UK: Protecting Innovation Within The Complex Supply Chains Of The Aerospace And Defence Sector

Last Updated: 6 November 2017
Article by George Tebbutt

Within the aerospace and defence industry, original equipment manufacturers (OEMs) have a well-established history of innovation. Supply chains in the sector are highly complex, with businesses from across the globe supplying materials and parts for manufacture, as well as supplying design and development services.

Over recent years, many OEMs have adopted the role as an integrator and developer of key systems, and more design and development work has shifted into the supply chain. Accordingly, valuable innovations are increasingly being made by suppliers as well as OEMs. This shift may make it harder for intellectual property (IP) owners to capture innovations, with the risk that opportunities to protect valuable IP could fall into the gap between suppliers and customers.

OEMs and upper-tier suppliers typically have well-established internal procedures for capturing innovations developed in-house and protecting them, for example by filing a patent application or maintaining a trade secret. However, it may not be so easy for a customer (e.g. an OEM or upper-tier supplier) to identify innovations developed by a lower-tier supplier, or for such a supplier to recognise that protection for their innovation would be beneficial to them or their customer.

For example, the role of an integrator can be to specify performance requirements for sub-systems and design for their integration. The integrator may not be particularly focussed on innovations in the sub-system, and can work with a specialised supplier without a detailed understanding of their technology.

Likewise, a supplier's focus may be meeting their customer's requirements and developing a lasting relationship with them. With the focus on delivery and integration, the question of whether to protect innovations in the sub-system, whether for the benefit of the supplier of customer, may move to the side-lines.

From the perspective of a customer in the supply chain (e.g. an OEM or an upper-tier supplier) an innovation made by a supplier in the sub-system could make a valuable contribution to the overall product, such that the customer may benefit from protection for it. Complex products can embody hundreds or thousands of different innovations, which can be individually protected by patents or registered designs to build a "thicket" of protection for the product as a whole.

On the other hand, a supplier may see opportunities for applying their innovation more broadly than a particular customer's products or industry. Accordingly, if the supplier were able to obtain protection for the innovation, they may be able to protect new revenue streams based on the innovation.

The following examples illustrate how it can be beneficial to both the supplier and customer in a relationship to capture and identify innovations, with some implications for how to handle IP ownership.

For example, a supplier has a long-standing relationship with an airframe OEM customer for designing and manufacturing airframe components. The supplier develops a new version of a particular component which is significantly lighter, owing to a novel construction of the component made possible by 3D printing technology. The customer is not concerned with how the lighter weight has been achieved, and continues to purchase from the supplier rather than competitors making heavier versions. Both the customer and the supplier are happy, without either one being particularly motivated to consider obtaining protection for the innovation.

Without any such protection, a competing airframe manufacturer could copy the novel construction of the component (or be supplied with one), eliminating the comparative performance advantage stemming from the innovation.

In this simple example, the innovation is specific to an airframe component and hard for the supplier to exploit with other customers – so the lack of protection is likely to the detriment of the airframe OEM. It would have been beneficial for the OEM customer to own the IP for the innovation, so that they could obtain protection for it to the exclusion of competing airframe companies. Further, such ownership could enable them to dual-source the component.

For these reasons, many supply contracts specify that IP developed by a supplier in the course of design development belongs to the customer. Provided that such IP is properly identified and communicated to the customer, the customer can make a decision as to whether to pursue intellectual property rights (IPRs), such as patents and registered designs, to protect it.

In a slightly different example, the supplier develops a new material processing technique that enables the same structural performance with a lighter-weight material. The supplier sees opportunities to use the same technique for customers outside the airframe industry.

In this example, the supplier would benefit from owning the IP so that they can fully leverage the new technique. If the customer is the automatic owner of the IP via a supply contract, there is potential for a deal to transfer or licence it back to the supplier. The supplier could offer exclusivity in the airframe industry or a discounted purchase price for the component in exchange.

In both examples, the starting point to a good outcome is capturing (i.e. identifying) the innovation and avoiding the opportunity for IP protection falling in the gap between the supplier and customer.

So, how can IP be reliably captured? It will, of course, depend on the nature of the relationship and what exactly the supplier has been engaged to do.

Where a supplier has been engaged on a project to develop a new product or capability, it may be expected that new (foreground) IP will be generated. As such, it can be beneficial for project reviews throughout the supply chain to include a section on identifying innovations made during the project/development.

Sometimes a particular innovation can be readily identified by the supplier or customer as key to a project/product. Otherwise, innovations can be identified by considering what has enabled the project/product to move forward. In particular, signposts that a patentable invention may have occurred include:

  • A problem has been overcome (e.g. a performance or reliability problem);
  • A new capability has been enabled (e.g. via sensor systems or software);
  • Improved performance (e.g. strength, reliability, efficiency);
  • Reduced consumption of resources (e.g. fuel consumption, material, computational).

Once IP is captured and the position on ownership is clear, there are commercial considerations as to how and whether registered Intellectual Property Rights (IPRs, e.g. patents and registered designs) should be pursued.

Irrespective of the default ownership position, ownership of IP can be transferred by agreement if it makes commercial sense for a different party to pursue such Intellectual Property Rights (IPRs).

The principal benefits of IPR ownership are well known: exclusive rights with respect to the IP (e.g. for products embodying the IP), and the ability to license the IP to others.

However, the nature of the aerospace and defence supply chain may impact the business case for pursuing such protection. In particular, there are typically only a handful of OEMs capable of delivering a complex product of a certain type to market (e.g. an airframe, surface ship, armoured vehicle). Accordingly, many suppliers in the sector may effectively be limited to participate in the supply chain of a single OEM – whether this is by agreement, commercial sensitivities, security restrictions, location or otherwise.

Even when this is so, the commercial benefits to a supplier from protecting an innovation may include maintaining or establishing an exclusive supply arrangement with a customer, or the potential to generate licensing revenue from others in a dual-sourcing supply arrangement.

If protection for a particular innovation is not a priority for a supplier, it is worth considering whether to highlight an opportunity for IP protection to a customer nonetheless. This may benefit the relationship and there may be compensation for transferring any IP.

By owning IP generated within their supply chain, OEMs or upper-tier suppliers can protect themselves and realise the associated benefits. Further, such IP ownership may enable a dual-sourcing arrangement to be implemented.

The business case for pursuing IP protection is affected significantly by the nature of the supply chain. The different priorities and focus of parties in the supply chain can lead to the issue of IP protection falling in the gap between suppliers and customers. Suppliers and customers alike can benefit by capturing IP and understanding the position on ownership, so that they can properly consider the business case for IP protection in the light of their particular supply chain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions