Small Companies (Micro-Entities’ Accounts) Regulations 2013

Debate between Earl of Erroll and Viscount Younger of Leckie

Tuesday 26th November 2013 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con)]

My Lords, the purpose of these regulations is to implement legislative flexibilities introduced by the EU’s micros directive, which are now incorporated in the new accounting directive. This directive sets an important precedent in European company law. It recognises the need to reduce burdens on our smallest companies to a more proportionate level and creates a new category of company, the micro-entity. A micro-entity company is one which, at the end of the period to which its balance sheet relates, does not exceed two of the following conditions: having a balance sheet total—that is, a gross assets total—of £315,000; having an annual turnover of £632,000; and having an average number of 10 employees during the financial year.

There are an estimated 1.56 million micro-entities in the UK. Many are engaged in business at a local or regional level. They are significant contributors to the UK economy, creating employment and developing new economic activities, but they are burdened by detailed accounting requirements, from requiring a detailed breakdown of figures in the profit and loss account to notes on provisions for liabilities and generally uninformative information on share capital. In The Plan for Growth, published in March 2011, the Government set out their ambition,

“to make the UK one of the best places in Europe to start, finance and grow a business”.

They identified that this could be achieved, in part, by lessening the regulatory burden on business.

At present, our smallest companies must comply with the same financial reporting rules as other small companies, which may be 20 times bigger. The Government do not believe that this is necessary for most micro-entities. We should remember that our current financial reporting requirements are meant to address the information needs that exist between the shareholders and the management of the company, where there is a separation between its ownership and management. For micro-entities, there is often no such separation of control. That is because many micro-entities are owner-managed. Indeed, research has indicated that approximately 45% of these companies have only one shareholder, and that often the owner is the only employee. Therefore, the statutory financial statements are not necessary for the communication of the company’s performance. The burdens associated with comprehensive financial reporting requirements may be disproportionate and yet offer no real benefit. Why should they produce pages of financial data when they are not going to make use of them and no one else is really interested?

The directive provided a number of options for member states to consider but it explicitly recognised that member states would need to assess how these options complemented their financial reporting regimes. I will put this in perspective. France and Germany have already adopted lighter-touch reporting regimes for their smallest companies and others, such as Denmark and Poland, are considering doing so. The flexibility offered to micro-entities will be known as the micros exemption.

The Government sought views on the implementation on the various parts of the exemption and, as the directive allows, the regulations will, first, enable micro-entities to prepare and publish simple, highly abridged financial statements and, secondly, relieve micro-entities of the obligation to produce the full notes to the accounts, provided that specified notes are placed at the foot of the balance sheet. These are limited to information around commitments by way of guarantees, and any advances and credits to the directors.

The consultation identified two issues, however, which prompted significant concerns. The first was the application of the true and fair principle in relation to micro-entity accounts. Several respondents noted that the micros exemption would allow directors to state that the micro-entity accounts gave a true and fair view of the company’s financial position, provided the accounts complied with the directive. Respondents questioned how this could be achieved, given the much-reduced nature of those accounts. They argued that this would conflict with the UK approach, where company accounts are considered to provide a true and fair view only if they are prepared in accordance with accounting standards that require higher levels of disclosure.

The second issue related to the ability to provide exemption from certain aspects of accruals accounting. Nearly all the respondents opposed the introduction of this provision, noting that such an approach would lead to confusion for micro-entities, add unnecessary complexity to the preparation of the company’s financial statements, and produce little, if anything, by way of savings.

Respondents argued that the result in both instances would lead to reduced confidence in the financial statements themselves, and could even present a misleading position of the financial health of the company. The Government held discussions with professional bodies to consider the issues in more detail.

First, on the issue of true and fair, we acknowledge the potential for conflicts with other areas of regulation. Accordingly, the regulations make clear that only those aspects of accounting standards which conflict with the reduced reporting requirements of micro-accounts may be set aside. They also make clear that should micro-entities voluntarily provide additional information, this information must comply fully with the relevant accounting standard in order to be true and fair. For example, if you decide to include a fixed assets note, the information you provide must comply with accounting standards.

Secondly, on the issue of partial accruals accounting, we recognise the concerns raised and agree that confidence in financial statements must not be undermined. To ensure consistency, we will not implement this option in the UK.

