This article examines the most critical IP issues facing commercial tech companies looking to enter the defence market today as the sector moves from a hardware-first to software-first, software-defined defence paradigm.
The defence technology sector is going through a period of unprecedented innovation, driven by emerging threats, the need for military superiority and a wave of emerging technologies such as artificial intelligence, autonomous and semi-autonomous UAVs, robotics, swarming munitions, hypersonic weapons, directed energy weapons, quantum computing and biotechnology. The hardware components of many of these systems are not difficult to develop - many are relatively conventional. Much more so than has traditionally been the case, it is cutting-edge advances in software which are powering the capabilities of these systems, and software quality that determines their efficacy.
As a result, we are living through a profound shift from a hardware-first to software-first, software-defined defence paradigm. The Ukraine war in particular has a been a crucible in which, driven by necessity, there has been a pivot from the large hardware-defined systems that won conflicts in the last century to much lower-cost, quasi-disposable, small, software and data-defined systems deployed in large numbers. This new paradigm has been found to be effective and even superior in some situations to a traditional hardware-defined approach.
The US Department of Defence (DOD) has therefore articulated as a strategic priority the need to leverage the strength of the US commercial tech industry (which is brimming with world-class software talent). The UK Ministry of Defence (MOD) and other NATO national authorities, grappling with geopolitical changes which are driving them to re-arm as quickly and cost-effectively as possible at a time of strained public sector budgets, are following suit. In particular, their shared aim is to encourage commercial tech companies (and defence tech SMEs) to adapt their proprietary commercial technologies (in particular AI and autonomy), developed in many cases through heavy private-venture investment, for military use. A collateral benefit of this trend should be the bringing of well-honed working practices from the commercial tech sector, such as a "minimum viable product" mindset, iterative (and rapid) product development cycles, and intense product-market fit scrutiny, to bear on defence projects.
However, the achievement of this strategic goal has been hindered by the intellectual property (IP) frameworks that govern how defence contractors and government agencies share, protect, and commercialise technology. These IP rules were conceived for the hardware-first era in which development projects were fully (or predominantly) funded by the DOD and MOD, on costs-plus contracts. They are not well adapted to the software-defined defence era. In particular, they look very strange to the commercial tech industry, as we explore in more detail below.
Recent developments in both the United States and United Kingdom suggest that significant changes to these IP frameworks are underway. The DOD is implementing new approaches to encourage innovation while protecting national security interests. And in July 2025, the MOD launched the UK Defence Innovation, an umbrella organisation charged with "simplifying and streamlining the innovation ecosystem with MOD" and "using different ways of contracting".
We analyse the evolving IP policies of both the DOD and MOD, and provide practical guidance for navigating these complex IP frameworks.
The strategic importance of IP in defence contracting
IP policies in defence contracting seek to achieve multiple, sometimes conflicting, purposes. For government agencies, IP policies must balance national security requirements, value for money, the need to maintain a competitive industrial base and encouraging commercial tech developers and defence tech SMEs to make available technologies (modified as required for military purposes) which they have developed at their own cost. Conversely commercial tech developers and defence tech SMEs are seeking revenues in new markets, without undermining their existing commercial business or destroying the value of their investment in any background IP they incorporate into the military deliverables.
The traditional approach to defence IP has been characterised by government acquisition of broad rights to contractor-developed technology. While the DOD and MOD in many cases allow that IP developed under the contract belongs to the contractor, they have traditionally required wide rights to use, modify, and disclose any such technical data and software. In many cases, similar rights are also required under any contractor background IP which has been incorporated into the contract deliverables. These requirements have been driven by the need to prevent "vendor lock-in" and maintain the government's ability to competitively procure future contracts (for the supply of further units of the contract deliverables; for the design and supply of modified or upgraded deliverables; and for support and maintenance of the contract deliverables).
The MOD has also traditionally imposed commercial exploitation levies on any commercialisation by the contractor. This approach is well suited to the large defence prime incumbents, who have comparatively low levels of private-venture funded R&D (as they have become accustomed to most of their R&D being done under cost plus government contracts) and no commercial sector businesses to run in parallel with their defence activities. However, this approach has increasingly been recognised as potentially counterproductive, discouraging private investment in R&D and limiting the government's access to cutting-edge commercial technologies.
US Department of Defense: new approaches to IP management
Under the DOD's Defense Federal Acquisition Regulation Supplement (DFARS), "Unlimited Rights" (for DOD fully-funded programmes) and "Government Purpose Rights" (for programmes with mixed funding) have traditionally been the most commonly used arrangements in equipment design contracts and military software development.
"Government Purpose Rights" afford the US Government (that is, the entire US Government, forevermore) and certain foreign governments and international defence organisations, the "right to use, modify, reproduce, release, perform, display or disclose technical data or computer software within the Government without restriction, to release or disclose technical data or computer software outside the Government, and to authorized persons to whom release has been made to use, modify, reproduce, perform or display that technical data or computer software, provided that the recipient exercises such rights for Government purposes only".
