Intellectual Property Bill [HL]

Lord Howarth of Newport Excerpts

Thursday 13th June 2013 Grand Committee

[Lord Stevenson of Balmacara]

My Lords, I am very grateful to the noble Lord, Lord Clement-Jones, for his lucid introduction of these two amendments. As he says, the first seems to deal with an error. We shall wait to see what the Minister says about it, but we would support it if he chose to take it further.

Amendment 24 picks up the debate where we left it on Tuesday. For most of the time we reflected on why the Government have adopted a two-track approach, although unfortunately in this case the tracks lead in opposite directions. In one there is no attempt to simplify the design rights field. The points made by Ian Hargreaves in his report, and picked up by many commentators, seem to have been ignored. I know that it is difficult to eliminate unregistered design rights; nevertheless the fact that we have five different ways of classifying or approaching these designs is still an irritant and source of confusion for the industry. It cannot be effective in terms of building up the creative industries more generally. It is something that will have to be addressed at some point, if it is not dealt with in this Bill.

The second track is this: why should one penalise on the registered design side but not on the unregistered design side? We will be opposing the question that Clause 13 should stand part in the next group, so my position on this is somewhat complex because I would not want to see criminal penalties brought into this area at all. That is not the right direction of travel and I will expand on that when I speak in the clause stand part debate. Parking that for a moment, I accept absolutely the points made by the noble Lord, Lord Clement-Jones. There is no substantive difference in how unregistered and registered designs are treated. The fact that they are registered does not in any sense imply approval or otherwise of them, or give them any status that is different from unregistered ones. The figures are exactly what they are. Most of the people who operate in these fast-moving areas, particularly fashion, tend to use unregistered designs, and those who do so have no real protection when there is a problem.

I was particularly struck by the points made by the noble Lord, Lord Clement-Jones, about the way in which the design copying process might happen. Most people would take the 3D representation of a design, not the 2D design. As he pointed out, the discrepancy in how such malfeasance is then approached by the courts is obviously a stark example of how the process is not working.

The noble Lord’s final point about parity of arms is one that we will return to. It is clear that there is a real danger in the creative industries these days that those with the resources can use the system to obtain advantage in the knowledge that people will not be able to defend their designs. Yet we rely on these individuals and small companies to provide the design initiative that is necessary to grow our creative industries. For all these reasons, I support the noble Lord in his amendments.

[Lord Howarth of Newport]

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. However, it seems that the noble Lord, Lord Clement-Jones, has made a strong case for consistency in the treatment of registered designs and unregistered designs in terms of the proposed criminal offence. I would be grateful if the Minister could give us his explanation.

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

My Lords, before I begin, I hope noble Lords will allow me to take the opportunity to correct a reference made in my closing speech at Second Reading. In the context of wider points about infringement and the copying of designs, I spoke briefly about the right to license certain intellectual property rights. This is where rights become available to third parties for exploitation under certain conditions. As an example, I cited a figure of 2,097 applications to use designs in this way, but the example in fact referred to patents.

Now that that formality is out of the way, I shall turn to the substantive points that have been debated about the Government’s proposal to introduce a criminal sanction for the deliberate copying of a registered design. I begin by reminding noble Lords of the purpose behind the Bill, which is pertinent to the points that have been raised in the debate. Our objectives, as set out in the consultation on the designs legal framework, are: simplification; improving the services offered by the IPO; strengthening rights, including enforcement; and improving how disputes are resolved. There is clearly a balance to be reached in some of these objectives. Simplification cannot be achieved at the expense of loss of protections in the marketplace. Equally, strengthening rights cannot be at the expense of follow-on innovation.

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[Lord Clement-Jones]

My Lords, I shall be very brief. The beauty of Committee is that entirely opposing propositions can be put forward by the same person. It is only when we get to Report that we have to get serious by being absolutely clear about the propositions being put forward. I therefore do not intend to respond in great detail to the noble Lord, Lord Stevenson, who, I believe, was taking an argument out for a trot. Earlier in Committee, I previously talked about frightening the horses and I am afraid that we are back to horse analogies. It has been an entertaining trot in many respects.

The way that the argument was put together misunderstood what happens in court. It is about the adducing of evidence. It was reassuring that the judge listened to the arguments and evidence and felt as a result that he understood far more about the genesis of the design right. Of course, in a criminal court you add mitigation to all that. It is not worth suddenly locking up people as a result of being prosecuted for design infringement. If you do something reasonable in the eyes of a criminal court in such circumstances, you will be able to mitigate the offence, even though technically you may be guilty of it.

