Gowers Review of Intellectual Property

O R E W O R D

The Gowers Review

For many citizens, Intellectual Property (IP) is an obscure and distant domain – its laws shrouded in jargon and
technical mystery, its applications relevant only to a specialist audience. And yet IP is everywhere. Even a
simple coffee jar relies on a range of IP rights – from patents to copyright, designs to trade marks.

In the modern world, knowledge capital, more than physical capital, drives the UK economy. Against the
backdrop of the increasing importance of ideas, IP rights, which protect their value, are more vital than ever.

The ideal IP system creates incentives for innovation, without unduly limiting access for consumers and follow-
on innovators. It must strike the right balance in a rapidly changing world so that innovators can see further
by standing on the shoulders of giants.

The Government’s decision to commission this Review was an explicit recognition both of the growing
importance of IP and of the challenges brought by the changing economic environment. In commissioning the
Review, the Chancellor and the Secretaries of State for Trade and Industry, and Culture, Media and Sport
asked me to establish whether the system was fit for purpose in an era of globalisation, digitisation and
increasing economic specialisation.

The answer is a qualified ‘yes’. I do not think the system is in need of radical overhaul. However, taking a holistic
view of the system, I believe there is scope for reform to serve better the interests of consumers and industry
alike. There are three areas in which the Review concentrates its recommendations to improve the UK
framework for innovation:

•

strengthening enforcement of IP rights, whether through clamping down on piracy or trade in
counterfeit goods;

•

reducing costs of registering and litigating IP rights for businesses large and small; and

•

improving the balance and flexibility of IP rights to allow individuals, businesses and institutions to use
content in ways consistent with the digital age.

Much IP policy is framed by European, and indeed global, treaties and agreements. I recognise that not all the
recommendations are within the direct purview of the UK Government. However, I have not shied away from
making recommendations with European or broader international import when they seemed necessary.
Indeed, with the European Commission currently reviewing both the copyright acquis and the question of a
Community patent, this is a timely point at which to put forward the Review’s arguments.

I would like to express my thanks to all those who assisted me in producing this Review. Many individuals and
organisations gave generously of their time to contribute insights, and in particular the great diversity and
depth of responses to the Call for Evidence were invaluable. I owe a special debt to the Review team, who have
supported me throughout: Richard Sargeant, Steve Coles, Alastair Cowie, Suzy Kantor, Nicola Kay, Stephen
Rowan and Nathan Sansom.

I hope this Review provides sound recommendations on how the IP regime should respond to the challenges
that it faces. Getting the balance right is vital to driving innovation, securing investment and stimulating
competition. Lasting success will belong to those who get this right.

Andrew Gowers

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The Gowers Review

E.1

Globalisation and technological advance are changing the shape of the world

economy. Increased international trade and investment flows and the emergence of
economies such as China and India create great new opportunities for advanced economies
such as the UK, but also great challenges. The UK’s comparative advantage in the changing
global economy is increasingly likely to come through high value added, knowledge intensive
goods and services. The Intellectual Property (IP) system provides an essential framework
both to promote and protect the innovation and creativity of industry and artists.

E.2

The increasing importance of knowledge capital is seen in its contribution to the

value of firms. In 1984 the top ten firms listed on the London Stock Exchange had a combined
market value of £40 billion and net assets of the same value. Advance twenty years and the
asset stock of the largest firms has doubled while their market value has increased nearly ten
times.

The difference in value is accounted for by intangible assets: goodwill, reputation and,

most importantly, knowledge capital. Knowledge based industries have become central to the
UK economy – in 2004 the Creative Industries contributed 7.3 per cent of UK Gross Value
Added, and from 1997 to 2004 they grew significantly quicker than the average rate across the
whole economy.

The pharmaceutical industry accounted for almost a quarter of the UK’s

total R&D expenditure in 2004. Innovative ideas create value, whether they are improved
products, new brands or creative expressions. As a result, IP rights – the means by which these
assets are owned – have become a cornerstone of economic activity.

E.3

Global and technological changes have brought undoubted opportunities for

businesses and consumers. The erosion of global trade barriers has enabled companies to
reach ever larger markets and gives consumers a wider range of products to choose from.
Technological changes have enabled more ‘open’ models of innovation, with greater cross-
fertilisation across firms and the ability to harness the creativity of consumers.

E.4

However, while global and technical changes have given IP a greater prominence in

developed economies, they have also brought challenges. Ideas are expensive to make, but
cheap to copy. Ideas are becoming even cheaper to copy and distribute as digital technology
and the Internet reduce the marginal cost of reproduction and distribution towards zero. As
a result, the UK’s music and film industries lose around twenty per cent of their annual
turnover through pirated CDs and illegal online file sharing. Furthermore, global markets
must contend with rights that remain largely national in scope.

E.5

In response to the profound global changes affecting the IP system, the Chancellor of

the Exchequer commissioned this Review in the 2005 Pre-Budget Report. The Review was
charged with examining all the elements of the IP system, to ensure that it delivers incentives
while minimising inefficiency. Its terms of reference were to consider:

•

the way in which Government administers the awarding of IP rights and its support to
consumers and business;

•

how well businesses are able to negotiate the complexity and expense of the copyright
and patent system, including copyright and patent licensing arrangements, litigation
and enforcement; and

Terms of

reference

Challenges

Opportunities

Increasing

importance of

intangible assets

The changing

context

Wealth Creation in the Knowledge Economy

, Potter D., accessed at: http://www.number-10.gov.uk/output/Page3051.asp.

DCMS Creative Industries Economic Estimates

, DCMS, 2006.

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•

whether the current technical and legal IP infringement framework reflects the digital
environment, and whether provisions for ‘fair use’ by citizens are reasonable.

E.6

The Review found the current system to be broadly performing satisfactorily.

However, there are a number of areas where reform is necessary to improve the system for all
its users. The Review therefore sets out a range of pragmatic recommendations, which can be
grouped around three themes: first, stronger enforcement of rights; second, lower costs for
business; and finally, balanced and flexible rights.

E.7

Counterfeit goods and piracy are damaging the UK’s creative industries, as well as

threatening jobs. The Review recommends:

•

consulting to ensure that an effective and dissuasive system of damages exists
for civil IP cases. This will provide an effective deterrent to IP infringement;

•

matching penalties in the physical and digital world for IP infringement. This
will remove the current unjustifiable anomaly whereby infringement in the
digital world carries softer penalties than infringement in the physical world.
This is particularly important given that so much infringement now occurs via
digital media; and

•

giving Trading Standards the power and duty to enforce copyright
infringement. This will ensure that preventing the sale of copyright infringing
goods, for example counterfeit CDs, will become a duty of Trading Standards
agencies throughout the country.

E.8

It is expensive to obtain and defend IP rights in the UK, and costs spiral when

securing rights internationally. These costs are onerous for all businesses, and for SMEs in
particular. The Review recommends:

•

better provision of IP information to UK businesses at home and abroad. This
will extend from greater information provided to firms on how to use IP
strategically when they register at Companies House, through stronger
support and better information via the Business Link network, to expert
advice provided by UK Trade and Investment and the Patent Office for UK
firms abroad;

•

consulting to enable fast-track litigation to be used in IP cases. This should
mean that capped fees, limited disclosure and time limits will apply to IP
cases, greatly reducing the cost; and

•

supporting the establishment of a unitary Community Patent (COMPAT). This
will substantially reduce the cost of patent applications in Europe, which are
currently twice as expensive as in the USA.

E.9

Balanced and flexible rights should enable consumers to use material in ways that do

not damage the interests of rights holders and will help ensure that citizens have trust in the
system. They will enable cultural institutions to preserve our heritage, and help research
institutes to further knowledge by using ideas protected by others. The Review recommends:

•

proposing an ‘orphan works’ provision to the European Commission. This will
make it easier for creative artists to re-use ‘orphan’ copyright protected
material (for which no author can be found), thus unlocking previously
unusable material;

Balanced and

flexible rights

Lower costs for

business

Stronger

enforcement of

rights

The Gowers Review

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•

introducing a limited private copying exception, which will allow consumers
to format shift legitimately purchased content, for example music from a CD
to an MP3 player. This will allow consumers to use copyright protected
material in a manner which does not damage the interests of rights holders;

•

clarifying the research exception. This will create greater scope for research on
protected material by universities and business and expand the stock of
knowledge; and

•

enabling libraries to copy and format shift master copies of archival works.
This will prevent valuable cultural artefacts from deteriorating because they
exist only on outdated formats.

E.10

The Review takes an evidence-based approach to its policy analysis and has

supplemented internal analysis by commissioning external experts to examine the economic
impact of changes to the length of copyright term on sound recordings, and the question of
orphan works. Both of these reports are published alongside the Review. The Review also
consulted widely with a range of stakeholders in industry, academia and the public sector.
The formal Call for Evidence between March and April 2006 received over 500 responses.
These are listed in Annex B, and those that were not submitted as confidential have been
published on the Review website.

E.11

The remainder of the Review is structured into two broad sections. The first half

comprises an explanation of what IP is and what it is for, an analysis of recent trends, and an
assessment of how well the current system is performing. The second half considers:

•

the

instruments

of the IP system (patents, copyrights, trade marks and

designs), and makes recommendations to ensure they are balanced, coherent
and flexible;

•

the

operation

of these instruments, and makes recommendations to improve

the way rights are awarded, used and enforced; and

•

the

governance

of the IP system, and makes recommendations to improve IP-

related bodies, such as the Patent Office and the courts.

The full list of recommendations follows.

E.12

Taken together, the package of measures the Review recommends will ensure that the

UK has an IP system that meets the needs of all its users, and which is fit for the digital age.

Structure of the

Review

The approach of

the Review

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The Gowers Review

List of recommendations in the Review

Instruments

Balance

Recommendation 1: Amend section 60(5) of the Patents Act 1977 to clarify the research exception to facilitate
experimentation, innovation and education.

Recommendation 2: Enable educational provisions to cover distance learning and interactive whiteboards by
2008 by amending sections 35 and 36 of the Copyright, Designs and Patents Act, 1988 (CDPA).

Recommendation 3: The European Commission should retain the length of protection on sound recordings and
performers’ rights at 50 years.

Recommendation 4: Policy makers should adopt the principle that the term and scope of protection for IP
rights should not be altered retrospectively.

Coherence

Recommendation 5: UKPO should undertake joint working with African patent offices from mid-2007, with the
aim of:

•

helping them to take advantage of the flexibilities currently existing in the WTO/TRIPS architecture
where appropriate; and

•

encouraging them to make positive use of IP rights through dissemination of information in patents.

Recommendation 6: Encourage the international community under the auspices of the WTO to review the
TRIPS status of the least developed countries prior to 2016 and consider whether further extension for
reaching TRIPS compliance would be appropriate.

Recommendation 7: Government should encourage WTO members to ratify the amendments to TRIPS to
make importation of drugs easier and cheaper.

Flexibility

Recommendation 8: Introduce a limited private copying exception by 2008 for format shifting for works
published after the date that the law comes into effect. There should be no accompanying levies for consumers.

Recommendation 9: Allow private copying for research to cover all forms of content. This relates to the
copying, not the distribution, of media.

Recommendation 10a: Amend s.42 of the CDPA by 2008 to permit libraries to copy the master copy of all
classes of work in permanent collection for archival purposes and to allow further copies to be made from the
archived copy to mitigate against subsequent wear and tear.

Recommendation 10b: Enable libraries to format shift archival copies by 2008 to ensure records do not become
obsolete.

Recommendation 11: Propose that Directive 2001/29/EC be amended to allow for an exception for creative,
transformative or derivative works, within the parameters of the Berne Three Step Test.

Recommendation 12: Create an exception to copyright for the purpose of caricature, parody or pastiche by
2008.

Recommendation 13: Propose a provision for orphan works to the European Commission, amending Directive
2001/29/EC.

Recommendation 14a: The Patent Office should issue clear guidance on the parameters of a ‘reasonable
search’ for orphan works, in consultation with rights holders, collecting societies, rights owners and archives,
when an orphan works exception comes into being.

Recommendation 14b: The Patent Office should establish a voluntary register of copyright; either on its own,
or through partnerships with database holders, by 2008.

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The Gowers Review

Recommendation 15: Make it easier for users to file notice of complaints procedures relating to Digital Rights
Management tools by providing an accessible web interface on the Patent Office website by 2008.

Recommendation 16: DTI should investigate the possibility of providing consumer guidance on DRM systems
through a labelling convention without imposing unnecessary regulatory burdens.

Recommendation 17: Maintain policy of not extending patent rights beyond their present limits within the
areas of software, business methods and genes.

Operations

Award

Recommendation 18: The Government should encourage the EPO to pursue work sharing with the USPTO
and JPO.

Recommendation 19: The Patent Office should pursue work sharing arrangements with EPC member States,
and trilaterally with the USA and Japan to reduce cross-national duplication of effort.

Recommendation 20: Continue to support and expedite the establishment of a single Community Patent
through negotiations in Europe.

Recommendation 21: Government should support the London Agreement as an interim step towards
COMPAT, and as an improvement in its own right.

Recommendation 22: Maintain a high quality of patents awarded by increasing the use of ‘section 21’
observations: streamlining procedures and raising awareness.

Recommendation 23: The Patent Office should conduct a pilot of Beth Noveck’s Community Patent Review in
2007 in the UK to determine whether this would have a positive impact on the quality of the patent stock.

Recommendation 24: The Patent Office should develop stronger links with universities and other research
institutions, including through short placements, to ensure that IP examiners are aware of recent
developments in technology.

Recommendation 25a: Introduce accelerated grant process for patents to complement the accelerated
examination and combined patent search and examination procedures.

Recommendation 25b: Introduce fast track registration for trade marks.

Use

Recommendation 26: The Patent Office should provide comprehensive information on how to register and use
IP rights for firms registering with Companies House.

Recommendation 27: Improve SME business IP support by establishing formal collaboration between the
Patent Office and Business Link and by conducting a pilot replicating the French ‘IP Genesis’ scheme.

Recommendation 28: Investigate how best to provide practical IP advice to UK firms operating in foreign
markets, in coordination with industry bodies, the Patent Office and UK Trade and Investment.

Recommendation 29: The Patent Office should develop ‘Business-to-Business’ model IP licences through
industry consultation, and assessment of the Lambert model licences.

Recommendation 30a: The Patent Office should publish and maintain an open standards web database, linked
to the EPO’s esp@cenet web database, containing all patents issued under licence of right.

Recommendation 30b: The Patent Office should publish and maintain an open standards web database, linked
to esp@cenet containing all expired patents.

Recommendation 31: DTI should consider whether guidance for firms on reporting of intangible assets could
be improved, including the provision of model IP reports.

Recommendation 32: Form a working group with Patent Office, RDA and Business Link representation, to
identify and promote best practice to maximise the use of effective schemes nationwide.

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The Gowers Review

Recommendation 33: The Review invites the OFT to consider conducting a market survey into the UK
collecting societies to ensure the needs of all stakeholders are being met.

Recommendation 34: Increase cooperation between the UK Patent Office, the Office of Fair Trading and the
Competition Commission to ensure that competition and IP policy together foster competitive and innovative
markets for the benefit of consumers.

Enforcement

Recommendation 35: The Patent Office should continue to raise public awareness, focussing in particular on
the wider impacts of IP crime, and the exceptions to rights.

Recommendation 36: Match penalties for online and physical copyright infringement by amending section 107
of the CDPA by 2008.

Recommendation 37: Monitor success of current measures to combat unfair competition in cases relating to
IP, and if changes are found to be ineffective, Government should consult on appropriate changes.

Recommendation 38: DCA should review the issues raised in its forthcoming consultation paper on damages
and seek further evidence to ensure that an effective and dissuasive system of damages exists for civil IP cases
and that it is operating effectively. It should bring forward any proposals for change by the end of 2007.

Recommendation 39: Observe the industry agreement of protocols for sharing data between ISPs and rights
holders to remove and disbar users engaged in ‘piracy’. If this has not proved operationally successful by the
end of 2007, Government should consider whether to legislate.

Recommendation 40: DTI should consult on measures to tighten regulation of occasional sales and markets by
2007.

Recommendation 41: The Home Office should recognise IP crime as an area for Police action as a component
of organised crime within the updated National Community Safety Plan.

Recommendation 42: Give Trading Standards the power to enforce copyright infringement by enacting section
107A of the Copyright, Designs and Patents Act 1988 by 2007.

Recommendation 43: Strengthen Practice Directions, to provide greater encouragement for parties to
mediate, in particular this should raise the profile of mediation with judges.

Recommendation 44: The Patent Office should consult with the Judicial Studies Board to determine the extent
to which the complexity of IP law may give rise to a training need for judges and magistrates and their legal
advisers.

Recommendation 45: Support the establishment of a single EU court to adjudicate cross-border IP disputes by
promoting the European Patent Litigation Agreement.

Governance

Recommendation 46: Establish a new Strategic Advisory Board for IP policy (SABIP), covering the full range
of IP rights, reporting to the minister responsible, by 2007. The Board should be drawn from a wide range of
external experts as well as key senior policy officials from relevant government departments, and should be
based in London. £150,000 should be allocated to fund the secretariat by the Patent Office.

Recommendation 47: The Patent Office should provide an annual IP strategic analysis fund of £500,000
managed by the policy advisory board in consultation with the IP Policy Directorate.

Recommendation 48: Patent Office should introduce a clear split of responsibility between delivery and policy
directorates.

Recommendation 49: Encourage IP policy officials to obtain policy experience outside the IP Policy Branch, and
support short industry placement schemes for policy staff.

Recommendation 50: Realign UK Patent Office administrative fees to cover costs more closely on Patent Office
administrative operations (e.g. granting patents).

E F I N I T I O N

The Gowers Review

W H AT I S I N T E L L E C T UA L P R O P E R T Y ?

1.1

Property is simply a bundle of rights to own, use and prevent others from using

something, for example a plot of land, a car or a house. Intellectual Property (IP) is a bundle
of rights that protects applications of ideas and information that have commercial value.

rights give creators certain exclusive rights over the knowledge and information they create
(e.g. the text of a book) to prevent others using it without permission.

1.2

Unlike physical property, knowledge, ideas and creations are partial ‘

public goods

’.

Knowledge is inherently non-rivalrous. That means one person’s possession, use and
enjoyment of the good is not diminished by another’s possession, use and enjoyment of the
good. As Thomas Jefferson said: “he who receives an idea from me, receives instruction
himself without lessening mine ... as he who lights his taper at mine, receives light without
darkening me”.

By contrast, physical property is typically rivalrous, with one person’s

consumption preventing simultaneous consumption by another. Privatising property gives
rights over it to a legal individual, creating a legal barrier which prevents others from
accessing it. IP confers a set of time-limited legal rights over the expression and use of certain
ideas. Although the knowledge protected by the IP remains non-rivalrous, the legal force of IP
rights prevents others from using it.

W H Y D O W E N E E D I N T E L L E C T UA L P R O P E R T Y ?

1.3

IP serves three principal functions: to incentivise knowledge (and hence wealth)

creation; to accumulate knowledge in a culture; and to protect a distinctive identity. But those
rights must be balanced in order to achieve these three aims. Listening to the radio, buying a
branded product, taking a medicine and storing food in a fridge are all possible because
inventions and creations have been incentivised through the IP system.

Knowledge is

non-rivalrous

Box 1.1: IP resides in everyday objects

The contents of a jar, the lid and seal may
be protected by

patents

. Registered and

unregistered

design rights

can also protect the

lid and shape of the jar.

Copyright

can protect

the artwork in labels, and

trade marks

can

protect the shape of the jar, labels, colours used,
and brand names.

Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights

, Cornish W. and Llewelyn D., 2003.

Letter to Isaac McPherson

, Jefferson T., 13 August 1813.

Source:The ‘NESCAFÉ Gold Blend’ image is reproduced with the kind permission of Société des Produits Nestlé S.A.

E F I N I T I O N

I P r i g h t s p r o v i d e i n c e n t i v e s t o c r e a t e k n o w l e d g e

1.4

Ideas are expensive to produce but cheap to copy. The fixed costs of producing

knowledge are high. Hollywood blockbusters can costs hundreds of millions of dollars to
make and R&D for drugs can cost billions of pounds. At the same time, the marginal costs of
production, both for drugs and for digital files, are very low. Without protection, others will
free ride on the creator’s initial investment and sell the invention or creation at a much lower
cost. If the innovator knows that someone else can do this easily, there will be no financial
incentive to innovate in the first instance. Clearly, wealth generation is only one motivation
for creativity. For example, Wilfred Owen’s poetry written during the First World War was
motivated by a desire to communicate his experience of war. But without protection there
would be no economic incentive to fund innovation or creativity.

1.5

IP rights create legal barriers to accessing or using knowledge or information by

granting exclusive rights to inventors and creators. These exclusive rights prevent others from
free riding on investment and enable the rights owner to exploit their knowledge or creativity
on the market – thus creating incentives to innovate.

I P r i g h t s h e l p t o d e v e l o p p u b l i c k n o w l e d g e

1.6

As every creator ‘stands on the shoulders of giants’, it follows that the more knowledge

that is available, the more others can develop and progress. Much of the value from the
inventions and creativity protected by IP can only be realised if that knowledge is widely
accessible to others. To secure an IP right, the idea must be made public, thereby adding to
the common stock of knowledge available for progress.

1.7

Largely for this reason, IP rights are more limited than physical property rights. Patent

applications are required to ‘lay open’ the details of an invention as a condition of grant and the
requirement of disclosure enables others to improve upon existing inventions. After the patent
protection ends, the invention becomes public. For example, Aspirin was patented in 1899 by
the pharmaceutical company Bayer and became a proprietary drug for treating headaches.
The structure of the molecule was published along with the patent, but only the company
owning the patent had the right to manufacture the drug. The patent expired in 1917 and its
formula is now publicly and freely available, allowing research, manufacture or sale of Aspirin
by anyone. If IP rights do not sufficiently secure the ownership of the invention, either the
investment will not be made or alternative tools, such as trade secrets, will be used. In either
case, the public stock of knowledge available for future inventors and creators is diminished.

T h e c o s t s o f I P a n d t h e n e e d f o r b a l a n c e

1.8

The very essence of IP rights entails a trade-off. On the one hand, IP rights provide

economic incentives to innovate, but on the other, the exclusive rights that they confer to
achieve this allow monopoly prices and associated welfare losses and prevent access by other
innovators. In the short run, this information is largely privatised. In the long run,
information protected by IP rights falls into the public domain and enables follow-on
innovation. So there is a trade-off between incentives on one side and costs to consumers and
limited access for follow-on innovators on the other. It is therefore crucial to have the right
balance in the system.

1.9

Achieving this balance is made more difficult by the vocabulary used to discuss IP

policy and practice. Copyright infringement through unauthorised copying and distribution
of music and video across the Internet is likened to stealing by some, and to sharing by others.
Those who seek to prevent others from using a patented invention without permission are
branded ‘trolls’. Those who copy and distribute material illegally are called ‘pirates’. And the
problem of ‘orphan’ works, which arises where copyright owners are untraceable, perhaps
provokes an easy sympathy.

IP rights entail a

trade-off

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E F I N I T I O N

W H AT A R E T H E F O R M S O F I N T E L L E C T UA L P R O P E R T Y ?

1.10

Several different forms of IP rights have evolved to protect different applications of

knowledge. The four most common are patents, copyright, designs and trade marks; Chart 1.1
summarises the applications to which different rights apply. In practice the situation is more
complex, encompassing different forms of a right (e.g. unregistered and registered designs),
and some other rights that are of their own kind (e.g. semi-conductor rights). These rights are
described in more detail below.

1.11

A patent is a set of exclusive rights granted by the state to a person for a fixed period

of time (twenty years in the UK) in exchange for the regulated, public disclosure of certain
details of an invention. The exclusive right granted to a patentee is a negative right that
prevents others from making, using, selling, offering to sell or importing the claimed
invention. However, the right itself does not give the patentee the right to make, use or sell the
invention, and the patentee must still comply with other laws and regulations. For example,
a patent on a drug does not give the right to sell that drug in the UK without a licence from
the Medicines and Healthcare Products Regulatory Agency or the European Commission.
Products eligible for patent protection must:

•

be novel; the invention must never have been made public in any way,
anywhere in the world, before the priority date (normally the date on which an
application for a patent is filed);

•

involve an inventive step; an invention involves an inventive step if, when
compared with what is already known, it would not be obvious to someone
skilled in the relevant art;

•

be capable of industrial application; an invention must be capable of being
made or used in some kind of industry; and

Patents protect

useful ideas

The Gowers Review

Chart 1.1: The instruments of IP and common applications

e.g. logo, shape, sound, colour

goods or services

Patent

Design

Shape
Configuration
Ornamentation

Knowledge

Useful idea

Original expression

Distinctive identity

Trade mark

Badge of identity for

Non-physical application

Physical application

Application

Simple
e.g. pharmaceutical molecule

Complex
e.g. microprocessor element

Application

Literary
Graphical
Videographic
Audio

Copyright

E F I N I T I O N

•

not be ‘excluded’; an invention is not patentable if it is: a discovery; a scientific
theory or mathematical method; an aesthetic creation such as a literary,
dramatic or artistic work; a scheme or method for performing a mental act,
games or business methods; the presentation of information; or a computer
program; but these things are only excluded when the claim relates to them ‘as
such’.

1.12

The requirements that an invention must meet in order to be patentable aim to

achieve the balance between access and incentive described above. For example, a
mathematical theory might be useful and capable of industrial application, as in recent
advances in number theory for cryptography, but it would be unpatentable because of the
potential benefits that might accrue from the basic ‘building blocks’ of research being
publicly available.

1.13

Patents have evolved over many years. The earliest known English patent for an

invention was granted by Henry VI to John of Utynam in 1449. The patent gave John a twenty
year monopoly for a method of making stained glass, required for the windows of Eton
College. Under the Tudors it became common practice for the Crown to grant monopolies for
trades and manufacturers, including patents for invention. Public disclosure for patents
became a general requirement in the eighteenth century, and the Patent Act 1902 instituted a
limited examination into the novelty of the invention before a patent was granted. The
principal piece of domestic legislation currently governing patents is the Patents Act 1977.

1.14

Where a work is protected by copyright it cannot legally be reproduced, distributed,

communicated to the public, lent, rented out or publicly performed without the consent of
the owner. Copyright subsists in a wide range of creative or artistic forms or ‘works’, including
poems, plays and other literary works, movies, choreographic works, musical compositions,
audio recordings, paintings, drawings, sculptures, software, radio and television broadcasts.

1.15

There is no official register for copyright in the UK. Copyright comes into effect

automatically and without any necessary process as soon as something that can be protected
is created and ‘fixed’ in some way, e.g. on paper, on film, as a sound recording, or as an
electronic record on the Internet. Copyright law covers the way in which the work is
expressed, rather than the idea behind the work. So Dan Brown’s

The Da Vinci Code

was

recently found not to have infringed the copyright of an earlier book which contained many
of the theories found in

The Da Vinci Code

. Drawing on ideas of other copyrighted works does

not infringe those copyrights.

1.16

Exceptions to copyright exist to rectify two problems. The first is transaction costs.

There are uses of copyright protected material for which it would be too costly and too time
consuming to clear the rights, for example in a book review. Second, there are issues of equity.
Copyright prevents the copying and communication of literary works. In the absence of
exceptions, copying a text into Braille would be infringing copyright. To deal with such cases
‘fair dealing’ legislation exists, which creates a space in which it is not illegal to infringe
copyright. Exemptions include: news reporting and criticism; copying for blind users;
copying for non-commercial private research under library privilege; copying for
preservation; and copying and communication for education.

1.17

and is accorded to

the author. The author could then transfer their right to a publisher for fourteen years, which
could be extended for another fourteen years should the author still be alive. In 1774, the
House of Lords ruled in

Donaldson

. Beckett

that perpetual copyright was illegal: they

Copyright

protects original

expression

The Gowers Review

The Reading Nation in the Romantic Period

, St Clair W., 2004.

History of

patents

History of

copyright

E F I N I T I O N

concluded that no natural law of copyright existed and that copyright was a purely statutory
right created for the utilitarian purpose of encouraging literary efforts.

However, throughout

the nineteenth and twentieth centuries, copyright was extended and the scope of protection
was broadened under pressure from publishers and as a result of international
harmonisation. The principal piece of domestic legislation currently governing copyright is
the Copyright, Designs and Patents Act 1988.

1.18

A trade mark is a badge of origin for goods or services; it can be a word, name, logo,

colour, sound or shape. Once registered it gives the right to prevent others from using the
same or similar marks on the same or similar products. By providing a distinctive identity for
a product or service, trade marks lower the search costs for consumers by providing them
with information about the nature and quality of the product; this also gives brands an
incentive to build up good reputations and to develop brand loyalty.

1.19

Trade marks lose protection when they cease being used or become generic, i.e. when

a brand name comes to stand for a general class of items. For example ‘escalator’ and
‘gramophone’ were both marks that were afforded protection. In Austria, Sony no longer has
exclusive rights to the term ‘Walkman’, and in Australia ‘Linux’ is no longer eligible for
protection. Firms are keen for their trade marks not to become generic: Google recently wrote
to media outlets warning against inappropriate use of its trade mark for fear of losing
protection for its brand.

1.20

Marking of goods for various purposes, including distinguishing them from those of

other traders, dates back to ancient times. In the nineteenth century people began to think of
marks, which had become distinctive to a trader’s goods and so attracted valuable goodwill,
as a type of property. The Trade Marks Act 1905 gave the first statutory definition of a ‘trade
mark’. The principal legislation governing UK trade marks is the Trade Marks Act 1994.

1.21

A registered design protects the appearance of the whole or part of a product,

including its shape, configuration and ornamentation. Such protection lasts up to a
maximum of 25 years. To qualify for registration, a design must be new and have individual
character, which means that the overall impression it produces on an informed user of the
design must differ from the overall impression produced on such a user by any design which
has already been made available to the public. Examples include floral or other decorative
patterns, or the shape of a product.

1.22

Design law was originally introduced with the Designing and Printing of Linen Act in

1787. This gave the owner two months’ exclusivity in the printing of designs on linen and
other fabrics. The Copyright and Design Act 1839 increased protection to every new or
original design and introduced a system of registration. Since then, the boundaries of design
protection have been gradually extended. In the UK registered designs are governed by the
Registered Designs Act 1949 and unregistered designs by Part 3 of the Copyright, Designs and
Patents Act 1988. In addition, a Community Design right (both registered and unregistered)
was introduced by Council Regulation 6/2002 on the Community Design. The Community
regime has begun to supplant the domestic design right as a way of protecting designs.

History of trade

marks

Designs protect

graphical

identifications

Trade marks

protect

distinctive

identity

The Gowers Review

(1774) 4 EURR 2407 Law Professors’ Amici Brief in “MPAA v. 2600” CaseBrief Amicus Curiae in Support of Defendants-

Appellants, Supporting Reversal; Universal v. Reimerdes (Jan. 26, 2001) see Understanding the Copyright Clause,

Patterson L.R.,

Journal of the Copyright Society,

2000.

In 1995 the European Community introduced Community Trade Marks with (EC) Regulation No. 40/94 on the

Community Trade Mark.

E F I N I T I O N

1.23

The rights described protect a broad range of innovations and creations. For some

applications, such as plant varieties, semi-conductor topographies and databases, separate,
specific rights, known as sui generis, or of their own kind rights, have been developed which
better suit the attributes of those applications and the needs of the industry.

W H O U S E S I N T E L L E C T UA L P R O P E R T Y ?

1.24

In short, everyone uses IP. The Review’s Call for Evidence elicited over 500 responses

from industry, academia, creators, inventors, consumer groups and members of the public.

1.25

Industries such as pharmaceuticals, biotechnology and high-tech rely heavily on

patent protection to produce commercially viable products. Universities may patent
inventions created in laboratories, and license technology to commercial companies. IP
forms a link between those who invent and those who wish to bring new products to market.

1.26

The creative industries use IP to protect against the misuse of the expression of ideas

and works of art. In particular, there has recently been a great deal of attention given to the
downloading of music, and to a lesser extent films, and to protecting artists against copyright
infringement. There are many other owners and users of copyright who gain permission from
the artist to use works in films, television programmes and so on. A rise in user-led
innovation, which allows users to both use and create artistic products, has driven a rise in
creative outputs.

1.27

Consumers benefit from IP not only from the stream of innovative products and

inventions and creativity that would not otherwise be created by firms, but also from the
rights that protect the identities of well known goods and services. Trade marks act as
signposts of quality, preventing other firms passing off one make of good as being the same
as another.

1.28

Increasingly, firms are using overlapping IP rights to protect their products. For

example, new bands, whose artistic output will be protected by copyright, will often trade
mark their name so that when their works fall out of copyright protection, their brand will still
entitle their estates to some remuneration.

H O W I S I N T E L L E C T UA L P R O P E R T Y G OV E R N E D ?

1.29

A web of UK, EU and international bodies manage the framework for the IP rights

described above, and the operations associated with those rights (e.g. examining the novelty
of a patent claim). The following sections outline the various UK, European and international
bodies responsible for developing IP policy.

I P g o v e r n a n c e i n t h e U K

1.30

The current UK IP policy governance map is complex, with policy divided between

UK processes and EU/international processes. Within the different IP rights of patents,
copyright, trade marks and designs, some aspects are purely within national competence,
some purely within EU competence and some are a mixture of the two. Chart 1.2 shows the
current UK IP governance map.

Sui generis rights

protect specific

types of

inventions

The Gowers Review

E F I N I T I O N

1.31

The UK Patent Office is an Executive Agency of the Department of Trade and Industry

(DTI), and since 1991 has been a Trading Fund. The Patent Office is responsible for all the
main IP instruments, and not just for patents as its name implies. The principal functions of
the Patent Office are:

•

award:

granting UK patents as well as registering UK trade marks and designs;

•

awareness:

responsibility for raising awareness of IP-related issues among

businesses and consumers;

•

policy:

advising ministers on IP policy;

•

tribunal function:

Patent Office has a role in deciding disputes in respect of

patents, trade marks and both registered and unregistered design rights; and

•

enforcement:

leading the development of the UK IP crime strategy.

1.32

The function and organisation of the Patent Office is described in greater detail in

Chapter 6.

The Patent Office

The Gowers Review

Chart 1.2: IP policy governance

EPOrg

Responsible for EPC

Running EPOff

(grants EP(UK))

EPO decisions persuasive, not

binding on UK courts

Mixed competence

for

IP and competition

issues

WTO

Responsible for TRIPS

(setting minimum

requirements
for IP system)

WIPO

Responsible for various treaties

(e.g. PCT, PLT, Paris Convention)

and administering PCT for

international applications

UK Patent Office (UKPO)

IP policy lead; making new legislation (with DTI)

•Administering patent-granting process; trade

mark and design registration

•Tribunal, dispute resolution

•Innovation support activities

•IP enforcement

UK IP

system

UK Parliament

IP legislation

Other stakeholders

Industry

Non-governmental

organisations

Public interest

Members of public

Competition authorities

Other Government

departments

Policy links

e.g. DCMS (creative industries)

DCA (courts)

DTI

New legislation with UKPO:

Office of Science and

Innovation (OSI)

Creative industries

Fair markets

Biotechnology

UK policy process

EU/International Policy Process

OHIM

Administer Community

Trade Mark and Community

Design appeals to Court

of First Instance and

European Court of Justice

•

European Court

of Justice

and

Court of

First Instance

UK courts

IP disputes

Appeals from UKPO

Interpretation of IP law

E F I N I T I O N

I P g o v e r n a n c e i n E u r o p e

1.33

Much domestic legislation over the past 30 years has been driven by UK compliance

with EU and international obligations, such as Patents Acts in 1977 and 2004, to bring the UK
into line with the European Patent Convention.