I should point out that there are some exclusions for which reduced levels of information would clearly be inappropriate. Therefore, certain types of financial and investment bodies-for example, credit unions or hedge funds-and any company currently excluded from the small company regime, may not take advantage of the exemption for micros. Charitable companies are also excluded. This follows discussion with the Charity Commissioners, who wished such companies to remain subject to the additional accounting rules applied to them, thereby retaining the higher level of transparency expected by those who donate to important causes through charitable companies.

Exclusions aside, the Government recognise that micro-accounts will not be suitable for all micro-entities; but we believe it is appropriate to provide companies with a choice. The decision to prepare and publish micro-entity accounts will be a business decision for a company’s directors: one based on the current and future information needs of the company. But simple businesses will now have the option of preparing truly simple accounts. I commend this regulation to the Committee.

[The Earl of Erroll (CB)]

My Lords, I will ask a quick question. This issue occurred in relation to something else where there were exemptions for small companies, SMEs or micro-companies. It is in the definition of companies that qualify as micro-entities. The third criterion that can be applied is the number of employees: not more than 10. It then talks about averaging the number of people in contracts of service. If you employ two people part-time—for instance, one who has young children and wants to take them to and pick them up from school, and the other who is retired, say, and happy to fill in for the rest of the day—you are employing two people, but you only have one full-time equivalent. In that kind of situation, or with people working seasonally or casually, this criterion could discriminate against small employers who are trying to get several people all doing a bit of part-time work for them, because the number of employees could then easily exceed 10. Therefore, it should probably be worded as full-time equivalents in future. I will not suggest anything here, but I want to flag up the general point to regulation-makers that it would be fairer on small entities if there was some way to bring it back to full-time equivalents.

--- Later in debate ---

[Viscount Younger of Leckie]

My Lords, I thank members of the Committee for their valuable and detailed comments during this debate and for their general support for this provision. I thank my noble friend Lord Cope of Berkeley for reiterating that this is a European measure that will benefit small companies. It introduces into EU law a definition of a micro-entity, as I said in my speech.

I remind noble Lords that the directive sets an important precedent in setting down a legal definition for a micro-entity and enables member states to take up flexibilities suited to their national needs, and to reduce the administrative burdens on these very small companies. This regulation is deregulatory and will enable the smallest and simplest companies to prepare simpler accounts that are proportionate to their size and that reflect their needs. It is entirely voluntary. The ability of micro-entities to produce simple accounts will lift unnecessary burdens, enabling micro-entities to focus on running and growing their businesses.

A number of questions were asked by noble Lords. I shall first address the question asked by the noble Baroness, Lady Hayter, about the consultation. She stated that she thought that it lasted only three weeks. The consultation was, in fact, a continuation of a long period of informal discussion and built on an earlier discussion paper of which she may be aware. We worked closely with the FRC throughout, and it has been extremely supportive.

The noble Earl, Lord Erroll, asked an interesting question about the definition of “employee” and made the point that employees can be defined in a number of ways, depending on whether they are defined as part-time. The quick answer is that for this purpose the count is defined as the number of employees, not how many hours they work. This wording is set out in the directive. I am not sure whether that completely clarifies the question, but that is how the count is defined.

[The Earl of Erroll]

That completely but disappointingly clarifies the point, because it does not recognise that if you have someone coming in for two hours a week, which HMRC might regard as full-time since it is regular employment, it will count against you as a micro, which is sad. It may be that this could be raised at a European level.

[Viscount Younger of Leckie]

I suspected that that answer might disappoint the noble Earl. I will be delighted to recheck with officials on that specific question and write to him to clarify.

The noble Baroness, Lady Hayter, later asked about charities and what they feel about the exclusion of charitable companies. There were no responses to the public consultation from individual charities, but we worked closely with the Charity Commission throughout, as I said in my speech, and we continue to work with it to consider how burdens can be removed for this group. We will consult again. I hope the noble Baroness will be pleased when I say that that will be done as soon as 2014.

The noble Baroness, Lady Donaghy, asked how the updating of balances will take place and about the definitions of the criteria on how turnover, for example, will be met. The regulations are subject to review by the Commission on a regular basis. I have just checked what precisely that means, and it means on a five-yearly basis. As the directive updates the thresholds, the Government will reflect them in UK legislation to allow the greatest possible number to take advantage of the exemption.

