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Government response to Hargreaves review of intellectual property published
Practical Law UK Legal Update 2-507-1246 (Approx. 13 pages)
Government response to Hargreaves review of intellectual property published
by PLC IPIT & Communications
| Published on 04 Aug 2011 • United Kingdom |
The government has published its response to the review of the UK legislative framework relating to intellectual property, written by Professor Ian Hargreaves, which was published in May 2011. (Free access.)
Speedread
The government has published its response to the Hargreaves review of the UK's intellectual property (IP) framework, which was commissioned by the government to ensure that the UK's IP framework was sufficiently well designed to promote innovation and growth in the UK economy, particularly in order to consider how it could better enable new business models appropriate to the digital age. Professor Hargreaves made ten recommendations in his review. In relation to copyright, he recommended, among other things, establishing a cross-sectoral Digital Copyright Exchange to facilitate licensing; introducing copyright exceptions to permit the digitisation of works for library archiving, format-shifting, parody, and text and data mining; and creating a scheme for the use of orphan works. Other key recommendations included an assessment of the relationship between design rights and innovation; introducing a small-claims track for low-value IP claims; and reform of the Intellectual Property Office to give it powers to issue formal opinions on the application of copyright law, and to take on a more active role in ensuring fair competition in relation to IP rights. In its response to the review, the government has broadly accepted all of the recommendations, and has set out the actions it intends to take and the timetable for them. The resulting changes to the UK's IP legal framework will have a considerable impact on the UK's IP landscape, particularly in relation to copyright. The response would certainly seem to go some considerable way to ensuring that the UK's IP legal framework is fit for the internet age.
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Background
In November 2010, the Prime Minister, David Cameron, announced an independent review of the UK's intellectual property (IP) laws to ensure that they are "fit for the internet age" (see Legal update, Government launches review of IP laws). The review, which was led by Professor Ian Hargreaves, the chair of Digital Economy at the Cardiff School of Journalism, Media and Cultural Studies and Cardiff Business School, aimed to identify barriers to growth within the IP framework in the UK.
Professor Hargreaves published the review, entitled A Review of Intellectual Property and Growth (the review) in May 2011 (see Legal update, Hargreaves review of intellectual property published). The report made ten recommendations, including recommending that:
- The government should establish a Digital Copyright Exchange (DCE) to allow potential licensees quickly to identify and contact the relevant rights-holders, automating the licensing process as much as possible.
- A licensing system for orphan works should be established to extend collective licensing for mass licensing of orphan works, and a clearance procedure for use of individual works should also be established.
- The government should introduce new copyright exceptions to cover format-shifting, parody, non-commercial research and library archiving.
- There should be more collaboration and work-sharing between patent offices to cut backlogs in patent applications. The government should act to ensure that patent protection is not extended to sectors where patents are generally unavailable at present, such as non-technical computer programs, unless there is clear evidence of benefit. It should look at ways of limiting the adverse impact of patent thickets, such as by changing renewal fees so as to encourage patent owners to assess more carefully the value of maintaining lower-value patents.
- The IPO should conduct an evidence-based assessment of the relationship between design rights and innovation.
- A new small-claims track in the PCC should be created for low-value IP claims.
- The IPO should draw up plans to improve accessibility to IP advice and registration for small and medium-sized businesses (SMEs), particularly to cost-efficient providers of integrated legal and commercial advice on IP.
- Regarding IP policy development, the IPO should be given the necessary powers and mandate to ensure that it focuses on its central task of ensuring that the UK's IP system promotes innovation and growth through efficient, contestable markets. It should be empowered to issue statutory opinions where these will help clarify copyright law.
Facts
The government has published its response to the review. Alongside the response, the government has also published a new IP crime strategy (see Legal update, Government publishes IP crime strategy 2011 and an international strategy for IP Legal update, Government publishes international strategy for IP.
In its response to the review, the government has broadly accepted the recommendations and has outlined how it proposes to act on them. The key actions that the government has said it will take are set out alongside the review's recommendations in boxed text. This is followed, where necessary, by a more detailed summary of the government's reasoning and the action it will take.
