Clause 8 - Intellectual property rights

Defence Reform Bill – in a Public Bill Committee at 2:00 pm on 10th October 2013.

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Question (this day) again proposed, That the clause stand part of the Bill.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

It is a pleasure to see you in the Chair, Mr Amess, albeit as substitute, but substitutes are always welcome.

I had begun to talk about the Ministry of Defence’s interest in selling the Defence Support Group and the consultation that started in August this year, which was designed to ensure that there were no ongoing conflicts with regard to the intellectual property used by DSG in carrying out its business.

In this instance, industry IP is handed over to DSG to allow the company to undertake some highly specialised work, on vehicles in particular, and is clearly moved into incredibly safe hands at DSG. That IP and its transfer have been the subject of industry concern, which is in part relevant to the clause. Industry is concerned about who gets control of a potentially large amount of IP that, previously, no one expected to be released to commercial rivals. That takes us back to the issue of retrospectivity.

An MOD spokesman—commenting when the audit was announced in the contracts bulletin, which aimed to establish who in industry objects to their IP being handed over to the new DSG arrangements, ahead of any negotiations to resolve individual issues—said the Department has

“been engaged on IP work for a long time… and we are still working to resolve the issue and deliver a successful sale in… 2014-15”.

I understand that there has also been some discussion specific to DSG about whether certain elements of it—Sealand and Stafford, I think—should be declared out of scope and a completely separate entity set up to deal with the most sensitive IP information that they work with.

Putting aside the issue of whether that is a sensible thing to do with DSG, there clearly are unresolved concerns within the MOD about how to handle it. That  being the case, it is questionable why we are being asked to allow the clause through when the MOD does not appear to have got its head around how to handle a smaller amount of IP linked to the possible sale and movement of DSG to the private sector. Here we are talking about a group of people who work on projects as sensitive as Typhoon, and who could well be working on the F-35 when it enters service.

We do need an answer from the Minister on the potential time scale issues raised by the quote from the MOD spokesman, because it seems to suggest that this is likely to be an extremely long process. How quickly will the negotiations on the transfer specific to the GoCo be achieved? Can they be achieved before we get to the next general election?

What about protections for the GoCo itself? Suppose it developed a hypothetical internal system—IT perhaps—that proved to be the best thing since sliced bread, but which applied specifically to MOD working. Who would own that IP if the decapitation outlined by Bernard Gray, Chief of Defence Matériel, took place and the new company was set up? Would it have any rights to that hypothetical amazing IT system, or would the MOD have to buy back the system at a cost if it decided to take it back in-house or to bring in another contractor? Would the MOD own it by dint of contractual arrangements that will be set in place? Or, could there be a legal wrangle, with both parties claiming ownership? I would be grateful if the Minister answered those concerns about how IP will be developed within the system.

We have heard that two contractors could be running at the same time. Would one be expected to share its expertise and IP with the other? I assume, again, that such matters will probably be enforced through contracts, but I see nothing in the Bill that clarifies that. It is also unclear as to whether—say, after the nine years of the new consortium being chosen as the preferred contractor—there will be a right of transfer of protected information and work to the new contractor. Might there be a circumstance in which the old contractor is reluctant to pass on information to the new one? If that happened, would there be potential for acrimonious legal wrangles for the Secretary of State?

Those are all genuine questions that I hope the Minister will answer. I am particularly interested to hear about the time scale and concerns as to what seems to be happening at DSG.

Photo of Russell Brown Russell Brown Shadow Minister (Scotland)

I shall be brief. Prior to the break, at clause 7 I mentioned the investment that companies have made over long periods to reach the position they are in. Their product and the associated intellectual property have come at great financial cost. I appreciate that we are discussing clause 8, not clause 7, but some of the arguments are relevant, and it is clear from the Committee’s first sitting, when we took evidence, that there are issues here.

I know that the Minister has given some reassurances, but I have taken the opportunity to look at the standard note from Library. The research paper says quite clearly:

“Clauses 7 and 8 take rights away from the disclosing party or copyright owner without any right to objection and without compensation.”

It goes on:

ADS has serious concerns about the proposed provisions in Clauses 7 and 8. We recommend that, in the case of copyright, the existing Crown user rights under the IPR DEFCONS should be preserved. Clauses 7 and 8 should therefore be removed from the Bill.”