The noble Baroness, Lady Hayter, asked about the Charity Finance Group, which has asked the FRC to consider the needs of small charities. This is another charities-focused question. The FRC will work with the commissioners and BIS to address their concerns. A new SORP—statement of recommended practice—for the preparation of accounts is being prepared to update the guidance.

The noble Baroness, Lady Hayter, also raised the issue of small trade unions and why other measures increasing the accounting regulations on them are being introduced. In fact, she alluded to Part 3 of the Transparency of Lobbying etc. Bill which, as she said, I take the lead on. I do not want to be drawn into that on this particular issue but it is important that we consider each policy carefully and on its own merits. The Government are working to reduce the burdens across a range of areas and will do so wherever possible. Micro-entity regulations, on which we are focused today, are an example of that.

Finally, I draw the attention of noble Lords to the important element of choice for businesses. Micro-entities will be able to choose whether to adopt micro-entity, small company or full accounts. The Government conclude that the regulation meets the requirements of the Act and I commend this regulation to the Committee.

Intellectual Property Bill [HL]

Debate between Earl of Erroll and Viscount Younger of Leckie

Tuesday 23rd July 2013 Lords Chamber

[Lord Stevenson of Balmacara]

My Lords, I found a lot of what the noble Lord, Lord Clement-Jones, said very convincing and want to hear how the Minister will respond. The noble Lord made a very good case for taking the situation that we have currently, under which copying registered designs will be subject to criminal penalties, and asking why the very large number of unregistered designs that are lodged in a different register from the registered designs—with the IPO—cannot be given a similar sort of protection. I think that the arguments comparing that with copyright and trademarks are very persuasive. The noble Earl, Lord Erroll, made the point about 3D printing, which of course begins to muddle all our previous conceptions of what 2D and 3D design were about. Again, that will require some movement, if not now, in the very near future, in order to keep pace with the way that technology is changing.

Our Amendment 20 departs from the principles articulated by the noble Lord in moving Amendment 9 because we think that we have to take the situation as it is on the ground. As I have said before, there are 350,000 designers in the UK and UK businesses spend around £35.5 billion annually on design. These are substantial figures and make up a significant slice of our creative industries. However, the vast majority of designers rely on unregistered rights. There are 4,000 registered designs against 18,000 unregistered designs. Something like 99% of designers in the country rely on unregistered designs, and there has to be a question about how the Government will provide an appropriate framework for that development.

Our amendment suggests to the Secretary of State that there is another possible route to think about, which makes clearer what the effect would be of having a register of unregistered designs, even if that is perhaps a contradiction in terms. If it was possible to have within the government machinery some system that allowed a way to evidence the existence of the design right, and document its existence on a particular date, that would go some way to giving us certainty about cases, whether they were criminal or not, affecting the unregistered design right. We could perhaps use the copyright harm analogy to find a way for metadata to be applied to designs that would allow them to be picked up and trailed.

The noble Lord, Lord Clement-Jones, asked why there was a growing discrepancy between the registered and unregistered design right routes. Presumably, the Government have made a decision that they are going to bulk up what is available to those who have registered designs and give them more in the hope that that will persuade designers to sign up to the registered design route. But what will happen if they do not? The problems and difficulties will still be there, particularly in the fashion industry, where unregistered design is the mode that is used.

We need to do something and our Amendment 20 tries to make some suggestions that we hope the Government will listen to. Although we cannot support the proposal to criminalise the copying of unregistered designs as a matter of principle, we would be very interested in hearing how the Minister will respond.

[Viscount Younger of Leckie]

My Lords, the effect of Amendment 9, moved by my noble friend Lord Clement-Jones, would be to extend the proposed criminal sanctions to unregistered design rights. I thank my noble friend once again for presenting the Government with his strong views on unregistered design right protection. I can assure him that the Government are absolutely convinced of the value of the unregistered right and are very aware of its role in protecting small design businesses. That is why, following consultation, the UK right and its current term of protection was retained in the face of calls by some to remove it as a means of simplifying design law.

