An introduction to IP and technology transfers under Polish defence sector regulations.
1. Introduction
Since the outbreak of war in Europe, the modernization programs of the Polish Armed Forces have significantly speeded up. The majority of these programs are focused on the acquisition of cutting-edge, networked military technologies powered by highly capable software, processing vast amounts of data. Due to the longstanding character of contracts the foreign defense contractors participating in defense acquisition processes may need to take complex long-horizon decisions concerning use of their proprietary technology or data.
This article is aimed at providing brief information to foreign corporates willing to take part in the technology transfer processes in Poland. The first one briefly outlines the legal landscape of intellectual property (“IP”) regulations in Poland. The second one describes the basics of the defense acquisition processes along with IP-related practices of the Polish Armament Agency (“PAA”). The third part highlights most typical IP transfer issues, while the fourth and last part discusses novel topics such as Artificial Intelligence (“AI”) or cybersecurity that the negotiating parties should also be concerned about. Please note that only transactional aspects are discussed, leaving aside the compliance issues which may arise on the ground of foreign (such as the FMS) or Polish trade compliance regulations related to dual-use technologies.
2. General IP and data framework in Poland
Poland is a party to majority of the international treaties in the area of intellectual property offering copyright, patent and trade secret protection to rights’ holders, including protection of the rights owned by the foreign companies dealing with Polish business partners. This includes Berne Convention, TRIPS Agreement and the Convention on the Grant of European Patents (EPC).
Polish laws also reflect various directives of the European Union (“EU”), as well as a set of intellectual property-related regulations, providing inter alia a robust framework for copyright protection of software[1] or trade secrets protection[2].
With regards to protection of data this term is usually associated under EU law with the records containing personal information therefore it can be misleading to U.S. based contractors understanding “data” as copyright and trade secrets.
What is more, there are several incoming EU regulations aimed at the use of both personal and non- personal data in the context of AI or cybersecurity such as the AI Act, the Data Act or the Cyber Resilience Act, however, in most cases, defence related products will be exempted from their scope as per the public security caveat.
3. IP law in the practice of Polish defense acquisitions
There are three basic ways in which the Polish Armed Forces contract products and services, i.e. (i) by tender under the Public Procurement law[3], (ii) by offset agreement under the Act on Offset[4] or (iii) by international agreement concluded with the government of the given contracting country, which serves as an umbrella for the execution contracts concluded by the companies of the countries involved. Since the third way is a quite novel, only the first two processes are described. Bear in mind that by default, Polish law will govern any acquisition agreement, so the scope of IP rights needs to be reviewed from the perspective of Polish IP law.
3.1. Technology Transfers in Public Procurement law practice
Defence procurements under the Public Procurement Law starts with the agreement draft developed by the PAA. Usually, the intellectual property section is aimed at securing the acquisition of broad copyright licensing rights to software and documentation. Sometimes the scope of rights requested by the PPA may be perceived as too far-reaching, as in situations in which the PPA expects to be provided with the right to make modifications to software or rights to distribute the software. These requirements may be particularly difficult to satisfy in the complex procurements in which both bespoke and third-party commercial software is delivered. In addition to that as per the Polish Ministry of Defence's internal regulations, software documentation delivered under a procurement must be accompanied by the source code[5]. Luckily, during the tendering procedure, bidders may try to change these requirements by proposing amendments adjusting the scope of rights to the actual needs of the PPA or the final user. One of the major difficulties in such negotiations is the lack of a specialized IP cadre that would support the contracting team at the PPA’s side.
3.2. Offset Act
Contracting under the Offset Act is different than under Public Procurement laws, due to the fact that the Offset Act provides a dedicated framework for technology transfers, including its own terminology, and specific liability regime, adding several hurdles to the contracting effort. By the very specific provision of the Offset Act, the offset agreement must be governed by Polish law.
The major challenge for any defense contractor willing to participate in the offset is to propose a set of intellectual property licenses that will fit into the complex structure of an offset arrangement, which per definition, involves multiple companies designated to its execution along with the PPA serving as a master planner. These mostly state-owned companies may have a different level of maturity in IP management since there is no industry-wide framework allowing to unify the approach. This is why many of the contractual issues, such as indemnities for copyright law infringement, sublicensing, negligence in handling classified information or a cybersecurity breach, may be difficult to handle by the negotiation team.
One of the major challenges on the IP ground in any long-run cooperation is the allocation of IP rights to the potential new developments which may constitute a breakthrough technology following years of technological cooperation. Since the financing of these projects may change in time it is hard to predict at the beginning of cooperation. A way to deal with this obstacle would be an adaptive acquisition mechanism along with the enhanced governance of the projects, but the initiative here would be on the contactor’s side.
The second important issue is that the Offset Act provides for mandatory provisions in the offset agreement directly related to the liability of the parties. It creates a risk-based liability regime for the foreign contractor by explicitly excluding the concept of liability based on negligence. In the offset commitments which require cooperation from the local partner, this is a high bar for the risk uptake by any reasonable contractor. In the case of deliverables such as software which is usually provided “as is”, a conflict with software licensing is likely to arise.
4. IP Law considerations
4.1 Software
Needless to say, software is protected by way of license agreements, which may be directly enforceable before the Polish common courts in case of a breach.