IP and economic growth
The government accepts the review's overall conclusion that IP is important to growth and that IP laws are, in some cases, obstructing growth. The government is particularly concerned to reduce barriers to creating viable IP-using small firms.
Of particular concern both to the review and to the government are missed opportunities beyond the core IP-owning industries: vital medical research held up, cultural and commercially useful works locked away for generations and crumbling in archives for want of an owner to give permission for their use, and great business ideas that cannot be turned into successful, growing businesses. The government wants to provide effective and fair ways for these opportunities to be grasped.
The government also shares the review's concern that the IP framework is falling behind and must adapt. The challenges of today are around digital copying. That is where most adaptation is currently needed. But the government is aware that the next need for change may come from a very different place. Therefore, it sees flexibility in the IP system as highly desirable, although it needs to be balanced with as much certainty as possible to encourage investment.
Evidence base
Recommendation 1 Development of the IP system should be driven by objective evidence. Policy should balance measurable economic objectives against social goals, and potential benefits for rights-holders against impacts on consumers and other interests. Actions The IPO will:
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The government agrees that too many past decisions on IP have been supported by poor evidence, or indeed poorly supported by evidence. It notes that the review identified two particular difficulties in the IP field:
- A near-total lack of high-quality evidence on some issues. To deal with this, the government has strengthened the IPO's economics team and begun an ambitious programme of economic research with partners (see IPO website for details of the IPO's 2011-2012 research work programme). The IPO will publish its research programme for the coming year, including work in response to the review, later in summer 2011. The government says that the fundamental issue, however, is that key data is held by business and other organisations. The IPO will work with those organisations to help them offer good-quality evidence.
- An over-abundance of effective lobbying. To deal with this concern, the government will in future give limited weight in IP policy-making to evidence that is not sufficiently open and transparent in its approach and methodology. The IPO will set out guidance in autumn 2011 on what constitutes open and transparent evidence, in line with professional practice. The government is conscious that smaller businesses and organisations face particular challenges in assembling evidence and will assess their contributions sympathetically, with the same emphasis on transparency and openness.
International priorities
Recommendation 2 The UK should pursue its international interests in IP, particularly with respect to emerging economies such as China and India, based upon positions grounded in economic evidence. It should prioritise achieving a unified EU patent court and EU patent system, and making the Patent Co-operation Treaty (PCT) more effective. Action The government's strategy for doing this is set out in The UK’s International Strategy for Intellectual Property, which was published alongside the government's response to the review (see Legal update, Government publishes international strategy for IP). |
Copyright
Recommendation 3 The government should establish a Digital Copyright Exchange (DCE) to allow potential licensees quickly to identify and contact the relevant rights-holders, automating the licensing process as much as possible. The UK should also support the European Commission's proposals to establish a framework for cross-border licensing (see Legal update, Commission launches Digital Agenda). Collecting societies should be required by law to adopt codes of practice, approved by the IPO and the UK competition authorities, to ensure that they operate in a way that is consistent with the further development of efficient, open markets. Actions The government will:
The government also welcomes the European Commission’s initiative in proposing a cross-border licensing framework and will work with UK interests and the Commission to develop proposals that are compatible with current effective licensing models in the diverse industries affected. It will report on progress by spring 2012. |
The government says that it believes that a DCE has the potential to offer a more efficient market-place for owners and purchasers of rights, as well as opening up new markets to creators who may not have previously been able to access them. It notes that the review predicted that a DCE could add up to £2.2 billion a year to the UK economy by 2020. The government therefore wants to see a DCE, or something like it, that enables a functioning digital market in rights clearance and acts as a source of information about rights ownership.
However, the government also says that a successful DCE fundamentally rests on its commercial attractiveness; it would have to create value for both sellers and purchasers of rights. The government identifies various requirements that the DCE would have to meet in order to do this, including that it would need to:
- Attract a "critical mass" of material that is available, and readily licensable, through the DCE. The review made some suggestions as to incentives that could be used to ensure this occurs rapidly. The government says that the fundamental incentive for participation in the longer term will be access to new markets. The government will work to ensure that Crown copyright materials are available via the exchange from day one, or as soon as possible thereafter, and will encourage public bodies to do likewise.