That is obviously not happening, so the Minister and the Government should give reassurance not only to the Committee and the House as a whole, but to businesses, especially small and medium-sized enterprises, which are the lifeblood of many small rural economies. I know that the Minister has done his best to give the reassurances that we need, but I still have niggling fears in the back of my mind about something going wrong despite those reassurances—after all, we are discussing legislation.

For small companies in particular, something going horribly wrong and rights not being protected could take a business to the wall at the drop of a hat. That business might have been in the family for two or three generations, but if it went to the wall it might take 10 or 15 jobs with it—who could tell?

I want to put that on the record. I am not sure whether the Opposition will vote against the clause, but this is about business and people’s livelihoods. We cannot give enough assurances to businesses, especially small businesses, on the absolute certainty that their intellectual property will be protected at all costs.

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

It is a great pleasure to see you, Mr Amess, standing in for one of our appointed Chairs, and we are pleased that you have resisted the temptations of a one-line Whip, which would have made you unavailable. I hope that we make it worth your while. I will address the hon. Lady’s specific questions, but before I do so, I would like to explain briefly the purpose of the clause.

The clause is essential because, without it, the use of intellectual property by the contractor could be unlawful. It will put appropriate safeguards in place to prevent the unauthorised use or disclosure of that intellectual property by either the contractor or its employees.

The clause is concerned with copyright works and databases in which a database right subsists. There are, of course, other types of intellectual property right, of which patents and design rights are the most familiar, but there are statutory provisions, such as the Patents Act 1977 and the Copyright Designs and Patents Act 1988, that allow for the use of those by the Crown, or by contractors on behalf of the Crown, without needing permission from the owner of the intellectual property.

However, there are no statutory rights of Crown use for copyright works, which include reports and software such as those procured by DE&S. It is therefore necessary to include the clause so that the MOD can lawfully provide copyright and database works to the contractor where the MOD has secured the rights to use such works itself and where it is necessary and expedient to provide the work to the contractor for defence procurement services. If the clause is not included, provision of copyright and database works to the contractor by the MOD will risk infringement of copyright and database rights in such works.

Many of the provisions are similar to those we discussed under the previous clause and the concerns about protecting confidential information are similar to those referred to by the hon. Lady and the hon. Member for Dumfries  and Galloway. I therefore refer the Committee to remarks I made earlier today on how we go about protecting such information.

The hon. Lady asked, by way of an example, whether we will be able to protect against the material being taken out of GoCo’s control if individual employees are head-hunted away to work for contractors, taking IP information with them. They will be subject to the same restrictions on the use and theft of confidential information as under the previous clause, which will catch them.

The procedures in DE&S, which we would continue to have in the GoCo, are, we believe, adequate to resisting the theft of information, and have proved to be so. One can never be absolute in such matters—if someone has malign intent, they might find ways around the procedures—but that is the situation in which we find ourselves today. We do not believe that the Bill or the establishment of a GoCo increases that risk.

Before the break, the hon. Lady also asked about how we protect “soft” IP, such as the know-how that a manager in DE&S might develop on the procurement procedures used by a particular company to succeed in winning contracts. Were they to leave DE&S, they might be able to transfer that knowledge or know-how to another employer. What would happen depends on the circumstances in which the transfer took place. If it was through the theft of material, and it could be established that that was what had happened, the person would be caught under the provisions we discussed earlier. If it was merely an understanding from having worked in one environment that was then developed in another, that could not be precluded by statute—that is the commercial world in which we live.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence) 2:15 pm, 10th October 2013

Can the Minister address a concern I have? We are talking about people moving within the UK, but how would the behaviour of somebody who retains that sort of knowledge be monitored if they were to move from the UK to, say, Brazil, China or anywhere else abroad? They could use their IP knowledge in a way that is detrimental to UK interests.

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

That is an interesting question. Of course, this legislation applies within the UK. The provision will not apply to intellectual property obtained though contracts entered into under foreign law. Treaties and memorandums of understanding with other Governments are outside the legal jurisdiction covered by the Bill.

The hon. Lady’s question was, if a former employee of DE&S in the UK were to work in another country, what remedies are available to the Government, the Ministry of Defence or individual contractors who feel they have suffered loss to pursue that individual? It would depend on the nature of the offence that is committed. If it is one that could be pursued under the Official Secrets Act, we have extradition arrangements with other countries that we could enforce. If it is theft of commercial information that damages another country, it would be down to the contractual arrangements, which exist today. There is no distinction between the risk of that happening under a GoCo and it happening under the DE&S today; the risk is already there. As I said when we discussed these problems on Tuesday, we are not familiar with that sort of offence occurring in  the past. That is not to say that we can preclude it from happening in the future, but we do not anticipate that it will.

