National Security and Investment Bill

Debate between Baroness Bowles of Berkhamsted and Lord Lansley

Committee stage
Tuesday 9th March 2021 Grand Committee

[Lord Lansley (Con)]

My Lords, I am pleased to have the chance to speak briefly to Amendment 38. This group is linked, in so far as we are all addressing issues relating to limitations on the interpretation of the “qualifying asset” in Clause 7. Amendment 38 in my name is particularly directed towards the issue of such assets in Clause 7(4)(c)—ideas and related intangible assets—where they are licensed. In particular, Amendment 38 seeks to regard such assets, which are licensed on a non-permanent basis, and where ownership of the asset is not transferred to somebody else in any permanent or substantive form, as not being controlled. This relates to the set of exceptions in Clause 11, which sets out those circumstances in which assets are not to be regarded as controlled.

We need to do that because Clause 9, “Control of assets”, is very widely drawn—deliberately, I am sure, and probably rightly so. It says that control of a qualifying asset can result in the person being able to use the asset. Of course, if an asset is licensed to somebody for their use, they could be said to be controlling it. But anybody licensing it to them will be doing so with restrictions and provisions. To that extent, they are not controlling it; the person who has licensed it to them is controlling it. So we have an issue not only of definitions but of scope.

The definition of control should not extend to where somebody had something licensed with restrictions imposed upon it. The definition of using the assets is probably, in that sense, too wide to be applied in this case to those kinds of innovative assets. To whom is this important? It is very important to those whose job it is to bring forward innovation and to license their intellectual property, and to do so in circumstances where they continue to control its use and exploitation. We do not want the routine use and exploitation of assets or intellectual property to be seriously impeded every time it is licensed or for this to be regarded as potentially the control of a qualifying asset and hence notifiable. Amendment 38 gives us an opportunity to set proper limitations on the use of licensing for assets on a temporary basis.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, my reason for speaking in this group relates to licences. I generally support the thrust of Amendment 23, if there can be appropriate definitions, but I was not quite sure whether I agreed with Amendment 38. I disagreed with the explanatory statement of the noble Lord, Lord Lansley, because whether or not the licenser maintains control depends on quite a lot of things.

An IP licenser may be able to impose conditions when a licence is first granted, but what happens after that and how much control there is over future events is up to whatever is agreed in the licence. If the price and conditions are right, it could be a fully assignable licence; it could be assignable with or without consent of the IP owner; it could be exclusive, so that the IP owner no longer has any rights to use it themselves or to license others; or it could be a sole licence that also effectively restricts supply under the IP. A licence can therefore be for something that is relevant to national security and have both ownership and security of supply implications.

In paragraph (c) of Amendment 38—the substantive economic ownership point—I am sure the noble Lord, Lord Lansley, is trying to exclude the exclusive licences that are assignable because, as he would say, economic control had been obtained. I am not sure whether that is the right way to define it, but I understand the sense of what he is trying to do. However, I wonder whether that also captures what could be restriction of supply issues. Those can also happen through licences that would not necessarily mean economic control.

The whole matter of licences is quite interesting, but they can be unique—I used to do them for a living, so I should know. We therefore have to be careful about clarifying, perhaps in a more substantive way, the things that one wants to exclude from review. I think it is necessary to exclude some, because I am absolutely certain that you would get an even bigger deluge if you did not. It may be that things that count as ordinary licences, where there are many licensees—rather like in the other amendment—and no security of supply issues, can be treated the same as any product for sale. However, wherever there is a sole or exclusive licence in particular, it would be necessary just to have a look to make sure there was nothing that you might want to do something about. There could quite possibly be something if it was in a relevant technology area. However, the noble Lord, Lord Lansley, has drawn an interesting point to our attention.