The United Kingdom has a very successful design industry and we tinker with the success of the industry at our peril. I am particularly concerned to ensure that any changes proposed in the Bill do not act as an additional burden on industry but enhance its accomplishments. As with all intellectual property systems, there is a delicate equilibrium between a reasonable return for creators and, on the other hand, access to the creation so that competitors can shape future innovation. This is the balance the Government have to be mindful of in the changes proposed. There is a real fear that extending criminal sanctions to unregistered rights will distort this balance for the following reasons.

First, the existence of the register represents a public database, which can be searched with relative ease. Third parties can quickly assess what has been registered and what has not. This means that they can take due notice of designs protected by registration with some degree of certainty. In particular, they will know accurately when it will be possible to copy a design with no degree of legal risk. With unregistered designs, there is the problem of not knowing exactly when the design right came into existence and the duration of its protection. This means that it is more difficult for third parties to discover when they can legally copy or exploit a design. Where information about the design of an article is limited but copying it attracts a criminal sanction, it is entirely possible that industry will become risk-averse. As I stated in Grand Committee, against the background of a threat of a criminal conviction, third parties are more likely to wait longer than necessary to be sure that a design is in the public domain before building on it, therefore extending the unregistered design right beyond its term and delaying potential innovation.

I will give your Lordships an example. A furniture manufacturer is aware of a rival’s design that is successful in the marketplace and knows that it is not protected by registration. That is easily discovered by a swift inspection of the registry. He is also aware that the unregistered design right is now protected by a criminal sanction. The manufacturer will have no ready knowledge of when the item was first protected—for example, when it was in a design document, made into an article or first marketed. These all affect the term of protection. To be on the safe side, it is likely that the manufacturer will avoid copying or even engaging in reasonable follow-on innovation until he is certain that the product is out of its term of protection. With registered designs, any potential chilling effect is much reduced by the certainty of facts on duration, scope of protection and ownership, which registration creates.

Secondly, the nature of the UK unregistered right magnifies the uncertainty problem. Unregistered right in an article can relate not only to the overall design but to the individual elements of the design. The unregistered design right can therefore be seen as a basket of individual rights. For example, a kettle may have design protection in its overall shape and configuration but also in its individual parts, such as the spout, the handle and the lid. The kettle may be one of a series of kettles, so different design components may have different timelines of protection. The handle may have 10 years of protection to run because it is new, the spout may have three years as it was used in an earlier version of the kettle, and the lid may be out of protection because it is an old design. None of this information will be readily available to a business which wants to use the design or aspects of the design itself. This creates a cumulative uncertainty about the rights, which is not shared where a design appears on the public register.

Thirdly, a chilling effect is likely to be more serious in particular industries. Some designers, such as those in the fashion trade, thrive on novelty, speed of change, imitation, and rapid turnover of seasonal ranges. It is in these industries where the Government have real concerns that criminalisation of unregistered designs, which are often relied on, would have a freezing effect.

Fourthly, the potential inhibiting effect on innovation that has been identified is likely to be a particular problem in relation to functional designs, which the UK unregistered right also protects. This problem does not apply to registered designs that specifically exclude functionality. I also remind noble Lords of a further issue that relates to functional designs, which could cause difficulties in criminal proceedings. Such technical complexity should be avoided in criminal proceedings if possible.

Finally, I will say something about the protection for unregistered rights holders and, at the same time, consider Amendment 20, in the names of the noble Lords, Lord Stevenson of Balmacara and Lord Young of Norwood Green, which would place, in effect, a reporting duty on the Secretary of State. I can assure noble Lords that the Intellectual Property Office is already aware of its responsibilities to SMEs and fully recognises the difficulty that designers face in enforcing their rights. The IPO will continue to work with representative groups for the design sector to help improve the situation for designers. There are many ongoing projects. For example, the IPO and the European design and trade mark office—OHIM—are working together to consider approaches to IP enforcement. This includes the costs of searching for prior rights.

The IPO currently funds IP audits to SMEs that are enrolled on one of our partner business support programmes. From next year, a number of these will be specifically allocated to design SMEs within the Design Leadership Programme run by the Design Council. This will help design-focused SMEs effectively to manage their rights, including unregistered designs, and the creation of audit trails. Such information is readily available from organisations such as the IPO and ACID.

