Management of Intellectual Property in
Computer Software:
Audit Observations on Government Intellectual Property Policies
Introduction
Policy on Intellectual Property in Government Software
On 27 May 1996 the Policy on Intellectual Property in Government Software (the Intellectual Property in Software Policy) was issued. I have referred to this policy in my last two Reports, and a copy was appended to Part A.3 of my 1996-97 Report. As the title suggests, the Policy deals specifically with intellectual property in computer software. Its status is that of a ‘reference document’ supporting the Government Policy on Information Technology (the IT Policy) developed by the Department for Administrative and Information Services. The IT Policy also makes various references to intellectual property in information, data and computer software.
Intellectual Property Policy (The Draft Policy)
The Government, through the Prudential Management Group (PMG), has drafted an Intellectual Property Policy (the draft policy) covering the full range of Government intellectual property assets. Beyond intellectual property in data and computer software, the draft policy covers patents, trade marks, designs, copyright, plant breeder’s rights, circuit layout rights, and confidential information. The draft policy also covers a number of key areas and considerations that will apply to all Government agencies including the identification, protection and ownership matters for Government, and provides guidance on issues of commercialisation, risk management, documentation and performance monitoring.
Given the potential significance of this document in relation to the issues covered in this Report, and in my two previous Reports, the draft policy was reviewed by Audit in conjunction with Audit’s 1998-99 review coverage of further aspects of agency management of intellectual property matters. Audit’s 1998-99 review coverage focussed specifically on the management of intellectual property in computer software and included a follow up of the status of important matters of agency intellectual property management plans and inventory registers which was a focus of last year’s review.
Audit’s review of the draft policy has given rise to a number of observations relevant for consideration prior to finalisation and endorsement of the Policy document by the Government. In that regard, it is important to note the evolution of the draft policy has been responsive to previous Audit observations and that it has been widely circulated within the public sector and other interested parties.
Audit’s comments and observations regarding the draft policy were formally communicated to the Government for consideration in early September 1999.
Whilst it is not the normal Audit practice to become involved in the evolution and implementation of government policy, in this case, in my opinion it would be instructive to include in this Report, Audit’s observations for the information of Parliament on the current status of this matter in terms of the proposed policy.
Audit’s comments and observations cover important matters relating to:
General Comments
The development of a whole-of-government policy is a welcome initiative. At the very least, it may be expected to heighten awareness amongst agencies of the need to review their arrangements for managing intellectual property, while offering guidance as to some of the key principles to be applied.
Audit is also pleased to note that much of the draft policy reflects the themes developed in its past two Reports and accords with many of its policy recommendations. Thus the draft policy emphasises, among other things, the importance of identifying intellectual property at an early stage and keeping careful records of its development and use, of ensuring that efforts at commercialisation do not compromise the core functions of the agency in terms of delivering public services, and of requiring the development of appropriate plans for risk management.
Nonetheless, there are a number of respects in which Audit believed the draft policy could be enhanced. The sections that follow outline various detailed suggestions made by Audit to the government in this regard.
Subsistence and Protection of intellectual property
The draft policy refers to various formalities that must be satisfied for protection of different forms of intellectual property. The draft policy states that protection can often take various forms, such as registration of designs or patents or publication in the case of copyright, and more commonly, a combination.
Audit considered this misleading in relation to copyright protection, in so far as it contrasts publication of copyright materials with registration of designs or patents. Publication is not a prerequisite for copyright protection – both published and unpublished material is equally protected by copyright.
As the draft policy recognises, copyright protection is automatic: for copyright to subsist no decision about protection need be made, nor action taken. If the draft policy were to give the impression that copyright need not be considered until publication, this could lead to serious consequences.
Audit considered that ownership and the scope of licences to use copyright material should be considered as early as possible in any project, preferably before any work has commenced. Audit recommended the draft policy recognise this.
Audit also pointed out that the suggestion that protection of designs or patents might be ‘a combination’ of registration and publication, without further clarification, is also problematic. While the registration system for patents and designs involve the publication of the details of the patent or design, it is essential that no such details are published by the applicant before the registration procedure is commenced, otherwise it will lose the necessary element of ‘novelty’ and be rendered unregistrable. The draft policy ought not to contradict or undermine in any way the earlier emphasis in the draft policy on the importance of maintaining confidentiality before registration.
