H+K Canada chairman Brian Mersereau lends his procurement strategy expertise to the Ottawa Citizen as the Defence Watch guest writer. This article was originally published on January 8, 2015.

Without appropriate rights to intellectual property, can Canada really support new ships over the long term?

On 2 December, 2014 Public Works and Government Services Canada (PWGSC) released a Request for Information (RFI) which raises serious questions around the appropriateness of Canada’s current Intellectual Property (IP) policy, as it relates to the Canadian Surface Combatant (CSC) procurement. The policy, which has been in place for some time, makes it clear that all foreground data (IP that is first created or developed under a Crown procurement contract) will be owned by the third party undertaking the development, even though Canada has paid for said work.

As it stands, the policy is meant to be an incentive for companies to commercialize technology which Canada has, in some way, helped to fund. The logic is sound—those developing the technology are almost always going to be in the best position to turn their efforts into a commercial success. However, there are scenarios, like the one presented in the CSC procurement, that bear little to no resemblance to the commercialization picture envisaged by IP policy makers.

In the case of CSC, Canada is buying an asset that will be in inventory for at least 30 years. During such time, technology will change many times, which means the owner of the asset (the Crown, through the RCN) should secure all the data rights in order to be able to effectively and efficiently support the asset—in this case the CSC—over the course of its life.

In the case of foreground data for CSC, this means Canada should own the data rights. The party who developed the technology should be given a royalty-free right to use such data so that they might exploit it beyond CSC; hopefully in the export market without further negotiations with Canada.

From Canada’s perspective, owning the foreground data provides two distinct advantages:

  • Should Canada ever encounter difficulty, for any reason whatsoever, in securing support from the party who developed the technology, it has the unfettered right to go to another third party for assistance. This makes it much easier to manage fleet support. Over 30 some years, such circumstances will almost surely surface.
  • If Canada owns the foreground data, it will be much easier for Canada to attract other parties who might be interested in playing a role in the In Service Support (ISS) portion of the CSC procurement. As such, where feasible, Canada will want to create price competition for ISS to effectively manage the costs of ownership. If on the other hand, the foreground data is owned by the third party developer, the developer’s commercial motivation will be to ensure that no other entity has access to the technology.

Canada needs to be equally cautious in how it deals with background data (all relevant pre-existing IP owned by the Crown or contractor that is not created through the Crown procurement contract), which is nearly always a much more difficult issue.

Again, because of the extended period of ownership (with the CSC), Canada must ensure it has sufficient access to background data in order to support the fleet. In practical terms this means that if the owner of the background data could not or would not support the fleet, Canada would have limited rights to use the data itself—including the rights to give the background data to another third party (with the understanding that the third party would be restricted to using the data to support the Canadian fleet only).

Again, such data could be used by Canada for no purpose other than supporting its own fleet. In other words, it could not be used for other commercial opportunities. In this case, there should be no royalties charged to Canada for such limited use of background data, as such rights would only be activated if the owner of the data was unable to perform.

The arguments presented above are all based on the notion that Canada needs to secure appropriate data rights—foreground or background—to support its assets on a long term basis. If Canada were to move beyond this and, by way of example, try to secure the rights to background data, along with the necessary market access rights to compete with the owner in foreign markets, no one should be surprised if there are fees and/or royalties involved, along with some resistance from those who own the background data. After all, background data is the lifeblood of these companies and most are not in the business of setting up competitors with leading/bleeding edge technology.

While this has been written with the CSC RFI in-mind, the underlying arguments can be made for any long term asset Canada acquires, such as the other NSPS ships or the RCAF’s aircraft.

Brian Mersereau was Canada’s Chief Negotiator on the Canadian Patrol Frigate Project and is currently the Chairman of H+K Strategies Canada. He is an advisor to marine firms such as DCNS, which hopes to be involved in the CSC project, as well as Chantier Davie.