By Richard Shimooka, February 21, 2022
For much of the past century, intellectual property (IP) has been often viewed as a secondary consideration for any defence procurement project – behind cost, capability, schedule and socio-economic benefits. Considerations were often perfunctory and constrained by broader government policy on IP. However, as western states shift towards confronting the challenges posed by China and Russia, IP has become increasingly important for both defence innovation and a capability’s outcome.
IP encompasses four related concepts that are used to determine the ownership of inventions, technical processes and ideas – specifically, patents, copyrights, trademarks and trade secrets. Who controls IP and how it is applied can have dramatic consequences on innovation. Ownership can push actors to develop new technologies and mature them into new defence capabilities as a means to profit from them. Likewise ineffective policy can stifle innovation and drive-up the costs of defence procurement projects for governments.
The value of IP is most apparent years after a contract is signed. As a 2021 RAND report has highlighted, an effective IP policy enables organizations to undertake a number of critical activities during a military platform’s lifecycle. These include ensuring organic operations and support; the opportunity to obtain third-party support and create a competitive environment; the ability to undertake diagnostics and investigations; and the means to undertake modernization and service-life extensions.
In these areas, access to IP can be a critical consideration for the future of a capability and the cost to sustain it. For example, if a government’s ability to access a system’s IP is permissive enough, it can create a competitive environment for services and upgrades, which can drive down costs and result in better outcomes for the government.
The importance of an effective IP policy has only increased in the past two decades, due not least to the dramatic changes in the technology and procurement landscape. During and immediately after the Cold War, defence procurement was largely dominated by large programs, with relatively low integration between different projects. The preponderance of research, development, test and evaluation (RDT&E) funding for these programs came from government sources – starting from fundamental technologies to the development and manufacturing of these systems. These programs generally only receive upgrades during a few major milestones, such as a mid-life upgrade.
In the past decade, this has changed significantly. While major platforms, such as aircraft, ships and armoured vehicles, remain a cornerstone of defence spending, smaller software-enabled capabilities have grown in significance. Relatedly, networking these capabilities has become increasingly important to ensure interoperability among allied forces. In both cases, this requires consistent upgrade cycles often utilizing iterative design approaches. Therefore, access to IP is a critical consideration for keeping these platforms relevant throughout their expected service-life.
Furthermore, the technology landscape has changed significantly. Prior to the 2000s, the government presided over an ecosystem for the research and development of military capabilities. From funding foundational research, transitioning promising technologies into applied uses, then incorporating them into platforms, the government was involved every step of the way. While it may not own the IP, it had a very good understanding of what it entailed.
Since the 2000s, western governments became less central in this process. Many emerging technology areas, particularly in artificial intelligence (AI) or software-driven capabilities, may be entirely private funded in their research and development. Firms such as Google, Facebook and others have become involved in funding foundational technologies like AI directly and matured them into useful products on their own. As a result, government often has less insight into the technology’s utility and less interest in acquiring its rights, which have the potential to restrict the ability of western governments to field the best capabilities possible at a fair price.
Given its importance in advanced technology, IP is a key consideration for any military procurement. But its handling has been mixed. In the 1980s, the United States revised its law guiding the relationship between the government and contractors over IP. It sought to codify existing policy and provide a more welcoming environment for private entities, in part to encourage greater innovation and encouragement. However, this had the unintended consequence of complicating the process and limiting the firms involved in this area.
In the past decade, the US has undertaken significant reforms to its IP system, including by modifying legal structures to provide greater flexibility for programs to pursue different IP arrangements, and cultivating and expanding a base of expertise in this area. This involved individuals with direct experience in IP that can implement decisions and serve as project managers and other senior staff. Moreover, new and innovative approaches towards IP are being pursued, such as the greater application of open-source solutions for systems.
In Canada, the situation is somewhat different. Unlike the US, we tend not to be involved in the technology and systems development of capabilities, due to its significant costs. Indeed, our technology development pipeline remains highly disjointed, with exceedingly few technologies ever being matured into operational platforms. Instead, Ottawa procures capabilities off-the-shelf as completed systems, resulting in less access to the associated IP, as the acquisition cost for that IP is prohibitively high and not worth the cost of acquiring it. Further, during the 1990s and 2000s, there was a push to bundle both the acquisitions and sustainment aspects of a capability into a single procurement, incorporating them into a single request for proposal. This meant there was limited access to IP; simply put, Canada would not require it.
At present, the Government of Canada’s policy towards defence IP is in a period of stasis. Most procurement programs use standard terms that provide sufficient flexibility for the purposes of the government. However, a small proportion of programs, usually more complex and on the costly end of the spectrum, require negotiations to come to an agreement.
In the early 2010s, there was a growing realization that the existing IP system was insufficient for the times. A major government reform effort was undertaken with industry, but this did not result in a major revamp. Rather, a statement of principles was released in 2017 that serves as general guidelines for procurement.
However, difficulties arise with the software enabled technologies that are so critical for modern militaries. A significant area of dispute is over how to deal with the IP produced after acquisition, particularly with self-learning systems. The 2017 principles do not adequately address this complexity, which remain a source of potential concern.
The Canadian government should address these legal and policy impediments. Yet that might not be the most pressing issue going forward. As with the United States, Canada needs to look toward developing more expertise among its procurement workforce on IP issues, both among specialists and the general leadership.
IP expertise would enable programs to use the existing legal and regulatory structures for the greatest benefit, while still providing significant flexibility for negotiations with defence contractors. Developing an IP aware workforce will also help the Department of National Defence, Public Services and Procurement Canada, and the rest of government better understand the challenges and potential of this area, and perhaps result in better policy outcomes.
Richard Shimooka is a senior fellow at the Macdonald-Laurier Institute.