The hon. Lady also asked whether the example of establishing the IP protections surrounding the DSG sale is instructive. I am glad she raised that issue, because it highlights the importance of IP in allowing the Ministry of Defence to ensure its equipment is maintained and serviced to support our armed forces. I am sure, Mr Amess, you will allow us to digress down this track, because it is relevant to the issue of intellectual property, which is covered by the clause. The Defence Support Group has responsibility for maintaining and overhauling vehicles—tracked vehicles, primarily—for use by the British Army. Many of those vehicles in support rely on intellectual property from the original equipment manufacturer—the OEM—which in most cases is BAE Systems. DSG operates under licence from BAE systems, so it has access to the source code and data relevant to those vehicles.

I will use an analogy to put this issue in context. A tracked vehicle—say, a tank—is a platform for use by the Army. It is analogous to a surface ship or a submarine, which are platforms in use by the Royal Navy. Surface ships and submarines, as hon. Members know, are subcontracted out to companies that are not exclusively the OEM suppliers of those platforms. Therefore, it is common practice across the services to enter into live support relationships with third-party contractors that are not necessarily the OEMs, which therefore have to enter into agreements with the OEMs to get access to their IP. That happens today across the services. It does not happen at the moment in relation to DSG because the sub-contract licensee is the MOD through DSG. If the licensee were to change to a third party that is not the OEM, a new relationship would have to be established for that party to benefit from a licence from the OEM.

The situation is entirely analogous to what happens in the air and maritime domains. It is taking a bit of time simply because these things do. It took time to get such arrangements sorted out in other domains. We do not anticipate that that will interrupt our programme to prepare DSG for sale. It is simply one of the many things that have to happen in the course of preparing a business for a change of control.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

I thank the Minister for allowing me another intervention. A consultation is under way about the potential sale of DSG and the movement of IP within that. What is the time scale for that consultation and will the responses from business be made public?

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

Yes; specifically, there is a consultation.

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

The hon. Lady refers to the sale process for the Defence Support Group and the consultation that will take place surrounding that. At this point, the consultation is pending decisions about the sale process; there is an established route for informing employees through their trade union representatives about how that process is developing. If that is the consultation she is referring to, it is an informal rather than a formal one.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

Perhaps I can be a little clearer. An audit, which was announced in the contracts bulletin, aims to establish who in the industry objects to their IP being handed over to the new DSG, ahead of separate bilateral negotiations to resolve individual issues. I misnamed it by calling it a consultation. It would be helpful to know whether the industry responses to that audit will be made public.

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

The hon. Lady raises an interesting point. As part of the sale process, we have sought to make it possible for any OEM that believes it has IP in use within the DSG to draw that to our attention. We are aware of the ones that we are aware of, and we are in dialogue with them. We might not necessarily be aware of those OEMs that think they have IP within the DSG—that is an unknown unknown. I will take away her question about what we intend to do. I anticipate that the responses will not be made public, but I will get back to the hon. Lady on that point, in the context of the DSG sale.

If I may, I shall return to the clause; I know you are keen for us to get back to it, Mr Amess. The hon. Lady asked what would happen in the event of two contractors being involved in the GoCo, perhaps managing different domains, and what will happen with IP on transfer of the GoCo contract at its end. She also asked who would own the IP if a decapitation eventuality interrupts a contract. The IP is owned by the OEM—the prime contractor or subcontractor whose IP it is. The Ministry of Defence is licensed to use the IP as part of the contract for purchase of and subsequent support for the piece of equipment to which the IP relates, and that will continue to be the case.

If licences are held within a GoCo environment, they will be held at the operating company level. The hon. Lady will recall that it is the operating company over which the Secretary of State retains the ability, through the use of the special share, either to claw that business back into the MOD or to transfer it on to another party. Were the ownership arrangements of the management company to change, all the IP licences would be held within the operating company and it would therefore be within the power of the Secretary of State to transfer them in any of the circumstances that she mentioned.