On expiration of a five year period, the Government acquires Unlimited Rights. Unlimited Rights are similar to Government Purpose Rights, but allow the Government to share the technical data or software for any purpose whatsoever, including - should it choose to do so - sharing it with the vendor's commercial competitors for pure commercial use. The DFARS also permit the US Government to take only "Limited Rights" for technical data or software which has been developed by a vendor exclusively at its own cost. However, such rights are still quite extensive. They allow use, modification, reproduction, etc by any part of the US Government, and also extend to certain support contractors and foreign governments. Also, while only taking "Limited Rights" is permitted, the US Government is not obliged to limit itself to such rights, and there have been multiple anecdotal examples of the DOD scoring bidders more highly in competitive tenders if they are willing to provide "Government Purpose Rights" for exclusively private-venture funded components comprised in a contract deliverable.
And because even what might eventually turn into major defence software programmes typically begins with a low-value pathfinder or prototype project, the DOD is effectively asking vendors to give up a lot (their proprietary IP, vital to their commercial sector operations) in return for little. This has been a major disincentive for commercial tech companies to adapt their cutting-edge commercial technology for military applications.
However, the DOD has undergone significant evolution in its IP policy over recent years, moving away from this traditional approach towards a more nuanced and flexible framework that seeks to balance government mission needs with contractor incentives for innovation and commercialisation.
This transformation began in earnest with the 2018 National Defense Authorization Act (NDAA), which introduced substantial changes to the DOD's handling of IP rights, particularly concerning technical data and computer software. Sections 802 and 835 of the NDAA mandated the development of new DOD guidance on IP acquisition that encourages the use of customised, "specially negotiated" licences reflecting the sources of funding and relative investments of government and contractors. The legislation emphasised acquiring only the minimum IP rights necessary to meet government needs, aiming to preserve competition while respecting contractors' legitimate IP interests.
In response, the DOD published its comprehensive IP Strategy in 2019, establishing key principles that marked a fundamental shift from previous approaches. The strategy reinforces that the government should acquire only the minimum IP rights necessary to accomplish its mission and that IP rights negotiations should consider the relative contributions and investments of all parties. It also stresses encouraging the integration of commercial technologies into defence systems to leverage innovation and cost efficiency.
Building on this foundation, the DOD has further refined its IP policy framework in its 2025 Intellectual Property Guidebook to better address the modern defence environment's complexity and challenges. The new approach promotes smoother technology transition by enabling contractors to retain greater rights, facilitating commercialisation outside of defence markets and encouraging private investment in innovation. Additionally, licensing agreements are increasingly tailored to mission needs, with scope adjustments for advanced data rights and customised government purpose rights that provide the government with necessary access while protecting contractor interests. The policy also offers clearer incentives and less restrictive IP terms especially aimed at small businesses and startups working on cutting-edge technologies, fostering a more innovation-friendly ecosystem.
The DOD's Defense Federal Acquisition Regulation Supplement (DFARS) has seen numerous updates to implement these strategic aims, including enhanced negotiation procedures and clearer definitions regarding technical data and computer software rights. In particular, a new category of "Technology Transfer Rights" is being piloted in which contractors retain broader rights in specific technology domains to facilitate innovation and transition. This category is designed to promote dual-use technologies and allow contractors to retain broad rights while still collaborating with the DOD.
Following these policy changes, contractors now generally have an improved negotiating position for IP rights in government contracts, with enhanced protections for proprietary commercial technologies. However, the increased complexity of contract negotiations demands more sophisticated IP management strategies and careful attention to funding sources and licensing scopes. Strategic contract negotiation and IP management are essential to maximising proprietary data and software protections and balancing government access needs with commercial viability.
UK Ministry of Defence: DEFCONs 91 and 707 and UK defence innovation
The UK takes a different approach to government contracting compared to the US. Rather than setting appliable contract terms out in legislation, such as the Federal Acquisition Regulations and, in the defence context, the DFARS, the MOD instead adopts DEFCONs. DEFCONs (a simple abbreviation of Defence Conditions) are not a threat level, as in US usage. Instead, they are set of standard contractual terms for use in defence contracts. They are drafted by the MOD Commercial Policy Team in conjunction with the MOD Commercial Legal Services team, and reviewed by the Joint MOD and Industry DEFCON Working Group to ensure that the underlying principles (if not the exact wording) are acceptable to industry.
DEFCON 91 applies to contracts for the development of a software deliverable (including contracts for the maintenance and support of software). Under DEFCON 91, the MOD acquires rights under the software deliverable of a broadly similar scope to the DOD's Government Purpose Rights. The MOD acknowledges that the deliverable software may include elements of existing proprietary software, the IPRs in which are owned by the contractor or by a third party (IP DEFCON Guide, paragraph 79). However, as in the US, the consequences of such inclusion are not appealing to a commercial software vendor.
