September marked a big month for the U.S. Air Force and the aerospace sector. The service awarded contracts for the replacement of its 1960s-era T-38 advanced jet trainers and UH-1 utility helicopters. These selections culminated years’ worth of effort to replace aircraft that have been stalwarts in the Air Force inventory since the Vietnam War. The programs also mark a new acquisition emphasis concerning data rights—the government’s licensing rights to both technical data and computer software. While this topic may seem arcane to some, it will increasingly stand a key factor determining success or failure for those competing to gain future defense business. It all comes down to a balance between the government’s need for increased technical insight to avoid sustainment and modernization vendor lock, while also acknowledging that innovation and sustainable business models demand protecting proprietary intellectual property (IP). Striking this balance is far easier said than done.
In the information age, intellectual property stands as a critical aspect of any successful acquisition or modernization effort. Lt Gen Lee Levy, the head of the Air Force Sustainment Center, remarked that “… in the 21st century, the intellectual property and the data will be probably be more valuable than the hardware.” Without data rights, the services have their hands tied when it comes to keeping military capabilities leading-edge. No longer is an airplane just a collection of rivets, sheet metal, and control cables; indeed, today the utility of defense hardware is beholden to its software, and data rights hold the key to life-cycle affordability.
Furthermore, the prolonged service life of weapon systems today—now extending to over fifty years in the Air Force—means that capability upgrades are an especially important part of the sustainment lifecycle. In order to compete or organically support sustainment and modernization, the services need to avoid vendor lock, where proprietary rights are restricted to the original system vendor. The growing appetite that the services have for the data rights to their weapon systems is not at all surprising: the military must make the most out of finite budgets, and owning all the data rights and associated intellectual property is one way to create a cost competition.
However, the services’ burgeoning demand for greater content and data rights may actually pose a risk to companies that seek to do business with the Department of Defense (DOD). The same intellectual property that makes the technology and software in weapon systems so valuable to a service is also the life-blood of the manufacturer, providing for their long-term viability. Uncertain of what data rights are “necessary,” the services’ appetite for data rights may be imposing unintended, but harmful, effects on the very defense industry that it relies upon for technological superiority. The government has growing needs for procuring and using data, but it also has an interest in meeting those needs in ways that encourage private investment, reward innovation, and facilitate competition—the foundation of a healthy industrial base.
Examination of acquisition strategies indicate that the military may be seeking more rights than they need without considering the holistic nature of data requirements and the unintended negative effects that this all-encompassing approach yields. The recently awarded T-X and UH-1 Utility Helicopter replacement programs, for example, imposed drastic and ill-defined data rights requirements that even include the IP of suppliers and sub-tier vendors. While these demands did not fully deter competitors from submitting proposals, the DOD should be aware of potential long-term unintended consequences on the very supply base they depend upon. Ceding vital proprietary information may well place a company’s long-term innovation, competitiveness, and viability at risk. Said another way, it does the government no good to claim victory by driving an exceedingly hard bargain in one program, but in so doing, drive key players out of the marketplace because the new terms of business are not sustainable.
Make no mistake—it is the defense industry that develops the advanced capabilities the military requires. The IP contained in technical data and software constitute a competitive value and it is therefore directly related to a company’s financial health. The entire point behind IP is that it is unique, a competitive edge that rewards the innovator. If IP is treated as a commodity, available to the lowest bidder, then there is no incentive to innovate. A company that does not have a strong balance sheet cannot continue to develop the next set of advanced capabilities. Industry must protect their technical data, software, and IP, or they will go out of business. And it won’t be just the defense industry that pays. It will be our warfighters who don’t have the real competitive edge.
The services should also be aware of how their behavior adversely affects DOD efforts to attract non-traditional vendors with top-tier commercial talent. Defense Innovation Unit (DIU), for example, has ambitious innovation aspirations, but how will the DIU initiative succeed if the firms with whom they seeking to partner, who are generally quite successful in the commercial realm, are asked to commit capacity to the government and surrender their intellectual property? Such a proposition is a non-starter.
Clearly, a middle path is necessary. Addressing data requirements and data rights in a balanced way is a crucial issue for both government and industry. The services should be alert to the possibility that asserting data rights beyond the accepted definitions in the defense federal acquisition regulations (DFARS), or that asserting data right concessions beyond those required by statute, may have unintended negative consequences downstream that inhibit rather than encourage defense innovation. DoD must take a far more calculated approach that allows both government and industry to benefit from carefully defined data requirements unique to each system.
To this end, the services should train a cadre of personnel to specialize in data requirements and licensing. These personnel would facilitate dialogue with industry to develop overarching IP valuation methodology, as well as data requirements and licensing processes for use in creating requests for proposals (RFPs) and crafting specially negotiated licenses. To achieve the proper balance between service requirements and industry needs, there must be robust and iterative discussions with industry through the acquisition process.
The forces driving the services to seek greater access to data are rational and reasonable, as are the marketplace dynamics that make protecting IP an imperative for industry. The Mitchell Institute for Aerospace Studies released a major study earlier this year that further delves into the challenges posed by data requirements and rights, and it provides actionable, recommendations for this important issue. Both the services and the defense industry must share an understanding of the critical role that IP plays in the ability of defense suppliers to develop and maintain technological superiority, as well as what access the services require to affordably sustain and modernize their weapon systems.
The answer cannot be all or nothing for either party. Companies may feel they have no alternative but to forfeit their intellectual property for the sake of submitting a proposal, but this trend will only serve to weaken an already thin and fragile industrial base. To build and affordably sustain the 21st century military that the nation requires, the services must work with industry to create a 21st century acquisition environment that sets conditions for mutual success.
NOTE: My think tank, the Mitchell Institute for Aerospace Studies receives funding from companies with an interest in data rights.
