Intellectual Property Financing Unveiled31 October 2019
Unlike physical assets, IP financing may seem daun...
29 February 2020
Over the past several years, India has purchased a battalion of defense aircraft from the United States, to the tune of US$18 billion, including Boeing C-17 Globemaster heavy transport aircraft. Intellectual property rights have factored heavily into the deals.
India boasts the third-largest armed forces in the world.
It has 41 ordnance factories, nine defence public sector undertakings, 10 constituting the public sector and more than 100 private companies. Its Defence Research & Development Organization has more than 50 laboratories under its auspices.
Not content, India is now ramping up its efforts for intellectual property by taking on the offensive.
On April 4, 2018, an Intellectual Property Rights Facilitation Cell (IPRFC) was established under the Department of Defence Production in the Ministry of Defence.
In November of the same year, the government unveiled Mission Raksha Gyan Shakti (MRGS). Among the mission’s objectives are to build up an IP culture in defense manufacturing and upgrade local design capabilities with the emergence of new technologies and reduce technology transfer or import of technology. With its defense manufacturing underdeveloped, India imports about 60 percent of its defense equipment.
MRGS’ Action Plan 2019-2020 includes the training of 20,000 personnel from the public and private sector as well as the armed forces. As of December 2018, 8,838 personnel had already been trained.
Another component of MRGS’ Action Plan is the development of a framework for the usage of new ideas and innovation leading to self-reliance as opposed to transferring or importing technologies.
On July 9, 2019, IPRFC signed a Memorandum of Understanding with the National Research Development Corporation under the Ministry of Science and Technology. The government likewise sought to enforce the Defense IPR Policy for Jointly Developed Software Products.
2019 also saw India and the US entering into various agreements in the defence industry, including the Science and Technology Agreement. The Science and Technology Agreement will “provide an opportunity to promote ‘high quality’ and ‘high impact’ research and innovation partnerships as well as broadening and expanding relationships between the extensive scientific and technological communities,” according to an article posted on PMIndia, the Indian Prime Minister’s website.
“The Indian defence establishment, comprising the manufacturing and R&D units, need intellectual property rights to sustain in this competitive world through continuous growth and development-oriented innovations,” says Manisha Singh, co-founder and partner at LexOrbis in New Delhi. “Moreover, especially with respect to technology transfer agreements, guidelines on underlying IPR and the type of IP licenses to be granted under such arrangements render enough significance.”
Otherwise, in the absence of well-defined IP guidelines, Indian companies may find themselves at the receiving end of restrictive licenses granted by foreign investors. This then becomes a stumbling block to the local defence industry’s capacity to produce technology at par with those of other nations, according to Singh.
“On the other hand, a robust IPR regime also assures the foreign investors adequate protection in terms of shared technology and returns on investment, failing which the foreign investors will be too reluctant to lend technology to India or any state,” she says.
According to Sudeep Chatterjee, a partner at Singh & Singh in New Delhi, better weapons are required, stronger security systems should be available, and improved surveillance systems and intelligence software for data creation and collection are sought after. To allow such top-level equipment to materialize and operate, more innovative ideas and technologies should be generated. For these, the IP of experts in the form of patents, creation of copyright through software and formation of design through blueprints and safeguarding trade secrets is needed.
However, IP protection of military armaments is more difficult and vital than IP creation of these equipment, says Chatterjee.
He explains: “It is because the ramifications of IP theft on national security are massive. For instance, drones are created and used in the military to reach and capture images of sensitive areas such as the territorial borders of the country and accordingly, process such information. Now, such drones operate with a software code involved which regulates its directions, captures the images and processes the information. As soon as the software code is involved, copyright finds its place in defence and hardware creations of the drone involves patents and designs. Further, the creation of the drone technology resulting from the culmination of the aforesaid software and hardware births trade secrets. Thus, in the scenario that such drones are captured by an enemy force, the same would result in IP theft in as much as not only would the copyright, patent and design of our military in the form of software and hardware would be exposed to the enemy force, but also the sensitive information collected and processed through such drones would lie in the hands of the adversary.”
Chatterjee adds that digitization of knowledge has opened the doors wider for spies to uncover trade secrets and patents.
To make matters worse, several countries have resorted to copying military hardware and software used for fighter planes and submarines, according to Chatterjee. And they’re not stopping at duplicating these technologies. They’re selling them as well, to other countries, at lower prices.
“We all know the intricacies and precision involved in the creation of fighter planes and submarines for the military forces. Now, such machines are created in a manner that they are equipped to combat any major force. However, if the technology involved in the creation of such machines is copied and sold to adversaries or even otherwise, then such acts would be a threat to national security as the creation of similar machines would render our special fighter planes and submarines ordinary if not less effective,” explains Chatterjee.
Their objective for the theft is not solely to increase military might; they commit such malpractice to put pressure on governments and gain the upper hand in economic negotiations as well.
Eventually, IP theft may tarnish a country’s reputation and affect future collaborations and technology transfer agreements with other nations.
“A nation infamous for IP theft and inadequate remedies may be internationally isolated and only rely on indigenous resources to develop arms and ammunition,” Singh says, “thereby being forever deprived of cutting-edge technology.”
Deprived of cutting-edge technology from another country India certainly isn’t.