I hope noble Lords will agree that by accepting this amendment the Government would be duplicating information already available. I have already referred to private companies such as ACID, which provide access to highly successful unofficial databases. The amendment would place the Government in direct competition with these companies.

The amendment also raises a number of questions. For example, would an official government-run unregistered designs database be compulsory for designers to use? What about the design rights that exist in other parts of the EU? These can have an effect on rights in the UK so would all European design rights owners be required to record their unregistered designs with the IPO?

These questions may warrant further thought. However, the Government do not believe that it is wise to legislate at this stage without more consideration, particularly given the ways in which the UK IPO is already working hard to ensure that designers are as informed as possible when making business decisions about their intellectual property. For example, the IPO will provide training to the Design Council’s business advisers, to help understand IP and the value of design rights, and to direct SMEs towards the audit programme. On that basis, I am not persuaded of the need for the noble Lord’s Amendment 20.

However, I would not want noble Lords to gain the impression that, in not extending the criminal sanction to the UK unregistered design, the Government regard unregistered rights as second-class rights. The Government recognise that the introduction of criminal sanctions for designs is an important issue that is subject to strong opinions. We believe that the sanction as drawn is the best option to maintain and enhance the success of the UK design industry.

My noble friend Lord Clement-Jones and the noble Earl, Lord Erroll, raised the issue of the discrepancy between protection for 2D and 3D works. There was some debate on this in Committee and it is worth reiterating a number of key points. In the view of the Government, this is a consequence of copyright protection vesting in the “work” that consists of a design drawing, and there is no direct protection of the 2D representation of the design per se. The protection arises as a by-product of the copyright in the work. As noble Lords will know, copyright will protect against the reproduction of the drawing where the defendant knows or has reason to believe that the reproduction is an infringement of the drawing. This is merely a coincidence, caused by the fact that the drawing is a literary or graphic work and nothing more, and is a result of the existence of parallel IP regimes that coincidentally overlap in this case.

It is questionable that the existence of this anomaly, which is hardly unique in IP law, counsels equalisation or harmonisation by criminalisation of unregistered design right. As the noble Lord, Lord Howarth of Newport, who I see in his place, stated in Grand Committee:

“My Lords, consistency is not necessarily a virtue and I think that we should be very careful in the field of intellectual property. We legislate not simply out of tidy-mindedness or a desire to achieve a satisfying consistency by transferring rules and regulations that may have applied relatively successfully in one area to another”.—[Official Report, 13/6/13; col. GC 392.]

[The Earl of Erroll]

Would it therefore be sensible to bring copyright in line with these provisions, and decriminalise the copyright?

[Viscount Younger of Leckie]

The noble Earl makes an interesting point but I see the two as being very separate.

The noble Lord, Lord Stevenson, raised the issue of the low number of registrations. The importance of registration should not be underestimated. Official registers in the UK and OHIM contain approximately 728,000 registrations, which may be of help to the noble Lord.

My noble friend Lord Clement-Jones asked why expert witnesses cannot be used to determine technical matters under unregistered design matters. If the noble Lord’s proposed extension to include unregistered design rights was the right way to proceed, what he says about expert witnesses could indeed be helpful. However, as I have said, there are many reasons why the Government believe it is not right to criminalise unregistered design copying, which is the overarching issue.

Finally, the noble Lord, Lord Stevenson of Balmacara, raised the issue of the Copyright Hub to apply metadata to designs, which is an interesting point. The digital Copyright Hub is an industry-led initiative, of which the noble Lord will be aware. I am sure that the noble Lord will understand that I cannot therefore make commitments about what the hub will do in this respect. However, I am happy to speak to the industry team about the noble Lord’s suggestion. I therefore ask that the noble Lord withdraws his amendment.

