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The Legal Foundation for a Defence Technology Company is Laid in the Early Stages
The Legal Foundation for a Defence Technology Company is Laid in the Early Stages
In early June, Darkstar organised the international defence sector innovation accelerator BraveTech EU DefTech Forge in Võru, Estonia. RASK partner and attorney-at-law Ramon Rask and attorney-at-law Artur Sanglepp led a practical workshop on the legal risks facing defence technology companies, export control and the legal readiness required for international growth.
The most important decisions are often made in a company's first few months, when intellectual property ownership, the location of technology development, product classification, the applicable regulatory regime and documentation are determined. The workshop focused precisely on these recurring practical mistakes that defence technology companies can avoid by acting wisely at an early stage.
"The costliest mistakes are often the ones that would have been easiest to avoid at an earlier stage. If a company does not know which legal framework it operates under, who owns the intellectual property, or which permits are required to export its product, this can later halt fundraising, the conclusion of an important contract, or the product's entry to market," confirms Ramon Rask.
The workshop emphasised that defence technology companies' activities are shaped by rapid technological development, which stands in some tension with export control and strategic goods regulation. According to Rask, one of the most frequent early-stage problems is that a company has not sufficiently thought through the applicable legal regime. A classification analysis may not have been carried out, there may be no understanding of export restrictions, and there may be a lack of clarity regarding data protection and the handling of technical documentation.
"In practice, it is also common for intellectual property not to have been properly assigned to the company. This can mean that code, design, technical documentation or other valuable assets still belong to, for example, a founder, an employee or a subcontractor, rather than to the company itself," adds Rask.
Artur Sanglepp pointed out separately that the defence sector requires an even stricter approach to intellectual property matters than usual. This is particularly important for international teams and for founders from Ukraine.
"If a prototype is developed in one country or legal system, the intellectual property underlying it may be legally created and located there. Its later transfer to, for example, an Estonian holding company may be regarded as an export and may require separate analysis and steps from an export control perspective. The same logic may extend beyond physical products to software, technical data, drawings and documentation," says Sanglepp.
The practical recommendation for companies is to keep in mind, from day one, the question of where the technology is planned to be developed and where it will be exported to in future. "If the target market, investors and business structure assume operating from, for example, Estonia or elsewhere in the European Union, early-stage decisions and documentation regarding the location of intellectual property should be shaped accordingly," adds the attorney-at-law.
Another important topic was the impact of grants and grant agreements on intellectual property. A grant can be highly valuable to a company in its growth phase, but the intellectual property provisions should be read carefully before signing the agreement. In practice, it can happen that the company retains ownership of the technology created, but the grant provider obtains a very broad licence to use it or to sublicense it further. Such a condition may later affect investor interest, deal structure, or the company's ability to use its technology commercially without restriction.
On export control, Rask and Sanglepp drew a clear distinction between dual-use goods and military goods. The movement of dual-use goods – that is, goods used for both civilian and military purposes – within the European Union is generally freer, but when exporting outside the EU, the need for a licence, the destination country and the end user must be assessed. The requirements for military goods, however, are considerably stricter. An export licence from the competent authority of the country of origin, an import licence from the destination country, or another equivalent document may be required, along with a duly verified and documented end user.
"In export control, it is not enough for just one part of the transaction to be correctly arranged. The product, the exporter, the end user, the export licence, the permits required by the destination country and, where necessary, transit together form a single whole that must be addressed," noted Rask.
The workshop emphasised that an end-user certificate does not automatically amount to an import licence. Each destination country must therefore be checked separately to determine which documents are required and which authority issues them. The transport route may also matter, since movement via third countries, for example, may give rise to additional transit licences or other local requirements.
According to Sanglepp, classification is the foundation of all export control. "A company must first understand its own product sufficiently well. Classification forces it to think through the technical characteristics, intended use, potential customers and legal consequences. It forms the basis both for applying for an export licence and for answering investors' questions," he explained.
At a certain point in its growth phase, drawing up a compliance plan becomes unavoidable for a defence technology company. According to the experts, there is no need to wait for this – policies can be established early on covering export control and classification, sanctions screening, counterparty and customer due diligence (know-your-customer) measures, the handling of controlled technology, document retention, incident reporting, employee training, and due diligence on suppliers and subcontractors.
For software companies, particular attention should be paid to a plan for handling technology subject to export control. The cross-border movement of strategic technology is not limited to the physical shipment of a device. Technical information can also move via email, cloud services, development environments, code repositories, or the everyday collaboration of an international team. A company must therefore know who has access to which data, where the data is stored, and in which countries the people or partners granted access are located.
"Defence technology companies are solving very practical and urgent problems. Our role is to help them grow in such a way that the legal framework does not become an obstacle, but instead supports trust, funding and international cooperation," Ramon Rask summarised the workshop's central message.
RASK has worked with Darkstar on a long-term basis both in Estonia and in Kyiv. The firm has advised companies developing defence-purpose and dual-use goods, software and technology on matters of classification, permits and licences, early-stage funding, corporate restructuring, and intellectual property. RASK's team includes several active members of the Estonian Defence League. The firm has also provided pro bono advice to Ukrainian start-ups and continues to advocate for the legal reforms the sector needs.