1.34

The European Patent Organisation was created in 1977 to grant patents in Europe

under the European Patent Convention of 1973. The European Patent Organisation has two
organs: the Administrative Council, which acts as the legislative body; and the European
Patent Office (EPO) in Munich, which acts as the executive body. The Administrative Council
is made up of members of the contracting states and is responsible for overseeing the work of
the Office, ratifying the budget and approving the actions of the President of the Office. The
EPO grants European patents for the Member States of the European Patent Convention. The
EPO provides a single patent grant procedure, but not yet a single patent from the point of
view of enforcement. Hence the patents granted are not European Community patents or
even Europe-wide patents, but a bundle of national patents.

1.35

The UK’s IP laws have now been harmonised to a substantial degree by EU Directives.

Indeed, the substantive law of registered designs and registered trade marks is now almost
entirely determined at the Community level.

In relation to copyright, the harmonisation is no

where near as complete, nevertheless the term of copyright

and most exclusive rights are

harmonised

as is the maximum scope of the exceptions

as well as many other aspects of

copyright law. The Community has not been so active in the area of patent law, although it has
harmonised the treatment of biotechnological inventions

and tried to do the same for

computer implemented inventions.

In recent years it has also set minimum standards in

relation to the civil enforcement of IP rights

and is presently trying to do the same for

criminal enforcement.

I n t e r n a t i o n a l I P g o v e r n a n c e

1.36

The World Intellectual Property Organization (WIPO) began in 1893 as BIRPI

(Bureaux Internationaux Réunis pour la Protection de la Propriété Intellectuelle), or the
International Office for the Protection of IP. It brought together the early conventions on
patents and copyright harmonisation, namely the Paris Convention for the Protection of
Industrial Property (1883) and the Berne Convention for the Protection of Literary and Artistic
Works (1886).

It was reconstituted in 1974 as a UN agency. WIPO serves as a body for

negotiating and mangaging the various international IP treaties. It now administers a number
of important treaties in addition to Paris and Berne. Of these other treaties, the UK is a party
to the (Rome) International Convention for the Protection of Performers, Producers of
Phonograms and Broadcasting Organisation (1961)

and has agreed to become a party to the

WIPO Copyright Treaty (WCT) and the WIPO Performance and Phonograms Treaty (WPPT).
The effect of these conventions and treaties is to require the UK to provide national treatment
(meaning the same treatment for foreigners and nationals) and certain minimum standards
to nationals of other contracting states. These standards include:

WIPO

European

Community

The European

Patent

Organisation

The Gowers Review

Directive 89/104/EC to approximate the laws of trade marks effectively harmonised substantive trade mark law, leaving

only minor matters and procedural matters to Member States. Similarly, Directive 98/71/EC on the legal protection of

designs did much the same for designs.

Directive 93/98/EEC harmonising the term of protection of copyright.

See Directive 92/100/EEC on rental and lending right and certain related rights as well as Directive 2001/29/EC on

Article 5 of Directive 2001/29/EC.

Directive 98/44/EC on the legal protection of biotechnological inventions.

The proposal was eventually defeated by the European Parliament in July 2005.

Directive 2004/48/EC on the enforcement of intellectual property rights.

The UK is also a party to the UNESCO Universal Copyright Convention (last revised 1971).

The UK is also party to the less significant Convention for the Protection of Producers of Phonograms Against

Unauthorised Duplication of their Phonograms (1971).

E F I N I T I O N

•

the minimum term of copyright and related rights;

•

the minimum rights that must be granted to authors, performers, broadcasts
and phonogram producers; and

•

the maximum scope of the exceptions that are permitted in relation to certain
rights.

1.37

In addition, WIPO plays a key role in the administration of the Patents Cooperation

Treaty system, the Madrid Agreement and Protocol for trade marks and the Hague Agreement
for designs. These treaties provide a mechanism for making a single application for
protection of patents, trade marks and designs. Although in each case the application leads
to a bundle of national rights.

1.38

The UK makes representations to WIPO through the Patent Office. The objectives of

WIPO are to:

•

promote the protection of IP throughout the world through cooperation
among Member States and, where appropriate, in collaboration with any
other international organisation; and

•

ensure administrative cooperation among the unions.

1.39

World Trade Organization (WTO) involvement in IP is through the Trade-Related

Aspects of Intellectual Property Rights Agreement (TRIPS), which was agreed at the Uruguay
Round of the WTO negotiations. It came into effect in 1995 with the overall objective of
reducing “distortions and impediments to international trade, promotion of effective and
adequate protection of IP rights and ensuring that measures and procedures to protect IP
rights do not themselves become barriers to legitimate trade”. Its principal areas of
competence are:

•

standards – TRIPS sets out minimum standards in relation to the subject
matter that must be be covered by each type of IP right as well as the
minimum term for trade marks and patents; it also sets out the maximum
scope of permissible exceptions. It requires all countries to come up to
compliance with substantive elements of Berne and Paris, with exception to
terms of Berne on moral rights;

•

enforcement – certain general principals of enforcement are laid down for all
countries so that rights holders can effectively enforce their rights; and

•

dispute settlement – the agreement makes disputes between WTO members
around TRIPS obligations part of the WTO dispute settlement procedures.
Between TRIPS coming into effect in 1995 and 2004, 24 disputes were brought
to the TRIPS council.

O T H E R M E T H O D S T O I N C E N T I V I S E I N N OVAT I O N

1.40

While this report principally deals with IP rights, they are only one method of

spurring innovation. As Table 1.1 below indicates, other commercial strategies like
confidentiality agreements and being first to market are often perceived to be more
important. The examples given below are important not only in their own right, but also
because they illustrate the balance that IP strikes (as described earlier in the chapter) between
private incentives and public accessibility.

WTO

The Gowers Review

Article 3 Convention Establishing the World Intellectual Property Organization.

E F I N I T I O N

Table 1.1: Enterprises rating different methods for protecting innovation
as being of ‘high’ importance

Percentage of respondents

Size of enterprise: employees

10–250

250+

All 10+

Formal

Confidentiality agreements

Trade marks

Patents

Registration of design

Strategic

Lead-time advantage on competitors

Secrecy 8

Complexity of design

Source: First findings from the UK Innovation Survey, 2005.

1.41

The main mechanism used as an alternative to formal IP is the trade secret. Examples

of knowledge protected by trade secrets include: a formula; practice; process; pattern; or
compilation of information which is protected so that the holder can gain economic benefits
derived from the secrecy of the information. Unlike patents, designs or copyright, trade
secrets are protected without any disclosure. In addition, reasonable efforts must be taken to
keep the information a secret, such as Non-Disclosure Agreements for new employees. The
most famous example of a trade secret is Coca-Cola, which has not patented its recipe. While
there are provisions to protect the owner if the secret is uncovered by improper or unlawful
means, the state provides little protection if the trade secret is exposed through reverse
engineering or independent duplication.

1.42

Under patronage a private or public body pays an individual to ‘think interesting

thoughts’, in the hope that some of these ideas will have a practical or artistic application.
Patronage has been used since ancient times. For example, Dionysius supported scientists
while they developed military technology, including the catapult, and patronised Archimedes
while he worked on his theory of buoyancy. Contemporary patronage usually takes the form
of a research grant, with money available from the state or from private foundations; for
example, the Gates Foundation has invested in pharmaceuticals to combat the spread of
HIV/AIDS.

1.43

Prizes have also been used to provide an incentive for innovation and can be provided

ex-ante, for example the Longitude Prize set in 1714 by the English Parliament, or ex-post, for
example the Nobel Prizes. Both patronage and prizes can interact with IP rights (for example,
a patron might require the rights to an invention before granting the prize), but often they are
independent and serve to provide knowledge for public benefit.

Prizes

Patronage

Secrecy

The Gowers Review

Innovation and Incentives

, Scotchmer S., 2004, cites a survey of IP Owners Association member firms (Survey Results

from the 2003 Intellectual Property Owners Association Survey on Strategic Management of Intellectual Property;

Cockburn I., and Henderson R., 2003.) which showed that 80 per cent believe competitive advantage would be eroded

without trade-secrecy compared with only 66 per cent without patents and 33 per cent without copyright.

E F I N I T I O N

The Gowers Review

1.44

A recent and radical approach to knowledge accumulation rejects the propertisation

of knowledge. The approach of ‘open source’ is for creators to allow open access to their
products, ideas and inventions, enabling information to be freely shared and developed. This
keeps transaction costs low and has allowed user-driven innovation to flourish. Examples of
open source projects include the Linux operating system and the Firefox Internet browser.
The incentive mechanism for contributors is reputation. However, open source has some
serious limitations; for example, the incentive mechanism is usually financially weaker than
using IP in its conventional commercial form and hence contributors often rely on
supplementary sources of income. When the definition is stretched to applications other than
software development, there is the potential for a number of new applications for generating
ideas outside of an ‘IP’ framework.

For example, Science Commons has extended this

general approach to foster the availability and distributed processing of scientific data.

1.45

For commercial and industrial applications, IP has grown to eclipse all but the trade

secret as a wealth creation mechanism.

The condition of disclosure means that IP brings a

greater amount of information that might enable future innovation into the public domain
than the trade secret would. The monopolies that IP rights grant allow rights holders to charge
high prices, but those rights provide firms with the incentive to supply what consumers
demand. If IP rights are balanced, coherent and flexible, the system will support greater
investment in R&D and will allow the access to knowledge that will stimulate future
innovation.

C O N C LU S I O N

1.46

This chapter explained what IP is and why it exists. Chapter 2 describes the economic

and technological changes that have created opportunities and challenges for innovation and
creativity and looks at how the IP framework has responded.

Open source

Wide Open

, Mulgan G. and Steinberg T., 2005.

www.sciencecommons.org.

Innovation and Incentives

, Scotchmer S., 2004.

H A L L E N G E S A N D

P P O R T U N I T I E S

The Gowers Review

2.1

The UK Intellectual Property (IP) framework has de

eloped in recent years against a

backdrop of profound change including rapid globalisation and technological change. Both
ha

e presented significant economic opportunities and significant challenges to the IP

system. As a result of these changes IP rights ha

e become increasingly important in

promoting inno

ation, but many of the en

ironmental challenges facing the IP system ha

yet to be addressed.

2.2

This chapter summarises the changing context for those using IP rights and the

implications of those changes. It then sets out the policy responses that ha

e been made to

address those challenges, and where problems still remain.

G LO B A L I S AT I O N

2.3

Globalisation is a term used to indicate the growing economic interdependence of

countries throughout the world. The trend towards global trade and outsourcing, as indicated
by rising trade and capital flows (see Chart 2.

below), is both a feature and a dri

er of

continuing globalisation. From

980 to 2002, trade in goods increased from $

30 billion to

$6,400 billion.

2.4

The increase in global trade has created larger markets for UK-based firms. For

example, income and population growth ha

e increased the size of the world market by a

factor of four since

950.

These wider markets also bring the challenge of increased

competition with inno

ati

e international firms dri

ing producti

ity growth in many sectors.

Larger markets

and increased

competition

Greater trade

Development and Globalisation: Facts and Figures

, United Nations Conference on Trade and Development, 2004.

Intellectual Property in a Global Economy

, Boldrin M. and Levine D., 2004.

Source: IMF WEO and UNCTAD, 2005.

1,000

2,000

3,000

4,000

5,000

6,000

Chart 2.1: Trends in world foreign direct investment (FDI),
exports and Gross Domestic Product (GDP)

(Index: 1970=100)

1970

1980

1990

2004

FDI

Exports

GDP

H A L L E N G E S A N D

P P O R T U N I T I E S

2.5

Larger markets and fiercer competition present both opportunities and challenges

for UK businesses. There are greater rewards for the most inno

ati

e firms to compete in e

er-

larger markets. And there are greater pressures on firms to inno

ate to sur

e or compete in

increasingly competiti

e global markets. Inno

ation is therefore key to rising to the

challenges and seizing the opportunities of globalisation.

2.6

As a consequence, the role of IP in incenti

ising that inno

ation has ne

er been more

important. But, just as globalisation presents challenges to business, so it also presents new
challenges for the IP system itself. Globalisation:

•

may shift the optimal balance in IP rights – the optimal length of IP protection
from an economic perspecti

e would be just long enough for the inno

ator to

recoup his initial in

estment. Any longer, and the monopoly prices that IP

allows are an unnecessary inefficiency. As the size of the market increases,
more products can be sold in the same amount of time. This has led some
economists to argue that terms of protection should be reduced in order to
maintain a balance between consumers and producers;

•

generates new enforcement risks – the increase in legitimate trade has been
accompanied by an increase in counterfeiting and other forms of illegal trade.
Customs officers in the EU seized

00 million counterfeit and pirated items

such as CDs, luxury clothing and perfume in 2004, a tenfold increase on

998

figures;

and

•

raises the problem of jurisdiction – the harmonisation of national IP laws has
lagged behind the integration of markets. While technology allows firms to
market products globally, licensing the IP rights separately in e

ery national

jurisdiction imposes significant additional costs on business in applying for,
licensing and enforcing IP rights.

I P p o l i c y r e s p o n s e s t o g l o b a l i s a t i o n

2.7

Notwithstanding these changes, in the UK and internationally patent law generally

remains at the indi

idual country le

el, so a patent granted in one country does not

automatically apply internationally. The problems this causes were first considered in the late
nineteenth century, which ultimately led to the signing of the Paris Con

ention. Howe

er,

greater strides were made in the twentieth century: not only was the Con

ention amended a

number of times, but in

970 the Patents Cooperation Treaty (PCT) was adopted. The effect of

this treaty was that a single patent application could be made, which in effect notifies
signatory countries of the applicant’s intent to file nationally. As Chart 2.2 suggests, this has
pro

ed popular, but it still requires the applicant to prosecute the application separately at

each national office during the so-called ‘national phase’.

Patents

The Gowers Review

Intellectual Property and the Scale of the Market

, Boldrin M. and Levine D., 2004.

Counterfeiting and piracy: Frequently Asked Questions

, European Commission Press Releases, 2005.

H A L L E N G E S A N D

P P O R T U N I T I E S

2.8

For o

er 30 years, there has been the ambition to create a unitary ‘Community Patent’

for Europe to reduce costs for business. There ha

e been many failed attempts to broker

agreement. The most recent attempt failed o

er the issue of the legal status of translation of

the claims of the patent. The ‘London Agreement’ contains proposals that would simplify the
translation requirements of the current regime, but it has not yet been ratified by sufficient
Member States to take effect.

2.9

Separately, the European Patent Litigation Agreement (EPLA) is being discussed as an

integrated judicial system with uniform rules of procedure and a common appeal court for
patent litigation throughout Europe. This was first suggested in

999 but continues to face

difficulties.

2.10

Some international differences are the result of continuing disagreements o

er the

optimal policy. For example, the USA pro

ides patent protection for business methods as a

spur to inno

ation in enterprise. In contrast, policy makers within the EU ha

e to date seen

business method patents as unnecessary, and e

en inimical to business inno

ation.

2.11

For copyright, as with patents, the rights exist indi

idually in each country. Howe

er,

arious Con

entions ha

e set minimum standards of protection that must be afforded to

creators. The original, and still most important con

ention, is the Berne Con

ention, which

es protection to the authors of works. It now has

62 signatories, including the UK. The

adoption of the World Intellectual Property Organization (WIPO) Copyright Treaty in

996

created further minimum le

els of protection for authors. This, in combination with the

Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), means that authors
enjoy a

ery high le

el of protection worldwide. The owners of related rights (e.g. performers,

producers of sound recordings and broadcasters) are also protected by international treaties,
namely the Rome Con

ention and the WIPO Performances and Phonograms Treaty (WPPT).

Copyright

The Gowers Review

Chart 2.2: Demand for patent rights worldwide

20,599,488

14,644,800

23,497,954

17,062,058

12,294,536

10,011,805

7,659,426

5,265,755

14,744,746

12,527,841

10,068,860

7,451,674

Source: Trilateral Statistical Report, 2004 and 2005.

Total

PCT

1999

2000

2001

2002

2003

2004

H A L L E N G E S A N D

P P O R T U N I T I E S

2.12

At the EU le

el, there ha

e been substantial mo

es towards harmonisation of

995 the term of protection was harmonised.

ertheless, differences remain between the Member States in, for example, what

constitutes a film or the standard of originality.

2.13

As noted in Chapter

, within the EU, trade mark law has been harmonised by the

Trade Marks Directi

and a Community Trade Mark (CTM) has been introduced.

Internationally, UK firms benefit from the Madrid Protocol

which pro

ides a

semi-integrated mechanism for obtaining trade marks globally. Similarly, the law of registered
designs has also been harmonised across the Community

and in 2002 unregistered and

registered Community Designs were introduced.

In relation to designs there is also a treaty,

the Hague Agreement, which enables a designer to obtain global protection more easily,

Both the Community Design and the Community Trade Mark pro

ide a relati

ely cheap and

effecti

e mechanism for achie

ing protection throughout the Community.

2.14

The most significant recent de

elopments in IP policy ha

e centred on the World

Trade Organization (WTO) with the signing of TRIPS in

994. Looking to reduce barriers to

trade, the signatories set out a timetable for all WTO signatories to reach minimum standards
co

ering all IP rights. This includes undisclosed information and minimum standards for

enforcement, and remedies to be a

ailable for the infringement of rights.

2.15

In addition to simplifying the process of obtaining rights, international efforts ha

also sought to tackle piracy and counterfeiting. The laws relating to the criminal infringement
of copyright and trade marks ha

e both been tightened o

er recent years. Recently the

Enforcement Directi

came into force, strengthening ci

il sanctions, and a second directi

dealing with criminal sanctions has been proposed by the European Commission and is
currently being negotiated.

T E C H N O LO G I C A L C H A N G E

2.16

Rapid technological change o

er the last thirty years has pro

ided an enormous

number of new and inno

ati

e goods and ser

ices. This has simultaneously pro

oked many

challenges for UK policy, not least concerning IP. This section describes three substantial
technological shifts that ha

e affected the IP system, and how policy has altered as a result.

First, the digitisation of information and the ability to store it electronically has made it far
easier to copy, distribute and re

erse engineer products. Second, the inno

ation process has

become more networked and complex, with greater collaboration between firms, and with
high-tech projects often requiring the combination of thousands of indi

idual IP rights.

Third, new technologies such as genetics, software and databases require IP protection but do
not fit easily into existing categories.

Piracy and

counterfeiting

WTO / TRIPS

Trade marks and

designs

The Gowers Review

Directive 89/104/EEC to approximate the laws of the Member States relating to trade marks.

Council Regulation (EC) No. 40/94 on the Community Trade Mark.

The Protocol relating to the Madrid Agreement which was adopted in 1989. The UK has never been a party to the

Madrid Agreement itself.

Directive 98/71/EC on the legal protection of designs.

Council Regulation (EC) No. 6/2002 on the Community Design.

Although the UK is not a party to the Agreement, the EU is in the process of ratifying it and when it does so it will give

British businesses the right to use the mechanism.

Directive 2004/48/EC on the enforcement of IP rights.

H A L L E N G E S A N D

P P O R T U N I T I E S

D i g i t i s a t i o n

2.17

Digital technology is increasingly common in UK households. The ownership of

home computers rose from 2

per cent of households in the UK in

to 58 per cent in

2003.

The capability of digital communications has also de

eloped rapidly. In April 2003,

8 per cent of British households had a broadband Internet connection, which had risen to
3

per cent by July 2005. The number of subscribers is expected to pass

2 million by 2008, as

shown in Chart 2.3 below, by which time the UK is expected to ha

e the largest number of

broadband subscribers in Europe.

2.18

As Chart 2.4 illustrates, high-speed digital networks are expanding the digital

distribution for films, music and games, but the ability to copy and distribute information at

irtually zero cost has also made it much easier to copy that information without permission

from the copyright owner. ‘Piracy’ of protected material has always been a concern for rights
holders. Howe

er, the unprecedented technological ad

ances of the last decade or so mean

that it has become an e

en more pressing threat. Downloading music and films from the

Internet is now the most common legal offence committed by young people aged between

and 25 in the UK .

Up to 80 per cent of music downloads are not paid for

en though most

consumers recognise it to be illegal.

According to a report commissioned by the British

Phonographic Industry (BPI), file-sharing cost the music industry £4

4 million in lost sales in

2005,

on total retail sales of £

.87 billion.

These losses ha

e risen steeply from £278 million

in 2003.

Unauthorised

copying

The Gowers Review

Source: Ovum, January 2006.

Chart 2.3: UK broadband household penetration estimates

2005

2006

2007

2008

2009

2010

Per cent

Office of National Statistics.

Screen Digest Research: European Piracy Fact Sheet

, 2004 (accessed at http://www.mpaa.org/piracy.asp).

Fraud and Technology Crimes

, Home Office, 2006 – http://www.homeoffice.gov.uk/rds/pdfs06/rdsolr0906.pdf.

Observer Music Monthly

(UK Downloaders, July 2005).

OTX presentation, January 2006: 63 per cent of downloaders recognised that downloading was illegal, 19 per cent

were not sure.

TNS, 2006, commissioned by BPI.

DCMS data, 2006.

H A L L E N G E S A N D

P P O R T U N I T I E S

2.19

In response to this e

er-greater ease of copying files, firms ha

e de

eloped

technological protection systems that use encryption to restrict access to the film or music
file. This pre

ents users from copying D

Ds to their personal computers, and is also

commonly used to disable the fast-forward button during the initial minutes of a D

D film.

The use of Technical Protection Measures (one type of Digital Rights Management) has been
partially successful at reinstating technical impediments to copying media, but it has faced
consumer opposition and software tools to ‘crack’ the protection are widely a

ailable on the

internet.

2.20

erse engineering is the process of disco

ering the technological principles of an

application or de

ice through analysis of its structure, function and operation. It has

historically been difficult, but it is becoming easier for two reasons:

•

as engineering techniques become more computerised, more of the design
relies upon pre-programmed libraries of components. Therefore, recognisable
blocks of code or groups of circuit elements often occur in many designs
de

eloped using the same computer program. These are easier to recognise

and interpret than a customised product; and

•

artificial intelligence techniques for pattern recognition ha

e ad

anced to the

point where these blocks of code and other structures within a product can be
recognised automatically.

2.21

erse engineering is often a necessity for reliable computer software design and

thus has become more important in recent years with the increased de

elopment of software.

But these changes also make it easier to copy and appropriate the IP within software and
other applications, which costs firms sales.

Reverse

engineering

The Gowers Review

Source: British Phonographic Industry.

Chart 2.4: Downloads share of singles sales in the UK by week
2004-2006

2006

2005

2004

Per cent

Reverse Engineering, Musker D.,

Protecting and Exploiting Intellectual Property in Electronics

, 1998.

H A L L E N G E S A N D

P P O R T U N I T I E S

N e t w o r k e d i n n o v a t i o n

2.22

Technological change has also enabled inno

ation to become increasingly

collaborati

e. In traditional models of inno

ation, firms undertook most of their research and

elopment in-house. IP was occasionally sought for new in

entions, but often the

entions were kept secret. In this ‘closed’ model, if a firm could not utilise an inno

ation in

an end product it was lost.

2.23

Increasingly firms are adopting an ‘open’ approach to inno

ation, licensing useful

technologies from (‘in-licensing’) and to (‘out-licensing’) other firms,

as shown in Chart 2.5

abo

e. This model means that firms capture the

alue of ideas e

en if they do not use them in

an end product, which in turn increases the incenti

es to inno

ate. IP allows this sharing by

conferring property rights and enabling a market to form. Firms are increasingly licensing IP
as they focus on more specialised components. This approach can be seen in the
telecommunications industry, where a typical mobile phone now contains thousands of
patented in

entions and requires collaboration between hundreds of companies. Some firms,

such as ARM in Cambridge, do not produce any physical product and are entirely funded by
income from licensing. As Chart 2.6 shows, pharmaceutical companies are spending
increasing proportions of their R&D budgets on licensing and this is projected to increase.

2.24

Efficient licensing ensures liquidity in the market for ideas. Howe

er, licensing

patents can be complicated and costly. It is estimated that

5 per cent of patents granted in

the UK are ‘sleeping’: the owner is willing to license but is pre

ented by the associated legal

costs.

The Institute of Patentees and In

entors report that around 95 per cent of attempts to

licence IP by indi

iduals or SMEs result in failure.

Large corporations can utilise greater in-

house IP knowledge and the bargaining power of a large IP portfolio when completing
licensing negotiations, generally leading to a greater success rate.

Licensing is

costly

Collaboration has

increased

The Gowers Review

Source: QuickMBA.com.

Chart 2.5: Models of innovation

'closed'

'open'

Traditional model: unused research

Greater collaboration: less research wasted

Research

Development

Time

Research

Development

Time

“Open Innovation” Myths, Realities, and Opportunities

, Chesbrough H., 2006.

Open Innovation: The New Imperative for Creating and Profiting from Technology

, Chesbrough H., 2002.

IPR at the Crossroads – Economic Value of IPR for Business in the Internal Market

, Nooteboom E., 2006.

Call for Evidence submission, Institute of Patentees and Inventors.

H A L L E N G E S A N D

P P O R T U N I T I E S

2.25

In response to the growing need to licence technology and the associated transaction

costs, firms ha

e used patent pools as a mechanism to manage large numbers of rights

together. The case study below illustrates how this has worked for one technology.

2.26

Worldwide re

enues from patent licensing increased from $

5 billion in

990 to $

billion in 2000.

The BBC reports that £230 million is spent a year on the acquisition of IP

rights from programme contributors in BBC-produced programmes alone

and IBM

generates between $

.5 billion and $2 billion in re

enue per year by licensing its non-core IP.

Patent pools

reduce licensing

costs

The Gowers Review

Source: McKinsey survey of large pharmaceutical companies, 2004.

Chart 2.6: Licensing spending as percentage of pharmaceutical
R&D spending

100

2009 (projected)

2004

1999

More than 20 per cent

10 to 20 per cent

Less than 10 per cent

Percentage of pharmaceutical companies

Box 2.1: Case Study – RFID patent pool

A patent pool has been constructed by a consortium of twenty providers of the new
technology of radio frequency identification (RFID). The pool is intended to reduce the
confusion over patent royalties, reduce risks for end users and provide a convenient way
for rights holders to manage their IP. The consortium charges one royalty fee and divides
the revenue among the patent holders according to the rights held. This is likely to keep
the cost of RFID equipment down, which will encourage adoption by consumers. To join
the pool, a company or individual must hold patents deemed essential to the relevant
standard.

RFID Vendors to Launch Patent Pool, Roberti M,

RFID Journal

, 2005.

Intellectual Property – A Power Tool for Economic Growth

, WIPO, 2003.

Call for Evidence submission, BBC.

Identifying and Managing Intellectual Property Risk and the Use of Insurance as a Risk Management Tool,

Cauthorn K.,

Fordham Annual Conference, 2006.

H A L L E N G E S A N D

P P O R T U N I T I E S

2.27

Collaboration between uni

ersities and businesses has increased markedly o

er the

last twenty years. Chart 2.7 shows that many UK uni

ersities created technology transfer

offices only in the late

990s;

by 2003, 80 per cent had at least one dedicated person; and staff

numbers continue to rise by almost 25 per cent each year. IP licensing rates and income ha

increased: UK uni

ersities earned licensing income worth £22.4 million in 2002, an increase

of 2

per cent on the pre

ious year, as the le

els of technology transfer acti

ity, funding and

staffing grew.

2.28

Digital technology has changed not only the types of products consumers can buy,

but also their role in the

alue chain. The traditional assumptions of the role of consumers in

inno

ation is that they can choose between products but ha

e little say o

er design or

creation of those products other than through market demand.

2.29

As the costs and barriers to sharing and changing content ha

e fallen, users ha

grouped together into networks. These networks enable pre

iously passi

e consumers to

become adaptors and inno

ators themsel

es.

The broad spectrum of consumers in society

means that this type of consumer-led inno

ation can be extremely creati

e. A balanced IP

framework must encourage user inno

ation while protecting the in

estment of firms.

Consumers are

engaged in

innovation

Business–

university

collaboration

The Gowers Review

Source: Lambert Review of Business–University Collaboration.

Chart 2.7: Number of UK universities creating technology
transfer offices, 1971–2003

1971

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Year

Number of universities

Lambert Review of Business–University Collaboration

, HM Treasury, 2003.

Licensing Survey

, Association of University Technology Managers (AUTM), 2003.

Creating Selves: Intellectual Property and the Narration of Culture

, Gibson J., 2006.

The User Innovation Revolution

, Leadbeater C., 2006.

H A L L E N G E S A N D

P P O R T U N I T I E S

N e w t e c h n o l o g i e s

2.30

The IP system, with four core rights, co

ers an enormous

ariety of inno

ation and

creati

e expression. Ne

ertheless, new technologies do not always fit comfortably within the

existing classes of IP protection. For example, computer programs are written as an original
expression but they are also intended to be industrial applications, so they do not fit squarely
within either the boundaries of copyright or patent law. Databases are collections of facts,
which ha

e traditionally not been co

ered by copyright law. Ne

ertheless the construction of

databases often requires substantial resources and so there would be no incenti

e to in

est

without legal or technical ways to pre

ent others from copying the information. Finally, with

regard to the legitimacy of patents on genes, the line between what is created and what is
disco

ered has been hotly contested. Almost 20 per cent of human gene DNA sequences are

patented; 4,382 out of the 23,688 known human genes.

I P p o l i c y r e s p o n s e s t o t e c h n o l o g i c a l c h a n g e

2.31

In response to the changes in recent years, a number of actions ha

e been taken at UK

and international le

els.

2.32

In 2003, as part of the implementation of the Information Society Directi

certain

types of on-line copyright infringement were criminalised.

The maximum sentence for

committing the offence is two years imprisonment, which contrasts with infringements in the
‘physical world’ where the maximum penalty is ten years imprisonment.

2.33

The Lambert Re

iew of Business–Uni

ersity Collaboration led to fi

e model Research

Agreements being de

eloped. These agreements were launched in February 2005 and ha

already been used successfully by a number of organisations, sa

ing time and money and

adding to certainty. For example, GlaxoSmithKline and the Uni

ersity of Hertfordshire

concluded a successful negotiation in just two days and GlaxoSmithKline has already put in
place 27 agreements. The agreements ha

e also pro

ed useful for SMEs.

The Gowers Review

Box 2.2: Case Study – The Sims collaboration

The Sims game from Electronic Arts was launched in 2000 and quickly developed into an
online community, with players swapping tools, software and artefacts to put into their
online houses. Hundreds of websites now display hundreds of thousands of collectible items
that are available to the millions of players. Electronic Arts estimates that 90 per cent of
the content of the game is not created by the game’s original authors but by a large
innovative sector of the playing community.

A game’s official release is the moment when the innovation initiative passes from the in-
house development team to the community of player-developers. Ideas flow back and
forth, among the players and between the players and the company.

Intellectual Property Landscape of the Human Genome, Jensen K. and Murray F.,

Science

, 14 October 2005.

Directive 2001/29/EC on copyright in the information society.

See sections 107(2A) and 198(1A) of the Copyright, Designs and Patents Act 1988 (CDPA).

Innovating for Success: The Intellectual Property Review and Economic Competitiveness

, Lord Sainsbury, 2006.

H A L L E N G E S A N D

P P O R T U N I T I E S

2.34

Regarding re

erse engineering for software de

elopment, there are specific

exemptions co

ering such acti

ity in UK law.

In the main, the Information Society Directi

prohibits any circum

ention of technical protections such as encryption, e

en in some

instances, where they pre

ent uses permitted by fair dealing exceptions.

2.35

Currently, only if computer programs ha

e a ‘technical effect’ can they be patented in

Europe. Howe

er, there is little authoritati

e definition of this phrase, and its scope is widely

contested. This has led to some computer programs being patentable in one country, such as
the USA, but not patentable in the Member States of the EU. Recent attempts to agree a
Directi

e to harmonise the law relating to software patents was rejected by the European

Parliament in response to fears about the negati

e implications that a US-style system for

software patents would ha

e on inno

ation.

2.36

To protect the in

estment in databases, the EU established a new type of right specific

to databases,

but the

alue of pro

iding the right is still widely disputed by users of the

system.

2.37

In the EU, a protracted debate pro

oking strong and di

ergent

iews led to a directi

on the protection of biotechnological in

entions.

Contro

ersy still surrounds the granting of

patents on biotechnological in

entions. In part this is because of confusion about the effect

of patent protection on future inno

ation and concern about the patentability of technology

ed. While some Member States ha

e se

erely restricted the grant of protection for

biotechnological in

entions on moral grounds, the UK has established a clear policy and

practice which has fostered a strong domestic biotechnology industry, particularly around
stem-cell research.

The Gowers Review

Box 2.3: Case Study – Biotechnology patent disputes – Harvard
Oncomouse

The Harvard Oncomouse is an example of a disputed biotechnology patent. The mouse
had been genetically modified to contain a cancer-causing gene. The patent was filed and
granted by the United States Patent and Trademark Office (USPTO). It was filed in Europe
in 1985 and initially rejected in 1989 as, among other reasons, the European Patent
Convention (EPC) excludes patentability of animals.

The patent was then granted in 1992

on appeal as it was decided that only animal

varieties

were excluded, not animals

themselves. It was then opposed by several parties, the proceedings eventually concluding
in 2003 to allow the patent in an amended form.

In Canada, the Supreme Court rejected

the patent in 2002, ruling that higher life forms are not patentable.

Harvard/Oncomouse

(1990) EPOR 4.

Harvard/Oncomouse

(2003) OJEPO 473.

See:

Commissioner of Patents v. President and Fellows of Harvard College

[2002] 4 S.C.R. 45.

Sections 50A to 50C of the CDPA.

See Article 7 of Directive 2001/29/EC.

Directive 96/9/EC on the legal protection of databases.

Directive 98/44/EC on the legal protection of biotechnological inventions.

H A L L E N G E S A N D

P P O R T U N I T I E S

I N C R E A S I N G I M P O R TA N C E O F I P

2.38

In today’s knowledge economy, IP has ne

er been more important for securing

Britain’s prosperity and has ne

er been more challenged by the changing context of

inno

ation: it is estimated that 70 per cent of a typical company’s

alue lies in its intangible

assets, up from around 40 per cent in the early

980s;

and the number of patent applications

e more than doubled at the EPO in the last ten years.

2.39

While the number of registered IP rights has increased, the

aluation of IP remains

largely subjecti

e and a specialist field. Traditional accounting methods only allow the

inclusion of IP on the balance sheet when it has been bought rather than de

eloped in-house.

Proposals to update International Accounting Standards to reflect the

alue of intangible

assets are currently under discussion.

2.40

Despite IP’s increasingly central importance to the UK economy, consumer

knowledge of IP is low. A MORI poll on IP and UK public attitudes

showed that awareness of

the phrase ‘Intellectual Property’ is generally low, with many respondents ha

ing to guess

what ‘Intellectual Property’ meant. Participants were more knowledgeable about IP that is
obser

able, such as trade marks, than more abstract forms of IP, such as patents.

