UK: The Hargreaves Report - Digital Opportunity Knocks

Professor Ian Hargreaves has published his independent report into whether the current intellectual property framework in the UK is sufficiently well designed to promote innovation and growth in the UK. Professor Hargreaves concludes that current IP laws are obstructing innovation and economic growth and sets out a number of proposals designed to change the strategic direction of IP policy in the UK. In particular he proposes a Digital Copyright Exchange, reform of the patent system and a review of the law relating to designs.

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Professor Ian Hargreaves' report of May 2011 entitled "Digital Opportunity – A Review of Intellectual Property and Growth" (the "Report") was recently commissioned by the Prime Minister to address the risk that the current intellectual property framework might not be sufficiently well designed to promote innovation and growth in the UK. If this theme sounds familiar, that's because the last Government also commissioned a comprehensive review into the state of intellectual property laws in the UK in the form of the Gowers Review, and then set out its vision for a more competitive "digital economy" in its Digital Britain report. This in turn informed the creation of the Digital Economy Act (the "DEA"), certain provisions of which relate to measures to prevent copyright infringement online and which recently emerged unscathed from a Judicial Review challenge. Despite recent developments in this area, the present Government's willingness to commission the Report so soon into its term and the Report's particular focus on enabling economic growth suggest that the Government will take its findings seriously.

Key Recommendations for Growth

The Report is an involving 123 pages long and provides 10 key recommendations for economic growth. These are set out below in abridged form (bold added for emphasis):

1. Government should ensure that development of the IP System is driven as far as possible by objective evidence.

2. International priorities. The UK should resolutely pursue its international interests in IP, particularly with respect to emerging economies such as China and India, based upon positions grounded in economic evidence. It should attach the highest immediate priority to achieving a unified EU patent court and EU patent system, which promises significant economic benefits to UK business. The UK should work to make the Patent Cooperation Treaty a more effective vehicle for international processing of patent applications.

3. Copyright licensing - In order to boost UK firms' access to transparent, contestable and global digital markets, the UK should establish a cross sectoral Digital Copyright Exchange. Government should appoint a senior figure to oversee its design and implementation by the end of 2012.

The UK should support moves by the European Commission to establish a framework for cross border copyright licensing, with clear benefits to the UK as a major exporter of copyright works.

4. Orphan works. The Government should legislate to enable licensing of orphan works. This should establish extended collective licensing for mass licensing of orphan works, and a clearance procedure for use of individual works.

5. Limits to copyright. Government should firmly resist over regulation of activities which do not prejudice the central objective of copyright, namely the provision of incentives to creators. Government should deliver copyright exceptions at national level to realise all the opportunities within the EU framework, including format shifting, parody, non-commercial research, and library archiving. The UK should also promote at EU level an exception to support text and data analytics. The UK should give a lead at EU level to develop a further copyright exception designed to build into the EU framework adaptability to new technologies.

6. Patent thickets and other obstructions to innovation. In order to limit the effects of these barriers to innovation, the Government should take a leading role in promoting international efforts to cut backlogs and manage the boom in patent applications, should work to ensure patents are not extended into sectors, such as non-technical computer programs and business methods, which they do not currently cover, without clear evidence of benefit and should investigate ways of limiting adverse consequences of patent thickets, including by working with international partners to establish a patent fee structure set by reference to innovation and growth goals.

7. The design industry. The role of IP in supporting this important branch of the creative economy has been neglected. In the next 12 months, the IPO should conduct an evidence based assessment of the relationship between design rights and innovation, with a view to establishing a firmer basis for evaluating policy at the UK and European level.

8. Enforcement of IP rights. The Government should pursue an integrated approach based upon enforcement, education and, crucially, measures to strengthen and grow legitimate markets in copyright and other IP protected fields. When the enforcement regime set out in the DEA becomes operational next year, its impact should be carefully monitored and compared with experience in other countries, in order to provide the insight needed to adjust enforcement mechanisms as market conditions evolve. In order to support rights holders in enforcing their rights the Government should introduce a small claims track for low monetary value IP claims in the Patents County Court.

9. Small firm access to IP advice. The IPO should draw up plans to improve accessibility of the IP system to smaller companies who will benefit from it. This should involve access to lower cost providers of integrated IP legal and commercial advice.