Establishing First Ownership
While potential government ownership is addressed in relation to government employees, and acquisition under contractual arrangements, no mention is made of the provisions in the Copyright Act 1968 concerning Crown ownership.
Audit has suggested that the Policy gives specific recognition to the fact that, subject to any agreement to the contrary, copyright vests in the Commonwealth or a State Government when a work is made or first published ‘by, or under the direction or control of’ the Commonwealth or the State concerned.
Under the Crown ownership provisions copyright material may be owned by government without the need for assignment.
Notwithstanding these provisions, the certainty that is provided by an express provision in a written contract is to be recommended. The Crown provisions only operate in the absence of any agreement to the contrary. An express, documented agreement that the Government owns copyright in the material created by a contractor removes any uncertainty about whether such an agreement may have been made.
It is essential that ownership be determined before work commences. Audit has recommended that the Policy emphasise that such agreements should be documented and finalised before work on a project begins.
Policies on Government Ownership
The draft policy recognises that where new intellectual property is developed for government, using government funds, exclusive ownership should reside with the Government. Some uncertainty arises, however, when this position is contrasted with government policies that make specific reference to computer software.
The previously mentioned IT Policy also advocates government ownership of intellectual property in data and information in an outsourced environment. However, it goes on to state that ownership of intellectual property in computer software ‘need only be contemplated’ when it is core to the business of the agency and requires alteration to reflect legislative, administrative or policy changes. This is also the approach to government ownership advocated in the Intellectual Property in Software Policy, which entertains the argument that government does not need to own any intellectual property in software.
It is unclear from the draft policy what status, if any, the IT Policy and Intellectual Property in Software Policy will hold once the whole-of-government policy is finalised.
Audit has indicated that, if the policies that deal specifically with information technology and computer software are to be retained after authorisation of the general policy, the differences in approach to government ownership will need to be reconciled.
Policies on Commercialisation
Inconsistencies also appear in the policies in relation to commercialisation of computer software both within and between the Intellectual Property in Software Policy on the one hand, and the draft policy on the other. Despite noting that ‘the experience of commercialisation of IT intellectual property in the South Australian public sector has not been particularly successful’, the Intellectual Property in Software Policy favours a market-driven approach.
For new software development carried out on behalf of government by the private sector, the policy recommends that each development should involve an approach to the market, for example by tender, and that all approaches to the market should be preceded by a process of assessment of commercial potential.
By contrast, and despite the suggestion that government encourages commercial exploitation, commercialisation is in general treated with far greater caution in the draft policy. Although the private sector is still seen as playing a role, an important function is stated to be the insulation of the public sector from significant risk.
The Intellectual Property in Software Policy advocates consideration of commercialisation when contracts are negotiated for software development and represents commercialisation as an integral part of the development process. The draft policy takes a more cautious approach that places primary emphasis upon government functions. According to the draft policy, the ‘core business’ of agencies is said to be to serve the South Australian community. Therefore, it will generally be inappropriate for agencies to engage in the development of new products specifically for commercialisation, and commercialisation should be seen as a ‘by-product of core business rather than an end in its own right’.
The result seems to be one of ‘mixed messages’, even within the two documents. The rationales underlying the general prescriptions in the draft policy appear to differ from those in forming the Intellectual Property in Software Policy. Audit has indicated that these inconsistencies need to be resolved.
Avoiding risks associated with commercialisation
The draft policy approaches commercialisation with a strong emphasis upon risk management. It suggests that in some cases, despite commercial potential in a project, the risks from commercialisation are such that the intellectual property in question should simply be put in the public domain. While Audit commends a policy that advocates risk management, whether this approach will achieve that end needs further consideration.
For instance, the approach is problematic from a copyright perspective. Because copyright protection is automatic, a decision to release into the ‘public domain’ would not extinguish property in the material as such. Copyright will subsist for the requisite term. It is possible, of course, to release material accompanied by an express licence to any user to use for any purpose. Such a licence, addressed to the ‘whole world’, would communicate to users that no further permission was required and so copyright in that material would never be infringed.
A more common licence involves permission to use material for non-commercial purposes, so long as no alteration to the material is made.
This would certainly facilitate public access to the asset: but would it necessarily obviate all risk to Government? Although the kinds of risks that might warrant such action are not described in the policy, it is by no means certain that release into the 'public domain' would necessarily remove all liabilities in relation to the product in question.