2.41

When briefed as to what IP rights were, participants in the MORI sur

ey felt that they

were often used exploitati

ely by companies and in an anticompetiti

e manner. IP crimes

such as piracy and buying counterfeit goods were seen as ‘

ictimless’ with no guilt associated

to buying fake goods at low prices. Fear of buying potentially harmful goods, such as fake
pharmaceuticals, was stronger: they saw the enforcement of standards and the protection of
consumer rights as the most important aspects of IP policy.

C O N C LU S I O N

2.42

Globalisation and technological change are profoundly changing the world economy.

Knowledge capital is more important than e

er, and so too is IP. While the changing context

has pro

ided new business opportunities, it has also created new challenges, both for

businesses that rely on IP and the IP system itself. The following chapter will examine in
greater detail how well the system has performed amid the challenges of the modern
economy.

Consumer

awareness is low

IP valuation

remains difficult

Use of IP has

increased

The Gowers Review

Identifying and Managing Intellectual Property Risk and the Use of Insurance as a Risk Management Too

l, Cauthorn K.,

Fordham Annual Conference, 2006.

Intellectual Property: Public Attitudes

, MORI, 2000.

E R F O R M A N C E

The Gowers Review

3.1

The first chapter laid out the shape of the Intellectual Property (IP) system. The

pre

ious chapter showed how global and technological changes ha

e created significant new

challenges for the IP system. This chapter will assess the aggregate effecti

eness of the system

that we ha

e, and will identify areas where problems exist.

3.2

The goal of this Re

iew is to ensure that the UK has a producti

e and equitable IP

system that ser

es the needs of its users and makes the rewards of inno

ation accessible to

all. This chapter will consider how well the system operates in practice.

3.3

There are few standard measures that can be used to quantify the performance of the

IP system, but a number of qualitati

e indicators ha

e informed the Re

iew’s conceptual

framework for judging performance. These indicators ha

e been constructed from the large

number of responses to the Re

iew’s Call for E

idence, as well as inter

iews, case studies and

international comparisons.

T H E P E R F O R M A N C E F R A M E W O R K

3.4

There are three components that together fashion an IP system that fosters

producti

ity and ensures equitable outcomes for industry and consumers:

(

)

the

instruments

of IP, namely patents, copyright, designs, trade marks and sui

generis rights, ought to be balanced, coherent and flexible;

(2)

the

operations

, i.e. the award, use and enforcement of those IP rights, must be

efficiently administered; and

(3)

the national and international organisations responsible for the

governance

of policy and operations must be clear and well run.

3.5

The performance of the first two components is discussed in more detail below. The

ernance of policy and operations is discussed in Chapter 6.

I n s t r u m e n t s

3.6

On the one hand, IP rights pro

ide economic incenti

es to inno

ate, but on the other

hand, the exclusi

e rights they confer to achie

e this allow monopoly prices and associated

welfare losses. So there is a trade-off between incenti

es on one side and costs to consumers

and limited access for follow-on inno

ators on the other. It is therefore crucial to strike the

right balance in the system.

3.7

IP rights a

ailable within the UK must be both internally and externally coherent.

They must co

er the myriad ways in which knowledge is applied and ideas protected. They

must also be integrated with other national and international systems of rights, particularly
in light of globalisation. Moreo

er, there should be certainty and consistency in rights.

estment in knowledge-based industries should be grounded in a predictable legal

framework for the protection of that knowledge. Finally, rights should be intelligible to the
general public not just to IP specialists.

Coherence

Balance

Satisfied users

are a good

indication of

success

E R F O R M A N C E

3.8

The pre

ious chapter examined the impact that globalisation and technological

change ha

e had on the IP system. It is

ital that in both the rights and the exceptions to those

rights, which limit the control of the rights owner, the IP system is robust and flexible enough
to cope with technological and en

ironmental changes and so to continue to facilitate

inno

ation and continue to retain public support.

O p e r a t i o n s

3.9

The way in which IP rights are awarded must be affordable, transparent, swift,

consistent and accessible to all users. Awarded rights must not be so broad as to stymie
inno

ation by pre

enting others from engaging in similar areas of research, nor so narrow as

to pro

ide no practical protection from competitors.

3.10

It should be as easy as possible to buy, sell, license, securitise (grouping rights

together into a tradable asset) and obser

e IP rights, both within the UK and for UK firms

abroad. Moreo

er, competition authorities must ha

e the ability to curb any abuse of

monopoly power stemming from IP rights.

3.11

IP rights are only useful if rights owners are able to enforce their rights, whether on

their own, through the ci

il courts or through law enforcement agencies such as trading

standards or the police. IP crime must carry penalties proportionate to the harm caused and
the risk of being caught. The costs of dispute resolution should be reduced by greater
a

ailability and use of alternati

e dispute resolution.

G o v e r n a n c e

3.12

It is

ital that the organisations responsible for administering, enforcing and setting

policy for IP are well run and effecti

ely integrated. Without adequately functioning bodies,

the IP system will not function in the way users expect.

PAT E N T S

3.13

Patents granted in the UK pro

ide the proprietor with an exclusi

e right for twenty

years. There are a number of features of patent laws to allow wider access to the information
protected by the patent. Applications are normally published eighteen months after being
filed,

theoretically enabling others to ha

e access to all the technical information about the

ention. Applicants ha

e an incenti

e to make the disclosure of technical information as

limited as possible, but in the UK the process of dialogue between applicants and examiners
to achie

e clarity about the in

ention appears to work well. Similarly academic researchers

are protected by an exception co

ering experimental use that enables researchers to examine,

test and build upon in

entions. Howe

er, many respondents to the Call for E

idence noted

that the scope of the exception is unclear in light of the increasingly commercial nature of
transactions between uni

ersities and businesses. O

erall, the balance of patents appears to

be broadly satisfactory.

Balance

Enforcement

Use

Award

Flexibility

The Gowers Review

Applications claiming priority will be published earlier. Furthermore, patents which include information that might affect

national security are not published.

E R F O R M A N C E

3.14

Responses to the Call for E

idence confirm that, in general, the UK patent system is

clearly defined, applied consistently and aligned with other IP rights. The patentability of
software remains contested, with applications required to pro

e a ‘technical effect’, but this

does not appear to ha

e had a significant negati

e effect on industry inno

ation. The

harmonisation of international patent systems lags behind other forms of IP, not least in
Europe, as discussed in the pre

ious chapter. This continues to impede the operational

integration of the award and enforcement of patents and to increase business costs.

3.15

In the face of enormous technological and economic changes, the rights granted by a

patent ha

e changed remarkably little o

er the past twenty years. Users of the system confirm

that patents ha

e ne

ertheless been a flexible tool able to absorb new technologies and

pro

ide protection for new and emerging industries. For some technologies, such as

pharmaceuticals, additional specific rights (such as supplementary protection certificates)
ha

e been de

eloped to address particular regulatory issues. Howe

er, the absence of a new

right for e

ery new technology has been a strength of the system and has pre

ented a

spiralling complexity of rights and boundary conditions of those rights.

H o w e f f i c i e n t l y d o p a t e n t s o p e r a t e ?

3.16

Many submissions to the Call for E

idence highlighted the expense of gaining patent

protection, and, in particular, high translation costs and professional fees for patent agents in
Europe and internationally. The official fees charged by the UK Patent Office for processing
an application are lower than those of many other national patent offices, but costs are dri

up by the expense of legal fees and ad

isory ser

ices. There are a number of routes to

obtaining patent protection in the UK and internationally, which has created a complex
system and significant confusion outside specialist practitioners. Approximately 70 per cent
of businesses sur

eyed by the Confederation of British Industry (CBI) were unaware that

patent protection in the UK did not secure their in

ention in other countries.

3.17

The speed of the patent award process is hampered at both the US Patent and

Trademark Office (USPTO) and the European Patent Office by large backlogs that impose
delays of up to three years on applications. The UK Patent Office is unusual in ha

ing almost

no waiting list for patents, but ne

ertheless due to the nature of the granting process, few

patents are awarded in less than eighteen months. This is not a problem for many industries,
but in the high-tech and internet, sectors where business cycles are comparati

ely short, a

long grant time can impose the cost of uncertainty on competitors as to whether a particular
in

ention is proprietary or not.

3.18

Finally, regarding the quality of patents awarded, respondents were generally

satisfied with the rigour of both the UK Patent Office and the European Patent Office in their
examination procedure. One study estimated that between 83 per cent and 98 per cent of
patent applications were granted in the USA.

In contrast, only about two-thirds of

applications are granted at the UK and European Patent Offices. Se

eral users noted that the

quality of examination, particularly for new technologies such as biotechnology where prior
art may not be well documented, could be impro

ed by introducing mechanisms for experts

in industry and academia to obser

e and oppose patents at the pre-grant stage to ensure that

granted patents are not o

erly broad in their application.

Award

Flexibility

Coherence

The Gowers Review

CBI China Survey.

Continuing Patent Applications and Performance at the US Patent and Trademark Office, Quillen C., Webster O. and

Eichman R.,

Federal Circuit Bar Journal

, 12, 35, 2002.

E R F O R M A N C E

3.19

Patents pre

ent ri

als copying proprietary technology. Howe

er, research suggests

that this only tends to be the case for firms where there are a

ery small number of patents per

product, for example in pharmaceuticals. Cohen et al. show that 65 per cent of firms in
complex technologies use patents as a trading strategy to licence a technology (while only

per cent use patents as a fence). In simple technologies, 28 per cent of firms use patents as a
trading strategy to licence a technology, while 46 per cent use patents to fence off an area to
competitors and pro

ide more intellectual ‘space’ to inno

ate.

This strategy can be

problematic in areas where thousands of patents are used in the design of new products,
especially in the electronics and software industries. The US litigation between RIM and NTP
o

er technology used in BlackBerry de

ices illustrated that where the process in

es the

automatic use of ‘injuncti

e relief’ (a court order to shut down production and use of the

application containing the contested patent) indi

idual patents held by small firms become

ery powerful e

en if they only play a small part in the whole application. UK courts ha

appeared pragmatic in this area, judging cases on their indi

idual merits. While injuncti

relief is a

ailable, judges are also willing to award specified damages rather than stop

production as the means of recompense.

3.20

For many years, patent legislation has pro

ided for the renewal of a patent for a

reduced fee in exchange for the condition that the patentee must licence the technology for
a reasonable fee on request from a third party. This is not well ad

ertised or widely used at

present, and firms appear largely unaware of its existence. Another mechanism for fostering
the use of patented technology has been the Lambert Model Agreements, which were
designed to facilitate uni

ersity–business technology transfer. These ha

e worked well and

are shortly to be extended to Europe.

3.21

A key aspect of enforcing rights is the existence of credible legal sanctions. Howe

er,

costs can be prohibiti

e, particularly for small firms. A firm challenging a patent can expect

to pay £750,000 for a simple case, largely due to the costs of the ad

ersarial system. Liability

for the other side’s costs could double this to £

.5 million. Defending a European patent can

mean multiple actions in se

eral jurisdictions, as each European patent is a series of separate

national patents subject to national jurisdictions. As well as increasing legal costs, it increases
uncertainty, with different jurisdictions on occasion coming to different decisions on the
same case.

Enforcement

Use

The Gowers Review

Box 3.1: Broad patents can stunt competition

Blackboard, a US maker of online learning management systems, recently took the
academic community by surprise when it announced it had been granted a broad patent
in the USA. The patent covers 44 claims related to learning management systems and
implicated infringement by many other products on the market. On the same day that it
publicly disclosed its patent, Blackboard started a patent infringement suit in a Texas court
against Desire2Learn.

Many companies that have been working on educational software

are now concerned that Blackboard will either sue for infringement or enforce complex
and expensive licensing agreements.

Patent battle over teaching tools

, BBC website http://news.bbc.co.uk/1/hi/technology/4790485.stm, 2006

Protecting Their Intellectual Assets: Appropriability Conditions and Why US Manufacturing Firms Patent (or Not)

Cohen

W., Nelson R. and Walsh J.,

Management Science

, 2002.

E R F O R M A N C E

3.22

The high cost of litigation means that most cases settle out of court. In the USA, which

has e

en higher costs, only

.5 per cent of all patents are e

er litigated, and 0.

per cent of all

patents are litigated to trial.

A series of inter

iews with small European firms found that

many small firms could not afford the high litigation costs necessary to defend their patents.

Moreo

er, the lack of cases going to trial means there is a paucity of patent case law,

increasing the general uncertainty around the application of statute.

C O P Y R I G H T

3.23

There has been much academic and popular debate around the optimal length of

e to produce a creati

e work. Gi

en the

ariety of incenti

es that

stimulate artistic endea

our, and the number of different classes of work that copyright

protects, e

erything from paintings to musical scores, it is not possible to arri

e at any

definiti

e optimal length. Ne

ertheless, future increases, or decreases, to the length of

idence that such a change would be

positi

e. In any case, as a result of the international treaties to which the UK is a signatory and

the responsibility of the European Commission for this area of policy, the UK can make no
unilateral change to the length of copyright and is bound by strong minimum standards.

3.24

The UK copyright system is hea

ily connected with international treaties that ha

achie

ed a high le

el of harmonisation across the world. This has some positi

e aspects. For

example, there is a requirement in the Berne Con

ention that there should be no mandatory

registration of work for copyright to come into force. This greatly reduces administrati

costs. Con

ersely, as a result of the centralised nature of policy control, small adjustments to

the system can take many years.

3.25

musical, artistic and cinematographic works to computer programmes, databases, sound
recordings and broadcasts. Copyright protecting different classes of work is subject to
different domestic and international treaties. Although this reduces the coherence in the
copyright system, coherence across all types of copyright may restrict the balance in the
system as not all copyright works are deemed eligible for the same style of protection. For
example, the term of protection for typographical arrangement, that is, the arrangement of
words on a page, is currently 25 years, compared with the life of creator plus 70 years for
literary works. The term of protection is intended to reflect the creati

e effort required, which

would not be reflected in a blanket harmonisation of term.

3.26

percei

ed to be o

erly restricti

e, with little guilt or sanction associated with infringement.

While the law is complex, this is not principally a problem of coherence, but of a lack of
flexibility to accommodate certain uses of protected material that a large proportion of the
population regards as legitimate and which do not damage the interests of rights holders.

Flexibility

Coherence

Balance

The Gowers Review

Probabilistic Patents, Lemley M. and Shapiro C.,

Journal of Economic Perspectives,

2005.

Innovation Needs Patent Reform, Kingston W.,

Research Policy

, 2001.

E R F O R M A N C E

3.27

UK copyright law pro

ides a number of ‘exceptions’ to the broad rights granted to the

owner of a copyright work to enable ‘reasonable’ use to be made of the work freely and
without permission. While the public are generally unaware of these exceptions (some of
which fall under the rubric of ‘fair dealing’), perhaps the best-known example is the rule of
thumb that an indi

idual may photocopy an excerpt from a book of not more than one

chapter, or 5 per cent (whiche

er is the least), without infringing copyright. While the

exceptions are restricted to particular acts, the USA has a similar doctrine of ‘fair use’ which
is more flexible in its application.

3.28

As discussed in the pre

ious chapter, ad

ances in digital copying technology and the

expectations of consumers ha

e outstripped the liberties granted by copyright law. A good

example of this is consumers copying music from CDs onto their MP3 players. Many do this
unaware that they are infringing copyright. Music Ally, a research and analysis consultancy,
estimates that by the first quarter of 2006,

billion iTunes files and 50 million iPods had been

sold, equating to twenty iTunes per iPod. Gi

en that iPods can store upward of

,000 songs,

there is a question as to where most of the music on iPods is coming from.

3.29

The fact that the letter of the law is rarely enforced only adds to the public sense of

illegitimacy surrounding copyright law. Yet copyright is essential for protecting the
in

estment that UK creati

e industries make in artists, performers and designers. If uses such

as transferring music from CDs to an MP3 player for personal use are seen to be illegal, it
becomes more difficult to justify sanctions against copyright infringement that genuinely
cost industry sales, such as from freely downloading music and films using the Internet.

3.30

Another issue affecting the flexibility of copyright is the use of old material where the

copyright owner is not known and cannot be found. In the absence of permission, any use is
infringement, and therefore many potential users will not use material for fear of legal
recriminations. Many submissions to the Call for E

idence highlighted this as a large

problem, noting that a large amount of content protected by copyright is not commercially
a

ailable. The existence of such a large

olume of old work protected but una

ailable

(estimates of up to 98 per cent of published work under copyright) means that a great amount
of intellectual capital is wasted. Firms and indi

iduals are unable to restore, rework or re

these ‘orphan’ works to create new commercial and creati

e capital.

H o w e f f i c i e n t l y d o e s c o p y r i g h t o p e r a t e ?

3.31

created. As noted abo

e, the absence of any registration makes the award of copyright

ery

efficient and accessible, but as there is no register of who owns the copyright, it can be
difficult for third parties to reuse old works.

3.32

between the user and the rights holder, or alternati

ely by ‘collecting societies’ which act as

intermediaries between copyright owners in particular industries and users. For example, the
Educational Recording Agency collects licence re

enue from schools and distributes it as

royalty payments to publishers. Licences can be as specific as granting unlimited pri

ate use

of CD (with “unauthorised copying, lending, hiring, public performance and broadcast of the
recording” being prohibited

), or as broad as the Phonographic Performance Limited (PPL)

broadcasting licence, which sa

es radio stations from ha

ing to negotiate indi

idual licences.

The system of licensing effecti

ely reduces the transaction costs of e

ery copyright holder

separately arranging for their work to be used and paid for in each instance. But it is also
marked by a lack of competition, with, for example, one collecting society setting a royalty rate
for a blanket commercial radio licence for playing music.

Use

Award

The Gowers Review

Similar wording can be found printed around the edge of most commercially sold CDs.

E R F O R M A N C E

3.33

‘Creati

e Commons’ licences pro

ide an alternati

e operating model that has been

particularly popular for non-commercial online licensing of digital media. The date of
creation and the permissions that the copyright holder grants to others using the work are
contained within an easily comprehensible licence, which is a

ailable online and is machine-

readable so that it can be automatically processed.

3.34

While criminal and ci

il legal sanctions against copyright infringement are tough,

infringement is extremely common. Approximately 3.5 million adults in the UK bought a total
of 35–40 million counterfeit CDs in 2005.

capabilities of technology and digital networks ha

e grown, and piracy is now a significant

drag on the performance of UK creati

e industries. Total losses to the film industry in 2005 are

estimated at £7

9 million on industry box office and

ideo sales of £3.5 billion.

Enforcement

through the ci

il courts is costly, and cases are difficult to pro

e. Trading Standards, the police

and the Serious Organised Crime Agency are all aware of the problem, but it remains one of
many competing priorities.

T R A D E M A R K S

3.35

Trade marks are badges of identity that may be used to brand a company, product or

process. The balance inherent within trade marks is that other parties cannot use the mark to
mislead consumers, but they can use the mark to point towards that particular brand. For
example, comparati

e ad

ertising, where one firm uses the other’s mark to publicise the

superior features of its own product, is permitted, whereas claiming that one’s own products
are genuine trade mark protected goods (counterfeiting) is illegal. The current system
appears to be well balanced.

3.36

There is e

idence that the

alue of firms is positi

ely related to incidence and

intensity of trade mark acti

ity.

Greenhalgh and Rogers also argue that a firm’s producti

ity

is positi

ely associated with its trade mark acti

ity, and this is more pronounced in ser

ice

sector firms than for manufacturing.

A study by Griffiths et al. indicates that a company’s

stock of trade marks is associated with greater firm profits, controlling for other types of IP
and tangible/intangible assets.

This suggests that trade marks are creating

alue for firms,

and that the system is broadly working well for rights holders.

3.37

There is high le

el of international similarity between trade mark systems, and a

harmonised unitary ‘Community Trade Mark’ which protects across the whole of the
European Community. Recent changes to both trade mark and design law

e increased

the number of the areas in which there is o

erlap (for example both now protect distincti

shapes and signs) but the acts of infringement and the duration of the rights remain distinct
and accordingly the o

erlap is not seen as a significant practical problem by businesses.

Coherence

Balance

Enforcement

The Gowers Review

Music Piracy in Great Britain

, IPSOS, 2006.

IPSOS, 2005, from BVA tracking study. This is calculated by assuming that some proportion of pirated content would

have been purchased from the content provider. The full value of content is therefore greater than £719 million.

Trade Marks and Productivity in UK Firms

, Greenhalgh C. and Rogers M., Oxford Intellectual Property Research Centre

Working Paper Series No 12, December 2005 http://www.oiprc.ox.ac.uk/EJWP1205.html.

Ibid.

The Effects on Firm Profits of the Stock of Intellectual Property Rights

, Griffiths W., Jensen P. and Webster E., Melbourne

Institute of Applied Economic and Social Research Working Paper No. 4/05, 2005.

Trade Marks Act 1994 and Council Regulation 6/2002 on the Community Design.

E R F O R M A N C E

3.38

The recent increase in the classes of mark eligible for protection is a positi

reflection of the responsi

eness of policy to changing business marketing practices. The other

positi

e indication of the flexibility of the trade mark system is that the protection granted to

marks reflects popular usage. Trade marks are struck off the register and lose protection once
they become generic or if they are not acti

ely used. As such, the system works well to ensure

that once a trade mark is no longer functioning as an identifier, it is no longer protected as
such.

H o w e f f i c i e n t l y d o t r a d e m a r k s o p e r a t e ?

3.39

Trade marks are affordable. Howe

er, they can take between six and nine months to

be granted. There is currently no ‘fast-track’ route a

ailable for firms that require protection

more quickly in order to start building up their brand.

3.40

Brand owners in their respones to the Call for E

idence raised concerns that copycat

packaging (especially from supermarkets) threatened their brands and was unfair
competition, and that the hurdle of ‘consumer confusion’ required to pro

e trade mark

infringement was too difficult to pro

e in court.

3.41

There are large problems with the counterfeiting of trade marks. Similar issues exist

in relation to trade mark enforcement as to copyright, namely the fact that the police ha

many competing priorities and that litigation is costly.

R E G I S T E R E D A N D U N R E G I S T E R E D D E S I G N R I G H T S

3.42

There were no issues raised with the Re

iew regarding the balance of designs.

3.43

There are a number of different design systems that o

erlap; this o

erlapping can

cause significant confusion within industry. The same design may be protected by se

distinct IP rights

as well as the common law protection of ‘passing off’. It is particularly

confusing that the Unregistered Design in the UK is different both in scope and in length from
the Community Unregistered Design. For example, the Community Unregistered Design only
lasts three years. In addition, the threshold for infringement of the UK Unregistered Design is
far higher than for the Community Unregistered Design.

3.44

Despite the o

erlap between the different rights, the UK has a thri

ing design

industry. The UK has a reputation as a centre for excellence in design: it is the top exporter of
design worldwide and has the fourth largest designer fashion industry in the world.

UK firms

are frequent users of the Community Registered Design system, with

0 per cent of all

applications from 2003 to 2005.

3.45

As with trade marks, the recent increase in the classes of design eligible for protection

is a positi

e reflection of the responsi

eness of policy to changing business marketing

practices.

Flexibility

Coherence

Balance

Enforcement

Use

Award

Flexibility

The Gowers Review

UK Registered Design, UK Unregistered Design, Community Registered Design, Community Unregistered Design, plus

UK trade mark, Community Trade Mark and copyright.

Mapping Document

, DCMS, 2001. Accessed at: http://www.culture.gov.uk/creative/pdf/part1.pdf.

Statistics of Community Designs

, OHIM, 2006.

E R F O R M A N C E

H o w e f f i c i e n t l y d o e s t h e d e s i g n s y s t e m o p e r a t e ?

3.46

UK registered designs are awarded quickly and cheaply and are a popular method of

protection, but as Chart 3.

below indicates, following the 2003 launch of the Community

Registered Design, the total number of designs registered in the UK has fallen from 9,000 in
2002 to less than 4,000 in 2005. Howe

er, this is not a problem and reflects the greater

geographical co

erage of the Community Registered Design. So far, there ha

e been no calls

from industry to disband the UK Registered Design.

3.47

There were no issues raised with the Re

iew regarding the use of designs.

3.48

In spite of the multitude of rights protecting designs, se

eral submissions noted that

in practice it is extremely difficult to stop designs being copied. The legal mechanisms to
enforce design rights are complex. The common law protection of passing off, which may
protect an established design to which goodwill has attached, cannot normally be used to
stop somebody copying a new design. The uncertainty of the law and the limitations of
passing off mean that small designers cannot afford to take the risks associated with legal
action and, accordingly, competitors ha

e no economic incenti

e to seek permission before

using the design. Anti Copying in Design (ACID) estimate that many designers are forced out
of business e

ery year by legal costs or lost sales due to infringement.

S U I G E N E R I S R I G H T S

3.49

Sui generis rights protect specific sorts of inno

ation where the broader rights

discussed abo

e are inappropriate for some reason. For example, Supplementary Protection

Certificates were introduced by the European Community to compensate for the increasing
length of clinical trials that was reducing the amount of market time under patent protection
for drugs. There were no major problems raised in the responses to the Call for E

idence

regarding either the selection of instruments or the way in which those instruments operate.

Enforcement

Use

Award

The Gowers Review

Source: UK Patent Office.

Chart 3.1: UK Registered Design applications, 1989–2005

2,000

4,000

6,000

8,000

10,000

12,000

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

Year

Total designs registered

E R F O R M A N C E

C o n c l u s i o n s

3.50

This chapter has outlined a framework for a successful IP system, and has identified

the key objecti

es of IP policy and operations to ensure that patents, copyright, trade marks

and designs foster producti

ity and equity. Table 3.

below summarises the performance of

the aspects of the system that ha

e been discussed. The chapter has outlined a number of

problems, and the following chapters will analyse issues in the policy, operations and
go

ernance of IP in depth and make targeted, practical recommendations in response.

The Gowers Review

Table 3.1: IP performance scorecard

Instruments

Balanced

Patents

Copyright

Trade marks

Designs

Coherent

Flexible

Award

Use

Enforcement

Operations

High performance

Medium performance

Low performance

✗

✓

✗

✓

✗

✓

N S T R U M E N T S

The Gowers Review

4.1

This chapter is concerned with the instruments of Intellectual Property (IP); patents,

copyright, trade marks and designs. It is split into three sections setting out the characteristics
that the instruments should exhibit:

•

balance

; the instruments should ensure that the incenti

e to inno

ate is

balanced against the ability of follow-on inno

ators to access knowledge;

•

coherence

; the instruments should be clear and consistent; the scope of rights

should not change retrospecti

ely in order to ensure trust in the system; and

the international system should promote inno

ation in all countries; and

•

flexibility

; the instruments should be flexible in order to respond to the

changing economic en

ironment and the needs of rights holders and users.

4.2

Chapter 3 highlighted the impact of global and technological changes on the

economy as whole, and in particular on businesses who use IP. This chapter makes
recommendations to ensure that the instruments of the IP system are able to respond to
these challenges. The instruments should embody the principles of balance, cohence and
flexibity.

B A L A N C E

4.3

IP rights are a trade-off between incenti

es and access. On the one hand, IP rights pro

ide

economic incenti

es to inno

ate, but on the other hand, the exclusi

e rights they confer to achie

this allow monopoly prices and associated welfare losses. So there is a trade-off between incenti

on one side and costs to consumers and limited access for follow-on inno

ators on the other. It is

therefore crucial to strike the right balance in the system. This section focuses on the exceptions to
rights, which enable follow-on inno

ators to build on protected ideas to de

elop new inno

ations.

C l a r i f y i n g t h e p a t e n t r e s e a r c h e x c e p t i o n

4.4

Research exceptions grant researchers the freedom to conduct research on patented

entions for the purposes of understanding and impro

ing existing products and processes

without the need to get permission. This exception reduces the transaction costs in

ed in

clearing rights for use of patents in experimentation and research. The number of patented
materials required to conduct experiments is often so great that the transaction costs of
obtaining licenses for all of them are prohibiti

e. In addition to the experimental use

exception, there are exceptions for pri

ate use and non-commercial use.

4.5

It is not entirely clear what uses fall within the scope of the experimental use

exception. Uses in relation to the subject matter of a patent are generally co

ered by the

exception, while uses relating to different subject matter are not co

ered by the exception.

Confusion arises because there is no definition of what is in relation to, and what is different
from the subject matter. Some technologies, such as genes, may fall into both categories.

4.6

There is

ery little case law on what amounts to experimental use. This leads to

uncertainty as to its scope. A paper by the Department of Trade and Industry (DTI) and the
Intellectual Property Institute (IPI) found that the law on research exemption was widely
seen as unclear and in need of clarification.

The paper also found that small research groups

in particular lose out under the existing law, for fear of facing a costly lawsuit. The lack of
clarity may dissuade researchers, who are fearful of infringing a patent and being sued as a

Exceptions are

unclear

Section 60(5)(a) of the Patents Act 1977.

Patents for Genetic Sequences: the Competitiveness of Current UK Law and Practices

, IPI on behalf of the DTI, 2004.

N S T R U M E N T S

result. E

idence from the USA indicates that, under its research exception, on a

erage one in

six scientific research projects is stopped or ne

er started as a result of the grant of IP rights.

It is imperati

e that research is not similarly impeded in the UK.

4.7

In addition to uncertainty o

er the scope of the exception, there are also instances

where licences ha

e been sought and high fees ha

e been demanded. In one study

9 per cent

of academics reported access to research materials was refused when sought.

As stated in

Chapter 2, the number of patents granted has risen dramatically and in certain areas of
technology, ‘patent thickets’ ha

e de

eloped. There is concern that follow-on inno

ation will

be stifled by the cumulati

e royalty demands of patent holders or by fear of infringement.

4.8

The experimental use exception is also relied upon in relation to plant patents. Many

plants are created from samples of other plants. For plant breeders, all experimentation with
a patented plant means reproducing it. This is an infringing act.

4.9

en if the second generation plant does not infringe the scope of the patent, the

research that created that plant might be found to ha

e infringed the patent. This can act as

a powerful disincenti

e to experiment on patented plants. This was recognised in the

Biotechnology Directi

e, which pro

ided that compulsory licences should be a

ailable for

those new plants that demonstrate a technical ad

ance.

Howe

er, the British Society of Plant

Breeders reports, that this pro

ision is “ineffecti

e in the UK at least”, because to pro

ance the product must actually be created, thereby infringing the patent. The IIP notes its

concern that “the UK law on research exemption does not clearly allow plant breeders to
make a cross with a

ariety with a patented gene sequence in it and to de

elop a new

ariety

without that gene in it”.

Germany and France ha

e introduced an exception as part of their

implementation of the Biotechnology Directi

e, which pre

ents breeders being sued for

elopment of new

arieties.

4.10

The requirement that research is “pri

ate” is problematic; it is no longer sufficient for

uni

ersities because they are increasingly conducting research in collaboration with pri

ate

organisations. Furthermore, there is concern that if only research that is “non-public” is
exempt, then publicly funded research that is, as a condition of funding, disclosed may also
not qualify for the research exception.

Plant research

The Gowers Review

Box 4.1: Swiss research exception

The effects of a patent do not extend:

(a) to acts undertaken in the private sphere for non-commercial purposes

(b) to acts undertaken for experimental and research purposes in order to obtain

knowledge about the object of the invention, including its possible utilities; in
particular all scientific research concerning the object of the invention is permitted

(c) to acts necessary to obtain a marketing authorisation for a medicament according

to the provisions of the law of 15 December 2000 on therapeutic products.

(d) to the use of the invention for the purpose of teaching in teaching establishments

(e) to the use of biological material for the purposes of selection or the discovery and

development of a plant variety

(f) to biological material obtained in the field of agriculture which was due to chance

or which was technically unavoidable

Do Formal Intellectual Property Rights Hinder the Free Flow of Scientific Knowledge? An Empirical Test of the Anti-Commons

Hypothesis

, Murray F. and Stern S., 2004.

View from the Bench: Patents and Material Transfers

, Walsh J., Cho C. and Cohen W.,

Science

, vol 309, 2005.

According to the Biotechnology Directive 98/44EC.

Article 12 of Directive 98/44/EC on the legal protection of biotechnological inventions.

Patents for Genetic Sequences: the Competitiveness of Current UK Law and Practices

, IIP on behalf of the DTI, 2004.

N S T R U M E N T S

4.11

The experimental use exception should be clarified to enable researchers to examine,

learn from and impro

e upon in

entions. The Swiss research exception, which was recently

changed, pro

ides a good example of a clearer exception.

4.12

The Re

iew belie

es that clarifying the research exception along Swiss lines will foster

research without damaging the interests of rights holders.

C o p y r i g h t e x c e p t i o n s f o r e d u c a t i o n

4.13

As discussed in Chapter 3, one of the purposes of exceptions to copyright is to reduce

burdensome transaction costs associated with ha

ing to negotiate licences. Thus, the

exceptions enable educational establishments to pro

ide high quality teaching without

ing to clear e

ery indi

idual use.

4.14

The existing exceptions to copyright

enable teachers to copy printed material on an

ad hoc basis and to show off-air recordings where no licensing arrangement is in place.

The

rele

ant licensing arrangements for off-air recordings are made by the Educational

Recording Agency (ERA). The licences are similar to those issued to commercial radio stations
by Phonographic Performance Limited (PPL) and Mechanical Copyright Protection
Society/Performing Rights Society (MCPS/PRS). An educational institution buys a licence
from the ERA and then does not need to clear the rights to copy a recording of a
particular broadcast or to show the programme in a particular case, as long as it is within the
terms of the licence. Similarly, for reprographic works, educational establishments ha

licences with the Copyright Licensing Agency that enable teachers to photocopy material on
an ad hoc basis.

4.15

Currently, the education exceptions set out in the Copyright, Designs and Patents Act

988 (CDPA) are too limited for the digital age, where information is no longer confined to

textbooks but can be shared o

er electronic whiteboards and computer networks. The

exceptions also do not apply to secure

irtual learning en

ironments (

LEs) or networked

computers or ‘intelligent whiteboards’ within educational establishments. The Re

iew agrees

with the

iew presented by the Open Uni

ersity in its submission that educational exceptions

should be defined by intent, category of use and acti

ity and not by media or location.

4.16

In the absence of copyright exceptions, rights to copy, show or otherwise use the work

would ha

e to be cleared with the right holder. Howe

er, e

en with the current exceptions,

clearance is time consuming and expensi

e. A sur

ey of educational institutions found that:

•

90 per cent of respondents had to chase rights holders for permission, and the
a

erage number of items chased per institution per annum was 97;

•

2.5 per cent of requests for permission to use material were ne

er answered;

and

•

fees of up to £7.55 per article were charged in the print en

ironment. For 300

students this results in a cost of £2,265.

Copyright

exceptions exist

for educational

purposes

The Gowers Review

Sections 32 to 36A of the Copyright, Designs and Patents Act 1988 (CDPA).

Section 35 of the CDPA.

Call for Evidence submission, Open University.

Clearing the Way: Copyright Clearance in UK Libraries,

Gadd E, 2001.

Recommendation 1:

Amend section 60(5) of the Patents Act 1977 to clarify the research

exception to facilitate experimentation, innovation and education.

N S T R U M E N T S

4.17

In order therefore to ensure that educational establishments are able to take

antage of new technology to educate pupils regardless of their location, it is necessary to

expand the existing copyright exceptions. At present an educational establishment can copy
a broadcast work (e.g. a radio or tele

ision programme) and show it to its students without

infringing copyright pro

ided the acti

ity is for a non-commercial educational purpose.