- Be a compelling proposition to rights-holders but not compulsory. The government believes that compulsory participation could be contrary to the Berne Convention and, more importantly, distort the market.
- Allow prices to be set or negotiated by the rights-holder, subject to controls on unfair competition.
- Be open to access by individuals and businesses, free at the point of use, to open standards that mean firms can readily write software to automate access and provide services that rely on information gathered or licences purchased via the DCE.
- Be run on a self-funding basis, fees being charged on licensing transactions through the DCE rather than the upload of rights data or search of the database.
The response notes that the review identified a number of challenging issues that would have to be overcome to make the DCE a reality. The response says that the government is not best placed to overcome these issues and, therefore, the government is currently considering how this "complex project" can be taken forward. It says that it will announce the arrangements in due course. The person or persons commissioned to lead this work will be asked to:
- Facilitate the creation of a viable financial model for the DCE.
- Bring together industry partners and sectors of the creative world to create a framework for a distributed rights exchange and the necessary supporting systems to allow a functioning licensing system by the end of 2012.
- Report on progress, by the end of 2011, including on: the need and scope for incentives to participate in a DCE, which would need to be effective, consistent with international and domestic legal obligations and sensitive to consequences on other sectors of the market or the creative industries in general; work with competition bodies to resolve any issues that may arise from the creation of a DCE; and development of a model for the DCE that takes account of these factors.
Although the intention is for any exchange to be run on a self-funding basis, the government notes that there will be costs in setting up the processes and infrastructure required. It will be looking carefully at what the appropriate roles for itself and of industry partners might be in supporting this work.
In relation to collecting societies, the government says that copyright collecting societies play a major role in copyright licensing. It sees collecting societies as an important part of the UK's future success whose status would be reinforced by visible adherence to good practice. However, it has heard a range of concerns about the operation of copyright collecting societies, including from members on questions of transparency and governance, and from licensees concerning what they see as heavy-handed, misleading or unfair practice in charging for usage of works.
The government recognises the valuable work done by collecting societies such as PRS for Music to adopt codes of conduct, and the development of a model code under the aegis of the British Copyright Council. It says that these are a good start, but that, for them to be demonstrably effective, they will need to become more robust, enforceable codes with independent review mechanisms. Therefore, the government will publish minimum standards for voluntary codes in early 2012 and consult with collecting societies on their implementation. The government will also draw up proposals for a backstop power that allows a statutory code to be put in place for a collecting society that evidence shows has failed to introduce or adhere to a voluntary code incorporating the minimum standards.
Recommendation 4 A licensing system for orphan works should be established to extend collective licensing for mass licensing of orphan works, and a clearance procedure for use of individual works should also be established. Actions The government will, in autumn 2011, bring forward proposals for:
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The government agrees with the review's fundamental premise that it benefits no-one to have a wealth of copyright works that are entirely unusable under any circumstances because the owner of one or more rights in the work cannot be contacted. This is not simply a cultural issue; it is a very real economic issue that potentially valuable intangible assets are simply going to waste.
The government says that it will, in autumn 2011, bring forward proposals for:
- An orphan-works scheme that allows for both commercial and cultural uses of orphan works, subject to satisfactory safeguards for the interests of both owners of "orphan rights" and rights-holders who could suffer from unfair competition from an orphan-works scheme. These would include diligent search for rights-owners, licensing at market rates for commercial use and respect for the rights of "revenant" owners that come forward. The government will look to the DCE and other searchable sources of information on copyright works to deal with problems of misattribution or loss of ownership data from works.
- Extended collective licensing to benefit sectors that choose to adopt it, and look to maximise the benefits it could bring to smaller creative firms and individual creators in particular.
Recommendation 5 Government should introduce new copyright exceptions to cover format-shifting, parody, non-commercial research and library archiving. It should legislate to ensure that copyright exceptions are protected from being overridden by contract. Actions The government will:
The IPO will make the removal of EU-level barriers to innovative and valuable technologies a priority to be pursued through all appropriate mechanisms. It will report on progress by spring 2012. |
While copyright has a fundamental role in providing appropriate incentives for the creation of valuable works, the government nonetheless believes that the review is right to identify activities that copyright currently over-regulates to the detriment of the UK, and to propose changes to tackle the problem.