Over the past several years, India has purchased a battalion of defense aircraft from the United States, to the tune of US$18 billion. Among these are Boeing Apache and Chinook helicopters, C-17 Globemaster heavy transport aircraft and P-81 maritime surveillance aircraft; Lockheed Martin’s C-130 Hercules military transport aircraft; and BAE Systems’ M777 howitzers.
During his visit to India this month, President Donald Trump inked a defence deal with Prime Minister Narendra Modi where India will purchase US$3 billion worth of advanced equipment. These include Apache and Sikorsky MH-60 Romeo helicopters.
According to John Mulcahy, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner in suburban Washington, India isn’t alone among Asian Pacific nations in adopting a less passive and more business-like approach to IP for military procurement. China and South Korea have also done the same.
Curiously, both countries have been in hot water for allegedly stealing IP from the US military industry. China’s notoriety even prompted US Defense Secretary Mark Esper to state in a Fox News interview last year that China “has engaged in the greatest theft of intellectual property in human history.”
Esper further said:“They’ve studied us and they’ve learned about how we employ weapons. They’ve learned about our doctrine. And so, that is something that we watch very carefully.”
According to Mulcahy, military forces around the world busy themselves 24 hours a day trying to spot and exploit vulnerabilities in their rivals’ technologies.
“Militaries around the world now recognize that they are economic entities that compete for new technologies as well as political entities that compete on the battlefield,” says Mulcahy. “Just like any other player in a competitive economy, militaries must ensure that their IP policies work to hone their cutting-edge technology and not to dull it. Those militaries that best foster competition and innovation in the various technical fields will gain the edge in battlefield technology, which can help deter conflicts. Those that stifle innovation will embolden their rivals and find themselves fighting tomorrow’s battles with yesterday’s technology.”
Mulcahy adds that even if technology does not cross a nation’s borders and IP theft is committed just the same by an industry competitor, the situation will still translate to negative outcomes.
“IP theft and infringement among defense industry competitors can have some of the same ill effects because any system that fails to adequately protect intellectual property will inevitably result in less technical innovation,” he says. “In most economic sectors, this will result in lost opportunities for economic growth and loss of market share by the less innovative companies.”
IP’s importance is poised to further escalate, says Mulcahy, with the rise of new IP-intensive technologies such as robotics, AI and quantum computing. These innovations are set to redefine tomorrow’s battlefields.
Unfortunately, there is not a single IP strategy that could fit any situation including one that involves technical data, according to him. Instead, organizations must have innovative and forward-thinking legal experts who can come up with a strategy that matches any given situation.
“A successful weapons system may be in service for many years. Witness the venerable B-52 which is expected to be in service through its 100thth anniversary in 2052,” he said. “If the government has no rights in the technical data, it may be forced to go back to the original contractor for maintenance and repairs over the life of the system. Since the military is the only legitimate customer for most armament technologies, and it may be necessary to maintain the supply chain in time of war, the government often seeks full rights (“Government Purpose Rights” in the US) to the technical data relevant to such systems. Such rights allow the government to share the data with another party — i.e., your competitor — in order to maintain, duplicate and even improve upon the technology. To a certain extent, this is the price you pay for winning the original contract and arms companies know this.”
“Often, however, the components, algorithms, and subsystems developed for one weapons system could add value to a future program and may even have commercial applications. Such possibilities should be explored as early as possible so that the contractor can either retain the IP rights or adjust the contract price to account for the true value of the IP being turned over,” says Mulcahy.
In August 2019, the US Defense Department put its foot down on IP theft by announcing the formation of a new cadre of IP specialists.
Toward the end of the year, the Pentagon’s new director of IP Richard Gray assumed his new position. Previously, Gray was the only IP attorney at the Department of Defense’s Office of the General Counsel.
“Under the Act, the purpose of the IP cadre is to ensure that the Pentagon protects its supply chains by taking ‘a consistent, strategic, and highly knowledgeable approach to acquiring or licensing intellectual property,’” says Mulcahy,
He adds that the Pentagon has been developing new IP policies to make sure IP matters are taken into consideration at the start of acquisition. In this way, less cost would be involved. “The IP cadre will help the contracting officers put these policies into practice by taking a more business-like and less ‘government’ approach to IP issues,” says Mulcahy.
Singh believes these developments will likely influence Asian countries aiming to strengthen their military powers. This will also create a positive impact on countries that are signatory to the World Trade Organization and those which either have a robust IPR regime or are on their way to having one.
Some parties, however, have different thoughts about this move by the US government, says Chatterjee.
“Various stakeholders feel that the objective behind such a committee is essentially restrictive. Further, another argument of the opponents of the committee is that IP is fundamentally economic and public in nature and keeping such IP in the form of technology or inventions a secret would compromise with economic potential,” says Chatterjee. “However, such measures are imperative to an extent for effective safeguard of IP which is sensitive in nature.”
India has indeed taken a more offensive stance in creating and protecting the IP of their military technology, and rightly so. Governments and businesses in other Asia Pacific countries should take the cue from India and start paying more attention to their defense equipment’s IP. If this is compromised, more could be at stake, including national security. Rather than find themselves empty handed and losing a lot more in the end, they should instead take the offensive in their defense and be safe rather than sorry.
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