I am afraid that I do not accept the noble Lord’s argument. However, I have wanted to use the expression “a fortiori” for many years in Committee; if you have the ability to prosecute in a criminal court for an infringement of registered design, you should have that ability for unregistered design. If you have it for copyright, you should be able to prosecute for unregistered design. If you have it for trade marks, you should have it for unregistered design. All these intellectual property rights may be complex but they are a vital underpinning for our creators and our creative industries. I am unashamed in my wish for those creative industries to thrive in this country and for their intellectual property protection to be as solid as we can make it, without falling unduly into a monopoly situation, about which the noble Lord, Lord Borrie, is ever vigilant, I am glad to say.

[Lord Howarth of Newport]

My Lords, the noble Viscount needs to offer us some compelling reasons for the creation of a new criminal offence. It is undesirable in principle to create new criminal offences unless there is a clearly demonstrable need for them. Successive Governments over decades in this country have been promiscuous in the creation of new criminal offences. They have been trigger-happy in this matter. It makes them look as if they are being tough and it is quite popular in certain quarters, but it has not been very good for our national life or our culture. It tends to create a more pervasive culture of distrust, suspicion and fear within our society.

There are also a lot of practicalities to think about. If you have a criminal offence, you must commit policing resources. You are laying another burden on the courts. The police and the courts are already excessively burdened and their resources are diminishing. You must consider the capacity of the prisons, which are bursting. I hope that we will not have to anticipate many people being incarcerated in consequence of the noble Viscount’s measure but that is clearly what it points towards. I do not know what thought the noble Viscount has given to the cost of all this. We understand that the Government are intent on reducing the deficit but he is proposing here a measure that will have clear implications of additional public spending. I can quite understand why the measure is popular with small and medium-sized enterprises in the design field: the burden of the enforcement of rights will be transferred from civil action being taken by them where necessary to criminal prosecution by the police and the Crown Prosecution Service. It saves SMEs troublesome, tedious and possibly expensive activities. I can see why they like that. However, I am a bit surprised that the Minister has been willing to gratify them in this way.

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[Viscount Younger of Leckie]

My Lords, Clause 13 will introduce a criminal offence for the deliberate copying of a UK or EU registered design. This should help to reduce the scale of unlawful design copying in the UK while increasing the level of protection that is available for holders of registered designs. The Government believe that they have achieved a fine balance in the substance of the clause to ensure that the criminal offence targets only those people who deliberately steal someone else’s ideas and creativity. As we have already discussed today, there are a number of reasons why this clause applies only to registered designs, and this decision forms part of the fine balance of protection that it achieves.

The focus of the offence being on registered designs rather than unregistered designs also reflects the majority of responses to the designs consultation. As with other legislative changes, the Government plan to evaluate the impact of the change within five years of implementation. The offence gives registered designs the same level of protection as copyright and trade marks, creating a coherent approach to enforcement and protection. It also brings design rights in the UK to a level with other European design leaders such as Denmark, which noble Lords will know is noted for design in its furniture manufacturing industry, as well as Italy and Germany.

Criminal sanctions already exist in these countries and are considered necessary as a deterrent and to punish those who deliberately copy for commercial gain. For example, in Germany in 2011, a total of 12 trials were held concerning a criminal charge based on design copying. In three of the cases, the charges were dropped during the trial. In eight out of the nine cases in which a sentence was passed, the court issued a fine. In one case, a prison sentence of nine months to one year was imposed. These figures show clearly that the offence is brought forward only selectively, but that a need for the sanction does exist. This may help to reassure the noble Lord, Lord Howarth, in his concerns over the criminal sanctions. He alluded to the fact that they might be a little too draconian.

On the same subject, the noble Lord, Lord Howarth, raised the issue of the costs to this country. In their impact assessment, the Government have estimated a cost of £8.18 million over the course of 10 years. This figure was arrived at by estimating the costs to the police, the Crown Prosecution Service, Her Majesty’s Courts and Tribunals Service, and potential legal aid costs. However, it is difficult to estimate the benefit of the offence to business. The organisation Anti Copying in Design has estimated that the cost of infringement to the design industry is around 5% of the total value of design to the UK economy. Based on the most recent estimates from NESTA of £15.5 billion as the value of design investment in the UK, this equates to an annual cost of infringement of £0.775 billion.

In relation to costs, the noble Lord, Lord Howarth, also asked what the provisions are for maximum penalties. As the noble Lord may be aware, the Ministry of Justice is currently bringing Sections 85 to 87 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 into force. These provisions will increase the fines for all intellectual property related offences in the magistrates’ courts in England and Wales. This work needs to be allowed time to be implemented before further increases in penalties can be considered.