National Security and Investment Bill

Debate between Baroness Bowles of Berkhamsted and Lord Lansley

Committee stage & Lords Hansard
Tuesday 2nd March 2021 Grand Committee

[Lord Lansley (Con)]

My Lords, we are grateful to my noble friend Lord Leigh of Hurley for his amendment, which is a helpful exploration of this issue. I rather enjoyed the way he introduced it as well, although I must say that the MP who was quoted by Isabel anonymously was clearly not in government in coalition.

I have an amendment of my own in this group; I am grateful to the noble Lord, Lord Bilimoria, for signing Amendment 8 in my name. I shall talk to that amendment and to Amendments 3 and 4, tabled by my noble friend, and leave Amendments 9 and 10 to others, although I think that both add a little to probe the way in which Ministers propose to structure their statement.

Amendment 8 is designed to clarify what constitutes the Secretary of State becoming aware of a trigger event. In the absence of a further definition, a Secretary of State might claim not to be aware in circumstances where any reasonable person would say, “You should have been”. It is a belt-and-braces operation.

What does it mean? I looked to the relevant comparator in the Enterprise Act. The equivalent, in Section 24 of that Act, is whether something has been made public, which is defined as:

“means so publicised as to be generally known or readily ascertainable”.

I simply borrowed that language. Amendment 8 would not say that those are the only circumstances in which the Secretary of State becomes aware, but the Secretary of State should not be able to claim that he was not aware in circumstances that have generally been made public. The purpose of this amendment is to explore what “becoming aware” really means.

Reverting back to Amendments 3 and 4 and the question of “or contemplation”, I think the drafting derives, if it derives from anywhere, from Section 33 of the Enterprise Act 2002 and the question of a merger reference. It is when the Competition and Markets Authority

“believes that it is or may be the case that … arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation”,

so contemplation exists in statute.

The guidance issued by the Competition and Markets Authority on this, published most recently in December 2020, said that “at phase 1”, which colleagues will recall is the earliest investigatory phase,

“the CMA will generally consider that ‘arrangements are in progress or in contemplation’ for the purposes of section 33 of the Act if a public announcement has been made by the merger parties concerned.”

When my noble friend defines “contemplation”, he does so accurately, but that is not how the Competition and Markets Authority has interpreted “contemplation”. It means somebody firmly considering such a thing, which Ministers may well be thinking of in this context, but it is important to make that clear in the guidance.

The Competition and Markets Authority and the Enterprise Act do this for mergers, which are defined acquisitions. Here, we are talking of a much wider scope of acquiring activity in relation to intellectual property, technology, assets, land and minority stakes. A merger control has bitten on 15% or thereabouts, in certain circumstances, but it is a much wider breadth of activity. If contemplation of such acquisitions is to be included, Ministers at the very least have to define it in the guidance in a way that corresponds to the way in which “contemplation” has been interpreted by the CMA for mergers.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, this group contains a range of amendments aimed at improving certainty which I broadly support. In particular I favour the removal of the expression “contemplation” because it is a broad expression that in my understanding, if it is not reinterpreted through guidelines, could range from not even a twinkle in the eye to serious preparations.

When I looked at this, it seemed that the first expression of “arrangements are in progress”, followed later on in the clause by

“which, if carried into effect”,

is already quite broad because it poses the notion that the “arrangements” do not have to be substantial enough to have an effect yet, only if carried through. That seems to cover quite a preliminary range of stages. Even if the Minister does not accept that proposition of deletion, is there case law that can point to what “contemplation” means? The noble Lord, Lord Lansley, has provided some useful indicators. I thought about “in contemplation of matrimony to a given individual”, which is accepted in wills as a means to overcome a negation of a will through marriage, but that will itself is a legal document defining intent. That would not necessarily be the case for just a random contemplation.

From my various adventures as a patent attorney I know better the interpretations of “serious preparations” or “effective and serious preparations”. They are used in patent and trademark law, which has received attention and clarification—or rather verification—in courts. If we have to use something, I prefer to use something akin to those terms, although this shows that it is quite difficult to define when a line is crossed.

