Intellectual Property (Hargreaves Report)

Brian Binley Excerpts

Thursday 7th July 2011 Westminster Hall

[Damian Collins (Folkestone and Hythe) (Con)]

It is a pleasure to serve under your chairmanship, Mr Chope, and to have heard the contributions of the previous speakers, who have a great deal of knowledge and expertise in this subject, particularly as a result of the work done in previous Parliaments and in passing the Digital Economy Act 2010.

I come to the debate not only as a member of the Culture, Media and Sport Committee, but as someone whose work and business background was largely in the creative economy, given that I worked in the advertising industry. As I can see from my constituency, the creative economy plays an important role in the regeneration of our economy. I entirely agree with the right hon. Member for Bath (Mr Foster) that it has fantastic scope and potential as one of this country’s great industries. In many sectors, we truly lead the world, and they can be part of the growth of our economy as it recovers.

However, we are talking not just about an economy of large businesses or about multinational companies seeking to purchase, use and benefit from the rights to creative content, but about a complex web of different businesses, large and small, which are interdependent and which rely on one another. In the creative quarter in the old part of Folkestone, which is very much part of the town’s regeneration, 200 to 300 people are employed in the creative economy as artists, web designers, website creators and games makers. Many of their businesses are simple partnerships of two or three people or small stand-alone businesses. Their ability to make things, sell them in a fair and open financial market place and benefit from them is incredibly important to their survival.

It is a particular pleasure that the debate is taking place in the Grand Committee Room. About six months ago, I organised an event for about 70 art students from colleges right across the country, from the south-west to London, Lincolnshire and Leeds. The group was organised by Graham Fink, the creative director of M&C Saatchi, who runs a free service for art students. He brought them into this room to run a creative workshop, hoping that they would be inspired by being in the Palace of Westminster and in this great forum for debate and ideas. It was fantastic to see the work and enthusiasm of those young people seeking to break into the industry, although it would be remiss of me to say whether they generated more original thinking and ideas in an hour than we will manage in the next hour. It was certainly a great pleasure to see their work and their enormous enthusiasm. Everyone with a knowledge of and passion for the creative industries understands its scope as a business and knows that young people want to work in it; they want to bring their ideas and be part of it. They have a right to expect a fair recompense for their ideas and work, and for the effort they put in.

Technology has changed the marketplace dramatically, but it can also be the great hope of the creative industries. I am thinking of the internet’s ability to supply what is referred to as the long-tail supply chain, in which the owners of niche works that would otherwise struggle to get listed can sell them in an open marketplace. The ability to search for and find work through search engines and the internet is a great advantage, but there must be rules of engagement. The direction in the finding of materials should be fair. Websites and search engines should direct people to places where works can be legitimately purchased. Many people have concerns that instead of directing people to legitimate places where they can buy works, predictive search, in particular, directs them to places where they can be obtained by piracy.

[Mr Brian Binley (Northampton South) (Con)]

My hon. Friend is making an interesting and important speech, but I am concerned about the direction by search engines to sites where the creators of material can be recompensed. Does he agree that search engines should be more able to act in that way? Should the Government think more about a little nudging and forcing in that direction?

[Damian Collins]

My hon. Friend makes a compelling point, which will have been heard by Ministers and search engine owners. I attended a briefing with the BPI, which represents the music industry, to talk about that very issue and was given a live demonstration, in which typing “download music” into Google meant that the predictive search came up with “download music for free”.

If we believe that technical measures should be used to restrict people from downloading content illegally, we should consult those who run search engines about the priority and ranking that they give to sites that direct people to sources where they can do that. That is a legitimate part of the debate, and search engine representatives should welcome it and be open to consultation with Government about it.

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[Mr Binley]

I have listened to my hon. Friend’s comments, which are always immensely constructive and helpful, but I was concerned when I heard mention of the £10,000 fee for a small company. Many of the small companies operating in software creation are one-man bands, for whom that would be a large amount, even if that one-man band was immensely successful. Would she temper that cost a little?

[Lorely Burt]

My hon. Friend makes an important point. I merely used the figure as one that would allow a patent to be properly researched before it was granted. A two-tier system, with a larger fee for larger companies, would stop some abuses. For example, IBM—I am sorry to use it as an example again; I promise I do not have anything against it—took out a patent for the optimal way to queue for the toilets on an aircraft, which is hardly earth-shattering.

On patent submissions, the review failed to deal head-on with poor patent quality and patent backlogs. As I said earlier, patents can be challenged as soon as they are issued, but once they have been issued, there is no mechanism for enforcement except through recourse to the courts. By taking out a patent, a company could be doing itself a disservice by drawing attention to its innovation and attracting the predatory attention of large companies with big lawyers, which can steal the idea and line up the fancy lawyers and see what the small company is prepared to do about it.