2003 the exception was modified so that educational establishments could allow students on
the premises to see the programme in their own time.

Howe

er, the exception does not

extend to situations where students are not on the premises of the educational establishment.
This means that distance learners are at a disad

antage compared with those based on

campus and thus these constraints disproportionately impact on students with disabilities
who may work from remote locations.

4.18

The exception should therefore be expanded so that copyright is not infringed where

a copy of a broadcast (e.g. a tele

ision programme) is communicated to students who are not

located within the educational establishment.

It is the Re

iew’s

iew that such an exception

is permitted under the Information Society Directi

e, pro

ided that the education pro

ided is

not commercial and any source is indicated.

It will also be necessary to ensure that access to

such material should not be generally a

ailable to the public: accordingly, distance learning

students will need to access the material securely

ia a

LE.

4.19

At present it is also not an infringement of copyright for a non-commercial

educational establishment to make reprographic copies of passages from books or similar
material, pro

iding sufficient acknowledgements are made.

Howe

er, the exception only

applies where no licensing scheme co

ering this sort of acti

ity is in place. As mentioned

abo

e, the Copyright Licensing Agency (CLA) presently pro

ides such a licence and therefore

this exception has a limited impact. Howe

er, neither the exception nor the CLA currently

license short extracts being sent to distance learning students by email or in a

LE. This

disad

antages such students and makes it difficult for educational establishments to pro

ide

students with short extracts of study material. Accordingly, the rele

ant copyright exception

should be extended to allow passages from works to be made a

ailable to students by email

LE without infringing copyright.

Howe

er, right holders ha

e a legitimate interest in this

field and so such an exception should not ha

e effect where a licensing scheme is in place.

S o u n d r e c o r d i n g t e r m

4.20

The European Commission is re

iewing the length of copyright protection for sound

recordings in 2007 as part of the re

iew of the body of Community copyright law. Some

members of the UK record industry ha

e called for the Commission to increase retrospecti

ely

the term of copyright from the current 50 years to 95 years. That is, that the term of protection
should be extended for existing works that are already in copyright as well as future works. This

Educational

exceptions

should be

clarified

The Gowers Review

Section 35 of the CDPA.

Section 35(1A) of the CDPA.

This restriction is currently imposed by section 35(1A) of the CDPA.

Article 5(3)(a) of Directive 2001/29/EC. However, the Review is of the view the new extended exception should

continue not to apply where a licensing scheme is in place which covers such activities, in other words, section 35(2) of

the Act should apply to the extended exception as well.

Section 36 of the CDPA.

Such use would also fall within Article 5(3)(a) of Directive 2001/29/EC.

In other words, section 36(3) of the CDPA should apply to the extended exception as well.

Recommendation 2:

Enable educational provisions to cover distance learning and

interactive whiteboards by 2008 by amending sections 35 and 36 of the CDPA.

N S T R U M E N T S

extension would also apply to works that ha

e fallen out of copyright, but which would still be

in copyright if the longer term existed when they were created (the ‘retroacti

e’ re

al of

4.21

Some companies and trade bodies in the UK record industry ha

e called for the UK

ernment to support their submission to the Commission that copyright term on sound

recordings should be extended. The Re

iew consulted widely and has considered this proposal

in some detail, both for a retrospecti

e change in copyright term and for a prospecti

e change in

term that would only affect future recordings rather than those already in existence. As part of its
research into the question of term extension the Re

iew commissioned an economic analysis

from the Centre for Intellectual Property and Information Law (CIPIL) at Cambridge Uni

ersity.

4.22

A number of reasons were ad

anced in the Call for E

idence from some groups in

our of extending the term of protection:

(

)

parity with other countries; in the USA, sound recordings are protected for 95
years. In Australia and Brazil the term of protection is 70 years;

(2)

fairness; currently composers ha

e copyright protection for life plus 70 years,

whereas performers and producers only ha

e rights for 50 years.

Such a

disparity is unfair;

(3)

extension of term would increase the incenti

es to in

est in new music; the

‘incenti

es argument’ claims that increasing term would encourage more

estment, as there would be longer to recoup any initial outlay;

(4)

extension of term would increase number of works a

ailable; copyright pro

ides

incenti

es for rights holders to make works a

ailable to the public as it gi

es rights

holders a financial incenti

e to keep work commercially a

ailable; and

(5)

maintain the positi

e trade balance; the UK has an extremely successful music

industry. The UK industry has between a

0 per cent and

5 per cent share of

the global market.

In 2004, the UK sector showed a trade surplus of £83.4

million, earning £238.9 million in export incomes.

The Re

iew has carefully considered each of these arguments in turn.

1 . E x t e n s i o n a c h i e v e s p a r i t y w i t h o t h e r c o u n t r i e s

4.23

It is important to note that the term of protection is only one factor determining the

royalties that artists and recording companies recei

e. The breadth of protection is also

important. In the EU, the term of protection for sound recordings and performers’ rights is
harmonised at 50 years.

During this period, rights holders recei

e royalties for almost all

public performances of their work. In the USA, the term of protection is 95 years, but under
the Bars and Grills Exception

around 70 per cent of eating and drinking establishments, and

45 per cent of shops, do not ha

e to pay royalties to performers.

In the USA, performers only

recei

e royalty payments when their music is played on digital radio,

while in the UK all

Extension is not

harmonisation

The Gowers Review

From this point forward, ‘retrospective’ will refer to both forms of backward changes to copyright.

Section 12 of the CPDA.

Section 191 and section 13A of the CDPA.

Department for Culture, Media and Sport.

Call for Evidence submission, British Phonographic Industry.

Article 3 of Directive 93/98/EEC on harmonising the term of protection of copyright and certain related rights.

Section 110(5) of the USA Copyright Act. A complaint was made by the European Community against the USA that this

exception was contrary to Article 13 of TRIPS. A panel found in favour of the EC and the USA was ordered to pay annual

damages of US$1.2 million. This requirement has now lapsed.

See WTO Panel Report WT/DS160R, Section 110(5) of the USA Copyright Act, 5 June 2002.

Section 106(6) of the USA Copyright Act.

N S T R U M E N T S

radio performances carry royalties.

If the system in the USA was the same as that in the EU,

estimates suggest that European rights holders would recei

e royalties of $25.5 million per

annum for the broadcasting of their recordings in the USA.

It is therefore possible that the

total royalties recei

ed in the EU is no less than, and may e

en be more than, those recei

in the USA.

4.24

The argument has also been put forward that the longer length of term in the USA

encourages artists from the UK to sign to US recording companies, thereby remitting profits
to the USA. Howe

er, the Re

iew has seen no e

idence of UK bands choosing to sign to US

labels based on copyright term. If musicians are indeed signing to labels in the USA, there
may well be other reasons for doing so, such as the size of the market. In fact, there is
anecdotal e

idence that bands from the USA are signing to UK labels to de

elop in a

ibrant

music scene. For example, the Scissor Sisters are signed to Polydor UK, and their first album
sold 2.6 million copies in the UK, and only

30,000 in the USA. Orson, another American

band, achie

ed a number one single with “No Tomorrow” and is signed to Mercury Records

in the UK.

2 . Pe r f o r m e r s a n d c o m p o s e r s s h o u l d h a v e e q u a l
p r o t e c t i o n

4.25

Performers argue that the incenti

es to perform are no less than those required to

write lyrics or compose a score, and that the performance itself is a work of art. The distincti

oice and aesthetic of the performer adds

alue to the composition and is

ital to making a

song a commercial success.

4.26

But the fairness argument applies to society as a whole. Copyright can be

iewed as a

‘contract’ between rights owners and society for the purpose of incenti

ising creati

ity. As

MacCauley argued in

, “it is good that authors should be remunerated; and the least

exceptionable way of remunerating them is by a monopoly. Yet monopoly is an e

il. For the

sake of the good we must submit to the e

il; but the e

il ought not to last a day longer than is

necessary for the purpose of securing the good”.

If the exclusi

e right granted by copyright

(or indeed any other form of IP right) lasts longer than it needs to, unnecessary costs will be
imposed on consumers.

4.27

Economic e

idence indicates that the length of protection for copyright works

already far exceeds the incenti

es required to in

est in new works. Boldrin and Le

ine

estimate that the optimal length of copyright is at most se

en years. Posner and Landes,

eminent legal economists in the field, argue that the extra incenti

es to create as a result of

term extension are likely to be

ery small beyond a term of 25 years.

4.28

Furthermore, it is not clear that extending term from 50 years to 70 or 95 years would

remedy the unequal treatment of performers and producers from composers, who benefit
from life plus 70 years protection.

4.29

This is because it is not clear that extension of term would benefit musicians and

performers

ery much in practice. The CIPIL report that the Re

iew commissioned states

that: “most people seem to assume that any extended term would go to record companies
rather than performers: either because the record company already owns the copyright or

Fairness applies

to society as a

whole

The Gowers Review

In relation to sound recordings this is a result of section 20 of the CDPA. In relation to performances, this is the

combined effect of sections 182CA and 182D of that Act.

TRIPS and the Fairness in Music Arbitration: The Repercussions, Owens R.,

European Intellectual Property Review

, 2003.

MacCauley, Thomas Babington, Speech to House of Commons on 5 February 1841.

Growth and Intellectual Property

, Boldrin M. and Levine D., 2005.

The Economic Structure of Intellectual Property Law,

Landes W. and Posner R., 2003.

N S T R U M E N T S

because the performer will, as a standard term of a recording agreement, ha

e purported to

assign any extended term that might be created to the copyright holder”.

The British

Phonographic Industry (BPI) submitted a report by PricewaterhouseCoopers (PWC) to the
Re

iew.

Using the maximum re

enues predicted in the PWC report, CIPIL estimated that the

net present

alue (NP

) of a prospecti

e change in term would be

per cent or lower for

performers. The report noted that distribution of income would be highly skewed, with most
income going to the relati

ely small number of highly successful artists whose work is still

comercially a

ailable after 50 years.

The Gowers Review

Box 4.2: Artists would not necessarily benefit from extension

In theory, artists would receive payment for an increased period of time. The PWC report
indicates that performers obtain 50 per cent of public performance income. However, the
amount that performers receive from CD sales is set by a “greater variety of contractual
arrangements between artists and record companies than ever before”.

But, the

‘advance’ that creators receive is determined by contract and bands have to pay back the
record company for initial investment. Eighty per cent of albums never recoup costs and
so no royalties are paid to the creator.

As shown in the charts below, on average creators

receive a very low percentage of royalties from recordings. If the purpose of extension is
to increase revenue to artists, given the low number of recordings still making money 50
years after release, it seems that a more sensible starting point would be to review the
contractual arrangements for the percentages artists receive.

It is worth noting that length of term of protection on sound recordings and performance
rights is not the only source of revenue. Performers receive pecuniary benefits beyond the
return on the sale of their creations, by using celebrity status to make money. For example,
performers may choose to appear in advertising campaigns or to sell branded
merchandise, and the value that they bring to the advertising campaign is derived from
their creative works.

Call for Evidence submission, British Phonographic Industry.

www.music-law.com/contractbasics.html.

Source: MCPS/PRS Alliance.

CD sale

revenue distribution

Download sale

revenue distribution

45%

46%

15%

68%

Creators

Retailers

Record company

Creators

Digital service provider (DSP)

Record company

Credit card charge

Chart 4.1: Revenue Distribution

Review of the Economic Evidence Relating to an Extension of Copyright in Sound Recordings

, Centre for Intellectual Property

and Information Law, 2006.

The Impact of Copyright Extension for Sound Recordings in the UK

, PricewaterhouseCoopers, 2006.

N S T R U M E N T S

3 . E x t e n s i o n w i l l i n c r e a s e t h e s u p p l y o f n e w m u s i c

4.30

estment decisions are typically based on the expectations of future returns.

Therefore, in order for the incenti

e argument to hold, it must be shown that prospecti

extension of copyright term for sound recordings would increase the incenti

es for record

companies to in

est in new acts.

4.31

In an amicus brief to the Supreme Court in the challenge to the Copyright Term

Extension Act,

enteen economists, including fi

e Nobel Prize winners, estimate that

extension for new works creates at most

per cent

alue for a twenty year prospecti

extension (using NP

calculation) and they conclude therefore that extension of term has

negligible effect on in

estment decisions.

Furthermore, they noted that the then term of

protection in the USA had nearly the same present

alue as perpetual copyright term. As

such, many economists suggest that increasing copyright term beyond 50 years does not
pro

ide additional incenti

es to in

est, as monies earned so far in the future fail to impact on

current spending decisions.

4.32

The incenti

es argument is sometimes applied to artists as well as to record

companies. That is, if musicians were to recei

e royalties for an additional period of time, they

would ha

e more incenti

es to make music. This seems highly unlikely gi

en there are a large

number of bands already creating music without any hope of a financial return. Da

Rowntree, drummer with Blur and The Ailerons, commented that: “I ha

e ne

er heard of a

single one [band] deciding not to record a song because it will fall out of copyright in ‘only’
fifty years. The idea is laughable.”

4.33

idence suggests that most sound recordings sell in the ten years after release, and

only a

ery small percentage continue to generate income, both from sales and royalty

payments, for the entire duration of copyright. Before becoming a signatory to the Berne
Con

ention the USA operated a system where copyright had to be applied for and renewed.

Between

923 and

942, there were approximately 3,350,000 copyright registrations.

Approximately

3 per cent of these were renewed. If current law had applied between

923

and

942, 3.35 million works would ha

e been blocked to protect 77,000 commercially

iable

works.

In a system where all works recei

e protection for the maximum term, the

ast

majority of works remain in copyright despite not being economically

iable for the rights

holder. Without registration, it is difficult to get accurate estimates of the percentage of works
protected in the UK by copyright that are commercially a

ailable. Box 4.3 below shows that

the

ast majority of income for sound recordings and books are generated within the first few

years of issue. Therefore, extension would only raise re

enue for a small minority of sound

recordings, keeping the

ast majority locked up.

Most recordings

do not sell for 50

years

Extension will

not increase

incentives

The Gowers Review

Eldred v. Ashcroft

(2003) 537 USA 186.

The Copyright Term Extension Act of 1998: An Economic Analysis

, Akerlof, G. et al., 2002.

Call for Evidence submission, Dave Rowntree.

Brief for Petitioners at 7,

Eldred

Ashcroft

, (2003) 537 USA 186.

N S T R U M E N T S

The Gowers Review

Box 4.3: The commercial life of most creative works is very short

Chart 4.2 indicates that the vast majority of income generated by sound recordings comes
from those released since 1999. Therefore, the increased revenue from extension would
be small, but would affect well-known artists.

A similar pattern appears for books as shown in Chart 4.3 below:

These sales shapes, and data from the USA Library of Congress, suggest that the majority
of sales are from new releases, and that the majority of works do not have enduring
commercial value. However, extension would impact all works – not just those that
continue to be commercially successful.

The Copyright Term Extension Act of 1998: An Economic Analysis,

Akerlof, G. et al., 2002.

Chart 4.2: Income by release year as percentage of total
income, 2004

30%

67%

ercentage of total income

Source: Phonographic Performance Limited and PricewaterhouseCoopers.

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

Source: Neilson Book Scan.

Chart 4.3: Sales of fiction in first year of publication

100

200

300

400

500

600

700

800

900

Hardback fiction titles

Paperback fiction titles

Week post publication

Books per week

N S T R U M E N T S

4 . M o r e m u s i c w o u l d b e a v a i l a b l e t o c o n s u m e r s

4.34

Extension would impact on all recordings. It would keep works in copyright e

when they are not generating any income for rights owners. One study found that parties
without legal rights ha

e made more historic US recordings a

ailable than ha

e rights

holders. Furthermore, rights holders reissue recent works while largely ignoring earlier
music.

Of the sound recordings published between

890 and

964, an a

erage of

4 per cent

had been reissued by the copyright owner, and 22 per cent by other parties.

These statistics

suggest that the costs of renewing copyright

or reissuing copyrighted material are greater

than the potential pri

ate return, but that these works may ha

e enduring social and

cultural

alue.

4.35

The lack of commercial a

ailability impacts upon consumers and users, but it is also

worth noting the impact this has for all creators and musicians. Chapter 2 noted the
increasing pre

alance of licensing and the complexity of rights clearance. If works are

protected for a longer period of time, follow-on creators in the future would ha

e to negotiate

licences to use the work during that extended period. This has two potential implications:
first, the estates and heirs of performers would potentially be able to block usage rights,
which may affect future creati

ity and inno

ation; and second, this would make tracing rights

holders more difficult. Thus extending term may ha

e negati

e implications for all creators.

Works in

copyright are

less available

The Gowers Review

Survey of Reissues of U.S. Recordings

, Brooks T., Aug 2005.

Ibid.

Which was a requirement of US law during the period that Brooks was studying.

N S T R U M E N T S

5 . T h e U K’ s t r a d e b a l a n c e w o u l d i m p r o v e

4.36

The argument that the balance of trade would impro

e makes two assumptions; first,

that increasing term is necessary to recei

e longer terms in other countries; and second, that

because the UK is a net exporter of music, more money will flow in from foreign markets. The
CIPIL report argues that this is not the case.

4.37

Firstly, the term of protection depends on where a recording is played, not on where

it was produced; therefore term extension would only be beneficial to the balance of trade if
UK copyright owners were able to benefit from longer terms in other countries. Howe

er,

most countries outside Europe

, including the largest foreign markets for international

repertoire – the US and Australia – do not apply a ‘comparison of terms’ to the protection
granted to sound recordings. This means that the term of protection offered in a foreign
country is not dependent on the country of origin of the sound recording. UK copyright
owners already benefit from the longer term offered in the USA and Australia where royalties
are collected from those countries, and the CIPIL report notes that changes in British law
would not now affect the term granted to British phonograms.

4.38

Secondly, the CIPIL report show that the US market, which is worth $

53 million

comprises only 5 per cent of international repertoire. In comparison, the UK market, worth
$3,508.7 million includes 43 per cent of international repertoire. Thus whilst the UK music
industry is extremely successful, the UK is a substantial importer of sound recordings, and

Increasing term
will damage the

UK balance of

trade

The Gowers Review

Comparison of terms is required under Article 7 of Directive 93/98/EEC.

The Record Industry in Numbers, IFPI, '2005.

Box 4.4: Comparison of price and availability of books in copyright and
in the public domain

Evidence suggests that works that are protected by copyright are less available and more
expensive than works in the public domain. A study by Paul Heald looked at the price and
availability of ‘durable books’ – titles which retain their cultural and economic value and
continue to sell many copies. Under copyright, these books are more expensive than those
durable books that have passed into the public domain. Further study shows that works
that are protected by copyright are less available than those works in the public domain.
This suggests that extension would keep durable books at higher costs for a longer period
of time, and would make all works, including the most popular works, less available for
longer.

Source: Heald, Paul (2006). Property Rights and the Efficient Exploitation of Copyrighted Works: An Empirical Analysis of

PublicDomain (1906-1922) and Proprietary (1923-1933) Fiction Best Sellers (working draft).

Lowest price

from Amazon

Ave. low price

(BIP) (Maj. Pub.)

Ave. low

price (BIP)

17 Durable PD books (1906–22) 19 Durable copyrighted books (1923–32)

Chart 4.4: Price comparison of durable public domain (PD) and
copyrighted books in print (BIP)

Cost in dollars

100

PD (1913–22)

166 books

Copyrighted (1923–32)

168 books

Availability (in print) in 2006

Per cent

Chart 4.5: Availability (in print) in 2006

N S T R U M E N T S

therefore the extra re

enue from 43 per cent of international sound recordings sold would be

remitted o

erseas. In combination, extension to UK sound term would cause little additional

in-flows, but would increase remittances abroad. Therefore, as the CIPIL report concludes,
“increasing copyright term at home from 50 to 70 or 95 years is likely to ha

e a

disproportionate, negati

e effect on the balance of trade.”

4.39

Increasing the length of sound term increases the length of time during which

royalties accrue. Once copyright in a sound recording ends, no royalties are due for that
recording, and fewer licences are required to play those songs (copyright in the composition
would continue, and therefore would continue to require a licence). PPL collects monies to
remunerate rights holders whene

er their sound recordings are played (see Chart 5.4 for more

details). In 2005 PPL collected £86.5 million from

enues, premises and broadcasters to

remunerate rights holders.

The majority of this was collected from UK organisations and

broadcasters. Because the cost of the licences reflects the royalties payable on the copyrights,
as those copyrights expire, so the cost of the licences will fall. Term extension would keep the
cost of sound recording licences higher for longer. Extension would increase costs for all
businesses that play music, for example hairdressers, old people’s homes, local radio and
internet ser

ice pro

iders (ISPs). The impact of extension would therefore be felt throughout

the economy.

4.40

In conclusion, the Re

iew finds the arguments in fa

our of term extension

uncon

incing. The e

idence suggests that extending the term of protection for sound

recordings or performers’ rights prospecti

ely would not increase the incenti

es to in

est,

would not increase the number of works created or made a

ailable, and would negati

ely

impact upon consumers and industry. Furthermore, by increasing the period of protection,
future creators would ha

e to wait an additional length of time to build upon past works to

create new products and those wishing to re

e protected but forgotten material would be

unable to do so for a longer period of time. The CIPIL report indicates that the o

erall impact

of term extension on welfare would be a net loss in present

alue terms of 7.8 per cent of

current re

enue, approximately £

55 million.

R e t r o s p e c t i v e c h a n g e s t o s o u n d r e c o r d i n g t e r m

4.41

As discussed abo

e, changes to the length of IP protection can be made

retrospecti

ely or prospecti

ely, and the Re

iew has considered the e

idence for both forms

of extension. This section will consider retrospecti

e changes to copyright.

4.42

altering the length of term of protection changes the terms of that contract. This is not fair for
consumers, as they would be forced to pay monopoly prices for longer than they had implicitly
accepted. The same logic applies to all forms of IP rights.

4.43

The principal argument that is put forward to increase sound term retrospecti

ely is

that many recordings from the

950s are beginning to fall out of copyright and that this will

lead to a loss of re

enue, therefore impacting on the incenti

es to in

est in newer artists. As

discussed earlier, in

estment decisions are made on the basis of expected future returns

rather than those already recei

ed. Furthermore, if music companies ha

e access to capital

Extension would

cost industry

The Gowers Review

Recommendation 3:

The European Commission should retain the length of protection

on sound recordings and performers’ rights at 50 years.

PPL Annual Report and Financial Statement

, 2006.

N S T R U M E N T S

markets future in

estment decisions will be entirely unaffected by the length of protection of

current works. Additional, anecdotal e

idence suggests that some new successful bands are

signed to relati

ely new record labels. For example Franz Ferdinand are with Domino

Records, which was founded in

993 and rarely re-releases records that predate itself, and the

Kaiser Chiefs are signed to B-Unique, founded in 2004.

4.44

The PWC report estimated that at most the NP

of a twenty-year retrospecti

extension for re

enue o

er the next 50 years would be around £

56.

million, and for a 45 year

retrospecti

e extension, £

63 million. Using PWC’s discount rate of

2 per cent, this equates

to approximately £20 million per year. These figures represent

only a 1.8 per cent and 1.9 per

cent respectively increase in the present value of revenue from existing recordings

; e

en at

the upper bound, the increase in re

enues from existing recordings are

ery small in present

alue terms. Correspondingly, PWC estimates that performers would also

gain 1.9 per cent

enue in present

alue terms, and “the distribution of this income will be highly skewed

with a relati

ely small number of performers of successful older works being the major

gainers”.

4.45

If recording companies recei

e increased re

enue from an extension of copyright

term, that re

enue must come from somewhere. The PWC report performs an analysis of the

price differential of sound recordings in and out of copyright. The report concludes that there
is no statistically significant different between the a

erage prices of recordings that are

protected by copyright and in the public domain. PWC contend that if prices do not change
between works in and out copyright, then term extension will ha

e no impact on consumers.

Instead they suggest that those who make public domain recordings will benefit at the
expense of the former rights holders.

4.46

Howe

er, PWC note that there are problems with the data, such as the small sample

size. Many public domain recordings may not be a

ailable in the large retailers where the data

was sourced. They also note that as there are not a large number of popular recordings currently
in the public domain, relati

e to the number of recordings that will enter the public domain in

the coming years, there is no certainty that this obser

ed trend will continue. As sound

recordings of enduring popularity enter the public domain, economic theory suggests that
competition between many release companies will dri

e down the price, just as has occurred in

the public domain book market for classic literature. Therefore, the re

iew belie

es that most of

the increased re

enue from term extension would come directly from consumers who would

pay higher (i.e. monopoly) prices for longer. Working on the maximum producer gains from
sound term extension, the CIPIL report estimates that retrospecti

e extension would cost

consumers between £240 million and £480 million in net present

alue terms.

4.47

The additional re

enue for producers is likely to come from the most popular

recordings, which will ha

e a correspondingly high cultural

alue. Gi

en that a low number of

sound recordings or performances retain any commercial

alue beyond 50 years, extending

term to all these would lock up the majority of recordings that are not generating income,
rendering them una

ailable for consumers and future creators.

Costs to

consumers

The Gowers Review

Recommendation 4:

Policy makers should adopt the principle that the term and scope

of protection for IP rights should not be altered retrospectively.

Review of the Economic Evidence Relating to an Extension of Copyright in Sound Recordings

, Centre for Intellectual Property

and Information Law, 2006.

N S T R U M E N T S

C O H E R E N C E

4.48

The IP rights a

ailable within the UK must be both internally and externally coherent. They

must co

er myriad ways in which knowledge is applied and ideas protected, and must also be

integrated with other national and international systems of rights, particularly in light of
globalisation. Moreo

er, there should be certainty and consistency in rights. In

estment in

knowledge-based industries should be grounded in a predictable legal framework for the
protection of that knowledge. Finally, rights can only be coherent if they are simple enough to be
understood by the general public as well as by IP specialists. As discussed in Chapter 3, the
performance of the UK IP system is regarded as generally good. This section therefore focuses on
the role of IP in promoting international de

elopment; an aspect of policy de

elopment that has

perhaps been rather neglected. This section makes recommendations to ensure that the
international IP system is clear and comprehensible.

R o l e o f I n t e l l e c t u a l Pr o p e r t y f o r d e v e l o p m e n t

4.49

Policy makers and de

elopment economists agree on the need to foster inno

ation

and technology transfer to the de

eloping world. Differences exist o

er the best means of

achie

ing this goal. There is considerable disagreement o

er what sort of IP regime is in the

best interests of de

eloping countries.

4.50

Some commentators, for example Romer,

and Shapiro and Hassett

argue that

‘strong’ IP rights are in the interests of de

eloping countries. They contend that strong IP

protection creates the necessary incenti

es for firms, principally, if not exclusi

ely, from the

eloped world, to in

est in poorer countries, by enabling them to capture the

alue in ideas.

This, they argue, is of benefit to poorer countries because indigenous firms will capture spill-
o

er benefits from foreign firms. For example, their employees will learn non-IP protected

skills, such as good management. This approach could be broadly characterised as
emphasising the importance of market mechanisms (in the form of IP rights) as a means of
stimulating de

eloping countries to

inn

ovate

4.51

Howe

er, other commentators, most notably the Commission on Intellectual

Property Rights, commissioned by the Department for International De

elopment, contend

that ‘weak’ IP is in the best interests of de

eloping countries. Countries with weak IP regimes

are able to use technologies refined in de

eloped countries in order to de

elop their own

inno

ati

e capacity. This approach could be said to emphasise ‘extra-market’ mechanisms

and place a strong emphasis on the need for de

eloping countries to

tate

. The economist

Keith Maksus explains: “enforceable IP rights are neither necessary nor sufficient to establish
robust inflows of technology”.

4.52

There is a wealth of e

idence showing a correlation between strong IP and high

growth rates. One study of 80 countries between

975 and

994 showed that strong IP was

correlated with high growth in rich and poor countries. Another study examining 95 countries
from

960 to

988 found strong correlations, and that foreign direct in

estment (FDI) was

encouraged in de

eloping countries with strong IP protection.

4.53

Howe

er, the e

idence from that study was not conclusi

e. It showed correlation

between strong IP and high growth, not causation. The rapid growth rates experienced in
South East Asia in the

960s and

970s were stimulated by

ery high le

els of sa

ing and

The case for

‘strong’ IP

The Gowers Review

Economic Growth, Romer P., in

Fortune Encyclopedia of Economics

, Henderson D., ed, 1993.

The Economic Value of IP,

Shapiro R. and Hassett K., 2005.

Encouraging International Technology Transfer

, Maksus, K., International Centre for Trade and Sustainable Development

and United Nations Conference on Trade and Development, 2004.

The Economic Value of IP

, Shapiro R. and Hassett K., 2005.

N S T R U M E N T S

estment. It might be the case that local in

estment and the desire to protect indigenous

inno

ations prompted stronger IP protection.

4.54

Also, the studies cited measure Gross Domestic Product, not Gross National Product,

in the de

eloping countries they in

estigate.

This means that the studies include benefits

that accrue to the shareholders of the foreign firms in addition to the benefits to nationals in
de

eloping countries. Although there are likely to be some multiplier effects, these results

probably o

erstate the benefits to de

eloping countries significantly.

4.55

The de

elopment of today’s richer countries suggests that ‘weaker’ IP may be more

suited to countries in de

elopment. In its formati

e stages of de

elopment the USA sought to

elop by appropriating technology from Europe. George Washington suggested legislation

to encourage “the introduction of new and useful in

entions from abroad”. Between

790 and

836 the USA restricted patents to residents, hardly an approach to incenti

ise foreign capital

inflows and ensure free markets. When Switzerland industrialised in the

880s it did so

without a patent system, allowing it to benefit from inno

ations de

eloped elsewhere.

Ultimately patents were only introduced under pressure from trading partners. Similarly,
between

960 and

980 Asian economies emphasised the importance of re

erse engineering

and imitation. When South Korea adopted patents in

their term was limited to only

years and they were not a

ailable for foodstuffs, pharmaceuticals or chemicals. Perhaps most

strikingly, Italy only introduced a patent system in

978.

4.56

Patent rights are territorial. To gain protection, firms must register their rights in each

country in which they seek protection. Therefore, it is not ob

ious that there is a link between

the location of R&D and the patent regime in that country. For example, a company could
undertake R&D in a country with no IP protection and quite easily register the in

ention

somewhere else. Factors including the presence of skilled workers and low costs are more
likely to impact on R&D location decisions than the strength of the IP system. Simply
strengthening the IP system in de

eloping countries would not necessarily facilitate foreign

estment. Furthermore, there are costs associated with issuing and enforcing IP rights, both

for consumers who face higher prices for goods and for stretched go

ernment finances in

staffing IP offices with trained experts.

4.57

The economic e

idence and, in particular, the history of currently de

eloped

countries suggest that a single one-size-fits-all approach is inappropriate. Stronger IP
protection can ultimately reap rewards in terms of greater domestic inno

ation in de

eloping

countries and in de

eloping countries with sufficient capacity to inno

ate. Howe

er, it has

little impact on inno

ation in de

eloping countries without the capacity to inno

ate, and it

may impose additional costs.

en that different IP regimes are more appropriate at

different stages of de

elopment, it would make sense to allow indi

idual nations to choose

when to strengthen their IP regimes, rather than to seek to enforce a certain perspecti

4.58

Chapter 3 outlined the international architecture for IP. The Trade-Related Aspects of

Intellectual Property Rights Agreement (TRIPS) sets out minimum standards for IP which all
World Trade Organisation (WTO) Member States must meet. These stipulations ha

e pro

ery burdensome for some de

eloping countries. For least de

eloped countries (LDCs),

which ha

e not yet de

eloped their own technology base, the best means of encouraging

technology transfer is to utilise the freedoms and flexibilities that exist in TRIPS.

The international

architecture

‘One size fits all’

is inappropriate

The case for

‘weak’ IP

The Gowers Review

The Role of Intellectual Property Rights in Economic Growth

, Gould D.M. and Gruben W.C.,

Journal of Development

Economics

, March 1996.

Integrating Intellectual Property Rights and Development Policy

, Commission on Intellectual Property Rights, 2002.

The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence

, Falvey R. and

Foster N., United Nations Industrial Development Organization, 2006.

N S T R U M E N T S

4.59

In addition to exploiting the potential for weaker IP regimes, where appropriate it is

important that de

eloping countries can see, and are able to use, the benefits that IP

undoubtedly brings. For example, patent offices in de

eloping countries could encourage

rapid publication of patents and acti

ely assist local firms and indi

iduals to access patents

and use them to assist local inno

ation. In a similar

ein, there are opportunities to use IP

rights to create

alue using the resources of de

eloping countries, for example establishing

protection for geographic identifications for coffee-growing areas.

4.60

There are ways in which de

eloping countries could seek to increase the stock of

public knowledge that an IP system facilitates. One way of achie

ing this would be to ha

rising patent renewal fees. This would encourage international firms who hold patents to
allow them to lapse and fall into the public domain earlier, thus enabling other firms to use
and adapt them. It is true that this would reduce the

alue of exclusi

e rights for patent

holders, but for technology that has been patented in the de

eloping world firms are likely to

e already recouped most of the R&D costs from markets in de

eloped countries in any

case. This was the approach taken by South Korea and Taiwan to enable local businesses to
mo

e gradually up the technological cur

e, first by imitating de

eloped technologies and

later de

eloping their own.

4.61

It is important that Go

ernments and patent offices in de

eloping countries are aware

of the potential benefits a

ailable to them within the current international IP framework.

Crucially, they should adapt their IP regimes in the manner most applicable to their
circumstances. They should also take ad

antage of helpful aspects of the IP system, such as the

requirement to pro

ide public information about inno

ations, to foster technology transfer.

4.62

But patent offices in de

eloping countries often lack resources and face large

workloads. This can hinder the de

elopment of a strategic, coordinated approach to IP

matters. The UK has forged strong relationships with foreign patent offices, for example in
China, to assist them with application procedures and enforcement policies. The UK Patent
Office (UKPO) also has good contacts with offices in de

eloping countries. Howe

er, there is

potential for further joint working.

4.63

In the short term the pro

ision of technical assistance to aid de

eloping countries to

take a more strategic approach to IP should help to facilitate the transfer of technologies. In
the longer term it would be helpful for the international community to enable the least
de

eloped countries to ‘strengthen’ IP regimes as and when it suited them. Indeed, it has

already been recognised that the least de

eloped countries (in the WTO) may need longer to

implement some of requirements of TRIPS than the present deadline of 20

The Gowers Review

Recommendation 5:

UKPO should undertake joint working with African patent offices

from mid-2007, with the aim of:

•

helping them to take advantage of the flexibilities currently existing in the
WTO/TRIPS architecture where appropriate; and

•

encouraging them to make positive use of IP rights through dissemination of
information in patents.

Recommendation 6:

Encourage the international community under the auspices of the

WTO to review the TRIPS status of the least developed countries prior to 2016 and
consider whether further extension for reaching TRIPS compliance would be appropriate.

N S T R U M E N T S

4.64

There are also concerns that TRIPS may be too restricti

e to meet the needs of

eloping countries in relation to access to pharmaceutical products. There ha

e been

particular problems with its pro

isions on compulsory licensing. A compulsory licence is an

oluntary contract between a patent holder and a third party authorised by the

ernment. It entitles the licensee to make use of the patented material (in this case a drug)

for a period during the lifetime of the patent. Compulsory licensing thereby enables
Go

ernments in the de

eloping world to reduce the costs of pro

iding medicines by

introducing another pro

ider into the market.