The hottest intellectual property topic concerning software in long-term contracts is the ownership of modifications developed by a licensee, including potential co-ownership of work products made in close cooperation among many parties, interoperability (including software or hardware APIs), as well as reverse intellectual property transfers.
One should also bear in mind that a licensee of software under EU copyright law is entitled to several actions that cannot be restricted by way of agreement. This includes such rights as a right to make amendments necessary to the proper operation of software or a limited right to reverse-engineer (under certain conditions). It’s also important to remember that for a copyright transfer to be effective, Polish copyright law requires to put into the agreement a very detailed list of the “fields of exploitation” subject to transfer (i.e. specific rights such as copying, modification, distribution or the derivatives). This rule is very important in so-called reverse acquisition of IP rights i.e. the situation in which a Polish licensee will work on the modifications which should be transferred back to a licensor. The same rule should be observed in respect of moral rights applicable to any work product developed by Polish-based authors. These rules are especially important when a defense technology provider aims to use Polish companies as the B2B subcontractors in delivering the final product (mostly offset).
What may be of interest to patent lawyers, is that the Polish Patent office has been taking a quite restrictive stance on software patenting for several years. For that reason, any software-related inventions are hard to be patented before the Polish Patent Office or even may get invalidated in Poland based on the local patent law.
4.2. Technical documentation
Sharing confidential, technical documentation is subject to copyright and trade secret laws, while the latter is more important in terms of business impact in case of infringement. Please note that the valuable information contained in a copyrighted document may be extracted (then re-modeled) to another one in a different form, so the copyright owner will be left with no protection. This is because copyright protects the expression only, not a concept or an idea underlying copyright. Moreover, some of the Polish IP courts denied copyright protection to the technical documentation of military equipment, due to the lack of creativity.
The use of technical documentation should be strictly limited to its necessary use by the recipient, however, practical problems may arise when technology needs to be integrated with another one provided by a direct competitor. Management of access to this information is crucial, but in reality of Polish acquisitions are rarely seen in practice. In case of mishandling the confidential documentation, both contractual or statutory rights may be claimed by the rightsholder, including interim judicial protection against any third-party infringer who came into possession of attendant trade secrets or confidential know-how. One should be aware that the local court would take into account Polish statutory laws when assessing the occurrence of the infringement, exculpation, scope of damages, or the measures necessary to stop the breach. In more general terms, it would be also advisable for any defense contractor to maintain a formalized framework for the protection of confidential data, including an inventory of assets subject to confidentiality. It is a common problem in litigation of trade secrets to demonstrate that the confidentiality of information was appropriately maintained.
5. New challenges
In the wake of state-sponsored, sophisticated data breaches, maintaining proper technical and organizational measures is more important than ever before. Another important issue is the legal ownership of data processed by the equipment.
5.1. Cybersecurity
Agreements created by the PPA lack by default any specific cybersecurity obligations, focusing on confidentiality only.
In case of onward technology transfer (such as in the offset agreement) a consciously drafted clause should require the other party not only to protect the information but also to act properly in case of a cybersecurity breach (or even of its susception). This may include immediate notification to the rightsholder, common damage assessment and if possible, facilitating a curing process. More advanced scenarios would facilitate cooperation on technical standards between the company’s cybersecurity departments or even joint exercises to discover potential vulnerabilities. In the wake of everyday attacks on IT infrastructure, it’s crucial to establish governance mechanisms for each type of incident along with mitigating procedures.
5.2. Use of data in the context of AI or ML technologies
There might be certain data provided together with the defense technology subject to the license. In this case, contractual protection will play a primary role, mainly due to the lack of statutory protection in relation to data per se. In some rare cases, the Database Directive will protect the rights of the database producer, however, we haven’t seen much of it in practice.
More interesting though, from the legal perspective, is the issue of data generated by the use of a certain product via sensors, video, etc. There might be gigabytes of data streaming from a single piece of hardware that are susceptible to AI-powered analysis. Both users and providers may be interested in accessing raw data with the purpose of training their own AI/ML solutions. For now, this issue lacks any statuary framework and will be subject to contractual arrangements on a similar basis as the “traditional” IP rights. Moreover, trade secrets and cybersecurity protection should also cover this type of data.
6. Takeaways
For the number of years the defense industry was focused rather on hardware than on software. With the rapid advancements on data processing technologies, software and data are on the forefront of technological innovation. This is a prime reason why the defense industry needs to adapt contractual solutions that have been developed incrementally by the IT industry in the last 30 years. This should include adaptive work processes, standardization of terms used, and governance of cybersecurity on a minimum.
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[1] Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs
[2] Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure
[3] Act of 11 September 2019 on Polish Public Procurement Law.
[4] Act of June 26, 2014, on certain contracts concluded in connection with the implementation of orders of fundamental importance for state security.
[5] Decision No. 349 / MON of the Minister of National Defense of 20 September 2011 on the introduction of the "Instruction on the management of the technical documentation of Armaments and Military Equipment" and the "Instruction on the specification of the requirements for the technical documentation of Armaments and Military Equipment" (Journal of Laws Min. National Revision No. 19, item 287).