified as war weapons, as well as the EU Dual-Use Regulation. These regulations not only apply to physical goods but also technology and software and the transfer of same, which can occur in various forms. Licensing or the assignment of the technology or software are very common, but the transfer can take different – physical and non-physical – forms, such as the mere handing over of know-how that is written down in physical documentation or stored on data carriers, cloud access to technical documentation and providing technical assistance, even through descriptions or explanations of technical details via email or during a phone call.
It is therefore essential that companies have a classification and compliance system in place that assesses the relevant technology and provides for the technical and organisational measures to comply with export control requirements.
Contracts involving IP in the defence sector – balancing interests
Contracts involving defence related IP require the same degree of consideration as the IP protection itself. On the regulatory side, export control regulations define what can be commercialised under which conditions.
On the commercial side, different contract parties will request different rights and obligations. A supplier or prime contractor may have a different (commercial) interest in the IP than the Government. Attention should be paid in particular as to what and how much of the IP (from either contracting party's view) will be shared and possibly assigned, keeping in mind that relevant technology can be embodied in various types of information such as technical drawings, methodologies, or the compilation of data sets and the allocation of rights may require a separate scope for the sharing or assignment of each category.
A further highly relevant issue is a clear separation between background and foreground IP. When new developments are made under a contract, it can be essential that the existing background IP is documented, even if it is under a generic description without giving away too much detail. Given that defence-related technology in many cases involves know-how, it can become difficult to separate the IP that existed before or independent of the contract from the IP that is developed under the contract, especially in longer projects. As the distinction between background IP and foreground IP determines the allocation and ownership of rights, a clear separation is essential for the freedom to commercialise the IP.
Read the original article on GowlingWLG.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]