Intellectual property in military procurement

Zain Adnan, Jakarta

Before the devastating Dec. 26 tsunami, of the 20 C-130 Hercules airplanes that Indonesia owns, only around six or seven were operational. The required spare parts to repair the remaining aircraft were pending due to the United States arms embargo on Indonesia. U.S. Deputy Secretary of Defense Paul Wolfowitz has said he does not see the embargo ending any time soon.

Interestingly, this dilemma could have been anticipated and prevented if the purchasers of these planes took into account the intellectual property aspects of military purchases. They should have taken into account the required transfer of technology and a possible license to produce parts at the signing of the purchase some 20 years ago.

Another example is the Russian-made Sukhoi fighter jets purchased by the Indonesian Air force. During a discussion one of the negotiators of this purchase said that Indonesian technicians being trained in Russia to service the fighters were not allowed to bring back to Indonesia the manuals they used to study repair and maintenance.

This is a common strategy by military equipment producers to milk the purchase with additional service charges that will benefit the manufacturers. It can be argued that the Sukhoi manuals were part of the intellectual property of the manufacturer and their transfer should have been part of the purchase agreement. In addition to the technical training, there should be reference to producing parts and transferring technology before the final agreement is signed.

As a result, the Indonesian Air Force may have to rely on Russian technicians to maintain and repair the fighter planes, when an Indonesian technician could provide the same service faster and at a lower cost.

Military and government purchases are not the only time technology transfers have been overlooked in equipment purchases. One Surabaya lawyer said his client, a ceramic maker, needed to license a patent from the Italian manufacturer of the equipment he was using. During the initial purchase they had neglected to thoroughly go through the purchase agreement and signed the document without paying attention to details in the fine print.

It turns out, every month an Italian technician had to be paid to come and service the equipment. The Indonesian owner argued he could service the machines himself. That's when the Italian manufacturer produced the license stating the service had to be conducted by an Italian technician.

Companies need to be aware of agreements they sign or need other parties to sign even before the purchase, such as the testing stage. An Indonesian shipbuilder, also in Surabaya, had trouble during the testing of a ship a Japanese company was interested in. The dispute was over who would pay for the engine fuel for testing the ship. The bill turned out to be Rp 600 million, no small change for a shipbuilder, especially nowadays.

Basically the key elements that need careful handling are that purchases need to include: a) technical assistance b) technology transfer of the proprietary technology c) and a license to produce spare parts.

Point "c" would have solved the TNI's military's reliance on the U.S. and the country would have had the ability to produce the spare parts itself about 20 years ago.

Although Indonesia may send her best negotiators and businesspeople during arrangements to buy military hardware, it may be beneficial also to have an intellectual property expert tag along as an adviser on issues such as technology transfers. We might end up paying more at the beginning of a purchase, but in the long term it would be much cheaper than having to rely on the mercy of foreign technology owners or their governments.

The writer works at Suryomurcito & Co, an intellectual property consultancy. He can be reached at zain_adnan@yahoo.com.