As has already been raised, the intention of “contemplation” or anything else could be clarified by guidelines, but if that route is needed, is it not just simpler to delete “contemplation” and explain in guidelines what “arrangements are in progress” is intended to cover? To me, that sounded exactly like what the CMA had done: it had taken “arrangements are in progress” or “contemplation” as one and the same thing and then defined that, which implies something much further down the track than simple contemplation. I am therefore on the side of those who think that the wording just looks too vague, and if it has precedent elsewhere, it needs to be clarified that it does not mean anything more substantial. The CMA has pointed the way to showing that the word is not very much use.

I also support Amendment 8 relating to publication, which aims to give some certainty about when the Secretary of State can be regarded beyond doubt as having been aware of a trigger event. As the noble Lord, Lord Lansley, explained, that reflects the wording of the Enterprise Act and it would help to reduce unnecessary notifications.

--- Later in debate ---

[Lord Lansley (Con)]

My Lords, I am glad to follow the noble Lords, who presented a compelling case that mergers of companies should not be sought to be unwound after five years. However, that is not how I interpret the effect of the legislation.

For Amendment 7, we have to direct ourselves to Clause 2 and the structure of Clause 2(2). It requires that a call-in notice given by the Secretary of State cannot be

“given after the end of the period of 6 months beginning with the day on which the Secretary of State became aware of the trigger event”.

Noble Lords will recall that I was interested in the question of when the Secretary of State “becomes aware”. My noble friends have so far rebuffed the idea that we can define “becoming aware” rather better.

In the case of a merger, particularly between listed companies, but between companies of the kind so ably described by my noble friend, the Secretary of State should become aware of it, because it would appear to be publicly known. The Secretary of State could become aware because the parties to the transactions could themselves provide notification to the Secretary of State. Either way, the question of five years does not arise. That arises only in relation to circumstances where the Secretary of State does not become aware.

It is not a matter of people being exposed to an uncertainty; they can remedy the uncertainty by notifying the Secretary of State. That is why we are going to get a lot of notifications and, to some extent, Ministers accepted that when they revised the number of notifications they are anticipating from the original White Paper, which I think was a few hundred, to about 1,800. I think that is partly anticipating that there will be such notifications.

The circumstances we are talking about are probably not mergers but the trigger events relating to assets. As we previously discussed, this involves quite a wide range of acquisitions of assets including technology, transfers of technology, intellectual property or even potentially land that people did not necessarily understand was sensitive. The five years is not an irrelevance because, as Clause 2(2) says, there is a five-year period which would apply in circumstances where the Secretary of State had not become aware of the trigger event.

At this point, I want to ask my noble friend a question. In so far as the trigger event relates not only to the acquisition and the entity or asset but to the understanding of the nature of the acquirer—I keep coming back to this question of who the acquirer is; we talked about it in the second debate—can the Secretary of State apply the five years in relation to the nature of the acquirer being somebody other than the person whom the Secretary of State thought it was at the point at which the Secretary of State became aware of an acquisition? That is when the five years really begins to bite and the uncertainty begins to become more manifest.

That is true not only because the acquirer might be somebody who the Secretary of State did not understand to be hostile but who turned out to be, but because when we get to Clause 10 and we understand the implications of Schedule 1, which Clause 10 brings in, a person may be held to have acquired an interest or right in relation to an asset or entity by virtue of things such as the fact that they are connected persons, they are in a common purpose or they have an arrangement, all of which might not have been evident in public or to the Secretary of State when the Secretary of State saw the acquisition in public material. Indeed, maybe he did not see it at all but became aware of this interest only at a later stage.

