The War over Intellectual Property: Who Owns U.S. Defense Technology?

Article excerpt

Pratt & Whitney spent 20 years and a billion dollars developing a geared turbofan engine that burns 16 percent less fuel.

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The Pentagon's largest consumer of jet fuel, the Air Force, is said to be a potential customer for this new engine.

It is conceivable that--as a condition of purchase--the government could demand rights to engine drawings, specifications and manufacturing methods so it can buy spare parts in the future from someone other than Pratt & Whitney.

This scenario is not unlike the grief other high-tech hardware manufacturers experience as part of doing business with the Defense Department. For some companies, it can be a serious dilemma: Turn over valuable intellectual property and trust the government to protect it from competitors, or walk away from a lucrative Pentagon contract.

As long as Uncle Sam has acquired products from the private sector, corporations have fretted over the protection of their intellectual property. But the issue has moved up on the radar screen in recent years, especially for manufacturers of equipment that is sold both to the military and to commercial customers. A string of legislative amendments to contracting rules--which give the Pentagon greater authority to allocate IP rights--and an increasingly assertive posture by Defense Department buyers have fueled corporate anxiety.

When technology is developed with Pentagon funds, there is no ambiguity: The government owns the IP and the rights to share it with whomever it wants. It becomes far more complicated when the Defense Department buys products that were developed by the private sector, or when the Pentagon wants to end a company's monopoly in a particular area and seeks IP rights to a design so it can compete the aftermarket work.

In the defense contracting business, IP disputes are growing and keeping lawyers busy, says Louis D. Victorino, a partner in the law firm of Sheppard, Mullin, Richter & Hampton LLP.

The Pentagon's desire for the latest and greatest technology and policies that call for competition in the marketplace are fundamentally irreconcilable, he says.

One problem is that the Pentagon procurement culture is rooted in the Cold War, when the Defense Department funded more than half of all U.S. research-and-development projects. Most cutting-edge R&D today is funded by the private sector, but many high-tech firms shun the defense market. A 2001 report by the Pentagon's acquisitions office acknowledged that one of the reasons is companies' fear of compromising their intellectual property.

"The concept of IP is fundamental to a capitalist society," the report says. "A company's interest in protecting its IP from uncompensated exploitation is as important as a farmer's interest in protecting his or her seed corn."

In defense contracting, Victorino continues to see a tug-of-war between capitalism and central planning. …