50 legal focus Trust in SME
Could we look towards the defence and security sector to be the leader for this country’s economic recovery? Richard Devall reports on opportunities for astute SMEs
According to government statistics, the UK was the second biggest defence exporter of 2009, second only to the US, delivering on orders worth in excess of £7 billion. Whilst cuts wrought by the recent Strategic Defence and Security Review have affected the sector, companies within the defence and security industry continue to prove themselves to be world leaders in supplying cutting-edge ideas and technology.
With the recent uprisings in North Africa and the Middle-East, the ongoing campaign in Afghanistan, persistent domestic threats from terrorism and ever increasing reports of internet-based crime, it is little wonder that issues of defence and security are rarely out of the spotlight. The foundations upon which these global issues rest are constantly shifting and this perhaps explains why the defence and security sector is considered to be a challenging but, perhaps now, potentially fertile market by many an astute SME.
Why challenging? The sector is often associated with unwieldy tendering and contracting mechanisms, a lack of transparency, inefficient and inflexible procurement, delays and uncertainties over programmes, unreasonable payment terms and a lack of genuine competition; SMEs have too often found the barriers to market involvement all but impassable. Added to this is the relationship of mistrust that has built up in recent times around the use and exploitation of intellectual property rights (IPR) developed by SMEs, arising particularly from the way such IPR has been handled in the privatisation process of the British Defence Research establishments and by the fact that prime contractors are now looking to exploit opportunities in other sectors beyond defence and security.
However, a wind of change is blowing through the industry. There is evidence of a new emphasis on initiatives to assist SMEs and prospective suppliers to the defence and security sector. Take, for instance, the recently launched online Contracts Finder for public sector projects and online proposal and assessment portal of the Centre for Defence Enterprise. This, in conjunction with the general prominence in the 2011 Budget of measures encouraging growth through the UK’s digital and technology capabilities, as well as the introduction of tax credit benefits for small companies, means that SMEs can feel encouraged that their interests are finally being protected by the Government.
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Nevertheless, in order to really seize upon these government initiatives, SMEs need to be encouraged to join forces to create alliances and bid consortia and act as a single, unified voice when dealing either with prime contractors or directly with the MOD.
Collaboration between SMEs will place them in a better bargaining position when negotiating the handling of IPR with the MOD and the primes. But, if SMEs have difficulties trusting the MOD and the primes, how can they be expected to acquiesce to the exchange of confidential information with organisations who may, outside of the collaboration agreement, be their competitors? What can be done to exploit the potential of collaboration without increasing the vulnerability of IPR to misappropriation, unauthorised use and leakage?
We often hear concern expressed by businesses that their employees do not take seriously the risk of misappropriation of IPR. This problem is exacerbated by the ease in which data can now be transferred electronically. Careless talk by staff can end up costing a business a serious loss of competitive advantage and, perhaps, invalidate any subsequent patent protection.
The key to resolving these internal issues is the implementation of a company- wide policy with associated training of all employees; staff need to be made aware of the value of IPR, the importance of its management and the procedures the business has in place to protect it. The penalties for failing to adhere to the policy should be made clear; tell staff that the misappropriation will lead to disciplinary action, which could include dismissal. Examples of what should be included in the policy would be guidance on how to deal with the marking/labelling and handling of classified information as well as safeguarding IPR both in the office and while travelling.
What about IPR leakages from external sources? Businesses should be sure any collaboration agreement provides that partner companies will procure the operation of their own internal mechanisms and safeguards to prevent the escape of IPR that is shared. The agreement will need to set out in unequivocal terms who owns the rights, the extent to which each of the partner companies may use the pooled knowledge (and for what purposes) and the party able to apply for any subsequent patent
Richard Devall, partner
or other protection. It should be clear to all collaborating parties what will amount to misappropriation of the shared IPR and the penalties that may be imposed as a consequence of such abuse.
One of the most significant hurdles to investment, development and engagement by SMEs in the UK’s defence and security industry – and, ultimately, in the UK successfully further expanding into foreign markets – will remain SMEs’ concerns about the integrity of their intellectual property while the current practices for IPR ownership in the UK defence and security contractual context remains in place. A failure to address this issue may eventually lead to the SME supply chain being lost to the sector for ever as companies discover new markets for their skills and expertise.
That said, successful implementation of policies and training to protect against IPR leakage and robust confidentiality and ownership clauses to better prevent the abuse of pooled IPR may give the 9,000 or so SMEs which form the bedrock of the UK defence industry the confidence they need to combine their resources, thus turning the negotiation table on its head.
Details: Richard Devall 0118-9570602
rdevall@pitmans.com www.pitmans.com/employment www.pitmans.com/defence-security
THE BUSINESS MAGAZINE – THAMES VALLEY – MAY 2011
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