4.65

Conditions in TRIPS can hinder the effecti

eness of compulsory licensing. TRIPS only

allows licensees to pro

ide drugs to their domestic market.

So, only a firm in a de

eloping

country could produce the drugs for sale in that country. But de

eloping countries often lack

sufficient manufacturing capacity to produce drugs. This renders compulsory licensing
pro

isions of limited use.

4.66

In 200

it was acknowledge in the Doha Declaration on TRIPS and Public Health that

eloping countries with “insufficient or no manufacturing capacities in the pharmaceutical

sector could face difficulties in making effecti

e use of compulsory licensing under the TRIPS

Agreement”.

In 2003, to address this problem, a Decision of the General Council enabled

eloping countries to import drugs made under compulsory licences abroad until 2007.

TRIPS has been amended to make this suspension permanent, but it needs to be ratified by
two-thirds of the WTO members to come into effect. The Re

iew urges the Go

ernment to

take whate

er steps it can to ensure that this amendment comes into effect before the

temporary suspension elapses in December 2007. It also belie

es that the Go

ernment should

look fa

ourably on any future proposals to amend TRIPS that may be necessary to address the

public health crisis in de

eloping countries.

F L E X I B I L I T Y

4.67

Globalisation and technical changes ha

e had significant impact on the IP system. It

ital that in both the rights and the ‘exceptions’ to those rights, which limit the control of

the rights owner, the IP system is robust and able to cope with technological and
en

ironmental changes so it can continue to facilitate inno

ation and ensure public support.

F a i r d e a l i n g a n d e x c e p t i o n s t o c o p y r i g h t

4.68

e works. There

are exceptions for a number of uses that would be unlikely to occur in a pure free market. For
example, if a documentary maker films a scene in a building where a number of photographs
are permanently displayed, he would ha

e to seek permission from each of the copyright

owners (if there were no exception). The transaction costs of these permissions would be
prohibiti

e and would probably pre

ent the documentary from being made.

In addition, a

number of uses consistent with basic rights, for example copying a book into Braille, would
infringe copyright in the absence of an exception. These two arguments pro

ide the rationale

The Gowers Review

Recommendation 7:

Government should encourage WTO members to ratify the

amendments to TRIPS to make importation of drugs easier and cheaper.

Article 31(f).

Paragraph 6 of Doha Declaration.

Excuse and Justification in the Law of Fair Use: Transaction Costs Have Always Been Only Part of the Story, Gordon,

W.J.,

Journal of the Copyright Society of the USA,

149, 2003.

N S T R U M E N T S

for ‘fair dealing’ or ‘fair use’ exceptions. There is concern that, at present, the UK exceptions,
are too narrow and that this is stunting new creators from producing work and generating
new

alue.

4.69

The USA has a more flexible ‘fair use’ exception than the UK and outlines four tests

which the use of a work must meet in order not to infringe copyright.

This broader approach

to copyright exceptions has opened up a commercial space for others to create

alue. For

example, Google’s ability to ‘cache’ websites, effecti

ely copying content without ha

ing to

seek permission first, has been ruled as a fair use of other people’s copyrighted material. Judge
Robert C. Jones of District Ne

ada Court ruled: “The automated, non-

olitional conduct by

Google in response to a user’s request does not constitute direct infringement under the
Copyright Act”.

In the UK, such pro

isions were only introduced in 2002.

Google explain in

their response to the Call for E

idence: “The existence of a general fair use exception that can

adapt to new technical en

ironments may explain why the search engines first de

eloped in

the USA, where users were able to rely on flexible copyright exceptions, and not in the UK,
where such uses would ha

e been considered infringement”.

4.70

‘Fair uses’ of copyright can create economic

alue without damaging the interests of

West S

de Story

, which grossed $43.7 million ($39.9 million when adjusted

for inflation), may be considered a reworking of

Romeo a

d Jul

, which is out of copyright.

This figure indicates that works which build on others can be extremely

aluable, and also are

not necessarily substitutes for the original work – indeed, it is not the case that

West S

de Story

has made

Romeo a

d Jul

less popular or less commercially successful.

4.71

Finally, it should be noted that not all creators are opposed to their work being used

to create economic

alue for someone else. Creati

e Commons licences use licensing to limit

Fifty million such licenses ha

been issued, two-thirds of which allow for deri

ati

e works, and a quarter of which allow their

work to be used for any purpose.

4.72

There is currently no pro

ision in UK law for pri

ate copying. In many European

states, such as Germany and France, as well as in the USA, a pri

ate copying exception exists.

The lack of a pri

ate copying exception in the UK makes it illegal, for example, to copy music

from a CD that one has purchased onto a computer or MP3 player that one has also
legitimately purchased. Much of the British public is unaware or unconcerned that their
actions are prohibited under the law. In June 2006 the BPI announced that “we belie

e that we

now need to make a clear and public distinction between copying for your own use and
copying for dissemination to third parties and make it unequi

ocally clear to the consumer

that if they copy their CDs for their own pri

ate use in order to mo

e the music from format

to format we will not pursue them.”

Allowing private

copying will

improve clarity

Exceptions can

create value

The Gowers Review

Under section 107 of the USA Copyright Act.

Reported in http://www.theregister.co.uk/2006/01/27/google_cache_copyright_breach_ruling/

By the Electronic Communications (EC Directive) Regulations 2002 (SI 2002/2013).

Call for Evidence submission, Google.

Creative Commons is only a licence and relies on copyright; it is not a separate legal model.

Evidence from BPI to House of Commons Select Committee for Culture, Media and Sport Inquiry into New Media and

the Creative Industries.

N S T R U M E N T S

4.73

Format shifting music for personal use from CDs to another media is an entirely

legitimate acti

ity. It is essential to reflect this clearly in the law. Rapid technological change

has altered the way that media is recorded, stored and played. As such, pri

ate copying should

enable users to copy media on to different technologies for personal use.

4.74

Under the Information Society Directi

e, countries are able to enact a pri

ate copying

exception pro

ided that ‘fair compensation’ is gi

en to rights holders.

In France, Germany

and many other countries le

ies are exacted on hardware and blank media. One of the main

problems with le

ies is that they are blunt instruments: the amount is fixed and therefore does

not reflect the number of times a de

ice is used, nor can it compensate for each indi

idual

copy. It is also not clear that royalties are accurately remitted to rights holders as it is

ery

difficult to determine whose music is being copied. The European Commission is re

iewing

the entire body of copyright law, and is specifically in

estigating whether le

ies work.

4.75

The Re

iew belie

es it is possible to create a

ery limited pri

ate copying exception

without a copyright le

If rightholders know in ad

ance of a sale of a particular work that

limited copying of that work can take place, the economic cost of the right to copy can be
included in the sale price. The “fair compensation” required by the Directi

e can be included in

the normal sale price. This means, howe

er, that any pri

ate right to copy cannot be extended

retrospecti

ely as copies of works already sold would not include this “fair compensation”.

Therefore, collecting societies may wish to consider making a single block licence a

ilable to

allow consumers to format shift their back catalogues ligitimately.

4.76

There should be some strict limits on the scope of any pri

ate copying exception. The

iew recommends that the pri

ate copying should be limited to ‘format shifting’ (i.e.

transferring a work from CD to an MP3 player or from a

ideo tape to D

D) rather than simply

allowing any copies to be made for pri

ate purposes. The exception would only allow one

copy per ‘format’, but it would also ha

e to recognise that transfer between formats may

require intermediate steps (or formats) to be taken.

4.77

Many users in the Call for E

idence outlined problems in using material for genuine

academic purposes. Fair dealing for the purposes of non-commercial research and pri

ate

study, permitted by section 29 of the CDPA excludes copying sound recordings or film, which
is inconsistent and adds to the cost of negotiating rights for sound recordings and films.

Private copying

for research

should apply to

all media

The Gowers Review

Article 5(2)(a) and (b) of Directive 2001/29/EC.

Recital 35 of the Directive 2001/29/EC states “in cases where rightholders have already received payment in some other

form, for instance as part of a licence fee, no specific or separate payment may be due.... In certain situations where the

prejudice to the rightholder would be minimal,

no obligation for payment may arise”

[Review’s emphasis].

Further, as with other exceptions, where a work that is copied legitimately under the private copy exception is

subsequently dealt with (e.g. it is sold, let or hired or communicated to the public) it would become an infringing copy.

See, for example, section 70(2) and (3) of the CDPA.

Recommendation 8:

Introduce a limited private copying exception by 2008 for format

shifting for works published after the date that the law comes into effect. There should be
no accompanying levies for consumers.

Recommendation 9:

Allow private copying for research to cover all forms of content.

This relates to the copying, not the distribution, of media.

N S T R U M E N T S

4.78

There are copyright exceptions which enable libraries to copy material for readers’

“pri

ate and non-commercial study”. It is up to indi

idual librarians to determine whether

the copy will be used for pri

ate and non-commercial study, which can be problematic. The

Libraries and Archi

es Copyright Alliance reports that “InfoSoc means that not-for-profits

and charities now do not fall under exception for copying for research”. The British Academy
argues that the exception ought to co

er all scholarly research, but that there may be an issue

with NGOs that ha

e a commercial wing. As such, it proposes that any use that does not

conflict with normal exploitation of a work, i.e. the sale of the work, should be exempted.

4.79

The British Library response to the Call for E

idence, highlighted that the UK has far

more stringent restrictions on copying for archi

ing and preser

ation than other countries. As

Table 4.2 shows, library permissions in the UK are out of step with other countries in three
areas: the number of copies allowed, the types of works that may be copied for preser

ation,

and format shifting.

Table 4.1: What libraries are allowed to do

Are there restrictions on the type

Are there restrictions in In the digital environment

of in-copyright work that can be

statute on the numbers

are there restrictions on

copied by libraries for heritage

of copies that can be

format shifting an

and archive purposes?

made by libraries?

original work for

preservation?

Denmark

None

France

Not covered in French law

Germany

None

–

Japan

None

Spain

None

Sound, film and broadcast

One copy only

Permanent or semi-

excluded

permanent format

shifting not permitted in

USA

None

Three copies only

None

Both respondents said that in reality this was limited by reasonableness.

A German High Court ruling has interpreted the legislation to mean no more than seven copies.

This reflects Spain’s new copyright law, which is currently being ratified in the Spanish Congress.

Source: British Library.

Libraries require

exceptions for

the digital age

The Gowers Review

N S T R U M E N T S

4.80

In the digital world, opening a document on screen creates an additional copy of a

work.

Other countries take an approach guided by the principle of ‘reasonableness’ which

seems a far more sensible and flexible approach than the current UK approach.

4.81

The CDPA pro

ides exceptions to copyright on literary, dramatic or musical work for

archi

ists in national libraries.

Howe

er, the exception does not include sound recordings,

tele

ision shows or films.

4.82

This is problematic for works on unstable media, such as celluloid films. Of American

feature films of the

920s, fewer than 20 per cent sur

e; and for the

0s the sur

al rate

falls to half of that. This presents a problem for the British Library. It is cheaper to digitise films
when they are still in a good condition than to wait until they are out of copyright to digitise
and restore them. As the copyright term is long, many films and sound recordings will ha

degenerated completely before they can be copied freely. It costs $40,000 to preser

e a single

colour film by copying it back on to film, compared with $200 per hour of footage to digitise
film.

The prohibitions on format shifting exacerbate this problem.

4.83

The inability of the British Library and the other depositary libraries and archi

es to

make archi

e copies of sound recordings e

en for preser

ation raises real concerns for the

protection of cultural heritage. Nelson Mandela’s

trial speech was recorded in

964

on dictabelt. This format has fallen out use and the hardware is no longer a

ailable. The

British Library is unable to copy this for preser

ation without clearing the rights, and there is

a risk that the medium will deteriorate before copyright expires. As already extensi

ely

detailed, the rights clearance process for old material is extremely burdensome. Many sound
recordings held in the Sound Archi

e are orphan works and therefore the Library is not able

to copy the work legally. The costs to preser

e sound increase as technology mo

es on, as

shown in Chart 4.6. Therefore waiting until recordings are out of copyright will result in the
loss of many recordings and will substantially increase the costs of preser

ation.

Sound and film

cannot be

preserved by

libraries

The Gowers Review

See section 17(6) of the CDPA.

Section 42 states: “The librarian or archivist of a prescribed library or archive may, if the prescribed conditions [i.e. for

preservation] are complied with, make a copy from any item in the permanent collection of the library or archive

... without infringing the copyright in any literary, dramatic or musical work, in any illustrations accompanying such a work

or, in the case of a published edition, in the typographical arrangement.”

Brief of amici curiae the internet archive,

Eldred

Ashcroft

; based on http://www.loc.gov/film/plan.html, and Experience

of Internet Archive, interview with Brewster Kahle.

N S T R U M E N T S

4.84

en the costs of copying on the same medium, and the ad

ances in technology

which allow works to be

iewed in a number of ways, the limitation on format shifting seems

to constrict the potential that libraries ha

e to preser

e and share cultural goods. As also

mentioned abo

e, this is a particular issue for film and sound recordings. Format shifting

pro

isions ought to apply to all items held within the library for the purposes of preser

ation.

4.85

In the USA, the fair use exception allows ‘transformati

e works’. The purpose of this

exception is to enable creators to rework material for a new purpose or with a new meaning.
Such new works can create new

alue, and can e

en create new markets.

Enabling

transformative

use will spur

innovation

Prohibitions on

format shifting

limit the ability

to archive

The Gowers Review

Box 4.5: Cost to digitise sound recordings for preservation

It is important to note in regard to sound, as well as other digital media, that the potential
obsolescence of carrier formats and playback hardware, plus the increased need to reverse
engineer formats, all generate higher costs.

Call for Evidence submission, British Library.

Source: British Library.

Chart 4.6: Cost to digitise sound recordings for preservation

100

200

300

400

500

600

Cost per hour: pounds

VHS

Betamax

Cassette

Tape

Acetate

discs

Open Reel

Tape

Vinyl LPs

78 RPM

Audio Carrier

490

211

Recommendation 10a:

Amend section 42 of CDPA by 2008 to permit libraries to copy

the master copy of all classes of work in permanent collection for archival purposes and to
allow further copies to be made from the archived copy to mitigate against subsequent
wear and tear.

Recommendation 10b:

Enable libraries to format shift archival copies by 2008 to ensure

records do not become obsolete.

The Review believes that amending section 42 of the Copyright, Designs and Patents Act 1988 to allow replacement

copies of sound recordings and films is appropriate and permitted by Article 5(2)(c) of Directive 2001/29/EC, of the

Information Society Directive.

This would be permitted by Article 5(2)(c) of Directive 2001/29/EC, the Information Society Directive.

N S T R U M E N T S

4.86

Transforming works can create huge

alue and spur on inno

ation. “Good artists

borrow; great artists steal.” So said Pablo Picasso, borrowing from Igor Stra

insky, or perhaps

from T. S. Eliot.

Hip hop is not the first genre to ‘sample’ music: composers from Beetho

to Mozart to Bartok to Charles I

es ha

e regularly recycled themes, motifs, and segments of

prior works.

Under the current copyright regime, these creators would need to clear

permission and negotiate licences to a

oid infringement suits.

The barriers that new

musicians ha

e to o

ercome are extremely high, and the homogenisation of hip hop music is,

critics argue, a direct response to the costs of clearing rights.

The Gowers Review

Box 4.6: The rise and fall of creativity in Hip Hop has, in part, been
attributed to limited application of transformative use exception

Such an exception in US law enabled the Hip Hop industry to develop in the late 1970s and
early 1980s, allowing producers to sample older works to create a new genre of music and
to develop an entirely new market. In 1991, a decision against rapper Biz Markie’s
appropriation of a Gilbert and Sullivan song in the case

Grand Upright v. Warner

changed

practices dramatically. In

Bridgeport Music Inc. v. Dimension Films,

it was ruled that samples

which rise “to a level of legally cognizable appropriation”

have to be licensed, but that

minimis

sampling was still to be considered fair use. This was reversed in the appeal to this

case, where the court ruled the three-note sample was not fair use and that musicians
should “get a license or do not sample”.

Musicians now have to clear rights with the owner of the sound recording and the
publisher and negotiate a license fee before using a sample. Chuck D argues that the
narrowing of the transformative use exception means that the “whole collage element is
out the window”. When asked about how the change in the IP framework had affected
their work, The Beastie Boys commented that “we can’t just go crazy and sample
everything and anything like we did on Paul’s Boutique. It’s limiting in the sense that if
we’re going to grab a two-bar section of something now, we’re going to have to think
about how much we really need it”.

Importantly for music, clearance is required for the

performance and for the composition, although in the USA legal precedent suggests that
obtaining clearance for the sound recording is sufficient.

In the UK, however, this does not

appear to be the case. A notable example of this was The Verve’s single “Bitter Sweet
Symphony”, which used an unlicensed sample from an orchestral version of The Rolling
Stones’ song “The Last Time”. The sample was derived from the song (not the
performance) and was deemed to infringe copyright. As such, The Verve were ordered to
pay 100 per cent royalties to Mick Jagger and Keith Richards.

780 F. Supp. 182 (S.D.N.Y. 1991).

Bridgeport Music Inc. v. Dimension Films

, 230 F. Supp.2d 830, 841 (M.D. Tenn. 2002).

http://www.wired.com/wired/archive/12.11/beastie.html

see

Newton v. Diamond and Others

(2003)349 Fd.3 591 (9th Cir. 2003).

‘A good composer does not imitate; he steals’, Stravinsky 1.; ‘Immature poets imitate; mature poets steal’, Eliot T.S.

From J.C. Bach to Hip Hop: Musical Borrowing, Copyright and Cultural Context

, Arewa O., 84

N.C.L. Rev

. 547, 630, 2006.

Copyright’s Paradox: Property in Expression/Freedom of Expression

, Netanel N., forthcoming.

N S T R U M E N T S

4.87

The crucial point should be whether transformati

e use compromises the

commercial interests of the original creator or offends the artistic integrity of the original
creator. Judge Posner’s decision in the ‘Beanie Baby’ case argued that in determining whether
use can be considered ‘fair use’, the courts ought to consider the impact of the new work on
the sales of the older work. There are now certain things that should be considered when
assessing ‘fair use’:

•

commercial interests: When the US Supreme Court ruled on

Campbell v.

Acuff- Rose Mus

c, I

c.,

concerning 2Li

e Crew’s “Pretty Woman” parody of

the Roy Orbison song, the court argued that the new work did not impact on
the commercial success or

iability of the original work; and

•

artistic integrity: The moral rights of the creator are inalienable, as such any
work which builds on pre

ious creation is subject to the moral rights of the

original creator. Enabling transformati

e use would not negate existing moral

rights, the right to be identified and the right to object to derogatory
treatment. Creators would still be able to use defamation laws to pre

ent

works that are offensi

e or damaging to the original creator from being made

ailable.

4.88

At present it would not be possible to create a copyright exception for transformati

use (but see the discussion of parody below) as it is not one of the exceptions set out as
permitted in the Information Society Directi

Howe

er, the Re

iew recommends that the

ernment seeks to amend the Directi

e to permit an exception along such lines to be

adopted in the UK.

4.89

There is currently no exception in copyright to parody works. The BBC commented in

its submission to the Call for E

idence that an exception to co

er parody in the UK would:

“facilitate the broadcast and sale of programmes containing material included
under, for example, fair dealing.”

4.90

As well as reducing transaction costs across Europe, an exception to enable parody

can create

alue. Weird Al Yanko

ic has recei

ed 25 gold and platinum albums, four gold-

certified home

ideos and two GRAMMYs® by parodying other songs, but he had to ask

permission from rights holders. Furthermore, many works which are considered to ha

e high

alue could be considered parodies, for example Tom Stoppard’s

Rose

cra

tz a

lde

ster

Are

ead

. The Information Society Directi

e specifically allows for “caricature,

parody or pastiche”,

and the Re

iew recommends such an exception should be introduced

into UK law.

The Gowers Review

Recommendation 11:

Propose that Directive 2001/29/EC be amended to allow for an

exception for creative, transformative or derivative works, within the parameters of the
Berne Three-Step Test.

Recommendation 12:

Create an exception to copyright for the purpose of caricature,

parody or pastiche by 2008.

114 S.Ct. 1164 (1994).

Article 5 of Directive 2001/29/EC.

The Berne Three-Step Test outlines the maximum extent of exceptions to copyright. Under Article 13 of TRIPS,

signatories such as the UK agree to “confine limitations or exceptions to exclusive rights to certain special cases which do

not conflict with the normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the

rights holder”.

Article 5(3)(k) of Directive 2001/29/EC.

N S T R U M E N T S

O r p h a n w o r k s

4.91

The term ‘orphan work’ is used to describe a situation where the owner of a copyright

work cannot be identified by someone else who wishes to use the work. Whene

er someone

wants to copy or use a work it is necessary to go through a number of steps. First, they must
determine whether something is ‘in’ copyright. This is made difficult by the range of different
terms and the fact that in many cases term is dependent on the death of the author. It is often
extremely difficult to trace authors. When works stop being commercially a

ailable it

becomes e

en more difficult to track down biographical information. Estimates suggest that

only 2 per cent of all works that are protected by copyright are commercially a

ailable. In

930,

0,027 books were published in the USA, but by 200

all but

74 were out of print.

The

British Library estimates 40 per cent of all print works are orphan works.

4.92

en if users are able to find some information about the author, publisher or

distributor this may not be sufficient to identify the rights holder. The author may ha

assigned copyright to a third party. Furthermore, copyright held by businesses can be lost
through ‘abandonware’: when businesses go bankrupt or merge copyright ownership,
information can be lost. The problem is made still more difficult in the UK, where there is no
copyright registration system detailing ownership.

4.93

This is a large problem for many users, including those who wish to make copies for

archi

ing or preser

ation and need to seek permission. The Chair of the Museum Copyright

Group, Peter Wienard, belie

es that from the total collection of photographs of 70 institutions

(around

9 million), the percentage of photographs where the author is known (other than for

fine art photographs) is

0 per cent. In a British Library study to get permission to digitise 200

sound recordings, researchers were unable to identify the rights holders for almost half the
recordings.

The Gowers Review

The Economic Structure of Intellectual Property Law

, Posner R. and Landes W., 2003. Source: American Library Annual and

Book Trade Almanac for 1872–1957.

Call for Evidence submission, British Library.

N S T R U M E N T S

4.94

One of the key problems with orphan works is that permission is needed in order to

make any copy of certain work. As discussed earlier, permission is required for the purposes
of restoring sound recordings and films that are degenerating for preser

ation. This is

especially an issue for films, many of which are on unstable formats.

4.95

Many works that lie unused could create

alue. For example, the film

It’s a Wo

derful

lost money in its first run and was ignored by its original copyright owners. When the

owners failed to renew their copyright in

970, it was broadcast on the Public Broadcasting

Ser

ice channel in the USA. It is now a family classic, and worth millions in prime time

ertising re

enue. The book

The Secret Garde

, since copyright has expired, has been made

into a mo

ie, a musical, a cookbook, a CD-ROM

ersion, and two sequels. For works still in

alue cannot be

generated. For example, documentary makers often find it impossible to track down the
rights owners of old pieces of film, many of which ha

e multiple owners, all of whom are

untraceable, and are not able to use older works to create new

alue.

Orphan works

can create value

The Gowers Review

Box 4.7: Experiences of clearing rights for orphan works

The US experience

•

A report by the Carnegie Mellon University Libraries details a systematic study of
the feasibility of obtaining permission to digitise and provide web-based access for
its collection, during which it discovered that for 22 per cent of the books in the
study, the publishers could not be found.

•

At a rough estimate, the exercise cost $200 per title for which permission was
granted.

•

Cornell University librarians estimated that obtaining permission to create a
digital archive of 343 monographs cost the library $50,000, and still it was not able
to identify the owners of 58 per cent of the monographs.

The British Library experience

•

The British Library is currently undergoing a protracted process of clearing over
4,000 hours of sound recordings as part of a British Library sound portal funded by
the Joint Information Systems Committee.

•

In the late 1980s, the Library made 220 oral history recordings of jazz musicians
and promoters. The majority of the recordings were made by the British Library
at the time, and as many permissions as possible were applied for and received by
the Library from the interviewees, as well as some of the interviewers/sound
recordists who were not Library employees.

•

Between May 2005 and February 2006, 200 identifiable outstanding permissions,
were applied for. Of these, only half had permissions granted and a quarter were
orphan works.

Dir. Capra F., 1946.

N S T R U M E N T S

4.96

The US Copyright Office published a report on orphan works in January 2006

which

examined the extent of the problem and outlined potential solutions. The system that they
preferred is one of limited liability. This means that users of orphan works are still infringing
copyright. Howe

er, if they ha

e conducted a ‘reasonable search’ they cannot be sued for

infringement if the owner subsequently emerges. The copyright owner will be eligible to
recei

e remuneration from the user of the orphan work. The fee would represent a proportion

of the

alue generated by any commercial uses of the work. The user would then ha

e to

negotiate a fee for any continued use of the work. For non-commercial uses of the work, the
owner will be able to request that the work is no longer used and, if the user complies, no
remuneration is necessary, but they will also be able to negotiate the terms for continued
use.

4.97

Across the spectrum of the creati

e industries, there is recognition that sol

ing the

problem of orphan works is good for e

eryone. A solution is good for all those who are

ed in archi

ing and cataloguing; for all those creators who use older works to create

new

alue; for those whose work is restored and who may benefit from remuneration from a

new source; and for consumers.

4.98

In a paper for the Gowers Re

iew, the British Screen Ad

isory Committee outlined a

proposal for an exception to copyright to permit the use of a genuine orphan works, with a
number of pro

isions detailing the scope of the exception. This would operate

ery similarly

to the US ‘light touch’ approach.

4.99

Currently, such an exception would be incompatible the UK’s obligations under the

Information Society Directi

There are currently discussions at the European le

el to

introduce pro

isions to enable Member States to create a solution to the orphan works

problem. The UK Go

ernment should work with Member States to amend the Directi

e to

allow such an exception. Any such exception should permit the use of genuine orphan works,
pro

ided the user has performed a reasonable search and, where possible, gi

es attribution.

4.100

One of the key components of any solution to the orphan works problem will be

eloping the parameters of a ‘reasonable search’. The British Library recommended that the

requirement be ‘best endea

ours’, but users may still need a guide as to what constitutes a

thorough search to protect them from liability. As such, we recommend that the Patent Office
works with groups of rights holders, collecting societies, libraries and archi

es to establish

clear guidelines for ‘reasonable searches’.

Guidelines will

reduce

uncertainty and

costs

A number of

solutions have

been proposed to

solve this

problem

The Gowers Review

Recommendation 13:

Propose a provision for orphan works to the European

Commission, amending Directive 2001/29/EC.

Available at: http://www.copyright.gov/orphan/orphan-report-full.pdf.

Copyright and Orphan Works,

British Screen Advisory Council, 2006.

Directive 2001/29/EC. Article 5 of this Directive sets out the permissible exceptions to copyright and none of these

seem to envisage a

commercial

orphan works exception.

N S T R U M E N T S

4.101

The loci for ‘reasonable searches’ will

ary by medium. For example, someone

wishing to track down the rights holder of a piece of music must consult Catco, the UK record
industry’s sound recordings database, and follow up on any biographical information held
there. For a work of literature, one must search at the British Library, and for film at the
National Film and Tele

ision Archi

e. Gi

en that many searches require knowledge of the date

of death of the artist and the subsequent owners, this would ha

e to be reflected in the search

parameters. A registration system of copyright would greatly facilitate such a search.
Howe

er, compulsory registration is contrary to international treaty obligations.

It would be

desirable for the UK Patent Office to host a

oluntary register, where rights owners could

deposit information as to their location and their named estate, or to pro

ide a portal ser

ice

for users to access existing pri

ate registration scheme.

D i g i t a l R i g h t s M a n a g e m e n t

4.102

Digital rights management tools (DRMs) are sequences of digital code that restrict

certain uses of copyrighted material. For example, they pre

ent consumers from transferring

films stored on D

D to a computer hard dri

e. DRMs ha

e two functions:

•

accountant; currently it is difficult to track what music is played where, and
therefore it is difficult for collecting societies to remunerate artists. DRM
‘watermarks’ can track usage electronically to report information back to
collecting societies to ensure distribution of royalties is fair; and

•

policeman; DRM can limit the access to content, for example, to pre

ent

copying.

4.103

In June 2006, the All Party Internet Group (APIG) published a report on DRM. It stated

that DRM will ne

er be entirely effecti

e, but can remo

e temptation for the ‘casual copier’.

APIG notes that “because DRMs can almost in

ariably be circum

ented, a legal framework is

needed to pre

ent unauthorised copying at a commercial scale, and in the UK this is pro

ided

by the CDPA”.

The Gowers Review

Recommendation 14a:

The Patent Office should issue clear guidance on the

parameters of a ‘reasonable search’ for orphan works, in consultation with rights holders,
collecting societies, rights owners and archives, when an orphan works exception comes
into being.

Recommendation 14b:

The Patent Office should establish a voluntary register of

copyright, either on its own or through partnerships with database holders, by 2008.

Article 5(2) of the Berne Convention for the Protection of Literary and Artistic Works.

There are voluntary registers available, for example the UK Copyright Service. However, to ask users to check all the

voluntary registers would increase transaction costs substantially.

N S T R U M E N T S

4.104

DRMs can pre

ent acti

ities permitted under the exceptions. For example, the Royal

National Institute for the Blind (RNIB) note that Adobe eBooks usually ha

e ‘accessibility’

settings disabled. This pre

ents the

isually impaired exercising their rights to make copies in

accordance with the exceptions introduced by the Copyright (

isually Impaired Persons) Act

2002.

Such exceptions ought to be respected by technology.

4.105

The Information Society Directi

e recognises that DRMs may be used to pre

ent

legitimate copying and Article 6(4) requires Member States to ensure that technical measures
do not preclude a person from benefiting from certain copyright exceptions. This obligation
has been implemented in UK law.

If a person cannot exercise a permitted right due to a

DRM, they must issue a ‘notice of complaint’ to the Secretary of State, who can then issue
directions on how to ensure that the permitted act can be performed. As yet, no-one has filed
a complete notice of complaint, yet both the Consumer Project on Technology (CPT), an IP
research body, and the RNIB told the APIG committee that this process is “slow and
cumbersome”.

4.106

The Re

iew recommends that the procedures in place for circum

enting DRM to

allow copying for uses deemed legitimate under copyright exceptions ought to be made
easier, for example through a model email form a

ailable on the Patent Office website.

Improve notice of

complaint

procedures

DRM trumps

copyright law

The Gowers Review

Box 4.8: Issues with DRM technology

1. Technical protections can enable restrictions that go beyond protecting content to
price discrimination in different EU markets:

•

for example Apple iTunes charges 79p in the UK and 68p in the EU for a single
music track, without the possibility of arbitrage.

2. DRMs can prevent uses permitted under fair dealing exceptions, and DRM tools do not
necessarily expire when copyright expires:

•

the Adobe eBook reader gives authors the ability to prevent readers from
electronically copying an insubstantial part of text – despite such copying not being
a copyright infringement; and

•

the British Library’s submission to the Call for Evidence noted that the great
majority of agreements relating to electronic licences undermined exceptions
provided for in UK and international copyright law.

3. DRMs can damage users’ computers and can put limits on what users can and can’t do
with the products:

•

some DRMs load up proprietary software or devices which may harm users’
computers or necessitate upgrades. In 2005 one record company was threatened
with legal action over anti-piracy protection on CDs that automatically installed
‘rootkit’ software that could damage hard drives and violated users’ privacy; and

•

some CDs will only play on two devices before locking.

Recommendation 15:

Make it easier for users to file notice of complaints procedures

relating to Digital Rights Management tools by providing an accessible web interface on
the Patent Office website by 2008.

Section 31A of the CDPA.

See section 296ZE of the CDPA.

N S T R U M E N T S

4.107

DRMs can be legitimately employed, and where they are they should be robust. The

iew belie

es there is a need for clearer guidance on DRM for users, and encourages the

DTI to work with industry looking into labelling media. In the e

ent that companies use

DRMs to create market power, damage users’ software or in

ade their pri

acy, the Re

iew

recommends that the Office of Fair Trading undertakes in

estigations. The Re

iew also

supports the DTI in

estigation into the EU single market, but notes that the key example of

DRM being used to segregate markets, namely differential pricing on iTunes, may be a result
of negotiations with collecting societies in

arying countries and not simply an issue arising

from the use of technical protection measures.

4.108

The Re

iew will make further recommendations on the way policy is formulated in

the Chapter 6 and notes that any future policy formulated on DRM ought to be consulted on
widely, with the

iews of all stakeholders, including consumers, libraries and creators, taken

into consideration.

C l a r i f y t h e U K p o s i t i o n o n n e w r i g h t s

4.109

There are concerns that a ‘one size fits all’ patent system may not pro

ide the right

incenti

es to inno

ate in new areas of technology, such as software and genetics. Many fast-

paced industries create new products at high speed, so the time it takes to get patent
protection is too long and the life span of the in

ention is too short for the costs to be

recouped in the monopoly period. The boundaries between patentable and unpatenetable
business methods and computer programmes are

ery unclear.

4.110

Additional layers of rights increase the problems with boundary conditions. At

present, new bands are ad

ised to trade mark their name, thus retaining perpetual rights o

their name e

en when their recordings or compositions ha

e passed into the public domain.

Databases can still be protected by copyright as well as database rights. Where different IP
rights o

erlap, exceptions that apply to one IP right may be barred by restrictions relating to

another. Introducing additional layers of protection is likely to encourage firms to game the
system in order to get as much protection for their products as possible. Creating more rights
could unnecessarily strengthen protection for products that are already protected adequately
by other forms of IP.

4.111

Additional layers of rights also ha

e high costs. First, there will be significant costs in

ising specialised systems to record and award the new rights; and new training and

recruitment costs to administer and ad

ise on the new right. Second, there could be high

costs in challenging the new rights. It is

ital that sui generis rights are properly targeted. It is

difficult for go

ernment to try to predict the technologies of the future and second guess the

estment requirements for such new technology. Four main issues were raised in the Call

for E

idence: utility model patents; software patents; biotechnology and genetic patents; and

business method patents.

4.112

The requirements for patentability are high, and the costs of protection are high. As

such, some users of the IP system ha

e called for the UK to introduce a ‘utility patent’. This

would be a second tier of patent protection for in

entions which can be obtained quickly and

at a lower cost, but which will ha

e a shorter duration. In 2004, the European Commission

Enterprise Policy Indicators showed that the countries with inno

ation as an area of strength

Additional rights

increase

transaction costs

There have been

calls for new

rights

The Gowers Review

Recommendation 16:

DTI should investigate the possibility of providing consumer

guidance on DRM systems through a labelling convention without imposing unnecessary
regulatory burdens.

N S T R U M E N T S

were Finland, Denmark, Sweden and Germany. Sweden has no second-tier system, while
utility model systems in Finland and Denmark are relati

ely new, ha

ing been introduced in

and

992 respecti

ely. Other countries that do ha

e utility model patents, such as Italy

and Spain, were defined as ha

ing weak inno

ation systems. There seems to be no correlation

between the existence of a utility model patent and inno

ation. Rather, strong inno

ation

seems to be caused by a high pre

alence of inno

ati

e sectors, for example Finland and

Germany ha

e large electronic and transport industries respecti

ely.