Suppose, for instance, that in taking this course the agency released inaccurate information about the product. The circumstances of the release, the material involved, whether the agency had special expertise or knowledge, and whether it had some special means of acquiring the information that was not available to others, are all matters that would have to be carefully considered. Public authorities may be held liable in tort for negligent misstatement. This may include liability for information voluntarily provided, although the High Court has suggested that such cases will be rare.
Audit has suggested that the use of disclaimers should be carefully considered in this context. Tortious liability is not dependent upon payment or the existence of a contractual relationship, nor is it, like liability under trade practices and fair trading law, confined to dealings in trade or commerce.
The need to consult experts
In my Report for the year ending 30 June 1997, I stated that given the complexities associated with the intangible nature of intellectual property assets and the specialisation of intellectual property law, agencies should ensure that they consult with appropriate experts. The draft policy makes this point in relation to commercialisation. It states that all arrangements for commercialisation of Intellectual Property must be fully documented and legal advice taken in the preparation of agreements. The draft policy also advocates consultation with key agencies when guidelines and procedures involving export opportunities are being developed.
Audit recommended that agencies be encouraged to seek expert advice in the early stages of major projects involving intellectual property relevant to core functions or of significant commercial value, regardless of whether the project is expected in the immediate future to involve commercialisation or export opportunities, and also in the development of management plans, guidelines and procedures.
Management plans
In addition to general policies that might for instance indicate a department’s preferred position on government ownership and commercialisation practices, a detailed management plan is also required to deal with the protection, and (if appropriate) exploitation of, intellectual property in individual projects. The significance of such a plan has already been emphasised.
The draft policy recognises that agencies that are considering developing and then commercialising government intellectual property should be responsible for ensuring that they have in place a plan to manage effectively the intellectual property assets. The development and commercialisation of an intellectual property asset requires risk management at a number of different levels, including at the contractual level and the project management level.
Audit commends this element of the policy, but believes it should not be confined to the time when commercialisation is being considered. Intellectual property assets that are relevant to the core function of the agency also require appropriate management, as do assets that may prove to have significant commercial value but are not the subject of plans for immediate commercialisation.
Audit indicated that, while decisions about commercialisation may be made at various stages of a project’s development, it is important that management of the asset commence from its creation.
Inventory registers
The draft policy emphasises the importance of identification of intellectual property and the preservation of confidentiality in the early stages of development.
Audit considers identification of intellectual property in the early stages of any project is vital. Citing the Report of the Auditor-General for the year ended 30 June 1997, the draft policy emphasises the importance of intellectual property identification during the course of an outsourcing arrangement. Once again, however, Audit emphasised that identification of assets should not be confined to projects that are already being outsourced or to intellectual property for which commercialisation is being considered. In-house developments should also be monitored.
Audit has suggested that record-keeping from the time of development may be necessary, not merely to monitor commercialisation opportunities, but to ensure protection against infringement. Such records may also become crucial in the event of any later decision to outsource government services.
Audit further indicated that any management plan that mandates the maintenance of such inventories must provide a workable system for the identification of those assets that are of sufficient value to the agency to warrant detailed record keeping. From an early stage in any project, managers must be able to identify those assets that are essential to the core functions of the agency or have potential to be of significant commercial value, and to disregard material of lesser value.
Conclusion
The Government through the Prudential Management Group, has drafted an Intellectual Property Policy. The draft policy emphasises the importance of identifying intellectual property at an early stage and of requiring the development of appropriate plans for risk management. The development of a whole-of-government policy is a welcome initiative.
Recommendations
Given the potential significance of this document in relation to the issues covered in this Part of my Report, and in my two previous Reports, the draft policy was reviewed by Audit in 1998-99. Audit’s review of the draft policy has given rise to a number of observations relevant for consideration by the Government prior to finalisation and endorsement of the policy document. Audit’s comments and observations regarding the draft policy were formally communicated to the Prudential Management Group for consideration in September 1999. The Prudential Management Group indicated that Audit’s observations would be considered in finalising the draft policy, prior to consideration of the policy by government.
There is a need for the Government to finalise its policy on intellectual property and communicate the policy to agencies to facilitate the development of agency management plans for the effective identification and management of intellectual property.