Navy gets go-ahead for submarine propeller transfer

Kockums AB, the Swedish designer of the Royal Australian Navy's Collins-class submarines, has been unable to prevent the RAN shipping a Kockums-designed propeller from one of these boats to the US for modification by a US Navy contractor.

In February this year Kockums applied in the Australian Federal Court in Sydney to prevent delivery of the propeller to a US company, John Crane Lips Inc, for modification, on the grounds that this breached Kockums' intellectual property (IP) rights in the propeller design. The US firm is a sub-contractor to the US Navy's Sea Systems Command (NAVSEA), whose help the RAN sought in reducing the acoustic signature of the Collins-class boats.

Justice Murray Wilcox on April 11 upheld the RAN's right to seek the assistance of a third party in rectifying noise and other problems identified with the propeller design. The propeller, which was already en route from Australia, arrived in the US on 14 April. The RAN admitted at the start of the court case in February that it had also shipped two other Collins-class propellers to NAVSEA, in 1998 and 1999, for modification.

Although Justice Wilcox cleared the RAN to send the propellers to the US, he also affirmed Kockums' ownership of the IP embodied in these submarines. But senior industry sources contacted by ADM believe his judgement in favour of the RAN defuses IP ownership and access as a potential stumbling block in the forthcoming privatisation of the submarines' builder, the Australian Submarine Corporation (ASC) Pty Ltd.

Kockums, which owned 49 per cent of ASC until last year, designed the hull and propellers of the RAN's six Collins-class submarines under a sub-contract from ASC. However, sea trials showed the submarines were noisier than the RAN was prepared to accept and the RAN sought NAVSEA's help in 1998 to silence them.

NAVSEA analysed and tested the submarine's hull and propeller and designed minor changes to both. The propeller modifications were carried out on the two earlier propellers by John Crane Lips Inc, a process which Kockums said might result in the company's intellectual property leaking out to competitors. Kockums sought an injunction preventing the transfer of the third propeller until satisfactory non-disclosure and confidentiality agreements had been signed by all parties.

Kockums' IP will be protected by existing confidentiality agreements between the Australian and US governments, according to the Defence Materiel Organisation (DMO). The RAN has not decided yet whether the propellers of all six submarines will be modified, or an all-new design adopted, a DMO source told ADM.

The DMO's Director General Submarines, Commodore Paul Greenfield, said in a statement that Wilcox's judgement supports the Australian government's right to maintain and modify military equipment in the best interests of Australia.

"The ability to repair, modify or enhance any item of Defence equipment to meet operational requirements is fundamental to Australia's national security," he said. "Provided that in so doing the secrets and commercial rights of third parties or foreign governments are properly protected, as they were in this instance, the government must be free to act in the national interest to provide the most operationally effective equipment possible."

Kockums is disappointed it had been unable to prevent the transfer of the propeller without negotiating what it considered to be suitable non-disclosure and confidentiality agreements, Jacquelynne Bailey, a Sydney-based spokesman, told ADM. But the company was pleased that Justice Wilcox's 40-page judgement had explicitly recognised Kockums' ownership of the IP in the Collins-class submarine, she said.

The court gave Kockums until April 27 to make up its mind whether to take further proceedings.

"Hard-earned intellectually property must be safeguarded at all times," Gunnar Öhlund, Executive Vice President, Kockums Submarine Division, said in a written statement April 12. "This goes not only for the propeller, but for all design and technology incorporated in the Collins Class Submarine."

However, Justice Wilcox's judgement in favour of the RAN may simplify the process of selling ASC. The Australian government acquired Kockums' 49 per cent stake in ASC last year in order to restructure the company and use the sale process to stimulate a wide-ranging rationalisation in Australia's naval construction industry. A spokesman for Minister for Defence Peter Reith told ADM in mid-April he couldn't comment on the timing and conditions of the ASC sale process, which had not yet been announced.

Analysts here had feared that potential buyers of ASC may baulk at acquiring a company which doesn't own the key IP in its only product. It was thought that Kockums, and through it HDW, which makes some 80 per cent of the world's non-nuclear submarines, may be able to prevent ASC selling versions of the Collins-class design to other customers, or modifying the design without Kockums' engineering approval. This would affect the price buyers would be willing to pay for ASC.

Potential buyers of ASC are still studying the Wilcox judgement carefully to ensure they understand the implications thoroughly. But these could be "extraordinarily significant" according to a senior naval industry source in Canberra. Regardless of who owns significant portions of the IP in the Collins-class submarines, he said, the judgement considerably increases the RAN's freedom of action, and that of ASC under new ownership, if it seeks to upgrade or modify the submarine design significantly.

The judgement does not sideline Kockums completely, but it will increase significantly the level of control a new owner would have over the submarine design and this in turn makes ASC a more attractive property, according to another senior naval industry executive, who asked not to be named.

By Gregor Ferguson, Adelaide