4.113

While a utility model may reduce costs for some, there is a concern that it will

increase the costs for other users and stunt future inno

ation. More patent protection can

limit the ability of future in

entors to create new products. Introducing a new layer of

protection will increase boundary problems, and a new right could lead to an increase in
litigation. The Re

iew has therefore decided not to recommend the introduction of utility

model patents. It makes a number of other recommendations in Chapter 5 to reduce the costs
of acquiring patent protection.

4.114

There ha

e been calls in the UK to introduce pure computer software patents to

ensure that inno

ation is properly protected and encouraged. In Europe, patents are not

granted for computer programs as such,

but patents ha

e been granted to computer-based

inno

ations pro

ided they ha

e a technical effect. In the USA, pure computer software

patents can be granted. The e

idence on the success of pure computer software patents is

mixed. The software industry in the USA grew exponentially without pure software patents,
suggesting they are not necessary to promote inno

ation.

The e

idence suggests software

patents are used strategically; that is, to pre

ent competitors from de

eloping in a similar

field, rather than to incenti

ise inno

ation.

4.115

In addition to the concerns that increased protection does not increase incenti

es,

some ha

e commented that pure software patents do not meet the criteria for patentability.

The most profound problem with using patent law to protect software is that inno

ation in

the field is usually accomplished in increments too small to be

iewed as in

enti

e steps.

eral submissions to the Call for E

idence, for example the Professional Contractors

Group’s submission, argued that software should not be patentable in principle. Where
freelance businesses de

elop software, they rely on copyright to protect it. This protection is

free and automatic. The copying of as little as

.7 per cent of a program’s code has in the past

been found to be infringement of copyright.

4.116

Introducing pure software patents could raise the costs for small software de

elopers

to mitigate against risks surrounding R&D, thereby inflating the capital needs of software
de

elopment. Sun Microsystems argued that without exceptions that allowed for re

erse

engineering for interoperability, pure software patents could stifle competition.

4.117

Last year, the European Parliament rejected the Computer Implemented In

entions

Directi

e, but this issue has been raised again. The economic e

idence suggests that such

patents ha

e done little to raise incenti

es to inno

ate, and other e

idence suggests that the

introduction of such patents will ha

e a chilling effect on inno

ation. In the absence of such

idence, a new right for pure software patents should not be introduced, and so the scope of

patentability should not be extended to co

er computer programs as such.

There is little

evidence that

software patents

increase

incentives

The Gowers Review

Section 1(2)(c) of the Patents Act 1977 and Article 52(2)(c) and (3) of the European Patent Convention.

Benson Revisited: the Case Against Patent Protection for Algorithms and Other Computer Program-Related Inventions,

Samuelson P., 1990. The Patent Paradox Revisited: An Empirical Study of Patenting in the US Semi-conductor Industry

Hall B. and Ziedonis R.,

RAND Journal of Economics

, 2001, Protecting Their Intellectual Assets: Appropriability Conditions

and Why US Manufacturing Firms Patent (or Not), Cohen W., Nelson R. and Walsh J.,

Management Science

, 2002.

A Manifesto Concerning the Legal Protection of Computer Programs,

Samuelson P. et al., 94 Columbia Law Review. 2308,

2344-46.

Call for Evidence submission, Professional Contractors Group.

N S T R U M E N T S

4.118

The Re

iew is concerned that business method patents fail to meet the criteria for

patentability; namely that in

entions are non-ob

ious and no

el. In Europe, business

methods are not patentable as such, while in the USA business models are patentable.

4.119

There is some e

idence from the USA that patents on business methods are not

necessary for incenti

ising inno

ation, and that the costs to de

elop business methods are

low and therefore the products ought not to qualify for a full term of patent protection. There
are additional practical concerns with increasing business method patents. In a 200

consultation, the Patent Office reported that SMEs were particularly concerned about
business method patents potentially increasing the regulatory burden.

4.120

Concern was raised in some responses to the Call for E

idence regarding the

patentability of genetic material. It is worth noting that the European Patent Con

ention and

Patents Act

977 explicitly excludes disco

eries from patentable subject matter.

4.121

The proliferation of patents in this field has an anti-commons effect in the USA,

where multiple owners each ha

e a right to exclude others from a scarce resource and no-one

has effecti

e pri

ilege.

For example, the genetic research company Myriad has a patent on

the breast-cancer-causing BRCAI gene. This enabled the company to claim rights o

er all

diagnostic screening tools. The owners of this patent exercised their exclusi

e rights by

bringing infringement suits against organisations such as the Marie Curie Institute in Paris,
which was conducting tests on breast cancer tissues, ordering that samples should be sent to
the company’s labs in Salt Lake City. The EPO struck this patent down.

4.122

The Re

iew supports the current position on pure software patents, business method

patents and gene patents, and recommends that changes to the current position should only
be made in light of economic e

idence that such changes would enhance inno

ation to offset

the considerable costs.

C O N C LU S I O N

4.123

This chapter has made a number of recommendations to ensure that the instruments

of IP are balanced, coherent and flexible. Chapter 5 will analyse the operations of these
instruments in the UK and make recommendations to ensure that the award, transaction and
enforcement of IP is transparent, comprehensible and affordable.

Gene patents

may stunt

downstream

innovation

The USA is out of
step with Europe

on business

method patents

The Gowers Review

Recommendation 17:

Maintain policy of not extending patent rights beyond their

present limits within the areas of software, business methods and genes.

Evidence from the Oxford Intellectual Property Research Centre and Olswang suggests that patents “may be obtained

by claiming and new inventive, technical method of implementing a business method”. [The First Mover Monopoly,

OIPRC].

Can Patents Deter innovation? The Anticommons in Biomedical Research, Heller M. and Eisenberg R.,

Science,

vol. 28, 1

May 1998.

P E R AT I O N S

The Gowers Review

5.1

This chapter is concerned with the way in which the instruments of the Intellectual

Property (IP) system operate. It is split into three sections, detailing how IP is awarded, used
and enforced. As identified in Chapter 3 the ideal IP system should display the following
characteristics:

•

award

of IP rights should be affordable, comprehensible, swift, predictable

and transparent, with only high-quality rights granted;

•

use

of IP should allow ease of buying, selling, licensing, securitising and

obser

ing IP rights; and

•

enforcement

of IP should be swift, affordable and judicious.

5.2

The structure and operations of UK IP courts and of national and regional patent

offices including the UK Patent Office, European Patent Office (EPO), Office for
Harmonisation in the Internal Market (OHIM) and World Intellectual Property Organization
(WIPO) ha

e been discussed in chapter

. This chapter re

iews how the three strands of

operations currently function, and identifies problems and makes recommendations on how
to address them.

AWA R D

5.3

The way in which IP rights are awarded must be affordable, transparent, swift,

consistent and accessible to all users.

Wo r k s h a r i n g

5.4

It is often necessary, especially in today’s global economy, for in

entors to seek patent

protection in a range of countries where there is an existing or prospecti

e market for the

product or process. Howe

er, there is no ‘international patent’ that grants protection

throughout the world and therefore patents must be obtained in each country where
protection is sought. To facilitate and simplify the procedures, attempts ha

e been made to

harmonise national patent laws.

5.5

The Patents Cooperation Treaty (PCT) instituted a procedure where a single

application is made which leads to a bundle of national patents. The PCT has two phases. The
first phase, the ‘international phase’, is conducted centrally; the second phase, the ‘national’
(or ‘regional’) phase, is conducted by national patent offices (or regional patent offices such
as the EPO).

5.6

During the ‘national’ or ‘regional’ phases, all patent applications are searched,

examined and, if thought to be patentable, granted by each national office where patent
protection is required. The initial phase of the PCT application results in an ‘international
search report’ and a preliminary examination report on patentability, but most countries do
not rely on these and conduct their own search and examination procedures. Accordingly,
there is a substantial duplication of effort. In 2005, nearly

,000 patent applications were filed

directly in the UK from Japan and nearly 4,000 were filed from the USA. The processing of
these applications may be further ahead in the country of first filing. By the time the UK
Patent Office is ready to conduct a search of the prior art (information already in the public

There is

considerable

duplication of

effort

Patents are

granted

nationally

P E R AT I O N S

domain),

it is likely that the Patent Office in the country of first filing has already conducted

such a search. In 2005, the UK Patent Office examined nearly 5,000 patents that had already
undergone search in at least one other jurisdiction.

5.7

Parallel search is undesirable for a number of reasons:

•

cost

– patent applicants must pay fees to e

ery national patent office to search

and examine an application. Although the criteria for patentability and the
prior art in the USA and Japan

are slightly different from those in the UK, the

material that will be searched by an examiner will be similar. Accordingly,
conducting multiple searches is a waste of resources. In 2002, UK companies
filed 2,060 PCT applications. If protection were sought throughout Europe, the
USA and Japan, each of these patents would be searched and examined by the
European Patent Office (EPO), Japanese Patent Office (JPO) and United States
Patent and Trademark Office (USPTO). The total cost for the searches would
be around £

,350.

By contrast, the application and search fees in the UK are

only £

30;

•

time delays

– this duplication of effort increases national patent offices’

workloads and creates backlogs. The USA had a backlog of nearly half a
million applications in 2005.

This increases the amount of time taken to issue

patent protection, which adds to costs for the applicant and adds to the time
that follow-on inno

ators ha

e to wait before they can access information

contained in the patent and build on it themsel

es. The UK Patent Office does

not ha

e extensi

e delays and is able to start processing applications in most

fields of technology soon after they are filed, but problems are still faced by
British businesses and indi

iduals when filing patents abroad. This can also

cause a drain on resources in de

eloping countries, many of whose patent

offices are engaged largely in issuing IP protection for foreign in

entors; and

•

lower quality

– in response to these spiralling backlogs many patent offices

e set targets to speed up patent applications. Howe

er, this has led to fears

that searches will be less thorough and that consequently patents granted
could be subject to more legal challenges, leading to greater uncertainty.

5.8

One solution to this problem is to establish work sharing arrangements between the

arious patent offices around the world. Patent offices would share information on patent

search (and possibly also examination results) where it is rele

ant to the application for a

patent in another country. Further harmonisation of patent law, for example on patentable
subject matter, would naturally expand the scope for work sharing.

5.9

Any work sharing will require national offices to produce reliable searches and

examinations upon which other offices will be able to base patent grants. The table below
illustrates which areas of patent applications could be co

ered by work sharing arrangements

between Japan, the USA and Europe.

The Gowers Review

Under section 17 of the Patents Act 1977.

UKPO Annual Report,

2006.

The USA and Japan are both ‘relative novelty’ countries meaning that use of a patent outside the USA or, as the case may

be, Japan does not anticipate the invention. This contrasts with the EPO and UK, which both adopt ‘absolute novelty’

standards meaning use anywhere in the world will anticipate the invention.

Based on Patent Office data – EPO: application/filing £109, search £653 and designation fee £51, USPTO:

application/filing £172, search £286, JPO: application/filing £79.

See Patents (Fees) Rules 1998 (SI 1998/1778), Part A of the Schedule.

http://news.com.com/Patent+Office+chief+endorses+legal+reform/2100-1028_3-5683954.html.

This may be possible as the Substantive Patent Law Treaty progresses.

P E R AT I O N S

Table 5.1: The scope for work sharing between Japan, the USA, and
European Patent Convention (EPC) contracting states

Potential for

Japan

EPC

work sharing?

Patentability

Novelty

Yes

Inventive
step

Yes

Industrial

application

Yes

Continuation in part

Yes

Early publication

Yes

6 months,

limited

Grace period

6 months

12 months

disclosure

Patentable subject

Business

matter

method

Yes

Plant variety

Yes

Software

Yes

Source: Japanese Patent Office.

5.10

The JPO has been acti

e in looking at useful, long-term solutions to accelerate patent

applications and reduce duplication of effort. Its solution is known as the ‘Patent Prosecution
Highway’ (PPH) and in

es mutual sharing of search and examination results between an

Office of First Filing and an Office of Second Filing. The JPO explains how the proposed
solution would work:

“On condition that patent application X is determined to be allowable in Country A,
the corresponding patent application X in country B will be deemed as qualified for
accelerated examination through a simple procedure.”

5.11

Trilateral discussions between the EPO, JPO and USPTO ha

e resulted in a pilot of the

PPH being agreed between the JPO and USPTO.

5.12

The UK has already contracted out some search and examination work to the Danish

and Netherlands Patent Offices with high success rates. This is different from work sharing as
it is simply using extra capacity at other national patent offices to perform searches on behalf
of the UK Patent Office. Ne

ertheless, it demonstrates that one office can ha

e confidence in

and rely upon searches conducted by another office. The Patent Office has also been engaging
directly with the USPTO, JPO and EPO to discuss work sharing. Examiner exchanges between
offices ha

e shown approximately an 80 per cent identical response to search

, which is a

promising basis on which to build.

The Gowers Review

Recommendation 18:

The Government should encourage the EPO to pursue work

sharing with the USPTO and JPO.

Patent Prosecution Highway: Solution to Timing of Work and Maximisation of Benefits of Exploitation of Other Offices’ Search

Results

, Japanese Patent Office, 2006.

Patent Office Information.

P E R AT I O N S

C o m m u n i t y Pa t e n t

5.13

973, the members of the EEC at that time and others, including Switzerland,

created the European Patent Con

ention (EPC). The EPC pro

ides a single standard for

patentability across the contracting states

and established the EPO. Under this regime, a

patent application undergoes search and examination at the EPO. If the application is granted
it leads to a bundle of national patents. Any infringement or re

ocation actions

are

conducted in relation to each national patent.

5.14

While the EPO regime is preferable to a system of wholly independent national

patents there are a number of problems:

•

parallel litigation

–

once a patent has been granted by the EPO, each patent is

subject to the laws and procedures of the states in which it applies. No

erdict

by one national court can bind the decision of another. This means that if a
patent proprietor successfully pro

es in one country that this patent has been

infringed the judgment does not bind, and does not e

en necessarily predict,

the outcome in another state. One famous instance of di

ergent

erdicts was

the Epilady case where the UK and German courts reached opposite

erdicts.

As well as being costly to litigate similar infringements in separate states, the
current system increases uncertainty for patent proprietors;

•

renewal fees

–

after the EPO has granted the patent, any further renewal fees

are paid to national offices, rather than a single renewal fee being paid to the
EPO. This unnecessarily adds to patent renewal costs. The approximate cost to
renew a European patent, across only six countries,

er ten years is £3,8

in renewal fees.

In the USA, renewal fees to the tenth year are £

,830.

In this

estimate, the size of the market in terms of population would be
approximately 377 million compared to a market of 298 million in the USA;

•

translation costs

–

at present, a European patent will only be

alid if it is

translated (or applied for) in the language of the rele

ant country.

Therefore,

a patent application filed in English would not ha

e effect in France or

Germany until it is translated into respecti

ely French and German. The cost

EPO patent

applications

result in a

bundle of

national patents

The Gowers Review

Recommendation 19:

Patent Office should pursue work sharing arrangements with

EPC member States, and trilaterally with the USA and Japan to reduce cross-national
duplication of effort.

It adopted much of the earlier Convention on the Unification of Certain Points of Substantive Law on Patents for

Invention (Strasbourg Convention), which was another Council of Europe Convention.

It is, however, possible to oppose the grant of a European patent centrally provided this is done with 9 months of grant.

http://www.publications.parliament.uk/pa/cm199899/cmselect/cmtrdind/380/9051106.htm. The cases are reported at

Improver

Remington

(1989) RPC 69 (UK);

Improver

Sicommerce/Remington

(1990) IIC 572 (Ger). Different reasoning was also given in

the Netherlands, see Beska & Remington/Improver (1990) IIC 586 (Hague, CA) and (1990) IIC 589 (Hague, DC).

Renewal in all signatory states to the EPO would, of course, be far greater.

Based on an average patent which is issued in 6 states. Years 3-4 EPO renewal fees; years 5-10 member state renewal

fees. Estimate source: Treasury analysis of Patent Office data.

Patent Office Data.

Based on UK, Germany, France, Spain, Italy and Switzerland estimated population.

The rights accruing on publication (under section 69 of the Patents Act 1977) presently only apply where an English

translation of the specification is available: but see the Patents (Translations) Rules 2005 (SI 2005/687) which will remove

this requirement if, and when, the London Agreement comes into effect.

P E R AT I O N S

of translations substantially increases the cost and introduces delays for the
applicant, as well as lengthening the time it takes for other inno

ators to

iew

the details of the patent.

5.15

A proposed solution is a unitary Community Patent (COMPAT). This would be a

single right co

ering the whole community with single application and litigation procedures.

The Re

iew strongly belie

es COMPAT would resol

e the issue of duplicated litigation and

also make the le

els of renewal fees more rational and cost effecti

e. The Re

iew recognises

that difficulties remain surrounding translations. In particular the fact that a patent
application filed and granted in some Community languages may be difficult for inno

ators

in the United Kingdom to understand without paying for their own translations.

Howe

er, it

belie

es that these problems can be o

ercome and that, on balance, the ad

antages of such a

system greatly outweigh the disad

antages in the long term. Accordingly, the Re

iew supports

a workable Community Patent. In the meantime, there are interim approaches such as EPLA
and the London Agreement, which can deli

er real benefits and work with the grain of an

entual COMPAT solution.

T h e L o n d o n A g r e e m e n t

5.16

Once the EPO has granted a patent it is necessary for a translation to be filed before

the resulting national patent has effect in a particular country.

The a

erage length patent

application, at 22 pages, costs approximately £950 to translate. Assuming this is translated
into fi

e different languages, the a

erage number of foreign states for which protection is

sought, it will cost £4,700. If it were translated into the languages of all states contracting to
the EPC it would cost £20,200.

5.17

The problem caused by translation costs has been recognised for many years. In 2000,

the signatory states of the EPO negotiated the London Agreement. This Agreement pro

ides

that an application filed in any of the official languages of the EPO (English, French or
German) need not be translated into any other language to take effect in a country which has
ratified the Agreement. The right to require that claims are translated at the time of grant into
languages other than the official languages would be retained.

5.18

In order to come into force, the London Agreement must be ratified by eight

contracting states, including France, Germany and the UK. It currently has eight signatories,
including Germany and the UK, and requires ratification by the French to come into force.
The London Agreement has been strongly supported by many responses to the Call for
E

idence, including the Stockholm Network and Microsoft who note that translations of

patents into each country’s national language account for the biggest part of European
patent costs.

Translation costs

for European

patents are high

The Gowers Review

The problem may be worse in other member States as it is likely that most applications would be filed in either English

or German if COMPAT trends follow those of the EPO.

See the note above on the rights accruing on publication.

The London Agreement: European Patents and the Cost of Translations,

EPO, 2006.

Recommendation 20:

Continue to support and expedite the establishment of a single

Community Patent through negotiations in Europe.

P E R AT I O N S

5.19

en the significant benefits of the London Agreement, the UK should continue to

work with the French Go

ernment towards ratification.

It should also encourage other EPC

States to ratify the Agreement.

Q u a l i t y a s s u r a n c e

5.20

Patent quality refers to how well the patent was prepared and examined and how well

the patent meets patentability requirements. Patent quality is different from technical merit
and patent

alue. The patent for a truly pioneering in

ention can be poorly prepared and

examined and therefore of high technical merit but low quality. A patent for a commercially
insignificant in

ention can be optimally prepared and examined and therefore of high quality

but low

alue. It is crucial that patents awarded are not too broad in scope and meet the

patentability criteria, otherwise inno

ation will be stunted.

5.21

If a high proportion of patents that are challenged are held to be

alid, this suggests

the granting office has granted a high quality patent. Con

ersely, high numbers of patents

being declared in

alid suggests poor quality patents ha

e been awarded. Re

ocation

proceedings determine whether the patent grant is

alid, and can also therefore be used as an

indication of patent quality. It is common practice for a declaration of in

alidity to be

included as a counter-claim to an infringement claim.

5.22

Legal proceedings that result in the remo

al of poor quality patents will impro

e the

quality of the stock of patents. More importantly, the quality of new patents being awarded
can be impro

ed. This can be achie

ed by a stringent application of the no

elty test and the

enti

e step test, by more obser

ations being submitted, or by introducing pre-grant

opposition procedures.

5.23

The UK Patent Office has generally shown that it grants patents of a good quality. In

recognition of the quality of work at the UK Patent Office, the Office recei

ed “ISO 900

:2000”

re-certification for its pre-grant patenting process in 2006 with the award extended to co

its commercial patent search ser

ices operation. ISO is the International Standard for quality

management systems. The UK Patent Office is the first Patent Office in the world to attain and
retain this award. Howe

er, there is still scope to impro

e the performance of the Office.

5.24

One important factor in maintaining quality of grant is ensuring that patents are

examined properly for whether they in

e an ‘in

enti

e step’.

In recognition of this, this UK

Patent Office ran a consultation on the in

enti

e step requirement during the period of this

iew.

The results of that consultation are yet to be published. The Re

iew agrees with the

Patent Office that it is important that the ‘in

enti

e step’ is set at the correct le

el. If it is set

too high, not enough patents will be granted for genuinely in

enti

e products. It is also

important for international coherence: if the UK Patent Office makes it too difficult to satisfy

High quality

patents should

avoid impeding

competition

The Gowers Review

Recommendation 21:

Government should support the London Agreement as an

interim step towards COMPAT, and as an improvement in its own right.

It should be noted that the French Constitutional Court has ruled that the ratification of the London Agreement would

not be contrary to the French Constitution: Decision 2006-541 – 28th September 2006.

Of course, as so few patents are litigated, decisions in invalidity cases are not always indicative of the number of patents

not reaching quality levels, particularly as it is likely that only the ‘lower’ quality patents reach litigation rather than settle

earlier in the dispute.

The requirement to have an inventive step is set out in section 3 of the Patents Act 1977, which states that something

involves an inventive step of it is not obvious to a person skilled in the art, having regard to any matter which forms the

state of the art (also see EPC Article 56).

The consultation document is available at: www.patent.gov.uk/consult-inventive.pdf.

P E R AT I O N S

the in

enti

e step requirement, but the EPO has a lower standard, applicants will simply

apply to the EPO ensuring their applications are treated more generously. If the in

enti

e step

is too low, too many non-inno

ati

e patents could be granted which pre

ent genuine

inno

ators from obtaining IP rights.

5.25

Once a patent application has been published,

it is possible for obser

ations on the

patent to be filed by a third party.

Third parties place obser

ations drawing attention to facts

they belie

e ha

e a material bearing on whether the patent should be granted, and what

scope it should ha

e. The examiner decides how to take account of obser

ations.

Obser

ations are useful as they pro

ide more information to the examiner. The obser

ation

procedures at the UKPO are rarely used: only about

in 200 applications which undergo

substanti

e examination (where a patent examiner determines whether a patent meets the

criteria for grant) ha

e obser

ations filed against them. There is limited incenti

e for

companies to file obser

ations against a competitor if they are aware of prior art, instead they

may be able to force a licence post grant by exerting that prior art. Also, those who file
obser

ations are not in

ed in the obser

ation process and are only informed of the

outcome. The graph below shows the number of obser

ations at the UK Patent Office in 2004

and 2005, with a slight increase in the last year.

5.26

Obser

ations made under this procedure are known as ‘section 2

’ obser

ations. The

process for making obser

ations should be streamlined to encourge use. The Patent Office

should undertake initiati

es to make patents against which obser

ations can be filed clearer

and easier to

iew, and therefore make it easier to access the obser

ations process. Awareness

of the obser

ation process should be raised through the Patent Office website. Online file

inspection should allow easier access for the third party raising the obser

ation to

iew the

The Gowers Review

Source: Patent Office data.

Chart 5.1: Observations made on patentability at the
UK Patent Office 2004-2005

Applications with observations filed

Number of obser

vations

Observations rejected (application granted or terminated)

2005

2004

This is normally 18 months after the (declared) priority date: see rule 27 of the Patents Rules 1995.

Section 21 of the Patents Act 1977.

P E R AT I O N S

discussion between the applicant and the examiner. This would make it easier for the third
party to make points of clarification if necessary, assisting the patent examiner to make a
better judgement.

5.27

The EPO has patent oppositions

post

-grant. The oppositions allow a party to

challenge the grant of a European patent within nine months of it being granted.

This

procedure was introduced to allow for a single challenge to be made to the European patent
rather than requiring re

ocation proceedings to be started in each country where the patent

has effect. The opposition procedure at the EPO can take from three to four years and has on
occasion taken as long as sixteen years. During the time the European patent is subject to
opposition it lea

es the extent of the patent proprietor’s rights in doubt. The Re

iew does not

therefore recommend patent opposition procedures, either pre-grant or post-grant, at the UK
Patent Office, because they can add significant time delays to patent grants. The Re

iew

outlines a number of other recommendations to impro

e the quality of patents.

5.28

Professor Beth No

eck, Director of Institute for Information Law and Policy at the

New York Law School, has recommended a system of Community Patent Re

iew.

Her

proposal is intended to harness the collecti

e knowledge of experts through the Internet in

order to help patent examiners find the right citations. The public is in

ited to submit prior

art

ia a webpage, which can then be rated by the community. The rewards for submitting

prior art are largely reputational.

5.29

The intention of No

eck’s project is to ensure that bad patent applications are not

granted and to narrow claims in applications in order to narrow the scope of protection. The
project should also accelerate the process of searching prior art at the patent offices and
enhance the assumption of patent

alidity. Ultimately, it should impro

e the quality of the

patents granted. The diagram below shows how the Community Patent Re

iew process is

designed.

Community

Patent Review

could improve

quality of patents

granted

The Gowers Review

Recommendation 22:

Maintain a high quality of patents awarded by increasing the use

of ‘section 21’ observations: streamlining procedures and raising awareness.

Part V of the EPC.

Peer to Patent: Collective Intelligence for our Intellectual Property System

, Noveck B., 2006.

P E R AT I O N S

5.30

The USPTO will launch a one-year pilot of ‘open re

iew’ in early 2007 which will

e 250-400 patents.

eral large software firms ha

e agreed to their patent applications

being put through Community Re

iew. This Re

iew belie

es that the Community Re

iew

process could significantly enhance the quality of patents granted. Gi

en the different context

of the UK market, the Re

iew belie

es that a pilot should be conducted in parallel in the UK

in 2007.

5.31

Many newer areas of science are mo

ing exceptionally quickly, such that inno

ators

and patent examiners may be unaware of much prior art of rele

ance to patent applications.

5.32

The training patent examiners recei

e in new areas of new technology should be

increased to ensure that all patents granted are of a high quality. The Patent Office trialling of
patent clustering techniques should be used to identify future technology hotspots and thus
enable the training of patent examiners to be more pre-empti

e in these areas. Increasing ties

between research establishments and the Patent Office can help facilitate this. This stream of
work as well as Community Patent Re

iew can be taken forward through the Patent Office for

the 2

st Century programme.

The Gowers Review

Chart 5.2: Community Patent Review process diagram

Source: Community Patent Review Project Summary

Recommendation 23:

The Patent Office should conduct a pilot of Beth Noveck’s

Community Patent Review in 2007 in the UK to determine whether this would have a
positive impact on the quality of the patent stock.

Recommendation 24:

The Patent Office should develop stronger links with universities

and other research institutions, including through short placements, to ensure that IP
examiners are aware of recent developments in technology.

Community Patent Review project summary, accessed at http://dotank.nyls.edu/communitypatent.

P E R AT I O N S

F a s t Tr a c k s y s t e m f o r p a t e n t s a n d t r a d e m a r k s

5.33

The processing time for applications for patents and trade marks is especially

important in areas of fast-mo

ing technology where product lifecycles are reducing. It

currently takes between six and nine months from filing a trade mark application for it to be
granted (including three months for opposition proceedings). For patents, the a

erage time

between the filing of a request for substanti

e examination to the patent being granted is

eighteen months and the a

erage time from the date of filing of an application to the patent

being granted was 28 months in 2005.

This is significantly faster than the a

erage time from

filing to grant at the EPO, which was 46.2 months in 2004,

but in a fast mo

ing business

ironment there are clearly ad

antages in streamlining the system further.

5.34

Delays in grant time reduce the attracti

eness of technologies to potential in

estors,

which can be a particular problem for SMEs. Speed to market is the single biggest issue for
successful, inno

ati

e companies. Consequently, pro

iding timely protection for patents and

trade marks is crucial.

5.35

The Patent Office already pro

ides a fast track ser

ice for accelerated examination,

and combined patent search and examination (CSE) neither of which incur a greater fee. In
2005-06, a third of applications going through examination were for combined search and
examination or accelerated examination not under the CSE process.

Lack of use of this

system may result from a lack of knowledge of the a

ailability of the process or from strategic

decisions by business in order to delay grant. Some businesses may prefer a slower process as
this establishes their priority date o

er an idea, and gi

es them extra time to de

elop their

product before deciding whether to incur the full costs of registration. Others will seek fast
grants to pro

ide certainty.

5.36

The EPO project BEST (Bringing Examination and Search Together) is similar to the

CSE a

ailable at the UK Patent Office. This is intended to impro

e efficiency at the EPO and

reduce backlogs. This has allowed applicants to ha

e a single point of contact and thus

impro

ed end-to-end ser

ice. It was used for

24,000 searches and 30,500 examinations in

2004.

5.37

Clearly, to some extent there is a trade-off between awarding rights quickly and

awarding rights of a high quality. For example, it can take up to two years for rele

ant prior art

to appear on external search databases, so speeding up the grant process means prior art
cannot be fully assessed before grant. For this reason standard grant procedures carry less risk
of an unpublished parallel application emerging after grant. The current patent fast track
system a

ailable should be impro

ed to allow for a comprehensi

e, “accelerated grant”

process. This should enable rights to come into effect more quickly.

Fast track

services for

patents exist

Patents and

trade marks

should be

granted quickly

The Gowers Review

Patent Office Data.

European Patent Office Annual Report

, 2004.

Patent Office Data.

EPO Business Report

, 2004.

Recommendation 25a:

Introduce accelerated grant process for patents to complement

the accelerated examination and combined patent search and examination procedures.

P E R AT I O N S

5.38

In today’s fast mo

ing business en

ironment products are regularly launched within

short timescales. The Patent Office recently consulted on ending the practice of refusing
applications on the (relati

e) grounds

that the mark applied for conflicts with an earlier

trade mark.

The Re

iew supports the proposal of the Patent Office to end such refusals and

to continue searches for the purpose of notifying applicants and others. The Re

iew also

notes that this will potentially make it possible to speed up the processing of trade mark
applications. The Re

iew proposes that a fast track system (in addition to the normal system)

should be a

ailable to allow for trade marks to be examined and accepted within

0 days of

the application being filed. Once the application is accepted it can be published and
thereafter the 3-month opposition period would begin. This fast track system should be
accompanied by a higher fee.

U S E

5.39

It should be as easy as possible to buy, sell, license, securitise and obser

e IP rights

both in the UK, and for British firms abroad. Moreo

er, competition authorities must ha

e the

ability to curb any abuse of monopoly power stemming from IP rights.

B u s i n e s s a d v i c e

5.40

Businesses negotiating the complexity of the IP system require ad

ice concerning:

application for IP; legal ad

ice on how to defend IP; and ad

ice on how to manage IP

internationally. Legal ad

ice in particular is expensi

e. While these costs fall on all businesses,

they are particularly onerous for SMEs, as NESTA highlighted in its submission. Public
pro

ision of IP ad

ice in the UK is currently patchy.

5.41

The Patent Office has run IP awareness initiati

es for businesses. It also pro

ides

information to Companies House, which is passed to new companies when they register.
While users ha

e found this information beneficial, more can be done. Currently information

pro

ided to new businesses through Companies House focuses exclusi

ely on the means of

trade marking the company name. Pro

iding generic information to all enterprises through

Companies House is a cost-effecti

e way of reaching business. The Patent Office could

supplement this ad

ice by pro

iding a basic guide to the IP system. It could usefully include

information about what types of IP rights exist, what kind of ideas they apply to, and how they
can be obtained and used.

5.42

In addition to pro

iding information when a business is set up, it is important to

increase awareness of IP for the existing businesses. One interesting example of ad

ice

pro

ided to SMEs is the IP Genesis project in France, described in Box 5.

below.

Businesses

have limited

knowledge of IP

Trade mark

registration

The Gowers Review

Recommendation 25b:

Introduce fast track registration for trade marks.

See section 5 of the Trade Marks Act 1994.

The Consultation is available at: http://www.patent.gov.uk/consult-relative.pdf; and the responses are published at

http://www.patent.gov.uk/response-relative.pdf.

Recommendation 26:

The Patent Office should provide comprehensive information on

how to register and use IP rights for firms registering with Companies House.

P E R AT I O N S

5.43

The Patent Office could ensure that the information it pro

ides reaches business

through greater collaboration with Business Link offices. Currently this relationship is fairly
ad hoc. A more formal relationship could entail Business Link collecting and distributing best
practice data alongside Patent Office information. In addition it should inform the Patent
Office what businesses’ questions are in relation to IP. This symbiotic relationship would
enable the Patent Office to tailor information pro

ision and specific ad

ice programmes to

emerging business needs.

5.44

Businesses are particularly unaware of the international system of IP rights. The

Confederation of British Industry (CBI) estimates that approximately 70 per cent of
businesses are unaware that domestic IP does not pro

ide protection abroad. Gi

en this low

knowledge of foreign IP regimes, it is unsurprising that UK firms take out little foreign IP. The
UK ranks fifteenth in terms of triadic patent applications per million population. And in 2002,
only 4.8 per cent of EPO applications came from the UK compared to

per cent from

Germany, 27.3 per cent from the USA and

7.4 per cent from Japan.

Notwithstanding the fact

that patent quality is more important than pure numbers, the le

el of UK applications seems

inordinately lower that than for other comparable economic areas. Impro

ed business ad

ice

on patenting abroad should aim to increase international applications and subsequently
increase presence of UK businesses in international markets. As well as filing a small amount
of patents in Europe, the UK is lagging behind in Chinese patent applications, as Chart 5.3
shows.

The Gowers Review

Box 5.1: Case study - French Patent Office IP Genesis

The project IP Genesis at the French Industrial Property Office offers a free IP audit to
SMEs who are not using the IP system, especially the patent system. This encourages these
SMEs to consider IP in a strategic fashion having received expert advice. The service was
used by 464 French SMEs in 2005, the vast majority of which were for SMEs with between
1 and 20 employees. The level of satisfaction with the project was high and 51 per cent of
participating firms subsequently applyed for some form of registered IP protection.

Clearly, the increase in the levels of IP is not a measure of success in itself, but indicates
that the firms who had participated in the scheme had increased awareness of IP and how
it might be applicable to their business.

Pré-diagnostics propriété industrielle, INPI (French Industrial Property Office), 2006.

Recommendation 27:

Improve SME business IP support by establishing formal

collaboration between the Patent Office and Business Link and by conducting a pilot
replicating the French ‘IP Genesis’ scheme.

Compendium of Patent Statistics

, OECD, 2005.

P E R AT I O N S

5.45

Currently, information is pro

ided to UK firms expanding abroad by UK Trade and

estment, an agency of the DTI. Other countries, such as Japan, ha

e links with key

embassies abroad to ensure that either there is an IP expert at the embassy or there is a link
between embassies to offer tailored ad

ice. IP Australia has established a Marketing

Department that pro

ides IP guides, multimedia products, case studies and seminars.