The government says that it sees areas where copyright restricts activity to no direct commercial benefit as doubly wasteful: neither new opportunities nor incentive to invest in copyright works result from them. The government says that it is also not appropriate for certain activities of public benefit, such as medical research obtained through text mining, to be, in effect, subject to veto by the owners of copyrights in the reports of such research, where access to the reports was obtained lawfully. While some publishers view licensing of text mining as a legitimate commercial opportunity, the government is not persuaded that restricting this transformative use of copyright is necessary or in the UK's overall economic interest.
It also shares the review's concern that a widespread flouting of copyright through private copying brings the law into disrepute: it is not appropriate simply to tolerate unlawful private copying where it is not commercially damaging.
For these reasons, the government agrees with the review's central thesis that the widest possible exceptions to copyright within the existing EU framework are likely to be beneficial to the UK, subject to three important factors:
- That the amount of harm to rights-holders that would result in "fair compensation" under EU law is minimal, and hence the amount of fair compensation provided would be zero. This avoids market distortion and the need for a copyright-levy system, which the government opposes on the basis that it is likely to have adverse impacts on growth and inconsistent with its wider policy on tax.
- Adherence with EU law and international treaties.
- That unnecessary restrictions removed by copyright exceptions are not re-imposed by other means, such as contractual terms, in such a way as to undermine the benefits of the exception.
The government will therefore bring forward proposals in autumn 2011 for a substantial opening up of the UK's copyright exceptions regime on this basis. This will include proposals:
- For a limited private-copying exception. The press release to accompany the response says that this will bring copyright law into line with the real world, and with consumers' reasonable expectations, since thousands of people copy legitimately-purchased content, such as a CD, to a computer or portable device such as an MP3 player, assuming it is legal.
- To widen the exception for non-commercial research, which should also cover search and analysis techniques known as "text- and data-mining" to the extent permissible under EU law. The press release to accompany the response indicates that currently research scientists are being hampered from working on data because it is illegal under copyright law to do this without permission of copyright owners. The Wellcome Trust have said that 87% of the material housed in the UK's main medical research database is unavailable for legal text and data mining, despite the fact that the technology exists to carry out this analytical work.
- To widen the exception for library archiving.
- To introduce an exception for parody. The press release to accompany the response indicates that this will bring benefit to UK production companies and make it legal for performing artists, such as comedians, to parody someone else's work without seeking permission from the copyright holder. It would enable UK production companies to create programmes that could play to their creative strengths, and create a range of content for broadcasters.
The review also recognised that the UK's scope for action copyright exceptions was limited, so that broader changes were needed at EU level to enhance economic growth. The government agrees with the review's judgement that there is a need for a wider set of exceptions at EU level to achieve this, without prejudice to the provision of appropriate incentives for creation of works. Therefore, the government will aim to secure further flexibilities at EU level that enable greater adaptability to new technologies including use of data for research. It supports a review of relevant EU legislation to this end and will be in dialogue with European partners to identify how this can best be achieved. The IPO will make the removal of EU-level barriers to innovative and valuable technologies a priority to be pursued through all appropriate mechanisms. Given the possible time required for change at EU level, the government will also explore what more can be done at UK level.
Patents
Recommendation 6 There should be more collaboration and work-sharing between patent offices to cut backlogs in patent applications. The government should act to ensure that patent protection is not extended to sectors where patents are generally unavailable at present, such as non-technical computer programs, unless there is clear evidence of benefit. It should look at ways of limiting the adverse impact of patent thickets, such as by changing renewal fees so as to encourage patent owners to assess more carefully the value of maintaining lower-value patents. Actions The government agrees with the review's concerns. Therefore:
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Designs
Recommendation 7 The IPO should within the next 12 months conduct an evidence-based assessment of the relationship between design rights and innovation. The assessment should include exploration with design interests of whether access to the proposed DCE would help creators protect and market their designs and help users better achieve legally compliant access to designs. Actions The IPO will:
The possible inclusion of design rights in the DCE or equivalent will be built into work on the DCE from the beginning. The timing for this is linked to the DCE timetable. |
Enforcement
Recommendation 8 Enforcement of the Digital Economy Act 2010 (DEA) should be monitored from the outset and compared with experience gained in other jurisdictions. A new small-claims track in the Patents County Court (PCC) should be created for low-value IP claims. Actions
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The government is committed to an effective IP enforcement regime both in the UK and globally. It therefore accepts the spirit of the review's argument that a combination of education, effective markets, appropriate enforcement and modern laws is likely to be most effective in preserving the value of IP rights for their owners, subject to the test of evidence about what is actually effective.