Enterprise and Regulatory Reform Bill

Debate between Earl of Erroll and Viscount Younger of Leckie

Monday 11th March 2013 Lords Chamber

[The Earl of Erroll]

My Lords, we need to move somewhere in this direction, so I support this amendment. The unfairness of copyright law recently came home to me. Someone wanted to publish a book involving some of my ancestors, and asked whether they could use some material that I had at home. I replied, “Certainly, I would be delighted”. Then they said, “We need a release document”. They put a contract in front of me that said that they would have total rights to this material throughout the universe, known and unknown, in media not yet developed, incorporated and not incorporated—this, that and the other. The only thing it did not include was parallel universes. The contract said that I would have to defend the copyright whenever and wherever required, at my cost. I was not receiving anything for this; I was simply trying to be kind and helpful to someone who was making a documentary. I asked someone legal about it who said, “Oh, they probably couldn’t enforce it because it’s an unfair contract”, but apparently it is not because unfair contracts do not apply to copyright. I therefore asked whether other people had signed this, and was told, “Oh yes, they’ve signed them. Don’t worry, I’m sure nothing will happen”.

It is madness for people to sign these things. Something will come home to roost. You have only to look at the chancel repair bills that some people receive as a result of things signed long ago, which come home to roost generations later. This copyright thing would, if I had signed it, presumably have burnt my heirs and successors as well for the period of that copyright. This is potentially quite serious—something that people are ignoring. They think that it will go away and that it does not matter because it is so over the top. I struck through all the relevant clauses in the contract and said, “Right, you can have whatever rights you want to it, but you defend it and look after it”. I never heard any more and they never used the material, which is sad.

This is all part of the previous discussion on orphan works and extended collective licensing. So much is locked up that could help the future, help current understanding of the past and help to disseminate things, yet the big rights holders are so bullying in holding on to this material that they are preventing its dissemination. We have to open up and start being more reasonable, particularly in the digital age. On this amendment, therefore, I definitely support the noble Lord, Lord Clement-Jones.

[Viscount Younger of Leckie]

My Lords, I start by answering a question that my noble friend Lord Clement-Jones raised at the beginning. Well, it was more of a point, really. He said that he had sent a paper to me on how the issue of unfair contracts could be addressed. I confirm at the beginning that I have received this paper and that we will consider his suggestions very carefully. It is a little early to talk about this as a formal review, but I reassure him that we will certainly discuss this and take it forward.

However, I thank my noble friends for this amendment. I understand that individual creators can be at a disadvantage when negotiating contracts with intermediaries and large organisations. However, I believe that amending the Unfair Contract Terms Act in this way, as intended by this amendment, would not address these concerns. My noble friend Lord Clement-Jones is aware that we have had discussions on this outside the Chamber. This is because the provisions of this part of the Act are limited in scope. Section 3 applies only where one of the parties is a consumer, or is on the other party’s non-negotiated standard terms of business. However, we should also consider the overarching point. Successive Governments have maintained the principle that businesses should be able to contract freely with each other, and that the Government should not unduly fetter or circumscribe this freedom.

My noble friends have raised valid concerns about individual creators. Although I do not consider that the Bill needs amendment in this respect, I would be happy to meet creators to explore these issues further. I hope that in the light of what I have said, my noble friends will not press their amendments.

[The Earl of Erroll]

Will the Minister clarify something? It sounded as though this amendment would cover the situation in which I found myself. If a creator is a sole trader, will he be covered as a business to consumer rather than business to business? Would that help?

[Viscount Younger of Leckie]

The noble Earl raises an interesting point. This is very much a technical issue. As noble Lords will be able to imagine, a number of lawyers were involved before I was able to stand at the Dispatch Box today. On that point, I ask the noble Earl to allow me to get back to him with a specific reply.

Enterprise and Regulatory Reform Bill

Debate between Earl of Erroll and Viscount Younger of Leckie

Monday 28th January 2013 Grand Committee

[The Earl of Erroll]

My Lords, I not sure why these two amendments have been grouped together because they are completely different. However, I will deal with the first one on metadata. I do not know what it has to do with stripping metadata off whatever you might read on the internet. It is saying, as far as I can make out, that if you have an automated system that comes across some metadata, it should respond to that intelligently and either not breach copyright or know that you are permitted to use it. But it does nothing about controlling the metadata or stopping people from stripping it.

In as much as it is saying that you should look at the metadata and therefore respond to it intelligently, yes, that is a nice thought. However, I wonder whether many programmes would be able to do that. I can see that it is probably targeted more towards the search engines and various things like that. I can see some problems with this and think that it will have to go into regulation to work out how to handle it.