K n o w l e d g e t r a n s f e r / l i c e n s i n g

5.46

As discussed in Chapter 2, licensing of IP is increasing. Licensing agreements are

generally complex and there are no industry wide standard contracts. The time taken to
negotiate licences

aries depending on the relationship between the parties, for example

whether the interaction is friendly or ad

ersarial. Strained licensing negotiations last on

erage 3-5 years, and e

en mutually beneficial negotiations can last approximately 6

months. A delay in getting to market can threaten a company’s position, especially in areas of
fast mo

ing technology such as the computer industry. This was highlighted in se

eral

responses to the Call for E

idence. In addition to being slow, licensing can be costly.

5.47

The Lambert Re

iew of Business-Uni

ersity collaboration

recommended model

agreements between businesses and uni

ersities. These agreements, de

eloped in

consultation with stakeholders, reduce the transaction costs and pro

ide a fair and

transparent contractual arrangement for both parties.

Licensing is

crucial to firms

The Gowers Review

Source: SIPO statistics, 2005.

Chart 5.3: Top ten foreign countries, and the UK, filing
patent applications in China, per million inhabitants, 2005

100

150

200

250

300

UK (18th)

France

USA

Denmark

Germany

Sweden

Finland

South Korea

Netherlands

Switzerland

Japan

Applications per million inhabitants

Recommendation 28:

DTI should investigate how best to provide practical IP advice to

UK firms operating in foreign markets, in coordination with industry bodies, the Patent
Office and UK Trade and Investment.

Accessed at: www.hm-treasury.gov.uk/media/DDE/65/lambert_Review_final_450.pdf.

P E R AT I O N S

5.48

Since the introduction of the model agreements, the le

el and quality of business –

uni

ersity collaboration has impro

ed.

The model licences should be extended to pro

ide a

selection of business-to-business model licences. These should help to reduce the time and
costs of licensing. As an association of blacksmiths noted in its response to the call for
e

idence: “a set of standard a

ailable templates would help with licences.” Such licences

would be particularly useful for SMEs.

5.49

The Patent Office should start to de

elop such licenses through Go

ernment-

Industry working groups. Analysis of the current Lambert agreements and their strengths and
weaknesses in practice should inform the new model agreements. In particular, one or more
model licences should be de

eloped to assist firms wishing to negotiate licences with

partners at home and abroad.

5.50

One means of increasing the use of information contained in patents is through

‘licence of right’ patents. Under licence of right pro

isions the patent proprietor pays only

half the patent renewal fee.

In exchange, a third party can apply for a licence as of right

under terms agreed between the parties, or, failing agreement, by the comptroller, who is the
Chief Executi

e of the Patent Office. Licences of right can increase liquidity in the market.

Howe

er, the take up of these licences is low, at around 0.5 per cent of patent renewals, and

has not increased in recent years. This is partly due to a lack of awareness, especially among
small businesses, and partly due to the unattracti

eness of negotiating licensing agreements.

If a model licence was a

ailable for licences of right, this could make them significantly more

appealing. In addition to pro

iding a model licence, the Patent Office should publicise the

patents a

ailable as licences of right. This would enable inno

ators to identify rapidly what

patents rele

ant to their area of R&D are a

ailable as licences of right.

P u b l i c d o m a i n v i s i b i l i t y

5.51

After IP protection expires the ideas and their expressions fall into the public domain.

In the public domain this knowledge can be used by follow-on inno

ators. A good example of

an idea which was ne

er de

eloped whilst co

ered by patent protection, but subsequently

became hugely profitable in the public domain, is Whittle’s jet engine. The Patent Office
currently publishes both UK patents and European patents (UK) which ha

e expired. These

are a

ailable as a list of Patent numbers in the Patents and Designs Journal, published

regularly online by the Patent Office. Howe

er, the current format is rather inaccessible.

5.52

The Patent Office should make the publication of in

entions which are a

ailable for

use more accessible. An easily accessible, open standards database should be pro

ided that

people can draw upon to identify in

entions in the public domain. The in

entions should be

grouped by subject, with a brief description of the in

ention so that they can be easily

identified. This should link to esp@cenet patent entries for maximum transparency.

Licence of right

patents

Model licences

facilitate

agreements

The Gowers Review

Recommendation 29:

The Patent Office should develop ‘Business-to-Business’ model IP

licences through industry consultation, and assessment of the Lambert model licences.

Recommendation 30a:

The Patent Office should publish and maintain an open

standards web database, linked to the EPO’s esp@cenet web database, containing all
patents issued under licence of right.

Higher Education Business and Community Survey 2005

, HEFCE, 2005 accessed at http://www.hefce.ac.uk.

Section 46 (3) (d) of the Patents Act 1977.

P E R AT I O N S

A c c e s s t o f i n a n c e

5.53

As discussed in Chapter 2, despite the rising importance of intangible assets, current

accounting standards in the EU and USA do not satisfactorily capture their

alue. According

to the Intellectual Assets Centre, businesses are often under

alued by up to 80 per cent

because they fail to take account of their intangible assets.

This is especially problematic in

the case of IP that has been internally generated, rather than purchased or licensed for a fee.
If intangible assets are not properly accounted for this will lead to sub-optimal in

estment

decisions being taken by in

estors.

5.54

As a result of poor

aluation of intellectual assets, companies encounter problems

raising

enture capital. Access to finance is especially problematic for SMEs. Best practice

guidelines should be de

eloped in order to reduce this reporting gap and the subsequent

impact on businesses. The Re

iew supports initiati

es to amend accounting standards to take

account of intellectual assets and in the meantime encourages firms’

oluntary use of an IP

report. An IP report would help to focus a firm on its IP and help to explain how a firm’s IP
relates to its strategy. Howe

er, this type of reporting is still in its infancy and is not a perfect

solution to the problem.

5.55

In terms of o

erall budget, Patent Office fees are generally insignificant

(approximately £200 in total to grant a patent) compared to the fees charged by patent agents
(approximately £300 per hour).

The total cost of professional patent filing fees ranges from

,000 to £6,000.

These fees can be unaffordable to SMEs. The problem of fees from legal

representation is exacerbated when applying for patents abroad as Table 5.2 shows.

Professional

representation

comprises the

bulk of costs

The Gowers Review

Recommendation 30b:

The Patent Office should publish and maintain an open

standards web database, linked to esp@cenet containing all expired patents.

Recommendation 31:

DTI should consider whether guidance for firms on reporting of

intangible assets could be improved, including the provision of model IP reports.

Annual Review,

Intellectual Assets Centre, 04/05.

Call for Evidence submission, Federation of Small Businesses.

Patent filing fees for legal advice from Appleyard Lees Patent Attorneys, and Trevor Bayliss Brands plc.

P E R AT I O N S

Table 5.2: Typical legal and administrative costs of an international patent application

Timeline

Stage

International PCT

UK patent

patent application

application

Time “T”

Filing basic UK priority application

£1,500 – £7,500

T + 12 months

International filing application

£3,500 – £4,000

–

T + 16 months

UK statement of inventorship

£600 – £1,500

T + 17 months

Demand for international preliminary examination

£1,700

–

T + 2 years

Response to international preliminary report

£500 – £1,500

–

T + 2.5 years

Entry to National/Regional phase

USA

£1,500 – £2,000

–

EPO

£2,000 – £5,000

–

Japan

£4,000

–

Other countries

£1,500 – £4,000

–

T + 3.5 years

Examination under National phase

USA

£2,000 – £5,000

–

EPO

£0 – £2,000

–

Japan

£2,000 – £5,000

–

Other countries

£500 – £1,500

–

T + 4.5 years

Grant procedures

USA

£1,500

–

EPO

£18,000 – £28,000

–

Minimum likely total cost

(USA/EPO/Japan)

£38,800

Maximum likely total cost

(USA/EPO/Japan)

£68,700

Source: Frank B. Dehn & Co. Patent and Trade Mark Attorneys, 2003.

Including translation fees.

5.56

In its submission to the Call for E

idence, the Federation of Small Businesses

highlighted the prime difficulty for SMEs accessing registered IP rights as cost, mainly in the
area of IP solicitors and firms of patent attorneys. The Re

iew is not recommending creating

two fee structures at the Patent Office to allow for cheaper fees for SMEs, on the basis that fees
are already

ery cheap at £200.

5.57

R&D tax credits are a

ailable for SMEs (and now larger corporations) but these

specifically do not co

er IP applications. Se

eral submissions ha

e called for R&D tax credits

to be extended to help pay for patent agents. The Re

iew is not recommending extension of

R&D tax credits to pay for the acquisition of IP because acquiring IP is not in itself R&D.

5.58

There are schemes to support SMEs in other countries. For example, the Welsh

Assembly Go

ernment pro

ide grants at up to 50 per cent of costs (within maximum limits)

to co

er patent agent and Patent Office fees. In

est Northern Ireland also pro

ide matched

funding. Spanish initiati

es pro

ide soft or interest-free loans to help with national, European

and international patent applications.

Enterprise Ireland in some cases will fund the

procedure for obtaining patents in Ireland and abroad; the financial assistance may co

er up

00 per cent of the costs of the process of obtaining the patent. Some royalties from the

product go back to Enterprise Ireland.

Other countries

provide support

for SMEs

The Gowers Review

WIPO Workshop on Small and Medium-Sized Enterprises (SMEs) and Industrial Property,

WIPO, 2002.

Ibid.

P E R AT I O N S

5.59

Some matched funding schemes do exist in England, for example they are pro

ided

by SEEDA (South East of England De

elopment Agency). European grants are a

ailable to

regions such as Yorkshire and South Wales. Howe

er, there is no nationally coordinated

approach.

5.60

The best source of information on the a

ailable funding in England is from Business

Link. It would be useful to connect regional agencies together to pro

ide one coherent source

of what is a

ailable so that businesses can be directed to the rele

ant agencies by the Patent

Office and other organisations.

5.61

The connection between RDAs and Business Link in terms of funding pro

ided

should be impro

ed. Better ad

ice can then be pro

ided to SMEs on where to find financial

support within the boundaries of State Aid rules under Community law. This will complement
measures in Scotland, Wales and Northern Ireland. These should be a

ailable to SMEs and

lone in

entors and should focus especially on linking with ad

ice on obtaining IP abroad in

order to expand UK firms’ acti

ity in international markets.

5.62

RDA best practice should also be shared to impro

e the support pro

ided to SMEs

and reduce the burden of patent agent fees. For example, SEEDA has introduced the ser

ices

of an IP ad

isor in order to support clients. This ser

ice can pro

ide ad

ice at a reduced rate

on matters such as IP audits, assistance with filing an application, pre-application ad

ice and

licensing. Such RDA best practice should be shared throughout the UK in order to maximise
the support at reduced professional rates.

C o l l e c t i n g s o c i e t i e s

5.63

Collecting societies licence rights to use copyright protected content to third parties.

They exist to sa

e licensees the time and cost of negotiating licences with each indi

idual

rights holder. There are se

eral music rights organisations in the UK, the main ones being

Mechanical Copyright Protection Society/Performing Rights Society (MCPS/PRS) and
Phonographic Performance Limited (PPL) who collect royalties dependent on the type of
music rights required. A broad range of people pay these collecting societies, including music
and music

ideo broadcasters, those who play music on business premises and those who

pro

ide music ser

ices to mobiles as illustrated in Chart 5.4.

RDAs and

Business Links

should provide a

network of

financial schemes

The Gowers Review

Box 5.2: Case study – The Foundation for Finnish Inventions

The Foundation for Finnish Inventions supports and helps private individuals and
entrepreneurs to develop and exploit invention proposals. This can take the form of
general counselling or invention specific advice, evaluation of the market potential and
patentability, funding of patenting and guidance on product development and
commercialisation. Grants or loans are provided which can cover up to 100 per cent of the
costs. The average amount of funding provided per invention is

€

10,000.

Recommendation 32:

Form a working group with Patent Office, RDA and Business Link

representation, to identify and promote best practice to maximise the use of effective
schemes nationwide.

5.64

Owing to the multiplicity of collecting societies, businesses are often required to

obtain se

eral licences to co

er all the rights required. For example, shop and bar owners ha

to seek multiple licenses to play music on their premises. In se

eral other countries, including

France, Germany and Japan, rights are administered jointly. This can create confusion for
licensees, who ha

e to purchase one licence from PPL for the rights in the sound recording

and a second licence from PRS for the rights in the music and the lyrics. Encouraging a
cross-licensing agreement between collecting societies could be highly beneficial to users.
It could also benefit rights holders if the simpler process encourages licensees to take up
more licences.

5.65

Not all rights holders want to licence their work on a commercial basis. Creati

Commons licences

arose to pro

ide free licences. Creati

e Commons licences help the

owner keep his copyright while in

iting some uses of the work: a ‘some rights reser

ed’

copyright. The project began in the USA, but in recent years country specific licences
(including England and Wales, and Scotland) and are now a

ailable. Using the Creati

Commons website, options can be selected to limit how the work will be used and a model
licence is created straightaway which should satisfy the owner’s requirements.

5.66

At present, Creati

e Commons licences are drafted in such a way that makes it

difficult for collecting societies to manage Creati

e Commons licensed works. Collecting

Societies in the UK generally hold an exclusi

e licence to collect royalties for the copyright

works that they represent. Therefore, artists who are members of collecting societies are
generally unable to license Creati

e Commons licensed indi

idual works. This issue does not

arise in the USA where, owing to antitrust regulations, collecting societies take a non-
exclusi

e licence to their members’ works.

Collecting

societies find it

difficult to

manage Creative

Commons

licences

Chart 5.4: A summary of who has to pay collecting societies

PPL

VPL

PRS

MCPS – PRS alliance

MCPS

Playing music in public

Location/premises where music is played

and heard by the public

Broadcasting

Supplying music to

businesses

Digital DJ

UK radio, Internet & television stations

which use sound recordings in

transmissions

Companies who supply music services

to other businesses/individuals

DJs to copy sound recordings onto

computer for use in clubs, pubs etc.

Broadcast and public performance of music videos (+ dubbing for these purposes)

Broadcaster or production company making programmes including videos, use of music videos on the internet or mobile technology playing or showing a music video in public

Play/Supply music on

business premises

Stage live music

event

TV/radio production

& broadcasting

Online music and

mobile phone services

Computer game or

novelty product

Source: Patent Office data.

See www.creativecommons.org.

P E R AT I O N S

The Gowers Review

P E R AT I O N S

5.67

The absence of pan–European copyright licences increases the number of licences

that need to be acquired because rights ha

e to be negotiated for each state. This increases

transaction costs. There are currently EU initiati

es to encourage direct cross border licensing

for online music rather than through bilateral agreements. Other forms of copyright such as
licensing of li

e music performances do not generally encounter the same issues as they are

used in a specific geographic area. The European Commission is currently considering ways
of increasing the transparency of collecting society operations and introducing competition
between existing European societies.

R o l e o f c o m p e t i t i o n a u t h o r i t i e s

5.68

It is important that competition authorities scrutinise the beha

iour of those seeking

or holding IP rights. Authorities must ensure that agreements relating to the de

elopment

and licensing of IP rights do not contain unnecessary restrictions on competition. And they
must also ensure that businesses with market power do not use IP rights in abusi

e ways.

5.69

Where a rights holder has a dominant position in the market, imposing an obligation

on them to grant a licence to competitors or third parties (e

en in return for a reasonable

royalty) would deny the rights holder the ability to fully exploit their rights. The courts ha

recognised that such cases are exceptional and would only arise where the refusal by a
dominant undertaking to grant a licence cannot be objecti

ely justified and pre

ents the

elopment of the market for which the licence is an indispensable input, to the detriment

of consumers. This may only be the case if the undertaking which requests the licence
intends to produce new goods or ser

ices not offered by the IP right owner, for which there is

consumer demand.

5.70

It should be noted that the role of competition authorities in regulating IP markets

should not extend to price regulation: patents are exclusi

e rights which enable owners to

charge monopoly prices. Howe

er, there should be increased collaboration between the

Patent Office, the Competition Commission and the Office of Fair Trading to establish an
understanding of how healthy competition can flourish in the information market and how
IP can both stimulate and occasionally stunt dynamic competition.

EU licensing

arrangements

are complex

The Gowers Review

Recommendation 33:

The Review invites the OFT to consider conducting a market

survey into the UK collecting societies to ensure the needs of all stakeholders are being
met.

Recommendation 34:

Increase cooperation between the UK Patent Office, the Office

of Fair Trading and the Competition Commission to ensure that competition and IP policy
together foster competitive and innovative markets for the benefit of consumers.

Study on a Community Initiative on the Cross-Border Collective Management of Copyright,

EU Commission, 2005.

EC Article 82 and Chapter 2 prohibition under the Competition Act 1998 set out how IP right holders with market

power can behave.

See in particular, Joined Cases C-241/91 and C-242/P

Magill

[1995] ECR I-743, and Case C-418/01

IMS Health GmbH &

Co. OHG v NDC Health GmbH & Co. KG

, [2004] ECR I-5039.

P E R AT I O N S

E N F O R C E M E N T

5.71

This section is concerned with enforcement of all types of IP (copyright, trade marks,

designs and patents) against infringement. IP rights, like any other rights, are only as good as
their enforcement. Enforcement of IP rights should be swift, affordable and judicious. The
section sets out four criteria that are necessary for the adequate enforcement of IP rights:

awareness of rights

– the public must be aware of the rights that exist and find

them reasonable and acceptable;

penalties for infringement

– there must be adequate sanctions to pre

ent would-

be infringers from

iolating IP rights. Penalties can take the form of legal sanctions,

both criminal and ci

il, or non-legal sanctions, such as codes of practice adopted

by bodies to impose penalties on infringers;

pursuit of infringers

– it is crucial that those who ignore the law and the penalties

that support it, are adequately pursued by the rele

ant authorities; and

mechanisms to resolve conflict

– once an infringer is apprehended by the rele

ant

authority the rights holder must ha

e the means to enforce legal sanctions through

the courts, or by some means outside of the courts. Chapter 6 will consider the
reform of the courts. This chapter will examine the scope for Alternati

e Dispute

Resolution (ADR), which takes place outside the courts, and European reforms.

R a i s i n g a w a r e n e s s o f r i g h t s

5.72

As highlighted in Chapter 2, consumer awareness of IP in the UK is fairly low. In a

MORI poll, most respondents had to guess what phrase ‘Intellectual Property’ meant.

Participants were more aware of elements of IP that are physically obser

able such as trade

marks, rather than more abstract forms such as copyright and patents. It is more difficult for
consumers to respect rights if they do not know what they are. Respect for IP rights is low and
copying and counterfeiting are seen by many as ‘

ictimless’ crimes. Recent research carried

out for the audio

isual industry by OTX, showed that

ideo piracy was seen as a less se

ere

crime than shoplifting and credit card fraud.

5.73

The Creati

e Industries Forum on IP, a cross-industry body brought together by DTI

and DCMS, de

eloped a scheme under the banner of the ‘CREATE’ principles to explain the

alue of IP in today’s economy. In conjunction with the Patent Office and the Department for

Education and Skills (DfES), DCMS are presenting these principles to a range of audiences
including policy makers and children, to communicate a positi

e message on IP. The Patent

Office also de

eloped a

ery successful resource for schools, the ‘Think kit

’.

5.74

In a similar

ein, three pri

ate sector initiati

es stand out as good examples of ways

in which public and industry awareness about IP can be increased:

•

British Music Rights are acting as industry sponsors for the ‘Quickstart Music’
Programme, which is intended to bring together enterprise and copyright
education in secondary schools. This programme in

es setting up a mini-

music enterprise, the students taking a product to market and accruing

alue

from the exploitation of their copyright. This initiati

e will help to foster an

appreciation of copyright in young people;

Public and

private bodies

are working to

raise awareness

Public knowledge

of IP is low

The Gowers Review

Intellectual Property: Public Attitudes,

MORI, 2000.

Call for Evidence submission, Alliance Against IP Theft.

P E R AT I O N S

•

Anti Copying in Design (ACID) has initiated a national IP rights education
programme, the ‘Educate to Protect’ campaign, aimed at design schools,
uni

ersities and SMEs. The programme is based on case studies and practical

solutions aimed at ad

ising designers on protecting and fully exploiting IP

rights. This has been set up in response to many smaller designers
experiencing copying of their designs and will help designers maximise profit
from their IP rights; and

•

the National Endowment for Science Technology and the Arts (NESTA) has
de

eloped and just launched a new module of its mentoring programme

focused on the strategic importance and management of IP – ‘The IP
Accelerator.’ The module is designed for small inno

ati

e businesses,

including creati

e businesses. Following a successful pilot, NESTA intends to

roll out the programme more widely.

5.75

The Re

iew supports and commends education initiati

es such as these undertaken

by pri

ate and public sector bodies. Education initiati

es should extend from school teaching

through to industry, and to general consumer awareness, and should explain the exceptions
to IP rights so that consumers understand the balance in the system.

5.76

In order to raise consumer respect for IP, awareness raising should not just focus on

the damage IP crime does to rights holders. Consumers should be made aware of how their
actions affect local business and other people’s li

es.

5.77

Many indi

iduals and organisations are harmed by IP infringement. For example the

World Health Organization has estimated that up to a tenth of the world’s medicines are
fake.

Goods infringing trade marks, such as counterfeit cosmetics, can also be harmful to

consumers. Links between IP crime and organised crime ha

e been well documented.

Legitimate traders can be forced out of business. A study in the UK on behalf of the British
Anti-Counterfeiting Group estimated the number of jobs lost in the UK due to counterfeiting
is in excess of 4,000.

5.78

Other countries ha

e raised the profile of IP much more effecti

ely than in the UK. In

Japan le

els of knowledge on IP are much higher on a

erage than in the UK. The French IP

website stresses the consumer safety aspect of counterfeit goods. The Re

iew belie

es that the

message will ha

e more impact if it is presented in a balanced way, highlighting the rights as

well as the responsibilities of consumers. The Consumer Direct website has highlighted
counterfeit goods as an important consumer issue and pro

ides ad

ice to consumers.

IP crime

affects all

The Gowers Review

Recommendation 35:

The Patent Office should continue to raise public awareness,

focussing in particular on the wider impacts of IP crime, and the exceptions to rights.

Counterfeit Medicines: Some Frequently Asked Questions,

World Health Organization, 2005.

http://www.wpro.who.int/media_centre/fact_sheets/fs_20050506.htm.

Proving the connection,

Alliance Against IP Theft, 2006.

See http://news.bbc.co.uk/1/hi/business/3548928.stm.

P E R AT I O N S

F a i r a n d a d e q u a t e p e n a l t i e s

5.79

The penalty for a copyright offence

depends on whether the infringement occurred

online or not. In relation to those who commercially deal in infringing goods

or those who

distribute goods other than in the course of business to an extent which prejudicially affects
the rights holder

the maximum penalty is ten years imprisonment.

In contrast, those who

commit online infringement by communicating the work to the public (whether commercial
or otherwise) may be sentenced to up to two years imprisonment.

Finally, the commercial

showing or playing in public of a work carries a maximum of six months imprisonment or a
le

el fi

e fine.

Table 5.3: A summary of the current penalties for online and physical
copyright infringement

Online infringement

Physical infringement

Source: Copyright, Designs and Patent 1988 Act (CDPA) (as amended), Patent Office analysis.

5.80

eral submissions ha

e called for a change in the law to increase online

infringement penalties to the le

els for physical infringement. The intention and impact of

physical and online infringement are the same. Crimes committed in the online and physical
world should not be subject to different sentences. Increasing the penalties for online
infringement will therefore make the law more coherent.

5.81

The Re

iew proposes that the penalty for online commercial infringement

should be

increased to ten years imprisonment to bring parity with commercially dealing (but not
showing) in pirated works. It proposes that the penalty for consumers infringing online

to an

extent that prejudicially affects the rights holder should also be extended to ten years, again
to bring parity with physical infringement.

Up to 10 years in prison
and/or unlimited fine

Up to 2 years in prison
and/or unlimited fine

Sentence on indictment
(in Crown court)

Up to 6 months in prison
and/or statutory
maximum fine

Up to 3 months in
prison and/or statutory
maximum fine

Summary sentence (in
magistrates’ courts)

Distributing infringing
copies in course of
business or to extent that
prejudicially affects rights
holder, importing
infringing copy into UK
other than for private or
domestic purposes

Making infringing copies
for sale or hire

Communicating to the
public by electronic
transmission in the
course of a business or
to an extent prejudicially
affecting the right holder

Nature of offence

Legal sanctions

The Gowers Review

There are similar offences in relation to performers’ rights in section 198 of the Copyright, Designs and Patents Act

(CDPA) 1988. The arguments equally apply in relation to such offences.

E.g. the offence in section 107(1)(a), (b) or (d)(iv) of the CDPA 1988.

Section 107(1)(e) of the CDPA 1988.

Section 107(4) of the CDPA 1988.

Section 107(4A) of the CDPA 1988.

Section 107(5) of the CDPA 1988.

The offence under section 107(2A)(a) of the CDPA 1988.

The offence under section 107(2A)(b) of the CDPA 1988.

Recommendation 36:

Match penalties for online and physical copyright infringement by

amending section 107 of the CDPA by 2008.

P E R AT I O N S

5.82

One instance of IP infringement which damages rights holders’ in

estment in IP is

Copycat packaging. Copycat packaging is described in the box below.

The Gowers Review

Box 5.3: Copycat packaging

Original brand owners bear the costs of trying to prize copycat brands off the market –
either through legal means, or by changing their own designs. The British Brands Group
estimate a decline in sales of up to 20 per cent by the rights holder following the
introduction of the copycat product. Kellogg’s spent £1,100,000 on national advertising
campaign to say it does not make cereals for anyone else.

•

Business Insights stated that “private label success is facilitated when consumers
cannot tell a private label from a manufacturer brand due to similarity in
packaging.”

•

Similar packaging resulted in a significant 55 per cent increase in own label share
compared to own labels in dissimilar packaging.

•

Similar packaging suggests to consumers that the product is definitely or probably
made by the same company, the practice results in 7.5 million shoppers
being misled.

•

A study by Kapferer showed that similar packaging generated direct correlations
between perceptions of manufacture and perceptions of quality.

•

Consumers Association Research in 1998 gave further insight into the connection
between packaging and consumer assumptions about products

Supermarket product same or better for

Quality

Value

Copycats

43%

57%

Benchmark

30%

46%

Source: Call for Evidence Submission,

British Brands Group

Fighting Private Label

, Business Insights, 2005.

Ibid.

Stealing Brand Equity: Measuring Perceptual Confusion Between National Brands and ‘Copycat’ Own-Label

Products, Kapferer J-N.,

Marketing and Research Today,

1995.

P E R AT I O N S

5.83

If a shape or colour of a product has been successfully registered as a trade mark it

would be possible to rely on infringement to stop the copycat. Regardless of whether or not
the appearance of a product is registered, it may be possible to protect it under the common
law tort of ‘passing off’. This requires:

(a)

a party must establish good will or reputation attached to the goods or
ser

ices so that it is recognised by the public as distincti

e specifically of its

goods or ser

ices;

(b)

the party must demonstrate that there has been a misrepresentation by the
other party leading or likely to lead the public to belie

e the goods or ser

ices

offered by the other person are those of the party; and

(c)

the party must show that it has suffered damage.

5.84

Howe

er, the Re

iew belie

es that passing off does not go far enough to protect many

brands and designs from misappropriation for the following reasons:

•

if copycats appear on the market before the defendant has built up goodwill in
a certain appearance, the brand owner cannot rely on the law of passing off.
This may pre

ent new entrants from adequately protecting the appearance of

their products; and

•

it is difficult to demonstrate consumer confusion in court and substantial
e

idence may be required to bring a successful passing off action.

5.85

This is often especially rele

ant to small designers who are at risk of their designs

being copied before they are able to establish a reputation in the marketplace

5.86

A number of submissions to the Call for E

idence called for a general ‘unfair

competition’ law to be introduced. For example, the Law Society highlighted the German law
which states that: “acts of unfair competition which are capable of impairing competition to the
disad

antage of competitors, consumers or other participants in the market more than

insignificantly are impermissible”. The new European Directi

e on Unfair Commercial Practices

(UCP Directi

is in the process of being transposed in to UK law, and will tackle practices that

unfairly impact on consumers, including practices that mislead or confuse consumers.

5.87

The Local Authorities Coordinators of Regulatory Ser

ices (LACORS) ha

e said that

once this UCP Directi

e is in place they will act on behalf of consumers by pursing businesses

who act improperly. There are concerns, howe

er, with this Directi

e as it relates to business

to consumer interactions, and it may not pro

ide sufficient legal sanctions for unfair

‘business to business’ anti-competiti

e practices.

5.88

The Go

ernment should monitor the success of these measures in combating unfair

competition in cases relating to IP, and if after a suitable time, the measures are not
adequately addressing these problems, the Go

ernment should to consult on appropriate

changes.

Reducing unfair

competition will

protect

investment

100

The Gowers Review

Recommendation 37:

Monitor success of current measures to combat unfair

competition in cases relating to IP, and if changes are found to be ineffective, Government
should consult on appropriate changes.

This comes from

Reckitts & Colman Products v Borden

(1990) RPC 341, HL

(The Jif Lemon Case)

. There is also an

extended form off passing off which was explained in

Erven Warnick v J. Townsend & Sons

(1980) RPC 31

(The Advocaat

Case).

Directive 2005/29/EC on Unfair Commercial Practices.

P E R AT I O N S

5.89

As a complementary deterrent to IP infringement, changes to damages awarded ha

been suggested by se

eral responses to the Call for E

idence. Damage awards should act as a

disincenti

e to infringement: infringers should not be able to keep any profits from

infringement, nor to pay any less in compensation than they would ha

e paid if they had

purchased or licensed the material legitimately. Some rights holders ha

e suggested that the

current system of damages falls some way short of the ‘effecti

e, proportionate and

dissuasi

e’ ci

il remedies that the EU Enforcement Directi

e requires and that damages

should be increased to pro

ide an effecti

e and proportionate deterrent to IP infringement.

5.90

The Re

iew does not recommend criminalising registered design infringement,

particularly since neither the UK Patent Office nor the Community Office at the OHIM
examine design applications on substanti

e grounds (i.e. to determine whether they meet the

requirements for registration). It is also thought that pro

ing design infringement (including

unregistered design infringement) to a criminal le

el would be extremely difficult.

5.91

A number of respondents to the call for e

idence called for camcording in cinemas to

be criminalized. The Re

iew belie

es that sufficient legislati

e responses already exist in ci

remedies. Camcording in cinemas is a ci

il offence and making a copy of a copyright

infringing good for sale or hire is already a criminal offence. Furthermore, the majority of
pirated D

Ds originate abroad. The International Federation of the Phonographic Industry

(IFPI), state that the

ast majority of pressed pirate discs come from South East Asia and the

UK is not one of its priority countries for targeted action.

N o n - l e g i s l a t i v e d e t e r r e n t s t o i n f r i n g e m e n t

5.92

As discussed in Chapter 2 peer-to-peer (P2P) downloading is threatening copyright

protected material. Owing to

arious factors, including the multiplicity of potential infringers,

the barriers to efficient and successful challenge and enforcement of copyright against P2P
downloads remains significant. This jeopardises the

alue of rights held by content industries.

5.93

The entertainment industry has attempted to address the economic consequences of

new technology by pursing legal actions against indi

idual infringers in an attempt to

discourage other indi

iduals from engaging in massi

e file transfers. Howe

er, as Chart 5.5

below shows, such lawsuits ha

e not led to a significant reduction in P2P users.

P2P filesharing

Damages

101

The Gowers Review

Recommendation 38:

DCA should review the issues raised in its forthcoming

consultation paper on damages and seek further evidence to ensure that an effective and
dissuasive system of damages exists for civil IP cases and that it is operating effectively. It
should bring forward any proposals for change by the end of 2007.

The Recording Industry Commercial Piracy Report,

IFPI, 2004 (can be accessed at http://www.ifpi.org/site-

content/library/piracy2004.pdf).

P E R AT I O N S

5.94

Current file-sharing models store the files on the personal computers of the users

with Internet ser

ice pro

iders (ISPs) as the intermediaries. ISPs currently ha

e limited

liability for traffic passing through their network due to certain ‘safe harbour’ pro

isions.

5.95

Stakeholders within the creati

e industries ha

e proposed a ‘

alue Recognition Right’.

This is still being discussed within the industry and was insufficiently de

eloped for the

iew to take a

iew on.

5.96

A new act of secondary infringement has also been suggested which would make

those who facilitate P2P file sharing liable for copyright infringement. Howe

er, it has been

argued by public interest groups that imposing secondary liability on technology pur

eyors

would stifle the a

ailability of public domain works and may chill technological inno

ation.

If ISPs were liable for content passing through their networks they might limit lawful content,
for fear of breaking the law. There are also doubts that making ISPs liable would be
compatible with Community law.

5.97

The USA has the concepts of contributory infringement and inducement, which were

used to find liability in the case of

MGM v Grokster.

Australia, like the UK,

has a concept of

authorisation, which was used in the case of

versal Mus

c Austral

a v Sharma

Hold

gs.

Notwithstanding some similarities between UK and Australian law, the outcome

of similar lawsuits in UK courts is uncertain. Accordingly, the Re

iew is not making specific

legislati

e recommendations this area, but this may need to be re

iewed sometime in the

future if other measures, as discussed below, do not work satisfactorily.

102

The Gowers Review

Source: BigChampagne, MusicAlly

Chart 5.5: Monthly average simultaneous P2P users globally

Million users

May

-06

Apr-06

Mar-06

Feb-06

Jan-06

Dec-05

Nov-05

Oct-05

Sep-05

Aug-05

Jul-05

Jun-05

May

-05

Apr-05

Mar-05

Feb-05

Jan-05

Dec-04

Nov-04

Oct-04

Sep-04

Aug-04

Jul-04

Jun-04

May

-04

Apr-04

Mar-04

Feb-04

Jan-04

Dec-03

Nov-03

Oct-03

Sep-03

Aug-03

Recording Industry Association of America

(RIAA) lawsuits against P2P users start here

P2P use more than

doubles in two

years

Section 28A of the CDPA 1988 and regulations 17 to 19 of the Electronic Commerce (EC Directive) Regulations 2002

(SI 2002/2013).

IP Review

, Devinsky P. and Rotstein R., Spring 2006.

In particular Article 5(1) of Directive 2001/29/EC and Articles 12 to 14 of Directive 2000/31/EC (E-Commerce

Directive).

125 S. Ct. 2764 (2005).

Section 16(2) of the CDPA 1988.

FCA 1242 [2005].

P E R AT I O N S

5.98

ISPs ha

e generally been cooperati

e in attempts to reduce large scale P2P use

through their networks by pro

iding details of large scale infringers. Howe

er, ISPs, as data

processors, ha

e obligations under the Data Protection Act

988, which limit the extent to

which they can disclose data on P2P copyright infringers without court orders.

5.99

The ISP Association is currently undertaking work to encourage ISPs and rights

owners to collaborate. One part of this work is the de

elopment of a Best Common Practice

(BCP) documemt that might enable ISPs to engage rights holders in a co-ordinated and
regularised fashion. This could operate in a similar way to the BCP for ISPs relating to the use
of the Regulation of In

estigatory Powers Act (RIPA) by law enforcement agencies.