There is a reason for the five years being there, because two years is not very long in relation to these kinds of acquisitions. The Minister might entirely reasonably say that five years is not without precedent: there is five years in the French, Italian and German regimes. With this Government, if it is good enough for the Europeans it is good enough for us, as we often say. However, leaving that to one side, we have to be aware that understanding who is in a common purpose, what is the nature of arrangements that might not have been disclosed and what is their nature in relation to assets, not just mergers, gives one a reason to think hard about the circumstances in which the Secretary of State might have to intervene, even though a significant period of time has elapsed. For those reasons I am inclined to live with five years, on the strict understanding that, to get rid of uncertainty, people make a voluntary notification and then six months is the limit.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, it is always very interesting to follow the noble Lord, Lord Lansley. He is approaching this partly in a similar way to me and partly in a different way. I was, and still am, attracted to the notion of trying to get this time of uncertainty down from five years to two. Part of what I would say to the noble Lord is that, if it is going to take five years to work out who might actually have bought something, that is something we should look at in its own right. If you cannot work out whether somebody is hostile and they have had it for five years, you have missed the boat if it is a question of whether they have learned the technology and found out things you do not want them to find out.

I would be interested to hear from the Minister the reasoning behind the length of the period. It could not really be due to a workload of investigating, because one must presume some sort of steady state pipeline with adequate staffing, but how much of it is fear that something new is not recognisable as having a security application until some time later. That thought was going through my mind: was there fear about missing things? This goes back to one of the issues I flagged at Second Reading about sifting being done by the right kind of skilled people—those who have the right kind of applied science or engineering knowledge, plus knowledge of potential usage in national security fields.

I have to say, these things are not necessarily all that obvious. I have experience of working as a patent attorney in the field of defence. I have worked with people whose job it was to invent—put two and two together and have something inventive at the end of it. If you work in a field where those kinds of things are deemed inventive, you will be very short of the people who have that kind of knowledge because, for the main part, they will probably want to be involved in more interesting and economically useful things than participating in what seems to be an overwide fish-sorting process, as it has been termed. I am turning this back to the Minister. On volume, if you cast the net wide, will you have sufficiently skilled people to be able to do the sorting, or will you find that important fish get missed? Will you then be trying to do things to backtrack on what has not been done or give yourself more time to do things?

That is a slightly different take. I know that there are some safeguards in there, but five years is quite a long time to live with uncertainty. If that uncertainty comes about because of ownership, one should sort the ownership or shareholding issues; I am actually among those people who think that we should have a lot more transparency on those kinds of things.

Trade Bill

Debate between Baroness Bowles of Berkhamsted and Lord Lansley

Committee stage
Tuesday 13th October 2020 Lords Chamber

[Lord Lansley (Con)]

My Lords, at this late hour, I draw noble Lords’ attention to the debate on the predecessor Bill on 4 February 2019, in which I made similar points to those that are reflected in the three amendments in my name in this group. Regarding what the noble Baroness, Lady Kramer, said, I do not think Amendments 104A and 108A are tidying up. They are there to delete the possibility that the chief executive of the Trade Remedies Authority might be appointed by the Secretary of State in the first instance where the chair of the Trade Remedies Authority has not been appointed.

We are in a situation where, if the Bill were to pass into law before the end of the year and if it were to be commenced rapidly, we already have a chair designate of the Trade Remedies Authority. We happen not to have a chief executive designate. We are in the unhappy position where the Trade Remedies Authority has been legislated for for a couple of years but has not actually existed because this Bill was supposed to have become law alongside the Taxation (Cross-border Trade) Act. In that time, it has had a chair designate, who then stood down to be replaced in February this year, and a chief executive designate, who stood down in April this year and has not been replaced, so it is not a happy story so far. We cannot have a situation where the first chief executive of the body proper is not appointed by the chair designate who is in place, and I see no reason why that provision of Schedule 4(2) should not now be taken out and, as a consequence of that, paragraphs 17 to 23 of Schedule 4 can be removed since they all relate to that possibility.

As the noble Baroness, Lady Kramer, said, what is more important is the issue of the appointment of the chair and that, in order to reflect the importance of the role and the impact it can have in the public domain —including, obviously, from a business point of view, the economic domain in particular—and because of the requirement for independence, this should be an appointment where, before it is made, the Secretary of State should seek the views of the International Trade Select Committee in the other place.

