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Attorneys-at-law: The development of the defense industry requires an up-to-date regulatory framework
Attorneys-at-law: The development of the defense industry requires an up-to-date regulatory framework
Regulations concerning the development of defense technology were created at a time when the world was much calmer and the pace of technological development was slower. RASK law firm attorneys Artur Sanglepp and Andrei Svištš believe that the time is ripe to update these rules — with the aim of maintaining security, while also supporting innovation.
“Many regulations in force in Estonia date back to the time before the war in Ukraine, technological breakthroughs and the wider spread of flexible development models. Growth companies do not fit into this framework and this hinders the development of the defense sector,” explained Artur Sanglepp, who spoke at the Estonian DefenceTech Meetup.
High thresholds, little flexibility
“How do you build a defense technology company in such a way as not to get into trouble with the law?” Sanglepp asked at the beginning of his presentation. “It is entirely possible, but it is difficult.” According to him, the current system is built on the logic: if you have been thoroughly checked once and meet all the requirements, the state will continue to trust you.
This means that entering the market requires major investments – a dedicated team, high-security premises, detailed internal procedures and transparent partnerships and export activities. “Among other things, for example, when operating in the field of the arms industry, you have to inform the country to whom you are selling your product to, and if you fail to do so, the contract is simply invalid,” Sanglepp provided as an example.
In addition to high regulatory thresholds, the problem is that the current system does not take into account the reality of the startup world. “A business license? A place of processing? What are you talking about? I just want to develop and test my product!” is a reaction that legal advisors in the sector have repeatedly heard.
Future-oriented solutions
RASK experts recommend considering options that include, for example, the creation of a temporary operating license for defense technology startups, an innovation highway for research and development, clear access to the state's testing infrastructure and handling sites, and the creation of a state-funded innovation center or so-called "sandbox" where the public and private sectors can jointly develop, test and share knowledge.
“We are not talking about eliminating security or oversight requirements, but about loosening regulatory restrictions just enough so that innovation can flourish. And tightening them just enough to avoid dangerous consequences,” Sanglepp emphasized.
Defense technology is not just weapons
According to Andrei Svištš, startups in the field need to pay attention to details that are not associated with defense technology at first glance. “A defense industry company is not just about weapons or drones – it deals with intellectual property, public procurement, investments, GDPR and many other issues.”
According to him, the ownership of intellectual property, the rights of team members and the need to collect data during development must be considered very carefully. “Intellectual property has a high value in this field, which is why in the face of fierce competition, its ownership must be kept particularly clear from the outset. It is not only a trademark or patent that creates protection of rights and problems.
Intellectual property has real value and power, starting with copyright,” Svištš noted.
He also warned that when using public funding or external investments, all information must be presented accurately and truthfully. “You have to be correct about the facts, especially when taxpayers’ or investors’ money is at stake. U-turns and changes in plans that are typical of growth companies must first be coordinated, not simply decided on your own.”
A topic whose seriousness is often underestimated is the move from the public to the private sector. “When hiring people who have previously been involved in state projects in the public sector, one must be very careful. It is especially important that these individuals have not previously been involved in the relevant project or contracts. Otherwise, the entrepreneur may find themselves in legally complex situations,” added Svištš.
Time for smart regulation
Both speakers emphasized that the defense industry is an attractive, but high-risk sector. Estonian companies have a lot of potential here, but its realization requires a well-thought-out and up-to-date regulatory environment.
“Startups are not asking for exceptions, they are asking for the opportunity to be responsible within reasonable limits. We do not have to choose between security and innovation – we need to regulate wisely so that both can coexist,” the attorneys-at-law summed up their common point while speaking at the defense technology community meeting.
“Many regulations in force in Estonia date back to the time before the war in Ukraine, technological breakthroughs and the wider spread of flexible development models. Growth companies do not fit into this framework and this hinders the development of the defense sector,” explained Artur Sanglepp, who spoke at the Estonian DefenceTech Meetup.
High thresholds, little flexibility
“How do you build a defense technology company in such a way as not to get into trouble with the law?” Sanglepp asked at the beginning of his presentation. “It is entirely possible, but it is difficult.” According to him, the current system is built on the logic: if you have been thoroughly checked once and meet all the requirements, the state will continue to trust you.
This means that entering the market requires major investments – a dedicated team, high-security premises, detailed internal procedures and transparent partnerships and export activities. “Among other things, for example, when operating in the field of the arms industry, you have to inform the country to whom you are selling your product to, and if you fail to do so, the contract is simply invalid,” Sanglepp provided as an example.
In addition to high regulatory thresholds, the problem is that the current system does not take into account the reality of the startup world. “A business license? A place of processing? What are you talking about? I just want to develop and test my product!” is a reaction that legal advisors in the sector have repeatedly heard.
Future-oriented solutions
RASK experts recommend considering options that include, for example, the creation of a temporary operating license for defense technology startups, an innovation highway for research and development, clear access to the state's testing infrastructure and handling sites, and the creation of a state-funded innovation center or so-called "sandbox" where the public and private sectors can jointly develop, test and share knowledge.
“We are not talking about eliminating security or oversight requirements, but about loosening regulatory restrictions just enough so that innovation can flourish. And tightening them just enough to avoid dangerous consequences,” Sanglepp emphasized.
Defense technology is not just weapons
According to Andrei Svištš, startups in the field need to pay attention to details that are not associated with defense technology at first glance. “A defense industry company is not just about weapons or drones – it deals with intellectual property, public procurement, investments, GDPR and many other issues.”
According to him, the ownership of intellectual property, the rights of team members and the need to collect data during development must be considered very carefully. “Intellectual property has a high value in this field, which is why in the face of fierce competition, its ownership must be kept particularly clear from the outset. It is not only a trademark or patent that creates protection of rights and problems.
Intellectual property has real value and power, starting with copyright,” Svištš noted.
He also warned that when using public funding or external investments, all information must be presented accurately and truthfully. “You have to be correct about the facts, especially when taxpayers’ or investors’ money is at stake. U-turns and changes in plans that are typical of growth companies must first be coordinated, not simply decided on your own.”
A topic whose seriousness is often underestimated is the move from the public to the private sector. “When hiring people who have previously been involved in state projects in the public sector, one must be very careful. It is especially important that these individuals have not previously been involved in the relevant project or contracts. Otherwise, the entrepreneur may find themselves in legally complex situations,” added Svištš.
Time for smart regulation
Both speakers emphasized that the defense industry is an attractive, but high-risk sector. Estonian companies have a lot of potential here, but its realization requires a well-thought-out and up-to-date regulatory environment.
“Startups are not asking for exceptions, they are asking for the opportunity to be responsible within reasonable limits. We do not have to choose between security and innovation – we need to regulate wisely so that both can coexist,” the attorneys-at-law summed up their common point while speaking at the defense technology community meeting.