I have addressed the specific questions asked by the hon. Lady and the hon. Member for Dumfries and Galloway. Moving on, subsection (1) enables the Secretary of State to provide a “protected work” to a contractor or its service provider without infringing copyright or database rights. Subsection (2) enables contractors or service providers to provide such works to each other and to the Secretary of State without infringement. The subsection also allows for a provision of the works to and from former contractors, to allow for the provision of such works in the event that the Ministry of Defence decides to change the contractor for defence procurement services, which we have just been talking about. Subsection (3) allows for the use of such works by the contractor or its service providers without infringing those rights.

The issues surrounding intellectual property were the subject of considerable interest on Second Reading, and, as the hon. Lady has pointed out, defence industry contractors have raised concerns about them with us. The Government intend that the contractor will receive only the copyright and database work that it needs to  deliver the defence procurement services required by our armed forces, and that the contractor will not use them for any other purposes without the permission of the Ministry of Defence. The contract that the Ministry of Defence places with the GoCo contractor will include specific provisions to that effect.

I can assure the Committee that every possible precaution is being taken to ensure that the transfer of DE&S to a GoCo contractor would not compromise the protection of information or our relationships with either international partners or our commercial suppliers. The contractor will have access only to intellectual property that is required to carry out its obligations under the contract. The contractor will only receive and have access to information and intellectual property in relation to contracts that are in its scope under the contract. Information and intellectual property that is outside the scope of the contract, or that the Ministry of Defence determines the contractor will not need, will be retained by the Ministry of Defence. Further protection will be placed in the contract itself. The contract will place conditions of use on the contractor in relation to the access to and use of third party confidential information and protected works supplied after vesting day.

Photo of Tobias Ellwood Tobias Ellwood Conservative, Bournemouth East

Can the Minister confirm whether existing arrangements would be transferred, were the GoCo to move forward? In cases where extremely sensitive information is involved, there are “British eyes only” rules that apply. Will the same process be continued in the contracts relating to GoCos?

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

I am pleased that my hon. Friend has referred to the existing security and vetting arrangements and has sought confirmation that those will be deployed in relation to a GoCo contractor. I can confirm that it is absolutely our intention to do so. I do not know whether the Committee would be interested in a summary of some of the vetting arrangements—[ Interruption. ] I note that some members of the Committee are interested, so I will find my relevant notes. This issue is relevant to the way in which the clause might operate.

As my hon. Friend the Member for Bournemouth East knows—I suspect he has been party to some of this, given his distinguished service for his country—we have four levels of MOD personnel security controls currently available, which depend on the level of assurance required. There is a baseline personnel security standard, which was previously known as the basic check. We have a counter-terrorist check at the next level. Above that, we have a security check, and above that, for the most sensitive material, we have developed vetting.

The baseline standard is not a national security clearance, but it aims to provide an appropriate level of assurance as to the trustworthiness, integrity and probable reliability of prospective employees. That applies to anyone who is coming to work for the MOD.

Photo of Tobias Ellwood Tobias Ellwood Conservative, Bournemouth East 2:30 pm, 10th October 2013

I beg your indulgence, Mr Amess, but I hope the Minister will agree that while there are certain circumstances where “British eyes only” is appropriate, the strength of our relationship with the United States has enabled quite a unique set of parameters to develop that allows the sharing of information in this context which is second to none.

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

My hon. Friend is absolutely right. We have very well established procedures, tested through both a “UK eyes only” and “UK/US eyes only” process, which apply to information that can be shared between UK personnel and US personnel. We are probably one of the most advanced nations in the way that we undertake vetting procedures of our personnel, security-mark material and protect security-marked classified material to ensure that it is accessible only to people who have the suitable level of vetting. We anticipate that this would apply within the GoCo just as it applies within DE&S.

Just to reassure hon. Members, at the most basic level of security, we are looking to verify four main elements: first, identity; secondly, employment history going back three years; thirdly, nationality and immigration status; and fourthly, a criminal records check, checking for unspent convictions only. Anyone seeking to work for the Ministry of Defence and any of our agencies is required to give a reasonable account of any significant periods—six months or more in the last three years—spent abroad.

While further inquiries such as into health status may be undertaken, those are not necessarily part of the baseline standard. This is required for all recruits into the civil service, including casual, temporary and work-experience staff and for contractors’ employees where those employees need unsupervised access to confidential material of UK origin or unsupervised access to the MOD estate.