The noble Lord also asked a plain question: can the justice system cope with this? We do not believe that the offence will create a burden on enforcement agencies. Trading standards departments have the resources to pursue only a certain number of intellectual property cases each year. As a discretionary power, it will be up to each department to balance the importance of pursuing a design case against the other kinds of intellectual property crime in which it is interested. This is in keeping with many other statutory provisions under which local authorities have no duty to enforce, but can and frequently do, instruct trading standards departments to take action. The Crown Prosecution Service will treat any new offence with the same approach it does for the other forms of intellectual property, using its usual discretion and margin of appreciation, including such factors as evidential sufficiency and the public interest in pursuing a conviction.

[Lord Howarth of Newport]

Perhaps the noble Viscount will allow me to intervene. Does the figure of £8.18 million over 10 years include the costs to local government as well as to central government; namely, the costs of trading standards officers? Whether or not it does, the public expenditure cost of £8.18 million that is already cited is a multiple many times over that of the expected cost of infringement per annum. We are going to spend more on enforcement than we will lose on the costs of infringement. On the face of it, that does not seem to be good value for the public purse or for the economy.

[Viscount Younger of Leckie]

My Lords, the noble Lord has cited certain figures and I think it would be wise for me to give him a fuller answer than I have before me. Although I would say this, I believe that our arguments are robust. However, I will follow up his points and write to him.

Clause 13 specifies that various conditions must apply in prosecuting the offence. In particular, it must be established that the person accused of the offence should, first, have copied a registered design; secondly, knew that the design they copied was a registered design; and thirdly, copied the design without the consent of the registered design holder. Under the clause, it is also an offence knowingly to use a copied design in the course of business activities in order to profit from that copying. This would include acts such as marketing, exporting, using or stocking the design in the course of business. A prosecution will be successful only if the evidence is sufficient to satisfy the criminal legal burden of proof; that of being “beyond all reasonable doubt”. This is a high standard to achieve and will help to ensure that the offence does not affect innovation or legitimate and competitive risk-taking within business. The offence will not apply if the defendant can show reasonable grounds for believing that the design in question was invalid or where the person charged with the offence shows that there was no infringement of the registered design.

The clause provides that a trial may be on summary trial in a magistrates’ court or trial on indictment in a Crown Court. Of course, this will depend on the severity of the case. In a magistrates’ court, conviction could result in a term of imprisonment of up to six months in England and Wales and Northern Ireland and 12 months in Scotland, or a fine up to the statutory maximum, or both. In the Crown Court, conviction on indictment could result in imprisonment for up to 10 years, or to a fine, or both. The offence in this clause will be applicable only to designs registered prior to infringement, not to those registered after the copying has taken place. Under the clause, trading standards departments will have the power to enforce registered design copying, as they do now for trademark and copyright offences. They will also have powers of forfeiture.

Noble Lords raised a number of points. The noble Lords, Lord Stevenson and Lord Browne, raised the issue of the “chilling effect” of criminal sanctions. I reiterate that the clause is not intended to have a chilling effect on innovation or legitimate and competitive risk-taking within business. This is something that we were very much mindful of during the drafting of the offence as our policy intention was to target only those people who deliberately use somebody else’s ideas and creativity. Further, the offence depends on the infringing product having been made “exactly or substantially” to the registered design, and this should catch only those who set out to copy a registered design, not those who make distinguishable follow-on designs. This is why the offence requires the defendant to have known or have reason to believe that the design he or she copied was registered by someone else. Furthermore, this will have to be shown to the criminal standard of proof of “beyond all reasonable doubt”, which is an exceptionally high standard for prosecutors to meet in court.

As I mentioned earlier, this chilling effect has not been seen in Germany and the assertion of a chilling effect does not appear to be borne out by the experience of other jurisdictions that retain a criminal sanction for design copying. Germany is renowned for having a highly effective design system and it retains both civil and criminal sanctions. Although it is difficult to draw direct causality between Germany’s use of criminal sanctions and its successful system, we know that Germany has 10 times as many registered designs as the UK and it is unlikely that the criminal sanction has had an adverse effect on the number of registered designs or on the strong innovation performance of German SMEs, which is so evident to us all.

The noble Lord, Lord Stevenson, asked whether it was fair to prosecute those who unknowingly stock or sell copied designs and cited the examples of Apple and Samsung. The innocent use of a copied design in the course of business would not be caught by the offence; for example, a retailer would be protected if a third party had manufactured the copies and sold them to the retailer as their own. In this case, the retailer would not be acting with the knowledge that the design was a copy and would not be found guilty of committing the offence. The activities that constitute using a design under the offence reflect the definition for “use of a design” contained in Section 7 of the Registered Designs Act 1949. Innocent acts are protected, therefore, under the clause because it contains the test of,

“knowing, or having reason to believe”,

that a design is copied.