On enforcement, the government takes the review's emphasis on stronger market offerings as an implied criticism of what is currently available to consumers. The government has sympathy with the position of rights-holders, who want to see stronger enforcement regimes in place before investing in new services, but who, by delaying their investment are creating a gap in legitimate provision which is being filled unlawfully. The government says it is acting to support rights-holders, not least through encouraging the creation of a DCE. It says that the challenge faced by rights-holders is similar to that of other businesses: how to construct a distinctive product offering that consumers are willing to pay for. However, that is not something in which government sees itself having a direct role.
Inaction is not an option, however, since the issue of online IP infringement is a pressing one for many firms. The government will continue to devote effort to deterring IP infringement online (including through implementation of the DEA) and offline in parallel with seeking to improve the evidence base. Therefore:
- The government and public sector enforcement bodies will work with industry, with a particular focus on supporting efforts to develop new legitimate digital markets, tackling organised IP crime and enhancing the availability of high-quality evidence. This will tie into the efforts described above to implement recommendation 1 (see Evidence base) on improving the quality of evidence more generally.
- In pursuit of good data to inform enforcement of copyright online, the government agrees that it would be desirable for Ofcom to begin establishing benchmarks and data on trends in online infringement of copyright as soon as possible. The government will work with Ofcom to agree how this might best be achieved.
- The government is publishing alongside this document a cross-government IP Crime Strategy (see Legal update, Government publishes IP crime strategy)) that commits it to better-coordinated action to make the most of scarce resources, including on online infringement of copyrights and trade marks. Progress on the strategy will be reported in annual IP Crime reports from summer 2012 onwards.
- The government has also published, on the same day as the publication of its response to the review, a statement setting out how it plans to move forward with implementation of the DEA initial obligations, following a successful defence of the DEA's provisions in judicial review (see Legal update, High Court dismisses ISPs' challenge to Digital Economy Act for an update on the judicial review ruling). In particular, the statement sets out that:
- following the judicial review ruling, the government is removing the obligation on internet service providers (ISPs) to contribute towards the costs of Ofcom and the independent appeals body in setting up and administering the regime. The government does not intend to revisit the sharing of other costs between ISPs and copyright owners.
- the government has received further advice from Ofcom on the potential costs of the DEA appeals system. In order to minimise the risk of the system being disrupted by vexatious or non bona fide appeals, it is introducing a £20 fee for subscribers to appeal. The fee will be refunded if the appeal is successful.
- Ofcom's Code of Practice, setting out the details of how the initial obligations will work in practice, will be published shortly.
- following advice from Ofcom, site blocking will not be brought forward at this time.
See Legal update, Government sets agenda for implementing Digital Economy Act for a full report on the plans the government announced regarding DEA implementation. - The government believes that smaller firms have legitimate concerns about their ability to enforce lower-valued IP rights claims through the courts. Therefore, the government will, subject to establishing the value for money case, introduce a small-claims track in the PCC for cases with £5,000 or less at issue, as recommended by Jackson LJ (see Legal update, Jackson's final report on costs published: IP and IT litigation aspects). The track is set initially at a low level of resource to gauge demand, making greater provision if it is needed.
- The government will also consider renaming the PCC as the Intellectual Property County Court. It notes that the new small-claims track is likely to be unsuitable for patents cases, but could be useful for copyright, designs, and possibly trade marks cases, which makes a change of name to reflect the PCC's role even more important in providing clarity to business.
