Intellectual property in military procurement

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.