That brings me to costs and damages. Let us look at what happens when a patent holder finally takes an alleged infringer to court. Costs awarded to the loser used to be open-ended but, since 14 June, they have been limited to £50,000, which is a step in the right direction. That was not the result of Hargreaves, and he did not mention it in his report. However, that £50,000 is £50,000 more than in America, and the limit forms a substantial deterrent to a small company taking on a large corporate with resources and lawyers. Also, the award for damages is limited to £500,000, so if someone has a multi-million-pound idea and a big company comes in and steals it, the big company can infringe the patent, knowing that the maximum it will have to shell out is £500,000—a bargain. Compare that with America, where Dyson won damages of £6 million after the expiry of its patent because other companies were too quick off the mark in marketing bagless vacuum cleaners. Hargreaves seems to think that the UK garden is rosy, because fewer UK companies went to court than EU companies, but the reason is not because they are happier, but because too many barriers are in the way.

Hargreaves also ignored the SME Innovation Alliance’s request for a UK penalty for infringing a patent. Is that believable? We are the only country in the G8 that has no penalty. The worst that can happen to infringers is that they might end up paying a hypothetical royalty, as if nothing untoward had happened. By the time an SME has spent years, and money, pursuing infringement, it ends up losing substantial resources—and that is if it wins. As Sir James Dyson put it, it is a bit like having the family silver stolen, with the best result being getting some of it back. Why was the fundamental need for the introduction of a penalty for infringing a patent totally ignored?

The SME Innovation Alliance also complained about difficulties enforcing patent rights abroad, an area on which most SME growth and job creation is dependent. Hargreaves and the IPO have been made fully aware of that, and the IPO acknowledged the difficulties, but Hargreaves did not tackle the subject. All in all, I am sorry to say that SMEs—the main source of UK innovation—believe that Hargreaves has failed them. The Government have to take note of the real needs of UK SMEs, instead of setting up a review that has had the perhaps unintended consequence of pandering to the needs of foreign corporates. In Hargreaves’s favour, he recommends adopting the European patent system, but the total maximum damages of £500,000, covering the whole of Europe, hardly make the game worth the candle for many companies.

I welcome the patent box, an idea that SME Innovation Alliance officers are discussing with the Treasury at the moment. The patent box provides a £1.1 billion tax break for innovative industries. That has been extended to existing industries, and there are proposals to simplify research and development tax credits, but we need that now, not in 2013, if we are serious about job creation.

[Philip Davies in the Chair]

If the patent system does not protect British companies, we are making it harder to innovate in the UK than perhaps anywhere else in the G20, and far easier for others to steal our UK innovations. The SME Innovation Alliance has a number of ideas to improve the system greatly, and I would very much like our Government to take them seriously. Otherwise, all they can do is criticise Ministers for not providing a workable patent system for SMEs, the main source of UK innovation. I therefore conclude by asking the Minister to meet me and the SME Innovation Alliance to sort out the current mess in the patents system.

[Mr Brian Binley (Northampton South) (Con)]

I welcome you to the Chair, Mr Davies. It is a pleasure to serve under your direction. This is the first time that I have had that pleasure, and I promise that I will do my best not to cause you difficulties.

I congratulate the hon. Member for Perth and North Perthshire (Pete Wishart) on instigating this debate, which is opportune and important. His knowledge of the creative industries is second to none in the House, and his work on that does him and those industries great credit. We are all happy to support him.

I welcome the Hargreaves review as a start, but like the hon. Member for Lewisham West and Penge (Jim Dowd), I have some reservations. However, it is an opportunity to support intellectual property in the business sector, which is especially important for the creative industries. The case for those industries has been made very well in other contributions to the debate, and they might be starved of the oxygen of finance if we do not do something quickly. That is why I urge the Government to get on with the job of putting the report into effect. It is good that they have agreed to consult, but most of us want early notice of a Bill to support both business and the creative industries.

In a developed economy, intellectual property rights are fundamental to economic growth. If we lose sight of that fact, we do considerable harm to business and commerce in this country. I urge the Minister to recognise the needs of industry in that respect. It is vital that intellectual property rights are enhanced, protected and supported, and that the creators of those rights get their fair and just return. That cannot be said with confidence to apply at the moment, and therein lies the problem, as some contributors have said, which is why I urge the Government to act quickly.