SMEs and IP
Recommendation 9 The IPO should draw up plans to improve accessibility to IP advice and registration for SMEs, particularly to cost-efficient providers of integrated legal and commercial advice on IP. Action In late 2011, the IPO will set out its plans to improve accessibility of the IP system to smaller companies, including access to lower cost providers of integrated IP legal and commercial advice. |
IP policy development
Recommendation 10 The IPO should be given the necessary powers and mandate to ensure that it focuses on its central task of ensuring that the UK's IP system promotes innovation and growth through efficient, contestable markets. It should be empowered to issue statutory opinions where these will help clarify copyright law. Actions
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The review found past decisions on IP did not always live up to this standard, apparently influenced by strong lobbying from interested parties. To avoid not only the fact of, but also the appearance of, bias the government says that there is therefore a good case for change to the IPO that will support more evidence-based decisions in future.
The government's preference would be to retain the IPO as a body combining practical experience of the IP system through its rights-granting and advisory functions with policy responsibility for IP. Separation of the two would create further risks of lobbying leading to disadvantageous outcomes, and it is right for Ministers to carry ultimate responsibility for IP policy as part of the government's wider innovation and growth policies. Clarification of the IPO's mandate and structure would also assist progress on other recommendations such as the provision of low-cost IP advice to smaller firms (recommendation 9). The government will explore options for a future role for the IPO that involves a strengthened focus on innovation and growth, a greater emphasis on publicly available evidence, enhanced ability to promote competitive markets whilst retaining Ministerial oversight of IP policy. It will bring forward these proposals by the turn of 2011.
The review called for the IPO to be able to clarify the applicability of copyright law in ways that can be taken account of by business and the courts. The government recognises the potential benefits of greater clarity in the application of copyright law, in particular the application to new technologies and opportunities. Therefore, the IPO will set out plans for a copyright opinions service at the turn of the year.
The government also notes the review's suggestion that a review of the Copyright Designs and Patents Act 1988 (CDPA) is overdue. It says that it will reflect on this in the context of the other policy measures. In particular, an effective copyright opinions function in IPO could help establish priorities for legislative change by identifying areas of practical uncertainty for business, particularly smaller business, to supplement the judgement of the legal profession and academic commentators.
Next steps
Some of the review's recommendations will require legislative and institutional action, while others require further development before the government brings forward proposals. The government says that many of the measures proposed will be the subject of consultation in the coming months.
The government will consult on the detail of how it will proceed over the next few months and will set out its plans in a White Paper in spring 2012 with a view to legislating in this Parliament where necessary.
Comment
The government has, arguably somewhat surprisingly, since it might have been expected that at least one or two recommendations would be rejected, accepted all the recommendations made in the review. The changes that will, in due course, be brought into effect as a result will have a considerable impact on the UK's IP landscape, particularly in relation to copyright, in relation to which it will re-shape it fairly considerably.
The reforms to the copyright exceptions have received the most press attention and will certainly be significant. A reform of copyright law to permit format-shifting is long overdue, since it is clear, as the response acknowledges, that the law does not reflect public behaviour in this respect. The introduction of an exception to permit parody is also of interest, and the introduction of an exception to permit text and data mining could have considerable commercial significance.
However, there is a lot more to this response than the changes to the copyright exceptions. Other key reforms including establishing of the DCE and a licensing system for orphan works; research into the design system which could, potentially lead to reform; and reform of the role of the IPO, including to permit it to provide a copyright-opinions service, and to take on a more active role in ensuring fair competition in relation to IP rights. The government has also hinted that it may, in due course, consider reform of the CDPA, commenting that an effective copyright-opinions function in the IPO could help establish priorities for legislative change by identifying areas of practical uncertainty for business, particularly smaller business, to supplement the judgement of the legal profession and academic commentators.
The response, together with the IP crime strategy and the international strategy for IP, which were published alongside it, present an ambitious and fairly comprehensive "to-do list" for the government. Certainly, the commitments to action points in the response are certainly likely to set the agenda for IP reform in the UK for years to come, particularly since the government said in the introduction to the response that:
"Our overall goal is to have measures in place by the end of this Parliament that will do justice to the Review’s vision and will already be delivering real value to the UK economy and to the creators and lawful users of IP. We have committed to no further major review of the IP system in this Parliament."
The response would certainly seem to go some considerable way to ensuring that the UK's IP legal framework is fit for the internet age.