Patent secrets lead to legal fight

British defence company BAE Systems is set for a legal battle over allegations that a US-owned
supplier copied designs for part of a top-secret Ministry of Defence communications system worth
hundreds of millions of pounds.

The patent battle sees BAE pitch itself against the UK subsidiary of Zero Corporation and is the
latest spat between the two countries involving BAE in as many weeks. In a High Court filing, BAE
alleges Zero Cases (UK) took designs for a part of a communications system and then filed for
patents in the UK, Europe and the US. It comes just a week after it emerged the US embassy in
London protested to the Foreign and Commonwealth Office over the British Government’s decision to
quash the Serious Fraud Office investigation into BAE Systems and an alleged Saudi slush fund.

The entire patent case centres on the MoD’s top secret Project Falcon, which has been classified
as “UK Restricted”, in that information can be disclosed only to UK nationals. BAE eventually won
the race to provide the British Army with the Falcon Information System, designed as a
vehicle-mounted communications system that can be deployed rapidly by air. The contract is
valuable to BAE, which has a good relationship with the MoD, revealing in its most recent accounts
a £267m contract payment for Falcon.

Part of the design for Falcon involved placing the hi-tech communications equipment within a
bespoke case to mount it in the back of an armoured vehicle. BAE’s design team had designed a
suitable case, and then began meeting with its Falcon partners to discuss the designs. Afterwards,
Zero Cases (UK), a potential third-party supplier, was briefed by one of BAE’s Falcon partners
over the detailed and confidential concept behind the case design. The two crucial concepts at
stake are a removable front panel allowing access to the contents without disconnecting internal
connections, and a rear recess to protect the electrical connectors and wires at the back of the
case. Shortly after the meeting in March 2003, Zero Cases (UK) signed a confidentiality agreement
between BAE and BAE’s partner. Roughly a year later, in February 2004, Zero Cases (UK) allegedly
filed for a patent in the UK for an equipment case which BAE alleges discloses and uses its own
confidential concept. It later allegedly filed for patents in the US and in Europe for the same
case. Zero Cases (UK) is wholly owned by Zero Corporation of the US, which is itself owned by
American private equity firm Blue Point Capital.

BAE’s intellectual property claim accuses Zero Cases (UK) of breaching contract and the
confidentiality agreement, and is looking for an inquiry into both in addition to any sums owed,
plus interest and costs. Stephen Henderson, chief executive officer of Zero Corporation, said: “We
take the longer-term view with customers like BAE and will continue to support the specific
programmes rather than fight short-term patent squabbles,” adding that it is attempting to settle
the dispute out of court. A spokesman for BAE Systems declined to comment.

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