We also need to think about the world stage and what is being done in other countries, because a lot of these things that look for items on the internet are based abroad. We want something that is practically useful. We do not want to drive things out of the UK. I am not saying that we should breach copyright and I think that we should use metadata intelligently to try to achieve the aims that we want, but we must be careful how we do it.

I am also keen on the use of data mining for research purposes. For example, you can talk to Wellcome and such people. Huge benefits have come from looking at disparate research material. Very often, new discoveries come from matching things from completely different spheres. That is what we forget when we worry about the protection of copyright for the artist or creative person in that sphere. Actually, researchers have completely different needs. They will not usually go around ripping off other people's ideas.

One of the challenges with this whole area of copyright is that we are trying to treat everything as if it is the same. It is not. Very often, when we benefit one lot we will disadvantage another and we need to be careful not to do that. That slightly worries me.

Leaving that to one side, Amendment 28DZD has a good point behind it, which is that you must have an exception for parody. Leaving the courts to decide what is fair in parody and what is not is very dangerous. As we know, courts are extremely expensive. If you are a small creative group trying to create parody and a big boy comes along and tries to hit you over the head in the courts, you will have to back down. That is bullying. Unfortunately, I do not think that our laws on bullying prevent that. If they did, we might be able to do something about it.

We must be very careful saying that recourse to the courts is workable. Basically, unless you are very rich or very poor, you are outside the law. You are not protected by British law because it is too expensive. That is something I have become aware of in general. We cannot rely on it. I think it is very important, but I entirely agree with the noble Baroness, Lady Brinton. We cannot try to attribute every single little thing that one tries to parody. That would be absolutely ridiculous and unworkable. Without that bit about the attribution, the idea that we are trying to protect parody is extremely important. Therefore, I like this amendment; it just needs a bit of tidying up, I suspect.

[Viscount Younger of Leckie]

My Lords, Amendment 28DZA would introduce a provision into the Copyright, Designs and Patents Act 1988 that changes the legal status of rights management information attached to digital material. This would make internet service providers responsible for ensuring any rights management information contained in metadata is recognised and acted upon. I have sympathy with creators whose wishes about the use of their material, expressed through metadata, are not always complied with. There are already well-established methods to control automated use of material posted online—for example, the use of robots dot text files to prevent crawling of websites by search engines. I was grateful for the technical insight on this from the noble Earl, Lord Erroll, who I suspect knows a lot more about this than my good self.

Internet service providers are already responsible for removing infringing material when it is brought to their attention. This is in keeping with other areas of law, where we do not expect carriers of information to be held liable for the lawfulness of that information. The approach suggested in the amendment would require all aggregators, indexers and other automated hosts online to develop systems to read metadata and comply with any conditions. As noble Lords will understand, this would be no small task. It would also replicate the efforts of a number of industry-led initiatives in this area, which are making progress. These include the Automated Content Access Protocol project, and work by the industry-led digital copyright exchange to look at the related issue of automated metadata stripping.

Government have considered the amendment carefully but do not consider that legislative change is the right step at this time. Moving on to Amendment 28DZD, noble Lords will be aware that the Government have announced their intention to bring forward legislation to introduce or update a number of copyright exceptions. A new exception to allow limited use of copyright works for parody, caricature or pastiche is part of that work. The amendment of the noble Lord, Lord Stevenson, is therefore going in the same direction as the Government’s policy. Rather than amend the Bill to achieve it, I suggest that it would be better to wait for the introduction of a parody exception, with the other proposed changes to copyright exceptions, in due course.

The Government have already committed to publish draft regulations later in the year, including provisions on this subject, for technical review by any interested parties. This will be an important opportunity to hear from experts, including in this House, to ensure that the regulations will have the desired effect. I would like to pick up on a point emphasised by the noble Lord, Lord Howarth, concerning secondary legislation. To clarify, we believe that exceptions to copyright that are explicitly permitted by the copyright directive may be introduced into UK law by means of Section 2.2 of the European Communities Act. The Hargreaves changes to copyright exceptions announced in December 2012 will be introduced by secondary legislation under the European Communities Act and not under the power in Clause 66 of the Bill. Our intention is to publish draft regulations for public comment in the spring. Government have considered the amendment carefully, but I hope that in light of the above, the noble Lord, Lord Stevenson, will feel able to withdraw this amendment.