[Lord Howarth of Newport]

I am most grateful to the Minister and apologise for intervening on him again. I just wonder whether the chilling effect may not work in another sense. As the Minister says, there is no evidence from the German experience that the existence of criminal sanctions has had any chilling effect on the registration of designs. But what evidence does he have to reassure us that people who might be uncertain as to whether the design that they wish to develop was so close to another design that it could be proved in court to be sufficiently similar to incur a penalty, they would therefore decide not to bother? Given the difficulties of definition in this field, is it not possible that the chilling effect may be to deter innovation and enterprise on the part of people who are worried that they would be moving too close to a design that was already registered?

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[Lord Jenkin of Roding]

My Lords, I hope to be able to deal with this very briefly, as I shall explain. The purpose of the amendment, along with the amendment grouped with it, is to try to make sure that artistic works prepared before 1 June 1957 will still be protected despite the repeal of Section 52 of the Copyright, Designs and Patents Act 1988. I remind the Committee that we discussed this at some length during the passage of the Enterprise and Regulatory Reform Bill.

I have learnt that the group of manufacturers who are concerned about this have a meeting set up with the IPO for a week today. It was suggested to me—and I have suggested it in turn to my noble friend and given notice to the noble Lord, Lord Stevenson—that perhaps it would be better to wait to see whether the outcome of that consultation meets the concerns of those companies. If it does not, and the issue turns out to be serious, we can, of course, return to this matter on Report. On the assumption that my noble friend will share my anxiety to let that meeting proceed first, I hope that he will be able to respond with equal brevity. I beg to move.

[Lord Howarth of Newport]

My Lords, I rise to speak very briefly. One has a pleasant sense of déjà vu when the noble Lord, Lord Jenkin of Roding, tables an amendment in relation to works that he is careful to label as “artistic” created before 1957. However, he then spoke of a group of manufacturers who are shortly to meet the Intellectual Property Office. I am a little puzzled about the relationship of artistic property to the activities of manufacturers. If the noble Lord were able to clarify quite what the relevance of one is to the other, I would find that helpful.

[Lord Jenkin of Roding]

I apologise if through brevity I omitted some obviously important facts. We are dealing with iconic pieces of design, many of which were created in what is known as the Bauhaus period. These would include such things as the Corbusier chaise, the Wagenfeld lamp and what we frequently refer to as the Eames lounge chair. They are indisputably works of fine art and are protected by copyright throughout the European Union. The manufacturers want to be sure that they will continue to be protected in the UK.

[Lord Howarth of Newport]

I am grateful to the noble Lord for that clarification. Given that clarification, I have to say that I find myself profoundly opposed to what it is that I think he is seeking to achieve. While of course it is right that designers from the Bauhaus stable—Wagenfeld, Corbusier or Eames, although he was not from the Bauhaus—deserve to be recognised and to enjoy the protection of their intellectual property for a reasonable length of time, we are talking about a period that goes back to before 1957, half a century ago. I cannot see how it can be in the public interest that a monopoly should continue to be held in those designs. That is not least because no protection is being given to the designers themselves. The design rights have been sold on and inherited. Surely it must be desirable to limit the term of monopoly so that more people are able to have the benefit of iconic artefacts created according to these very beautiful and important designs at reasonable prices. The protectionism that the noble Lord is seeking to perpetuate through his amendment is not in the interests of our society, of our culture or, indeed, of our economy.

[Viscount Younger of Leckie]

My Lords, I turn now to Amendments 24A and 24B. I am grateful to my noble friend Lord Jenkin for the constructive spirit in which he has offered them and indeed that he has agreed to wait for the results of the meeting to which he alluded. These amendments are related to the repeal of Section 52 of the Copyright, Designs and Patents Act 1988 through the Enterprise and Regulatory Reform Act 2013. For the benefit of the Committee, and indeed of the noble Lord, Lord Howarth, I ask noble Lords to let me summarise briefly the reasons for the change.

The Government wish to ensure that all categories of artistic work enjoy the full term of copyright protection; that is, the life of the creator plus 70 years. Some artistic works that were industrially produced had 25 years’ protection. Once the repeal comes into force, which will take place after the consultation on the timing of the repeal and publication of a new impact assessment, these works will have the same term of protection. If a particular type of table is an artistic work protected by copyright, one will not be able to make a physical replica or reproduce an image of that table in a book without permission. Similarly, one will need the rights owner’s consent to make wallpaper that reproduced an artistic work, such as a print. Designers and companies that own rights in classic design furniture have been supportive of this change. As my noble friend Lord Jenkin said, next week my officials are meeting representatives of one such company as part of the Government’s ongoing dialogue with interested parties. We shall see what comes of that.

I am grateful that my noble friend Lord Jenkin continues to pay such close attention to the details of this change and for the intervention from the noble Lord, Lord Howarth, but I am not convinced that any further changes are necessary or desirable until the consultation has been completed.