The basic vetting seeks to ensure that all new staff are entitled to work in the UK and where appropriate meet nationality rules for Government service, to guard against the employment of anyone posing as a prospective employee for commercial or personal gain and to provide a sound basis for any subsequent national security vetting check. This should be sufficient to allow access to UK assets protectively marked confidential and occasional access to secret assets of UK origin during the normal course of business or during conferences or courses. A number of supplementary checks such as into any spent convictions as part of an individual’s criminal record and/or their creditworthiness are also available for specific posts where appropriate.

That is the level of background checking undertaken for the most basic entry level into the MOD and we would envisage that that would apply for GoCo employees as well. I do not propose to go into the higher levels of security vetting in detail here as that might expose them in a way that is not required by this Committee. I can assure members of the Committee that they are significant and taken most seriously.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

May I seek some assurance? While the Minister has been thorough in running through the different tiers, if an expert is employed from somewhere outside the UK where it is not possible to carry out some of those basic security checks, how will that be managed? Will they simply not be allowed to have any access at all?

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

The main operating base of DE&S is in the UK. There are DE&S personnel within operating bases around the country and in some operating bases abroad. So there are, for example, personnel at our bases in Germany and Afghanistan. We do not routinely  have cause for having procurement personnel located in other countries. Having said that, there are some personnel located abroad, primarily in the United States.

We made reference earlier to the joint strike fighter programme, which probably has the largest concentration of personnel from DE&S. Elsewhere, there are others in the deterrent programme. They are all recruited, as far as I am aware, from a UK base and deployed for specific purposes.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

Will the costs of vetting and ensuring that these individuals are of suitable clearance still fall on the taxpayer, or will that be the GoCo’s responsibility? Whose job will it be to monitor the security status of individuals who have access? Will that be the MOD or does that fall on the GoCo’s self-regulation?

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

The hon. Gentleman is tempting me to stray into areas of personnel management that I am perhaps not best equipped to cope with. My understanding is that the MOD pays for the security vetting procedures that it requires for an MOD or DE&S employee. Clearly, if security vetting requirements are imposed on our contractors, it will be for the contractor to pick up the cost of the vetting.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

That was as clear as mud. I understand that the Minister does not know the answer, so I would be happy for him to write to us afterwards.

Photo of Philip Dunne Philip Dunne The Parliamentary Under-Secretary of State for Defence

I am very sorry to have disappointed the hon. Gentleman with my lack of detailed knowledge about employment practice within the MOD. I will be happy to put that right by writing to him.

On the hon. Lady’s point on the status of individuals who might be working abroad, in the event that we are not able to achieve the security status vetting procedure, for whatever reason, they do not get the clearance and therefore do not get access to the relevant material.

You will be relieved, Mr Amess, to hear that I have almost concluded my remarks on the clause. I will do so by saying that the GoCo contractor, if we go down that route, will be required not to disclose intellectual property rights to third parties and not to use those rights for purposes other than for Ministry of Defence contracts without the express permission of the Ministry of Defence. With that reassurance, I hope that the hon. Lady will support the clause.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

The Minister was good enough to offer a detailed explanation of a number of the issues specific to the clause. We did move a little off piste, to be honest. He reiterated the extremely close relationship between the US and the UK on the management of highly sensitive information, which is well understood by every member of the Committee. He said that it is anticipated that that will continue under the GoCo, which brings us back to our continuing concern that, despite the history, there is still a degree of uncertainty on how the GoCo will work with our allies in the United States.

The Minister also talked about how the GoCo will be licensed to use IP. He talked about the complexity of transferring IP and how the move from the MOD to a private entity is being managed, but there is a lot of fuzziness and a number of grey areas. There are concerns about the time scale, all based around the issues specific to DSG and their potential impact on the GoCo. For example, the audit is under way and the Minister straightforwardly said that he would come back to me on how that was being managed specific to DSG. While that type of audit was held in relation to DSG, seeking views specifically from some of the prime contractors, there seems to be no facility or scope for a similar sort of process to be managed in relation to GoCos, where a similar sort of transfer—admittedly, with slightly different information—will go ahead. Therefore, on a matter of principle, we want to vote on the clause.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 9, Noes 5.

Division number 3 Decision Time — Clause 8 - Intellectual property rights

Aye: 9 MPs

No: 5 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clause 8 ordered to stand part of the Bill.