10. An IP system responsive to change. The IPO should be given the necessary powers and mandate in law to ensure that it focuses on its central task of ensuring that the UK's IP system promotes innovation and growth through efficient, contestable markets. It should be empowered to issue statutory opinions where these will help clarify copyright law. As an element of improved transparency and adaptability, Government should ensure that by the end of 2013, the IPO publishes an assessment of the impact of those measures advocated in this review which have been accepted by Government.

Advocating Change

The English intellectual property judges have expressed the view that the UK's copyright legislation, which dates back to 1988, should be completely overhauled. The Report does not go this far but Professor Hargreaves is keen to reform the law where it is not seen to be working. Its proposed review of designs law and a call for copyright exceptions that reflect reality or commercial expediency will be welcomed by most.

Although the last Government also promised a new copyright exception to allow 'format shifting', it failed to deliver (the UK is unusual in that the copying of lawfully purchased digital material to other formats, e.g. CD to MP3, remains unlawful without separate licence). The reasons for the last Government's failure in this regard arose from the complexities of defining the scope of the exception whilst complying with the restrictions in the EU Copyright Directive and without introducing a levy system. Complex and costly levy systems are in use in many other EU countries, mostly with disastrous effects. This demonstrates the problems of translating good ideas into workable legislation in this area. If the Government takes up the challenge of converting these proposals into law, it will test their resolve and commitment.

The prospect of a Digital Copyright Exchange is an exciting one, and may gain more traction than the last Government's attempts to encourage industry to form a comparable Digital Rights Agency. If implemented properly it could provide a robust and reliable means by which to identify and enforce rights in digital content, although some may see it as an undesirable step in the direction of requiring mandatory registration of copyright.

The Report recommends that the UK should push ahead with plans to develop an EU Patent Court and Unified EU patent system, a position seemingly shared by many other member states, despite the European Court of Justice's recent view that constitutional issues stand in the way of the unitary court system as currently proposed. These proposals have been underway for some time and the Report does not impact on the likelihood that they will come to fruition.

Getting the Shears Out

In Chapter 6 of the Report, Professor Hargreaves identifies "patent thickets", areas where too many patents crowd a market and prevent innovation, as a major concern. As an example he identifies one smartphone as being the subject of hundreds of patents. The industries most affected are identified as computer technologies and telecommunications. However, that is the inevitable result of the impact of technical standardisation and this does not per se, in our view, amount to the sort of patent thicket that obstructs innovation. Professor Hargreaves proposes preventing the extension of patenting to business sectors such as software where the incentive effect of patents is low compared with the overheads imposed, resetting financial incentives for assessing whether to renew patents, and ensuring that only high quality patents are granted (this is, of course, easier said than done). In essence Professor Hargreaves seems to be advocating granting fewer patents, charging more to grant or renew them and clearly demarcating non-patentable subject matter. Some will take the view that these proposals are misguided, as technology patents are an essential tool driving competitiveness.

Keeping it Real

Although the Report focuses on copyright, patents, designs, IP policy and enforcement, it also briefly addresses the problem of counterfeit goods which infringe trade marks and may erode the incentive to build and protect brands. The UK is identified as spending over £3billion per annum on clothing and footwear fakes, making it "one of the largest consumer markets for counterfeit goods per capita in the world". A strengthened IPO and cheaper access to justice should at least help to address this. The Report states that the 2004 IP Crime Strategy is about to be updated and is supportive of the IPO's role to act as an information gathering and sharing body to support public and private investigations.

Nevertheless the Report does not seek to address whether the trade mark system is fundamentally well designed to drive growth, nor does it refer to The European Commission's recent study on the EU trade mark systems carried out by the Max Planck Institute for Intellectual Property and Competition Law.

Creating Value

The Report's author is confident of the significance and economic value of his recommendations. In his Foreword, Professor Hargreaves writes, "If the Review's recommendations are followed, the result will be more innovation and economic growth". With the recommendations requiring alterations to copyright law, the establishment of a Digital Copyright Exchange, a review of patent filing fees, progress on the EU patent and a review of the law relating to designs to name but a few, the Government has been presented with a considerable opportunity.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 20/05/2011.

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