The most important decisions are often made in a company's first few months, when intellectual property ownership, the location of technology development, product classification, the applicable regulatory regime and documentation are determined. The workshop focused precisely on these recurring practical mistakes that defence technology companies can avoid by acting wisely at an early stage.
"The costliest mistakes are often the ones that would have been easiest to avoid at an earlier stage. If a company does not know which legal framework it operates under, who owns the intellectual property, or which permits are required to export its product, this can later halt fundraising, the conclusion of an important contract, or the product's entry to market," confirms Ramon Rask.
Early Mistakes Become Costly Later
The workshop emphasised that defence technology companies' activities are shaped by rapid technological development, which stands in some tension with export control and strategic goods regulation. According to Rask, one of the most frequent early-stage problems is that a company has not sufficiently thought through the applicable legal regime. A classification analysis may not have been carried out, there may be no understanding of export restrictions, and there may be a lack of clarity regarding data protection and the handling of technical documentation.
"In practice, it is also common for intellectual property not to have been properly assigned to the company. This can mean that code, design, technical documentation or other valuable assets still belong to, for example, a founder, an employee or a subcontractor, rather than to the company itself," adds Rask.
Intellectual Property Plays a Key Role in the Defence Sector
Artur Sanglepp pointed out separately that the defence sector requires an even stricter approach to intellectual property matters than usual. This is particularly important for international teams and for founders from Ukraine.
"If a prototype is developed in one country or legal system, the intellectual property underlying it may be legally created and located there. Its later transfer to, for example, an Estonian holding company may be regarded as an export and may require separate analysis and steps from an export control perspective. The same logic may extend beyond physical products to software, technical data, drawings and documentation," says Sanglepp.
The practical recommendation for companies is to keep in mind, from day one, the question of where the technology is planned to be developed and where it will be exported to in future. "If the target market, investors and business structure assume operating from, for example, Estonia or elsewhere in the European Union, early-stage decisions and documentation regarding the location of intellectual property should be shaped accordingly," adds the attorney-at-law.
Another important topic was the impact of grants and grant agreements on intellectual property. A grant can be highly valuable to a company in its growth phase, but the intellectual property provisions should be read carefully before signing the agreement. In practice, it can happen that the company retains ownership of the technology created, but the grant provider obtains a very broad licence to use it or to sublicense it further. Such a condition may later affect investor interest, deal structure, or the company's ability to use its technology commercially without restriction.
Export Control Begins with Correct Classification
On export control, Rask and Sanglepp drew a clear distinction between dual-use goods and military goods. The movement of dual-use goods – that is, goods used for both civilian and military purposes – within the European Union is generally freer, but when exporting outside the EU, the need for a licence, the destination country and the end user must be assessed. The requirements for military goods, however, are considerably stricter. An export licence from the competent authority of the country of origin, an import licence from the destination country, or another equivalent document may be required, along with a duly verified and documented end user.
"In export control, it is not enough for just one part of the transaction to be correctly arranged. The product, the exporter, the end user, the export licence, the permits required by the destination country and, where necessary, transit together form a single whole that must be addressed," noted Rask.
The workshop emphasised that an end-user certificate does not automatically amount to an import licence. Each destination country must therefore be checked separately to determine which documents are required and which authority issues them. The transport route may also matter, since movement via third countries, for example, may give rise to additional transit licences or other local requirements.
According to Sanglepp, classification is the foundation of all export control. "A company must first understand its own product sufficiently well. Classification forces it to think through the technical characteristics, intended use, potential customers and legal consequences. It forms the basis both for applying for an export licence and for answering investors' questions," he explained.
Compliance Must Evolve Alongside the Company
At a certain point in its growth phase, drawing up a compliance plan becomes unavoidable for a defence technology company. According to the experts, there is no need to wait for this – policies can be established early on covering export control and classification, sanctions screening, counterparty and customer due diligence (know-your-customer) measures, the handling of controlled technology, document retention, incident reporting, employee training, and due diligence on suppliers and subcontractors.
For software companies, particular attention should be paid to a plan for handling technology subject to export control. The cross-border movement of strategic technology is not limited to the physical shipment of a device. Technical information can also move via email, cloud services, development environments, code repositories, or the everyday collaboration of an international team. A company must therefore know who has access to which data, where the data is stored, and in which countries the people or partners granted access are located.
"Defence technology companies are solving very practical and urgent problems. Our role is to help them grow in such a way that the legal framework does not become an obstacle, but instead supports trust, funding and international cooperation," Ramon Rask summarised the workshop's central message.
RASK has worked with Darkstar on a long-term basis both in Estonia and in Kyiv. The firm has advised companies developing defence-purpose and dual-use goods, software and technology on matters of classification, permits and licences, early-stage funding, corporate restructuring, and intellectual property. RASK's team includes several active members of the Estonian Defence League. The firm has also provided pro bono advice to Ukrainian start-ups and continues to advocate for the legal reforms the sector needs.