How and why defence industry SMEs should use the patent system

Introduction
Imagine you are a defence-industry SME competing for a government contract. You are confident that you have better solutions than your competitors, but technical quality is only one of many factors used in deciding whether you win the contract.

In this article, I explore how defence-industry SMEs can use the patent system to their advantage, including to win and fulfil contracts.

Technology transfer
In the example above, the SME has a choice regarding how they treat the intellectual property (IP) underpinning their solutions. The company could patent the technology, keep the technology secret, disclose the technology (e.g. in a journal article), or use some combination of these approaches. Relying on trade secrets in the defence industry may initially seem attractive. After all, secrecy is central to defence work and customers (e.g. governments) will almost certainly have strict secrecy requirements. However, this may not always be the best option.

Patents offer some commercial advantages. The classical analysis suggests that patenting is advantageous since competitors can be prevented from offering the patented solution. Such competitors may therefore need to fall-back on an inferior solution, making it more difficult for them to win contracts. This is not, however, the only advantage of patenting.

Patented technology enables information relating to that technology to be shared; this is the basis of Technology Transfer across all technical disciplines. In the case of an SME bidding for a contract, some degree of sharing of their technology is essential. By patenting key technical developments, SMEs can retain a degree of control over the technology that they are sharing with potential customers and partners.

By suitable use of the patent system, the SME can retain ownership of the intellectual property and share the technology with others.

Collaboration and project delivery
Many projects in the defence industry are large, often involving some mix of governments, multinationals and SMEs. Effective collaboration between parties is key to the success of such projects.

Collaborations are more effective when the parties involved can share information and expertise relatively openly. Non-disclosure agreements (NDAs) can give comfort to those sharing information, but their value is limited. It is often better to develop an IP portfolio protecting your technology and then be willing to share that information as required within the project, rather than trying to keep information secret, or trying to protect the technology once it has been shared.

Patents can also be used to delineate contributions by each party to a larger project, which can help negotiations, for example to decide who contributed what, and perhaps what each party should be paid. Patents can provide a documentation process and can be used in negotiations before, during and after the project is delivered.

Pitching
Before a collaboration can start, it is necessary for the SME to become part of the project. Thus, the SME may need to pitch to potential customers and partners.

Large organisations (in the defence industry and elsewhere) are often interested in receiving pitches from SMEs. However, such organisations may be sensitive to being accused of “stealing” such technology. Filing patent applications before disclosing protects the disclosing party from such “theft”, but also protects the receiving party.

Consider a scenario where the receiving party was already working on similar technology. It is much better if both parties have patented the underlying technology that they want to discuss before entering discussions so that it is clear what had been developed by each party before those discussions began.

Trust and openness are key elements of successful project collaborations, as outlined above. Whilst more care is needed during pitching, some degree of technical disclosure is necessary at some stage. IP can help by enabling parties to share information secure in the knowledge that they own the IP in their own developments.

Procurement
Defence contracts may be under the control of a procurement department. Procurement decisions are multi-faceted, but cost and confidence in the supplier are often central. SMEs can struggle in both of these areas. Having a meaningful IP portfolio can help.

First, having patented technology can lead to technical confidence in a potential supplier – patents are indicative of technical excellence and may suggest that the SME is likely to be a reliable partner.

Second, having a meaningful IP portfolio that is relevant to the contract can be used to persuade a procurement department not to simply choose the lowest bidder. Procurement departments typically want to do the “right” thing and will not want to commission a solution that infringes valid patent rights.

Successfully engaging with procurement departments and other decision-makers involves making it easy for buyers to choose you. Decision-makers, whether they are in government or some other large organisation, are often risk-averse. Choosing an SME over a bigger provider might be seen as a risk, but choosing a patent owner to implement patented concepts may be seen as a lower risk.

Retaining background IP
When entering into a project agreement, it is common to distinguish between Background IP and Foreground IP.

“Background IP” generally refers to technology that has been developed before the project begins. Often, ownership of Background IP remains with the original developer of that technology. “Foreground IP” that is developed during the project may have more complicated ownership and licensing obligations.

Having your underlying technology identified as Background IP may enable you to retain ownership of that technology (and use it in later projects, for example). If you fail to take care of your underlying technology, it risks becoming part of the Foreground IP of the project, with all the ownership complications that comes with that.

Having an IP portfolio in place before the project begins makes it easier to identify Background IP and can result in the SME being in a stronger position after the project ends.

Levelling the playing field
I started this article by referring to a scenario in which you are a defence-industry SME competing for a government contract. You may fear that large companies bidding for the same work have advantages over SMEs. However, a well-designed IP portfolio, including patents covering key underlying technologies, can help to level the playing field.

As discussed above, patenting your key developments can make it easier to win contracts. Moreover, a good IP portfolio and IP strategy can help in the delivery of projects through collaboration with others and can help you to retain ownership of your underlying (background) IP for use in the future.

Final thoughts
This article has been defence-focussed, but the principles apply in many industries.

Collaborative projects are common and offer a way in which SMEs can contribute to larger projects that the SME may not have the resources to execute alone. Patents can help to level the playing field between SMEs and larger players, enable discussion to take place relatively openly between potential and actual partners, and enable all parties to retain ownership of their background IP. When used well, patents can enable win-win scenarios.