We must get the matter right. If we fail to recognise and reward the value of creativity and innovation, we risk a reduction in the quantity and quality of new output, which is vital to the well-being of this nation. We have lost many of our rust-bucket industries and our young people are finding it difficult to get jobs, but creativity and innovation can be a vital spark to inspire many of those young people to become aspirational. I need only mention the games industry to show how inspirational creativity and innovation can be. Many young people have played a leading role in that and created a sizeable export industry for this country. We must take that into account.

The concern is felt particularly by the Authors’ Licensing and Collecting Association, which has 80,000 members who make a considerable contribution to the well-being of this nation culturally, educationally and technically, to say little of their contribution to GDP. We must recognise those creative people as small businesses, because every one of them makes a contribution in the way I have described.

The current copyright system has failed to remove barriers to innovation. There is a gap between the law and reasonable expectation, and the behaviour of many people today regarding digital access. There is a lack of understanding that creativity must be paid for. As the hon. Member for Lewisham West and Penge has said, to steal creative material is exactly that—it is stealing. If I produce something, I expect to be paid for it. That lies at the basis of a society that believes that hard work should have its reward. There is more to that in the spirit of our nation than often meets the eye. I have met young people who think it is their right to steal other people’s intellectual property, and that is the sort of culture that we have created. We must put an end to it, if we are to deal with the issue properly.

I welcome the single multinational regime, which offers the prospect of eliminating wasteful duplication and increasing the potential for cross-border commerce. That is a welcome innovation that the Government should think seriously about and get right when they draft a Bill. The Minister’s Department has estimated that that could increase income to the nation by at least £2 billion a year by 2020, and it could be considerably more than that if we released the potential that I believe exists.

The concept of IP attachés for emerging economies, such as China and India, is interesting, and I would be grateful if the Minister will give further information on that intriguing proposal. I want to know how he feels about the idea, which I believe is a good one. I recently led a delegation to China on behalf of the Select Committee on Business, Innovation and Skills. There is a view, rightly held in many areas, that China culturally sees knowledge as the birthright of all the peoples of the globe. It is a cultural concept that many of us admire, except that it means that they believe that they can have other people’s intellectual property.

To be fair, on that visit we found that the Chinese were genuinely getting down to the business of dealing with the issue, and they told that they have 60,000 inspectors on the ground. But I also saw a shop in Peking—sorry, Beijing, I am an old chap, as the Minister knows—selling CDs for £1 in our terms, which were clearly pirated and on open display. I am sure the hon. Member for Perth and North Perthshire who secured this debate will be horrified by that. He had worked on one of the CDs that I found, and he would probably like slightly more of a return from that particular enterprise.

I also want to talk about the impact of intellectual property on small businesses. I come from a county in which 94% of private sector work is in SMEs. I pay tribute to my hon. Friend the Member for Solihull (Lorely Burt) who has battled hard for the SME sector and suggested a meeting with the Minister. I know that he will want such a meeting to take place, and I am sure that a lot can come from it. Small and medium-sized enterprises are, without doubt, the main engine behind the Government’s growth agenda and behind wealth creation and the creation of more jobs in this country. Talking to those businesses about a matter that impacts so considerably on our young people has real import, and I look forward to hearing from my hon. Friend about the outcome of her meeting with the Minister.

The Hargreaves report deals with small and medium-sized businesses and recognises the importance of that sector, which I welcome. There is a symbiotic relationship between large and small firms on innovation and research and development, and supply chains are a large part of that. There are, however, complexities in the regime that are more challenging for small firms to navigate, and they need special understanding and help. I hope that the Government will recognise that when they introduce the legislation.

As my hon. Friend the Member for Solihull and others have said, small firms need help with costs and with the law. A large company has the resources to promote understanding within the organisation about the impact of the law on a certain area of activity. Small businesses, however, do not have such resources. I have appealed again and again for the Government to recognise that the impact of a demanding regulation on large companies is multiplied 30 times in the SME sector in terms of cost and effort. The Government need to recognise that when they frame the legislation.

Small businesses want an integrated source of advice that combines commercial and technical insight with legal expertise. We need to understand how we can provide such a resource for the many small businesses that work in IP development, and we must enable them to commercialise as well as protect their intellectual property. I would, therefore, be grateful if the Minister were to expand on what action the Government propose to ensure that the regime is friendlier and more accessible to small and medium-sized businesses.

The Minister will not need telling that digitisation offers the prospect of democratising many of the written works in our language, which will spread economic, cultural, and educational benefits more widely. It is bizarre that researchers from Europe who seek to access material from before 1923 have to travel to the United States to view it. Although that material is readily available on the internet in the United States, it is not available in the United Kingdom. Ironically, much of it was produced and written in this country or in Europe, and it should be made available. It is a matter for the Minister to look into—I am talking specifically about material created up to 1923; I do not want the Minister to think that I seek to create a loophole to enable people not to pay their dues under copyright.

