Tuesday, September 23, 2014

Risks in 100% technology transfers in defence technology: Saab’s Jas-39 Gripens to Indonesia and submarines to Australia

Swedish aerospace company Saab has recently begun a marketing campaign designed to promote their Jas-39 Gripen to South East Asian countries, with an eye towards Indonesia. The aircraft is already operational in Thailand, butSaab is pushing hard to supply the TNI-AU (Tentara Nasional Indonesia Angkatan Udara) with 44 Gripens as a replacement for their now-obsolete Northrop F-5E Tiger IIs (which they are planning to replace before the end of the decade).

The Jas-39 Gripen (Griffin) is a light single-engine multirole fighter aircraft that served as an upgrade to the 35 Draken and 37 Viggen, both of which were used effectively by the Swedish Air Force. The Gripen's biggest selling point is that it’s a small aircraft yet the payload it carries is relatively large compared to its size. It is said that the aircraft matches the performance of an F-16, but has a considerably lower operating cost.

Gripen 3

Saab is even offering “100% technology transfer” as part of their bid. (The industrial cooperation offer is the same one that Saab offered to Brazil and India.)

That is a departure from how high technology manufacturers normally deal with their intellectual property. It opens the door to Indonesia learning Saab’s proprietary trade secrets and sets up Indonesia not to need Saab for maintenance with its ongoing revenue stream beyond the sale. The offer reminds me of concerns about Ford Motor Company’s sale of Volvo to Chinese car firm Geely in 2010. Why?

Saab is focusing on Indonesia because the partnership would be beneficial for both sides – Indonesia’s air force is in need of the ability to cover an extremely large area, as the country consists of 17,000 islands stretching over more than 2 million square kilometers of geographical area, while also maintaining high availability and long time on station, coupled with short turn-arounds, long ferry range, and a wide combat radius.

Saab, on the other hand, needs a partner in the region that can build aerostructures and perform advanced maintenance in order to make their expansion in South East Asia smoother. Indonesia fits the bill. While the country has a native aviation industry, the present focus is more on transport aircraft than military applications.

But what happens if the local Indonesian aviation industry decides to step up into production of fighter jets? Saab arguably becomes Indonesia’s aerospace R&D division. On the face of it, it is a risky proposition.

Compare this to Swedish intellectual property dealings around submarines in Australia. On 2 July 2014, Saab completed its takeover of Kockums, the Swedish designer of Australia’s Collins class submarine. Saab Kockums and the Kingdom of Sweden own Colllins intellectual property.

In 2001 Kockums was involved in a dispute in the Federal Court of Australia over copyright and confidentiality in drawings in a submarine propeller where Kockums perceived a risk that this IP would be given a US company called Lips Propellers Inc in the United States. Kockums was unsuccessful in getting an interlocutory injunction to stop this. See http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2001/398.html

Time moved on and in 16 May 2013 Australia and Sweden entered into an agreement for the use of Sweden’s IP rights for submarine design and technology. The press release for this read:

In May 2012, the Australian Government announced it would engage Swedish ship designer and builder Kockums AB, the original designer of the Collins Class submarine, to undertake initial design studies for the evolved Collins.

An evolved design would build on the high level of capabilities of the existing Collins Class submarine design, address known deficiencies and obsolescence issues and provide potential capability enhancements.

A precursor to this engagement with Kockums AB, was the need to reach agreement with Sweden on the use of Collins Class Submarine Technology for the Future Submarine Program, and also to agree a framework and principles for the negotiation of Intellectual Property rights for Australia to be able to utilise other Swedish submarine technology for the Future Submarine Program, if Australia decides to proceed with an evolved Collins solution.

The ability for Australia to utilise Swedish submarine technology is a critical element not only of the work on the Future Submarine Program, but also in addressing the continuing challenges with the maintenance and sustainment of the Collins Class fleet through to the end of their service life. This new agreement replaces the Commonwealth’s existing rights as established by the licence agreement struck in June 2004.

The ability for Sweden to ensure that any arrangement did not compromise its sovereignty and ensured compliance with export control and security legislation was also paramount in the negotiated outcome.

Move forward to 12 September 2014, and Saab is now competing with Germany’s ThyssenKrupp and Japanese companies Kawasaki and Mitsubishi to build Australia’s new submarine fleet.

If ThyssenKrupp or Kawasaki or Mitsubishi are successful, trying to compartmentalise Saab’s IP so as to shield it from examination from the successful tenderer will be very difficult- as evidenced by the 2001 litigation.

Fighter planes are not submarines. But still. The fact that Saab are willing to enter into a deal whereby it transfers its IP to the government of Indonesia on fighter planes suggests that Saab did not inherent Kockum’s awkward experience in policing its IP rights.


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