After the better part of a decade of court action between Madritsch KG v Thales Australia (NIOA acting with the Austrian gunmaker), the Queensland Supreme Court has found in favour of the Madritsch/NIOA team, with all three charges relating to the firing capability of the AusSteyr EF88 rifle.
The design changes under investigation were related to the issues of the underslung 40mm grenade launcher attached to the rifle that impaired the ability of the rifle to fire its regular round. Once the soldier fired a grenade from the rifle, the gun was unable to fire a normal bullet without the operator having to take corrective action.
It was alleged that Thales did not honour their non-disclosure agreements (NDA) in place when it came to IP and actively misrepresented their actions to partners (and the court during the case) as to their development process with ‘misleading and deceptive conduct’.
Thales was found to have engaged in misleading and deceptive conduct "by leading them to believe that Thales had a continuing interest and even an intention to enter into a sub-licence agreement with NIOA for the Madritsch Solution. By engaging in that conduct, Thales contravened s 18 of the Australian Consumer Law Act.” (Para 436).
The court was particularly scathing of Thales’ behaviour and the judge called in to question most of their witnesses, including existing senior employees of the Lithgow small arms factory where the breaches occurred.
Para 266 of the judgement:
Attempts to minimise… knowledge and role were without credibility. If accepted, it would follow that a major supplier of armaments for the ADF left the design of a solution to a significant operational issue in the standard service rifle to a draftsperson without professional engineering qualifications.
Thales essentially argued that the laws of physics are available to everyone and they applied them accordingly. The court did not agree with this assessment given the testimony and evidence supplied.
The judgement document made it clear that the court was not happy with the level of transparent communications between all three parties at various points. Para 435 of the judgement - when Thales finally advised NIOA that they would not proceed to purchase the Madritsch solution – “This appears to be the first honest communication from Thales to NIOA in nearly six months."
Para 437 of the judgement: I am satisfied Thales engaged in this conduct with the purpose of misleading or deceiving the plaintiffs so that they (and NIOA in particular) would not make a direct approach to the Commonwealth about supplying the Madritsch Solution kits for the use of the ADF until such time as Thales was ready to market its alternative solution to the bolt unlocking problem to the Commonwealth in the Land 125-3C program.
The full available remedies for NIOA and Madritsch are yet to be determined, however Thales has been ordered to pay damages and costs, with the extent of damages yet to be determined.
"We are disappointed with the judgement and assessing options for an appeal," a Thales spokesperson said to ADM.
ADM Comment: This was no small defect; not being able to fire a bullet after letting a grenade into the world is far from ideal. The judgement provides an amazing timeline and technical detail of the problem and its solution set for those who value such things. The nuance between different clauses of the NDA are for legal eagles to mull over but the moral of the story is that NDAs matter.
The phrase ‘mislead or deceive’ was used consistently against Thales in the judgement, a damning reflection of the actions of the company. As with any case, these were the allegations that could be tested and proved in a court of law. I also understand that NIOA was advised by multiple parties not to even bother with the case as their chances of winning were so low.
Government and the acquisition and sustainment agencies in the Department of Defence (not limited to CASG) are asking companies to work together more, to collaborate, to innovate together to achieve the capabilities required by government. There is no other way to deliver the array of programs and projects on the horizon.
This case is a shot across the bows of all companies that do not act in good faith with this approach to IP management. The ripples from this case will be far reaching, as they should be.