Investors' decision to invest in R&D depends on the success of the reform of intellectual property rights protection in the defense sector

Due to the absence of a mechanism for protecting intellectual property rights in Ukraine, Ukrainian defense manufacturers are forced to register their property rights abroad. This, in turn, leads to information leakage, which means the loss of both defense and diplomatic leverage. At the same time, IP protection is extremely important for both authors and investors who invest in R&D. 

This was emphasized on January 13 at the conference “Reform of the Intellectual Property System in the Defense Sector: First Results and Vision for the Future” organized by the Ministry of Defense of Ukraine in cooperation with the independent think tank We Build Ukraine. 

According to Deputy Minister of Defense of Ukraine Valeriy Churkin, due to the fact that Ukraine still does not regulate intellectual property rights to objects used in the defense sector, the state cannot effectively present itself on the international market. This, in turn, leads to a kind of blocking of the technology boom in Ukraine. 

“On the one hand, war is a powerful impetus for innovation, and Ukraine's example clearly demonstrates this. But because we do not have a system for protecting intellectual property rights to certain technological solutions that we invented during the war, we cannot represent them on the international market. On the other hand, there are already developments in transfer technologies and public-private partnerships, which are also impossible without IP rights protection,” Churkin said.

At the same time, NAUDI Executive Director Sergiy Goncharov added that until 2022, Ukraine had no time for patenting - at that time, it was mainly about scaling. But now the situation is radically different - Ukrainian companies are constantly thinking about how to cooperate with international businesses to be able to sell their products on the global arms market, but this is only possible if they comply with intellectual property rights protection. 

Yulia Vysotska, Director of External Relations of the League of Defense Enterprises of Ukraine, noted that the Ministry of Defense still sometimes uses the practice of signing joint decisions with manufacturers, which can be contradictory on the one hand, and sometimes the same decisions with several different manufacturers.  

“This has led to manufacturers developing products at their own expense, which were then presented at specialized exhibitions. And this equipment could potentially be put into service, but it was not included in procurement plans. This should not be the case. It is important to formulate military and technical policy more thoroughly so that we do not develop at our own expense something that no one needs later,” Vysotska emphasized.

At the same time, she added that there are also problematic issues regarding technology transfer. “There are situations when Ukrainian companies are forced to repair imported equipment due to the demands of war, but then its manufacturers appeal to the Ukrainian side claiming that their intellectual property rights are violated. This issue also needs to be resolved, she emphasized. 

Kateryna Mykhalko, Executive Director of the Technological Forces of Ukraine, noted that due to the lack of a mechanism for protecting intellectual property rights, there are defense manufacturers who are forced to do so abroad. For example, companies that manufacture drones. They do not consider registering their property rights in Ukraine, choosing instead Ireland, the United States, Poland, Slovakia, etc.

“This is a very significant marker for our country. This is even worse than the physical relocation of companies.  After all, when it comes to intellectual property leakage, it means a loss of defense and diplomatic leverage. The state must develop a mechanism that will guarantee companies that they will benefit from private property in Ukraine and not relocate these rights abroad,” emphasized Mykhalko. 

She also added that the issue of Ukraine's access to critical technologies, such as chips, AI servers, semiconductors, etc. is also quite important today. Currently, Ukraine does not have such access, so such technologies cannot be provided to businesses. In order to bring such technologies to Ukraine, it is necessary to have agreements and guarantees that these technologies will be protected. 

“But at the moment, there is no such thing as a private business being approached and asked which of these critical technologies you need. And I have not seen diplomatic groups traveling abroad to negotiate this. This means that our technological potential may be limited at some point. And this will be one of the reasons why companies want to relocate their intellectual property abroad - the countries where they relocate will have such access,” says Kateryna Mykhalko. 

One of the solutions to this issue may be to offer a model that is profitable for them from an entrepreneurial point of view. In particular, Ms. Vysotska believes that in order to prevent intellectual property leakage from Ukraine, controlled exports should be allowed. 

According to Ihor Fomenko, Chairman of the Federation of Employers of Ukraine Defence, the state should realize that the protection of intellectual property rights is important not for those who use the invented solution directly on the battlefield, but for those who finance R&D. In this regard, he identifies three groups of stakeholders who may be interested: government customers, Ukrainian investors, or foreign partners. 

“There are government customers. Secondly, there is Ukrainian business, i.e., investors who have been investing in R&D since 2022. High-tech companies can have up to 30% of R&D in their cost structure. That is, it may be that we are artificially restraining the development of R&D and technology. Thirdly, our foreign partners see Ukraine as a sales market. Therefore, they are interested in protecting intellectual property and the technologies they plan to transfer here. They spend hundreds of billions of dollars on technological solutions and do not want to lose them. So they need to be sure that their technologies will be protected,” he says. 

Therefore, according to Fomenko, the protection of intellectual property rights should be viewed comprehensively - in terms of protecting all components, not just protecting the military, which will patent a particular solution. 

“This means protecting businesses that have invested billions of dollars in Ukraine and tens of billions abroad. And it means a functioning judicial system and regulatory authorities. One will not work without the other,” he emphasized.

At the same time, Vadym Sukharevskyi, commander of the Unmanned Systems Forces of the Armed Forces of Ukraine, added that in addition to regulating the system of intellectual property rights in the defense sector, it is crucial to introduce a system for analyzing issues related to the certification of such products. 

“We are not currently doing this, and we do not always understand how this happens. And this needs to be done. Unfortunately, there are already cases when our military personnel who came from the civilian sector initiate, invent, create, as I said, certain technological solutions on their knees. But when it comes to certification, they are forced to take a simpler path - to become entrepreneurs. Instead of doing scientific work, they went to some state institution. This is not a bad thing, and it is a much faster way to get to the front with your solution. But it means that we also need to work on certification rules,” he summarized.