First, the vendor is given the opportunity to 'flag' such inclusion on DEFFORM 711 as soon as it become aware of the intended inclusion. If it does so, the same "Government Purpose-like" Rights apply to the existing proprietary software as to the newly-developed software components funded by the MOD, but the vendor can claim an additional "fair and reasonable" payment in respect of the rights granted in respect of its existing proprietary software. If it fails to do so: the same "Government Purpose-like" Rights still apply but the contractor loses the right to any additional payment; and the MOD may use the such existing proprietary software supplied under the contract on a 'use now settle later' basis. The vendor cannot refuse delivery or use even if such additional payments have yet to be agreed.
This approach of asking for broad rights for early-stage software acquisition virtually guarantees that many of the best commercial software providers will opt out of competing for MOD contracts.
The counterpart of DEFCON 91 in respect of technical data in any non-software aspect of a project is DEFCON 707 (Rights in Technical Data). There, the position is similarly problematic. Introduced in April 2021, but under negotiation for at least five years prior to its launch, DEFCON 707 was modelled on the then-DFARS, in particular the concept of "Limited Rights" and "Government Licence Rights".
DEFCON 707 introduced two key changes to the previous technical data regime under DEFCON 15 (Design Right and Rights to Design Data). First, it broadened the MOD's rights to allow competitive procurement of future modification and upgrade work to existing equipment designs. Under DEFCON 15, the MOD's rights to do this had been significantly curtailed. Secondly, it clarified the treatment of contractor background IP, with clearer definitions of "background IP" and "foreground IP" and enhanced protections for contractor-funded developments. In particular, it ensured that MOD receives only "Limited Rights" in respect of contractor background IP for the specific contracted purpose, with broader rights requiring separate negotiation and potentially additional compensation. This represents a significant improvement in clarity over the previous approach in DEFCON 15 that often resulted in the government acquiring broad rights to contractor background design data. However, there are few signs in DEFCON 707 of the modernising approach under discussion in this article. It is a quirk of history that, in large part due to the very long gestation period of DEFCON 707, the MOD ended up moving its approach to IP in the direction of the traditional DFARS structure, just as the DOD was exploring moving away from that structure.
The establishment of UK Defence Innovation (UKDI) in July 2025 is being billed by the UK government as a "fundamental transformation" in how the UK approaches defence innovation and, by extension, intellectual property management in the innovation space. By bringing together the Defence and Security Accelerator (DASA), Defence Innovation Unit (DIU), and Command Innovation Hubs, and Defence Equipment & Support (DE&S) Future Capability Innovation (FCI) under a single organisational umbrella, UKDI is intended to promote more coherent IP strategies across the innovation lifecycle.
This unified approach should improve IP management in UK defence innovation projects, but much depends on how it is implemented on the ground. The various benefits promised by the new structure include: a single point of engagement for innovation activities, with a consequent reduction in complexity of managing IP rights across multiple government organisations; more consistent IP policies across different types of innovation funding, from early-stage research grants to later-stage development contracts and additional flexibility for innovation-focused projects. UKDI recognises that innovation requires different IP approaches compared to traditional procurement, often involving higher risk, earlier-stage technologies where traditional IP frameworks may not be appropriate.
As more information about UKDI emerges, it will be interesting to see what approach it takes to the IP terms in the "alternative forms of contracting" which are promised. UKDI has some way to go if it wants to emulate the more flexible and nuanced approach currently being piloted by the DOD in the US. Defence tech companies will watch eagerly to see how it rises to this challenge.
Best practices for defence tech companies in IP management
As can be seen, effective IP management requires significant investment in specialised capabilities, including access to specialised IP and government contracts legal expertise, robust systems for documenting IP development, funding and ownership, sophisticated contract management systems that track IP obligations, and dedicated resources for managing export control compliance. Successful IP management also requires ongoing engagement with government customers through discussing IP issues early in the procurement process, working collaboratively to find mutually beneficial IP arrangements, and maintaining open communication about IP issues throughout contract performance.
Businesses should also consider building strategic partnerships with other companies to share IP development costs and risks, collaborating with universities to access cutting-edge research, and building relationships with international partners to access global markets.
The increasing importance of artificial intelligence and machine learning in defence will pose challenges such as determining ownership of AI algorithms developed using government data, and managing rights in the datasets used to train AI systems. In addition, the shift towards cyber security and software-defined defence systems creates new IP considerations around managing complex software licensing arrangements, ensuring ongoing access to software updates and maintenance, and protecting IP related to cyber security technologies (see here for more on cyber security). These issues are particularly challenging because software-defined systems may require ongoing updates and modifications that blur traditional boundaries between development and RMO (repair, maintenance and overhaul).
New opportunities
The IP landscape for defence contracting is undergoing fundamental transformation, driven by recognition that traditional approaches may hinder innovation and competition. Both the US DOD and UK MOD have implemented significant policy reforms that create new opportunities and challenges for defence tech companies. For UK-specific guidance, businesses should also engage with the UKDI, which now serves as the primary interface for defence innovation activities and can provide guidance on IP considerations across the full spectrum.
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