Digital material should be treated in the same way as other formats, offering the prospect of a simpler regime and architecture that commands greater compliance, respect and understanding. Copyright law should be technology-neutral, and contract law should no longer obstruct acts permitted by statute. Sadly, such acts are currently obstructed, and I want to draw that issue to the Minister’s attention.

In conclusion, I welcome the Government’s proposals on the patent box and on research and development credits. Applying a 10% corporation tax to profits attributed to patents would create a far more conducive environment in which innovators could operate. We need to retain our position as a world leader in patented technologies, and using the tax system to encourage that would be a positive measure for the Government to consider.

The Hargreaves report makes a vital and interesting contribution to the debate on intellectual property. We must, however, recognise that it is only a platform for debate,. The report needs genuine Government drive to translate into a Bill that will benefit the whole of our nation and, more specifically, be of import to small and medium-sized businesses. We need to be positive about encouraging innovation and growth, and we need to configure our policy and tax frameworks accordingly. As we gradually shift away from the economic woes of the past few years, above all else such innovation offers the prospect of sustained prosperity and success. My advice to the Minister, which I am sure that he will heed, is to get on with it.

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[Mr Hayes]

I think that the right hon. Gentleman is underselling himself. He wants a much more sophisticated response than that. I think that there is an absolutely reasonable case to say that, if the person who authored a work is found in the way that he describes, they should receive some recompense or reward. We will need to look at that in our response to the review. The right hon. Gentleman makes a powerful argument, and it seems to me to be not without merit. That is not bad for someone who was not going to give him a direct answer, as I am sure he will be happy to acknowledge with his typical—characteristic, one might say—generosity.

As my hon. Friend the Member for Northampton South has argued, we also need to ensure that we are influencing effectively what is happening overseas and supporting, again, positions based on evidence. We need not only to look at relationships with key partners, but to encourage other states to develop IP frameworks and enforce them appropriately, which is the point that my hon. Friend made. He will be pleased to know that we recently announced, jointly with the Chinese Government, that we will host an IP symposium. It will take place later this year with the appropriate Chinese authorities. It will seek to find a better mechanism for British businesses to raise and have addressed IP-related issues.

I will visit China next week and have no doubt that, among the many issues that I will discuss with the Chinese authorities, this may come up. I will certainly be able to refer to this debate. I give my hon. Friend my pledge that I will reflect on what he has said and, where appropriate and with all the due diligence and courtesy that is fitting to a Minister of the Crown, raise these issues with my Chinese counterparts. Ministers and officials regularly raise IP issues in that way with their counterparts in other countries. It is important that we build on the good relations that we have established to deal with these issues straightforwardly.

[Mr Binley]

Will my hon. Friend the Minister give way?

[Mr Hayes]

I will give way to my hon. Friend in a moment, but I want to give him one other piece of good news first. The UK recently announced that it will appoint IP attachés in countries including India and—my hon. Friend will be delighted to know—China. We expect them to be in place by the end of this financial year. They will work with host Governments on IP policies and with UK businesses to help to ensure that they can exploit and protect their IP effectively overseas.

[Mr Binley]

That is the quickest response for action I have every had from any Minister. I am most appreciative. I congratulate the Minister on taking on a very difficult brief that is not primarily his own. I understand that he does not want to say too much before the Government consultation has finished but, on the basis of our long friendship, will he talk to the Minister concerned about the use of search engines? The need to ensure that the creative arts get well recompensed for their product is vital and increasingly urgent.

[Mr Christopher Chope (in the Chair)]

Order. That is a long intervention.

[Mr Binley]

I shall sit down, Mr Chope. Your guidance is welcome, as it is based on experience.

[Mr Hayes]

My hon. Friend is right about the matter that he raises, and I will certainly do as he asks. He has some professional expertise in this field. Other hon. Members may not know that, but I have been pleased to visit Northampton with him many times, including this week. He brings some expert understanding to the subject. As I said, I share his background in the information systems world. He is right about search engines. I will draw his comments to the attention of both my noble Friend Baroness Wilcox who has responsibility in this area and, indeed, the Under-Secretary of State for Culture, Olympics, Media and Sport, my hon. Friend the Member for Wantage. If he had been asked to respond to the debate, contrary to what the hon. Member for Wrexham said, he would have been a peg below me; hon. Members are getting a Minister of State dealing with the matter, rather than an Under-Secretary. I think that that is a bonus. My hon. Friend the Member for Northampton South makes a fair point and, as I say, I will pass on his comments.