Interestingly, I have asked the chair of the International Trade Select Committee in the Commons whether it has seen the chair designate of the Trade Remedies Authority and, as of last week, it had not. It seems to me that the department has been somewhat remiss not to put the chair designate in front of the Select Committee and to seek its views, and, not least because we had this debate back in 2019, it could easily have done it when it came to appoint a new chair designate in 2020. However, it has chosen not to do so. I think that the time has now come for Ministers to agree that this role should be one where the Secretary of State takes the views of the Select Committee before making the appointment.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I will speak in favour of Amendments 78, 79, 104 and 114, in the name of my noble friend Lady Kramer and in my name.

Amendments 78 and 114 would amend similar wording in Clause 6 and Schedule 4, where in both places the Bill has the provision that the Secretary of State must

“have regard to the expertise of the TRA and to the need to protect … its operational independence, and … its ability to make impartial assessments when performing its functions.”

We have heard several times in this House, including from the noble and learned Lord, Lord Judge, that “have regard” has no force, so these amendments are intended to get the operational independence and impartial assessments out from governance by the weak words “have regard”. I will not labour the point any further save to say that the independence of the TRA is very important for international credibility, and indeed not only with regard to the Secretary of State.

Amendment 104 also goes to the matter of independence, as my noble friend Lady Kramer has already explained. It would explicitly put into legislation things that have been said, understood or only indirectly recited. I believe that in the other place the Minister, Greg Hands, said that if there was no recommendation, that was the end of the matter. However, it would be good to see it in the Bill. Likewise, I am curious about whether there could be an order for an instant reopening in the event of no recommendation. It seems a good idea to clarify that the end means the end unless circumstances change.

Amendment 79 is a little different in that it relates to funding and inserts into Clause 6 that when the Secretary of State seeks advice, there must also be regard to the capacity and funding of the TRA. Although I regret the omnipresent “regard”, that is important, because TRA funding is determined by the Secretary of State, as is stated in paragraph 29 of Schedule 4. We wanted to probe a little to make sure that the TRA will have sufficient funding.

With trade matters coming under UK control, success and funding are linked. It will be no good if the TRA finds itself in the situation that it cannot do things for fear of cost or the cost of litigation, which has hampered other regulators and authorities. That might please some if they think they come under less scrutiny from a supervisor, but this is not a supervisor but batting for the UK. Will there be a formula that relates to workload, and is it appreciated that workload is not under the control of the TRA? Workload happens because of actions in other countries, and what the TRA does or does not do can be hauled up before the Upper Tribunal as well as the WTO.

I understand that the Secretary of State has shied away from having the arrangements of the CMA, which are seen as much more costly, and I have to say the salaries on offer in the advertisements for TRA posts are low by international standards. Will that be reflected in lack of experience and possibly in staff retention once staff are trained up and the private sector beckons? Will these matters be seriously kept under review or will the TRA just be told to suffer the squeeze? Would the TRA be allowed to raise funds of its own? I have some concerns there around the issue of independence, but I think we ought to know. I appreciate that these probing questions go further than the amendment, but the last thing we want is the TRA explaining to Select Committees or the Upper Tribunal how it has funding for only half the job.

I also agree with the amendments of the noble Lord, Lord Lansley, and although he does not seek a committee approval of a nominee for chair, I have personal experience of holding the power of approval over appointments and reappointments of chairs and chief executives for all the European financial services authorities, and pre and post-appointment hearings for potential candidates for the board of the European Central Bank. Although those powers were resisted in the first instance and my committee had to wring them out of the Commission, the European Council and Eurogroup, almost immediately those bodies decided that these were rather constructive things to have. They were always phoning me up to ask more about what the Parliament thought, and the UK should be brave enough to follow suit.