NDIA POLICY POINTS DEFENSE DEPARTMENT
Army Takes On IP Rights Conundrum
“Enabling Modernization Through the Management of Intellectual Property,” the Army’s new policy, tries to balance the government’s priority to maintain U.S. military competitive advantage by leveraging advanced American technologies while also allowing inventors and companies to fairly benefit from their intellectual work.
Both the government and the defense industry strive to provide warfighters with the best capabilities, but the government must act in the best interest of taxpayers and the defense industry in the best interest of corporate shareholders. The tension between controlling costs and increasing revenues creates a battle over who benefits from IP.
The legal protections surrounding IP establish boundaries and terms for its use. Protections, like trademarks, patents, copyrights and trade secrets, give entrepreneurs the legal security necessary to earn a return on their investments, making them a lucrative asset.
Industry faces two major challenges when selling intellectual property to the government. The first stems from the government’s rights to use, modify, adapt, disseminate, reproduce or disclose IP. The government’s rights in these scenarios directly depend on how much funding it provided for development.
Under some circumstances — falling under the right to disclose or disseminate — the government may share acquired data with third parties. These third parties sometimes include direct competitors of the IP-generating company.
The second challenge concerns the protection of exclusionary rights inherent to IP. The Bayh-Dole Act requires government contractors to disclose inventions derived from federal funding, leaving contractors vulnerable to a government decision to exercise its “march-in” rights. Under the act, when a contractor breaches their obligation to commercialize a patent, the government may effectively seize control of the intellectual property and grant licenses to third parties. Although the government reportedly has never exercised this option, contractors worry about being the first victim.
The government also faces significant intellectual property challenges. The biggest of these challenges is “vendor lock,” which occurs when vendor-controlled IP precludes competition for sustainment or upgrade contracts. When the government fails to obtain the rights to certain key parts of a new capability’s intellectual property, it loses the ability to work with other contractors to drive better sustainment deals or develop innovative upgrades, which drives up costs and limits capability development.
Another challenge arises when the government lacks an intellectual property strategy at the beginning of a major defense acquisition program. This lack of strategy can result either in the government accepting a costly long-term contract with a single company or vendor, or the government requiring ownership of the entire technical base as part of the request for proposals. Lack of strategy frequently results in the government acquiring more rights and information than it needs.
In a discussion June 18 about the new policy at the Center for Strategic and International Studies, Alexis Lasselle Ross, the Army’s deputy assistant secretary for strategy and acquisition reform, acknowledged this misguided practice prioritizes acquisition officer ease and comfort over program savviness. IP control overreach can carry excessive financial costs and disincentivize industry innovation, she said.
To visualize the tension between the two sides, it may be helpful to envision a spectrum of intellectual property rights. On one side, the IP is completely proprietary to the innovator, and on the other side, the government owns everything. Innovators and government have traditionally begun negotiations on opposite sides of the rights spectrum. The new policy seeks to incentivize finding middle ground, with focus placed on early negotiation and custom licenses.
The new policy emphasizes four tenets to effectively value IP rights. They include: opening communication; early planning and development of customized IP strategies; negotiation of custom data and licenses; and early negotiation to secure competitive prices.
The heavy focus placed on early negotiation and developing custom strategies and licenses will benefit both the Army and industry. By incentivizing program managers to determine intellectual property strategies early in the procurement process, the Army addresses its problem of waiting too long and paying too much. The Army will need to think about what it needs to build and sustain capabilities before developing its strategy for acquiring the requisite IP. Providing a space for planning and negotiations early in the acquisition process also helps to reduce innovators’ risk of losing intellectual property on the back end of the contract, reversing the chilling effect on innovators from the government’s current practice of generally requesting every piece of data.
The policy also encourages negotiating custom data and licenses so both government and industry have transparent understanding of data rights and obligations from program inception. In some cases, especially when thinking about competitive sustainment and upgrade potential, the rights required by the government will be significant. In other instances, the need for extensive intellectual property ownership by the government will be much less. Either scenario requires clearly defining agreements reached during contract negotiation, ultimately ensuring both government and industry understand how rights will be divided moving forward.
The Army’s new intellectual property policy creates repeatable procedures that build predictability into the acquisition process to deliver better capabilities at lower cost, benefiting both government and companies.
Hannah Harper is an NDIA junior fellow.