5.100

The adoption of such a practice is likely to change public attitudes and beha

iours as

users gradually become aware of the procedures in place for remo

al from an ISP. BCP should

assist rights holders by pro

iding a procedure through which automatic action in courts will be

oided and would allow greater scrutiny on the actions of users. BCP is an ideal way to proceed

if an agreement can be brokered between the ISPs and the copyright owners and would respect
safe harbour pro

isions for ISPs which were set up in good faith. If there is a failure to agree, the

ernment should look towards establishing an appropriate statutory protocol.

5.101

Car boot sales and markets are also a major source of counterfeit and pirated goods.

A 2005 report co-funded by the Go

ernment and industry into consumer usage and attitudes

towards counterfeits and fakes re

ealed that roughly 25 per cent of all counterfeit purchases

take place in markets, including street markets and car boot sales.

In order to address the

issue, the Re

iew recommends that there should be greater regulation of occasional sales.

P u r s u i t o f i n f r i n g e r s b y t h e r e l e v a n t a u t h o r i t i e s

5.102

The National IP Crime Strategy is a partnership between Go

ernment Departments,

industry and enforcement agencies, set up to determine policy on enforcing IP rights. It brings
together many different organisations including Trading Standards, the Patent Office, the
Police and Her Majesty’s Re

enue and Customs (HMRC). Responsibility for its de

elopment

sits with the PO, which works with

2 regional groups of Trading Standards offices. The PO has

eloped a central IP crime intelligence database, TellPat, to bring together information on

IP crime and the criminals in

ed from industry and enforcement agencies.

5.103

The first operation carried out under the strategy was a series of raids at Wembley

Market in late 2005. Brent & Harrow Trading Standards led the operation with the
in

ement of the Police, the Immigration Ser

ice and Job Centre Plus. It resulted in the

seizure of more than £

.5 million of counterfeited and pirated goods and the prosecution of

34 people for trading in counterfeit goods.

The Review

supports the

National IP crime

strategy

Markets can be

sources for

counterfeit goods

Collaboration

between ISPs and

Creative

Industries

103

The Gowers Review

Recommendation 39:

Observe the industry agreement of protocols for sharing data

between ISPs and rights holders to remove and disbar users engaged in ‘piracy’. If this has
not proved operationally successful by the end of 2007, Government should consider
whether to legislate.

Recommendation 40:

DTI should consult on measures to tighten regulation of

occasional sales and markets by 2007.

Fake Nation,

Intellectual Property Theft and Organised Crime Research Project, 2005.

National Intellectual Property (IP) Enforcement Report,

Patent Office, 2005 accessed at

http://www.patent.gov.uk/enforcereport2005.pdf.

P E R AT I O N S

5.104

The Re

iew supports the coordinated approach to IP crime that the strategy

represents. There are some areas, howe

er, where the current IP crime strategy could be

impro

ed. The initial work has been done to bring together the rele

ant bodies, but further

work now needs to be done to achie

e the desired results.

5.105

The graph below shows legitimate and illegitimate trade into the UK broken down by

means of transport. Goods entering

ia ports account for a larger proportion of trade than of

seizures. Furthermore, UK port seizures are lower in the UK than many other countries
including Germany, Italy and Ireland. The Re

iew encourages HMRC to play a full and acti

role to increase sharing of data and monitoring acti

ities at ports.

5.106

The Serious Organised Crime Agency (SOCA) recognises IP crime as being linked to

organised criminal acti

ity, and de

otes resources to impro

ing the intelligence base

necessary to take action. Howe

er, national policing plans do not presently recognise IP

crime as a Police priority as part of broader action against organised crime. It is important to
recognise publicly the work that the Police are doing in this area, and therefore, IP crime
should be acknowledged as an area for action by the Police as part of the work to tackle
organised crime.

5.107

The National IP Crime Strategy should also be closely harmonised with enforcement

across the EU to help to reduce counterfeit goods entering Europe. In

ement in

international initiati

es outside Europe is also required. The Patent Office has been working

with the USA, China and EU accession states to impro

e enforcement and reduce the flow of

counterfeit goods. This work could be extended to encourage other countries to reduce le

els

of IP infringement.

104

The Gowers Review

Source: EU data, 2004; HMRC data, 2006.

Chart 5.6: Origin of legal and illegal goods into the UK by
means of transport

100

Legitimate trade

Cases examined

Air

Mail

Road

Sea

Per cent

Recommendation 41:

The Home Office should recognise IP crime as an area for Police

action as a component of organised crime within the updated National Community Safety
Plan.

P E R AT I O N S

R o l e f o r Tr a d i n g S t a n d a r d s

5.108

e full access to ci

il and criminal pro

isions to

enforce their rights and distinction should be made between these pro

isions. Where crimes

are more difficult to detect and in

e organised crime, rights holders will require greater

ement of Trading Standards and the police to enforce rights, and infringements should

be dealt with using criminal penalties.

5.109

Trading Standards ensure that trade is fair and lawful. Unlawful trade of pirated goods

generally in

es infringement of either copyright, trade marks or both.

5.110

Trading Standards ha

e powers and

the duty to pre

ent the sale of trade mark protected goods. Howe

er, where the infringement

of rights relates to copyright alone Trading Standards do not ha

e the power to act, and

cannot perform searches and seizures. This means, for example, that where there are sales of
counterfeit CDs and D

Ds, Trading Standards ha

e only a limited response. This creates an

inconsistency in the way that the law treats piracy and counterfeiting.

5.111

This inconsistency would be rectified by bringing into force section

07A of the

988

which would make enforcement of

e Trading

Standards the power to make test purchases, enter premises and inspect and seize goods and
documents. To offset the cost of enforcement, full use should be made of the powers within
the Proceeds of Crime Act (2002).

5.112

The OFT is taking on the role of championing Trading Standards and helping to

define meaningful priorities for local authority Trading Standards Ser

ices (TSS). IP crime not

only affects legitimate local businesses but can ha

e a detrimental effect on consumers, since

counterfeit products may be of substandard quality and e

en in some cases lead to safety

concerns. It is therefore recommended that TSS take full acccount of IP crime-related issues
in setting their local priorities. The OFT and the Patent Office are working closely together to
introduce better targeted enforcement through more widespread usage of the National
Intelligence Model (NIM) by local authority Trading Standards Ser

ices.

Trading

Standards

105

The Gowers Review

By the Copyright, etc and Trade Marks (Offences and Enforcement) Act 2002.

Under the Police and Criminal Evidence Act 1984.

This provision was inserted by the Copyright, etc and Trade Marks (Offences and Enforcement) Act 2002 but has never

been brought into force.

POCA was set up to reduce crime by confiscating the proceeds of crime with a new power of civil recovery. The Assets

Recovery Agency was granted powers under the act to take the profits from crime through civil recovery, criminal

confiscation or taxation.

Recommendation 42:

Give Trading Standards the power to enforce copyright

infringement by enacting section 107A of the Copyright, Designs and Patents Act 1988.

P E R AT I O N S

M e c h a n i s m s t o r e s o l v e c o n f l i c t

5.113

Litigation of patents is extremely expensi

e in England and Wales with costs of

comparable cases in English patent courts up to four times greater than in Germany, as
shown in Table 5.4 below. Professional fees in England and Wales are generally higher and the
patent proceedings more complex. This leads to lengthier cases and higher costs. This can
make it more difficult for SMEs to enforce (or defend) any infringement claim. Chapter 6 will
consider how the current England and Wales court structure can be impro

ed to reduce costs.

Table 5.4: A comparison of costs in selected European courts

England and Wales

Germany

France

Netherlands

High Court: £1m

£37–74,000 first

£44–74,000

£15–30,000 (summary

instance (depends on

proceedings), £60,000

scale fees)

simple action

Source: The Enforcement of Patent Rights, IPAC, 2003.

Note:

€

converted to £ at exchange rate 1:1.48.

5.114

Alongside reforming the courts in England and Wales, the number of cases reaching

litigation should be reduced by alternati

e methods to resol

e disputes.

Alternati

e dispute

resolution (ADR) can be defined as: “... any type of procedure or combination of procedures

oluntarily used to resol

e issues in contro

ersy. ADRs include, but are not limited to,

conciliation, facilitation, mediation, early neutral e

aluation, adjudication, arbitration and

the use of ombudsmen.” It is intended as a low cost alternati

e to litigation.

5.115

ADRs can help to a

oid the negati

e aspects of conflict such as damage to reputation,

lost customers, and damage to company morale as well as the large cost implications.

5.116

Mediation in

es a controlled discussion between two opposing parties. A neutral

person assists the two parties in working towards a negotiated agreement. The opposing
parties are in ultimate control of the decision to settle and the terms of resolution. Mediation
is more flexible than litigation in that a broad range of terms can be agreed outside the
limitations of law. It can help preser

e positi

e relations between parties that could be broken

down by mo

ing to litigation. Mediation is also much cheaper than litigation; costs in the UK

for mediation cases in general are around £3,000. A high proportion of cases referred to
mediation result in settlement.

5.117

Mediation’s usefulness depends, howe

er, upon the circumstances of the dispute, the

parties’ objecti

es, the engagement of the parties and the mediator. Both parties ha

e to agree

to, and adhere to, the decision, taking responsibility for the decision instead of passing
responsibility to a judge or arbitrator.

ADR, including

mediation, can

be used to avoid

litigation

IP litigation in

England and

Wales is

extremely

expensive

106

The Gowers Review

The number of cases reaching court at the moment in the UK is already fairly low, mainly due to the high costs causing

parties to settle rather than reaching trial.

The Centre for Effective Dispute Resolution state that over 70% cases referred to them are successfully settled.

P E R AT I O N S

5.118

The Patent Office has recently started a mediation ser

ice. Se

eral Patent Office staff

members ha

e been trained in mediation and the Patent Office also pro

ides a

enue and

administrati

e support. This ser

ice has not been widely used by mediating parties. The

World Intellectual Property Organization (WIPO) also has ADR procedures of mediation and
arbitration where the majority of mediation cases are successfully settled.

5.119

Arbitration is not as common as mediation. It in

es an appointed arbitrator whose

decision is binding and enforceable. There are no on-going court fees so arbitration is also
much cheaper than litigation. Arbitration is often used as an alternati

e to court when

confidentiality is important.

5.120

Different ADR procedures are suited to different client objecti

es as shown in the

table below. Mediation is of particular

alue where contracts between the two parties already

exist, as it can maintain good working relationships.

Table 5.5: A comparison of the suitability of mediation, arbitration and
court proceedings depending on the client objective

Non-binding

Binding

Objective

Mediation

Arbitration

Court

Minimise cost

Rapid decision

Non-public decision

Maintain/improve relationship

Vindication

Obtain neutral opinion

Set precedent

Maximise/minimise recovery

Source: ‘Mediation Principles and Practice’, Kimberlee K. Kovach, 2004.

Key: 0 = fails to meet objective, 3 = fully meets objective

5.121

Mediation and other ADR are currently poorly used and understood for IP. DCA has

been promoting the use of ADR for se

eral years. Howe

er, some judges ha

e been reluctant to

encourage parties to mediate. Large companies are often unwilling to mediate in case they are
seen as “weak”. Practice Directions, which relate to the practice and procedure of the court, can
be altered to encourage mediation.

5.122

Under the Human Rights Act

998, a person has a right to access to the courts. The

iew has therefore rejected imposing further incenti

es to mediate such as introducing

mandatory mediation.

5.123

IP cases rarely come before magistrates and can raise no

el points of law. Owing to

the complexities of IP law, and the increasing sophistication of the defence pro

ided by IP

infringers, judges and magistrates should ha

e a good understanding of all aspects of IP law.

Therefore, greater training specifically dedicated to this area would be beneficial.

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The Gowers Review

Rule 1.4.(2)(e) of the Civil Procedure Rules requires the court to use active case management to “encourage[e] the

parties to use an alternative dispute resolution (GL) procedure if the court considers that appropriate and facilitate[e]

the use of such procedure.”

Recommendation 43:

Strengthen Practice Directions, to provide greater

encouragement for parties to mediate,

in particular this should raise the profile of

mediation with judges.

P E R AT I O N S

R e f o r m o f E u r o p e a n l i t i g a t i o n

5.124

Patents that are granted through the EPO e

entually lead to a bundle of national

patents. This can raise the costs associated with litigation and can lead to inconsistency
between national judgments. One solution that has been put forward is the European Patent
Litigation Agreement (EPLA). The EPLA would establish a single European Patent Court with
jurisdiction o

er patents in all the states contracting to the European Patent Con

ention.

5.125

It should be noted that the EPO processes in the region of

80,000 patent applications

ery year of which around half are granted. Howe

er, across the EU there are fewer than

,500 cases of patent infringement before the courts. Of these, somewhere between 75 and

50 in

e more than one jurisdiction.

One reason for this low number of parallel cases in

the prohibiti

e costs of litigation in contracting states.

5.126

As the chart below shows, the estimated costs of litigation at a potential European

Patents Court could be considerably cheaper than pursuing a case in the UK at present. This
pro

ides a strong endorsement for the EPLA and the European Court from the UK

perspecti

5.127

Howe

er, as well of being of benefit to litigants in the British courts, once parallel

litigation is taken into consideration, the European Court also becomes cheaper than parallel
litigation in three states.

As the chart below shows it would be cheaper to litigate at the

European Court than in parallel in Germany, France and the Netherlands.

Multiple

litigation in

Europe is

expensive

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The Gowers Review

Recommendation 44:

The Patent Office should consult with the Judicial Studies Board

to determine the extent to which the complexity of IP law may give rise to a training need
for judges and magistrates and their legal advisers.

Source: Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents, EPO, 2006.

Chart 5.7: Estimated (a) minimum and (b) maximum costs at the
court of first instance for patent cases in selected
European states, and in a potential European Court

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

EP Court

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

EP Court

(a)

(b)

Court costs:

€

uro

Court costs:

€

uro

Access at http://www.channelregister.co.uk/2006/09/29/legitimate_doucts.

Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents,

EPO, 2006.

P E R AT I O N S

5.128

Moreo

er, in addition to reduced costs, a single European Court will considerably

reduce the amount of time taken to litigate as there will only be one judgment rather than
multiple decisions. This will also lead to far greater certainty of outcomes as opposing
decisions would not be reached in different jurisdictions. Pro

ided it is staffed by expert IP

judges, the Court will ensure that high quality decisions are taken.

5.129

Historically, the European Commission has been sceptical of the EPLA,

iewing it as

an unwelcome distraction from the ultimate goal of COMPAT. Howe

er, this position seems

to be shifting in a welcome direction. Responding to the consultation on the future of patent
policy in Europe, Commissioner McCree

y said: “COMPAT and the EPLA are not mutually

exclusi

e initiati

es. They are both aiming at the same goal: a better, cheaper, more reliable

patent system.”

C o n c l u s i o n

5.130

The recommendations in this chapter are aimed at impro

ing the operations of the IP

system in terms of how IP is awarded, used and enforced. The implementation of these
recommendations alongside those from the Instruments and Go

ernance chapters will

address some key problems in the UK IP system.

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The Gowers Review

20,000

40,000

60,000

80,000

100,000

120,000

140,000

EP Court

DE/F/NL

DE/GB/NL

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

EP Court

DE/F/NL

DE/GB/NL

Chart 5.8: Estimated (a) minimum and (b) maximum costs at the
court of first instance for parallel litigation in selected European
states, and in a potential European Court

(a)

(b)

Source: Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents, EPO (2006).

Court costs:

€

uro

Court costs:

€

uro

IP Rights – next steps,

McCreevy C, 2006. See http://europa.eu.int/rapid/pressReleasesAction.do?reference=

SPEECH/06/485&format=HTML&aged=0&language=EN&guiLanguage=en.

Recommendation 45:

Support the establishment of a single EU court to adjudicate

cross-border IP disputes by promoting the European Patent Litigation Agreement.

O V E R N A N C E

The Gowers Review

6.1

It is

ital that the organisations responsible for administering, enforcing and setting

policy for IP are well run and effecti

ely integrated. Without adequately functioning bodies,

the IP system will not operate in the way users expect. As noted in Chapter 4 there are a
number of international fora and bodies engaged in IP policy making and operation. The
Re

iew focuses on the principal UK body with responsibility for IP: the UK Patent Office.

T H E U K PAT E N T O F F I C E

6.2

The UK Patent Office has a range of responsibilities in relation to IP, as outlined in

Chapter 3. This chapter focuses on three areas:

•

policy formulation;

•

administration of registered IP rights (patents, designs and trade marks); and

•

dispute resolution as a tribunal.

6.3

Chapter 5 addressed the Patent Office’s role leading the IP crime strategy, and its work

pro

iding information to business.

Pa t e n t O f f i c e p o l i c y r o l e

6.4

The Patent Office is responsible for ad

ising Ministers on the

ast majority of IP

policy.

It reports to the Minister of State for Science and Inno

ation in the Department of

Trade and Industry (DTI). The Re

iew has identified three principal concerns in relation to

policy formulation at the Patent Office:

•

policy de

elopment has often been reacti

e and has not taken into account

changes in the economy and rele

ant de

elopments in related policy areas;

•

there is no clear separation between operational and policy functions in the
Patent Office, leading to a potential conflict of interest; and

•

it has pro

en difficult to grow policy skills in the Patent Office.

6.5

Responsibility for policy de

elopment in the Patent Office rests with the Intellectual

Property and Inno

ation Directorate (IPID). IPID has a clear understanding of detailed IP

issues, and can play a strong representational role on specific policy areas. For example,
UKPO ensured that UK business interests were represented in European discussions to
amend the Community Trade Mark Regulations in 2005. It also successfully implemented the
European Directi

e concerning remuneration for artists when their works are re-sold,

recei

ing a commendation from the Da

idson Re

iew of the Implementation of European

Directi

es for its work in this area.

Policy has been

reactive

111

Plant breeders rights and protection of geographic indicators and related rights fall within the scope of the Department

for the Environment, Food, and Rural Affairs.

O V E R N A N C E

6.6

Howe

er, the Patent Office has been less effecti

e at taking a strategic

iew of IP

policy. The Patent Office has not always been effecti

e at linking IP and other, related areas,

such as, trade, health and broader inno

ation policy. For example, it has not undertaken

systematic work examining how the IP framework has helped or hindered the de

elopment

of Open Source methods,

or proteomics, a subset of genetic science.

6.7

The Patent Office has a Steering Board and an Executi

e Board. The Steering Board’s

role is to ad

ise Ministers on the corporate plan and performance. The Executi

e Board’s role

is to o

ersee the day-to-day running of the Patent Office. Both boards focus on the

operational performance of the Office, and neither ha

e detailed o

ersight of the Patent

Office’s policy function.

6.8

In order to add strategic focus to policy de

elopment the DTI established the

Intellectual Property Ad

isory Committee (IPAC) in 200

. It was charged with identifying

strategic issues for IP policy and relaying stakeholder

iews to Go

ernment. IPAC has drawn

attention to some of the challenges for IP policy, including the lack of awareness of IP among
businesses, particularly SMEs. Howe

er, in many areas of policy, IPAC’s in

estigations ha

been protracted and, in a number of instances, it has failed to produce substanti

e outputs.

IPAC has failed to add substanti

ely to policy de

elopment because it has had an

insufficiently clear remit, been inadequately resourced, and its membership drawn from too
narrow a group of stakeholders.

6.9

The Re

iew belie

es that a strong, independent body could make a real contribution

to IP policy de

elopment. An independent board should be gi

en a clear and coherent remit

to pro

ide a strategic o

iew of policy and to challenge Go

ernment policy-making. In

addition, it should ad

ise on how the UK’s interests should be pursued in international IP

negotiations. The chair should be operationally independent from Go

ernment and be

appointed by the Chancellor. The board should be drawn from a wide range of stakeholders,
including academics, consumer groups and industry representati

es – from creati

industries and ‘industrial’ IP users – who are able to draw links between IP and a number of
related issues. In addition to independent stakeholders, the head of IPID at the Patent Office
and a senior official from the DTI and HM Treasury should sit on the board. The board should
be free to set out the acti

ities it undertakes and the policy areas it in

estigates. Go

ernment

should respond to the ad

ice of the board, but should not be bound by its direction or

decisions.

6.10

One of the factors that hindered IPAC from making an impressi

e contribution to

policy, was inadequate resource. The independent policy ad

isory board should be gi

en a

standing secretariat based in London. Staff should be drawn from the OSI in the DTI, and the
chair should ha

e the ability to bring in external experts to assist the secretariat where

necessary.

Recommendation 46:

Establish a new Strategic Advisory Board for IP policy (SABIP),

covering the full range of IP rights, reporting to the minister responsible, by 2007. The
Board should be drawn from a wide range of external experts as well as key senior policy
officials from relevant government departments, and should be based in London. £150,000
should be allocated to fund the secretariat by the Patent Office.

Adequate

resourcing

Reforms to date

have not been

successful

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The Gowers Review

Open Source software can be freely used and improved upon by programmers, provided that any improvements to the

source code are made available to subsequent users.

O V E R N A N C E

6.11

In addition to the standing secretariat, the Re

iew belie

es that the work of SABIP

would be enhanced if it could commission external research. The Japanese Patent Office sets
aside a significant amount of money each year for research into IP-related policy issues. This
is used by their Institute of Intellectual Property and has produced a wide range of policy
reports analysing the changing en

ironment for IP. It is a key part of Japan’s strategic

approach to Intellectual Property. Similarly, US proposals to sol

e the problem of orphan

works were de

eloped using research funded by the Library of Congress. Funds set aside in

the UK could be used to commission independent and forward looking research to
supplement the standing secretariat.

6.12

In addition to pro

iding a strong independent board to impro

e strategic policy

making, the Re

iew belie

es that the Patent Office’s internal policy making function should be

strengthened to pro

ide a stronger strategic focus and link more effecti

ely with wider themes

and other Go

ernment objecti

es.

6.13

The Patent Office’s policy function is not clearly distinct from its operational work.

While IPID is nominally the lead on policy de

elopment, the CEO, the Patents Directorate, the

Trade Marks and Designs Directorate and the Finance Directorate all undertake additional
policy analysis and pro

ide ad

ice. This creates a potential conflict of interest. The optimal

policy for the Patent Office, functioning as a Trading Fund, may not be the optimal policy for
Go

ernment, particularly in international negotiations. For instance, national offices may not

want international rights to be cheaper to register than national rights, as this would reduce
demand for their ser

ices. In order to remo

e the potential for conflicts of interest, a clear

distinction between policy and operational functions is necessary. The policy directorate
should take the lead on issues of policy, including at the European Patent Office (EPO), Office
of Harmonisation for the Internal Market (OHIM) and World Intellectual Property
Organization (WIPO), with support from operational colleagues as necessary. It is important
that policy officials report through a different management structure to their operational
colleagues, and that IP policy takes full account of wider Go

ernment objecti

es.

6.14

The Patent Office is located in Newport in South Wales. Since mo

ing to Wales the

Patent Office has reduced running costs by more than ten per cent. Staff turno

er has also

reduced. Howe

er, this physical separation of Patent Office staff from central Go

ernment

departments has contributed to the lack of connecti

ity with wider Go

ernment agendas and

has made it more difficult to grow policy skills in the Patent Office. The Re

iew recognises the

benefits of ha

ing certain Go

ernment functions located outside London and the South East,

but belie

es that policy making would be strengthened if staff added to their experience in the

Patent Office by working in central Go

ernment departments.

6.15

Patent Office staff sometimes lack an understanding of how businesses use IP and

the problems they face negotiating the existing system. A greater understanding of how IP
policy impacts on all stakeholders across industry, NGOs and consumers would ensure that
Ministers were more fully appraised of the potential impacts of a policy under
consideration.

Recommendation 48:

Patent Office should introduce a clear split of responsibility

between delivery and policy directorates.

Strengthening

Patent Office

policy making

Recommendation 47:

The Patent Office should provide an annual IP strategic analysis

fund of £500,000 managed by the policy advisory board in consultation with the IP Policy
Directorate.

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O V E R N A N C E

Pa t e n t O f f i c e a d m i n i s t r a t i v e r o l e – g r a n t i n g I P r i g h t s

6.16

Many submissions to the call for e

idence were positi

e about the ser

ice pro

ided by

the Patent Office to applicants. Patent Office customer sur

eys also suggest stakeholder

satisfaction. Patent grant fees in the UK are low. As Chart 6.

below shows, the UK is one of

the cheapest countries to ha

e a patent in force for twenty years.

6.17

The Re

iew recognises that office fees are only a small part of the o

erall pre-grant

fees borne by applicants, and has made recommendations in Chapter 5 to reduce legal costs,
which make up the bulk of the costs.

6.18

The Patent Office is an executi

e agency of the DTI, and operates as a Trading Fund

under the Patent Office Trading Fund Order. This means that it must use its own re

enue

sources to co

er operating costs and pro

ide a return on capital to the Go

ernment. A

separate order sets out the acti

ities that can be taken into account when setting statutory

fees to allow cross-subsidy between different functions.

6.19

The Patent Office trade mark and design operations generally break e

en and pro

ide

a return on capital employed. Howe

er, at present, patent operations do not. The Patent Office

charges small initial fees at the patent grant stage. It recoups costs principally

ia renewal fees.

UK renewal fees are payable each year from the first year after being granted. Currently the
break-e

en point on domestically granted patents at the UK Patent Office is fourteen years.

A UK patent that expires before this period effecti

ely has its registration and administration

costs subsidised by the Patent Office. The current a

erage life for a UK patent is between ten

and ele

en years. Consequently, domestic patents operations do not co

er their costs.

UK patents do

not cover their

costs

UK patents are

cheap to acquire

Recommendation 49:

Encourage IP policy officials to obtain policy experience outside

the IP Policy Branch, and support short industry placement schemes for policy staff.

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The Gowers Review

Source: Patent Office data.

EPO estimate based on renewal in six countries, after fifth year.

Chart 6.1: Cost difference to the UK for a 20-year patent,
2006

-£5,000

£0

£5,000

£10,000

£15,000

£20,000

£25,000

Russia

India

Canada

Switzerland

Ireland

Sweden

Australia

France

Brazil

Denmark

Finland

USA

China

Germany

Japan

South Korea

EPO

O V E R N A N C E

6.20

Domestic patents are currently subsidised by European patents designating in the

UK. The Patent Office currently retains half of the renewal fees from European patents
designating the UK. Howe

er, the EPO Administrati

e Council could change this di

ision at

any time and as such, this stream of re

enue is unpredictable.

6.21

Patent Office income is used to fund policy, awareness, and enforcement, and the

Patent Office’s tribunal functions. It is important that the use and allocation of such resources
for both its statutory and non-statutory work is clear and transparent.

6.22

The position of the Patent Office as both a granting authority for IP rights and as a

tribunal where those rights may be challenged creates a potential conflict of interest. Officials
in the tribunal may be reluctant to o

er-rule the decisions made by their colleagues in

granting rights.

N a m e o f t h e Pa t e n t O f f i c e

6.23

The name of the Patent Office can be misleading to stakeholders. It suggests that the

office is only concerned with patents while, in fact, it performs a broad range of functions in
relation to all IP. The present name also contributes to the perception that other forms of IP,
for example copyright, take a lower priority.

6.24

Some stakeholders ha

e suggested that a separate Copyright Office be established.

Howe

er, the Re

iew belie

es that there are a greater number of synergies than differences

across different forms of IP. Policy, education, enforcement, business support, and awareness
raising cut across the boundaries of all IP rights. The Re

iew has therefore decided not to

recommend that a separate Copyright Office be established.

6.25

Instead, the Patent Office should ensure that all stakeholders are gi

en, and are seen

to be gi

en, equal consideration in IP policy. The Re

iew therefore recommends that the

name of the Patent Office should change to reflect better the functions it carries out.

C O S T A N D C O M P L E X I T Y O F L I T I G AT I O N

6.26

As outlined in Chapter 2, the current UK IP litigation structure is complex, with

litigants ha

ing a choice of tribunals through which to commence their action. While ha

ing

a number of judicial fora enables litigants to choose the most cost effecti

e or appropriate

tribunal or court, it can add to complexity. The diagram below summarises the current court
and tribunal structure together with appeal routes.

Recommendation 53:

Change the name of the UK Patent Office to the UK Intellectual

Property Office (UK–IPO) to reflect the breadth of functions the office has, and to dispel
confusion.

Recommendation 52:

Ensure that under current arrangements in the Patent Office,

there is a clear internal separation of responsibility between the granting of rights and
disputes over their ownership or validity. This should be achieved by clearly separating the
line management structures.

Recommendation 51:

Increase the transparency of Patent Office financial reporting.

Recommendation 50:

Realign UK Patent Office administrative fees to cover costs more

closely on Patent Office administrative operations (e.g. granting patents).

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O V E R N A N C E

6.27

As discussed in Chapter 5 IP litigation is expensi

e in the UK relati

e to other

countries. Claims in English and Welsh courts can be up to four times more expensi

e than in

Germany, yet there are few differences compared to Europe in the remedies a

ailable or the

quality of legal decisions. There are a number of reasons why lawsuits in England and Wales
are costlier than throughout Europe. Professional fees in England and Wales are generally
higher and the patent litigation process is more complex, in

ing disclosure, cross-

examination and the use of expert witnesses. Other jurisdictions in Europe make less use of
these processes and also ha

e systems of capped or scale costs. This reduces risk and gi

both parties an indication of their liability should they lose.

6.28

High costs of litigation fall particularly hea

ily on SMEs defending their rights. SMEs

are often dissuaded from bringing cases against larger firms, as they know that larger firms
can stretch out suits and thereby increase the cost. For SMEs, protecting their market position
is initially more important than reco

ery of damages: infringement needs to be stopped

quickly. The current UK appeals route is slow and so does not meet their needs.

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The Gowers Review

Chart 6.2: Current IP litigation system

Source:Treasury analysis.

Appointed

person

High Court

(Chancery Division)

Designs,

Copyright,

Trade Marks

Patent Court

Only Patents

Patents County

Court

Not copyright

Patent Office

(Tribunal and granting)

Registered

design appeals

tribunal

Copyright

Tribunal

Court of

appeal

European Court

of Justice

House of

Lords

Appeal
route

References to
European Court of Justice

Designs

TM Route 2

Cases sent

TM
Route 1

Patents

O V E R N A N C E

R e f o r m o f Pa t e n t s C o u n t y C o u r t

6.29

The Patents County Court (PCC) was established to pro

ide a cheaper and more

streamlined procedure than the High Court for litigating patents and designs and recently
this has been extended to trade marks, Community Trade Marks and Community Designs.
The Patents County Court is run by the courts ser

ice. In most respects, the High Court and

PCC ha

e the same jurisdiction.

6.30

Following the Woolf reforms to the ci

il law system in

999, all courts in England and

Wales now work to the same rules of procedure. The reforms led to three “tracks” of
legislation: small claims; fast; and multi-track. Cases are allocated largely according to the
amount in dispute. Anything o

er £

5,000, which includes nearly all IP cases, is heard as a

multi-track case. Accordingly, many of the benefits of the fast track system, such as capped
costs, limited trial length and limited disclosure, do not apply to IP cases. This means the PCC
is now almost as expensi

e and complex as High Court litigation. High costs at the PCC and

the High Court act as a barrier to all potential litigants, and to SMEs in particular.

6.31

Changes to the rele

ant Ci

il Procedure Rules (CPR) could enable IP cases to be

allocated to their own “fast track” procedure. This would entail raising the current £

5,000

limit on the amount in dispute that can be heard in fast tracked cases. In addition, legal fees
for fast track IP procedures should be capped to reduce costs.

C O N C LU S I O N

6.32

This chapter has made a number of recommendations to impro

e the Patent Office’s

work in respect of policy making and administration of rights and its tribunal function. These
reforms will reduce the costs of litigation and make sure the Patent Office has a secure
financial footing. Furthermore, they will ensure that future challenges to the IP system are
adequately addressed by policy and that the UK is able to place itself at the forefront of the
knowledge economy.

Recommendation 54:

DCA should review the issues raised in relation to IP cases and

the fast track and seek views in the context of its forthcoming consultation paper, which
will consider the case track limits, and how the claims process can be made more timely,
proportionate and cost-effective. It should bring forward any proposals for change by the
end of 2007.

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The Gowers Review

Chart 6.3: Development of the Patents County Court

Source: The Work of the Patents County Court, Michael Fysh, 2003.

1986 White Paper

All patent disputes dealt

with by Patent Office or

patents court

Designs and

Patent Act

White paper

suggestion accepted

and enacted

September 1990

Patents County

Court established

O N C L U S I O N

The Gowers Review

7.1

Creati

ity, inno

ation and in

estment are crucial to boosting the producti

ity of the

UK economy. Looking forward, their importance is set to remain centre-stage as we enter the
‘third industrial re

olution’. The UK must be able to harness creati

ity and promote

inno

ation in order to compete in the global, knowledge-based economy. Intellectual

Property creates the link in the chain which incenti

ises indi

iduals and firms to inno

ate and

create, with the confidence that their in

estment is protected.

7.2

The Re

iew has shown that while in many regards the UK IP system works well, there

are a number of areas where it could perform e

en better. The Re

iew has made a number of

recommendations to impro

e the framework for inno

ation; in particular it has called for:

•

stronger enforcement of IP rights to ensure practical protection is pro

ided for

rights owners and effecti

e deterrents to infringement are in place;

•

lower operational costs for business, simplifying processes such as licensing
and litigation, and impro

ing education and ad

ice; and

•

greater balance and flexibility of IP rights to allow indi

iduals, businesses and

institutions to use information and ideas in ways consistent with the digital
age.

7.4

The Re

iew has set a

ision for IP policy moti

ated by a clear purpose. The IP system

must enable greater economic producti

ity whilst ensuring equity for all those who use IP. In

order to achie

e this, the instruments of the system must be balanced, coherent and flexible,

and the operation of those instruments must be effecti

ely administered. Changes will be

required within the UK and abroad. In order to dri

e a programme of greater international

coherence, especially at the European le

el, the UK should take a lead on IP policy

elopment. A more efficient international IP system is not only to the benefit of the UK, but

to the whole of Europe and beyond.

7.5

If the Go

ernment accepts and implements the Re

iew’s recommendations, the

iew belie

es that the portfolio of measures will ensure that the UK IP system is fit for

purpose in the digital, global age.

Meeting the

challenges

Improving the

current system

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L O S S A R Y

The Gowers Review

ACID:

Anti Copying in Design

Additional damages:

Damages pro

ided for by the CDPA for infringements of copyright,

design rights or performer’s property rights

ADR:

Alternati

e Dispute Resolution

Arbitration:

A form of ADR where an impartial referee hears and determines a dispute

Berne Convention:

Berne Con

ention for the Protection of Literary and Artistic Works that

pro

ides certain minimum standards in relation to literary, dramatic, artistic and music

works

Biotechnology:

The use of li

ing organisms and tissues in the de

elopment and manufacture

of products

BMR:

British Music Rights

BPI:

British Phonographic Industry, the British record industry’s trade association

Business Link:

UK national business ad

ice ser

ice

Call for Evidence:

The Gowers Re

iew consultation, from February to April 2006

CBI:

The Confederation of British Industry, a trade association representing the interests of

UK business

CFI:

Court of First Instance

CIPA:

Chartered Institute of Patent Agents

Civil Procedure Rules (CPR):

A set of rules which go

ern the way in which ci

il court cases are

conducted in England and Wales

Claims:

The part of a patent that states the uses and possible applications of the in

ention

described in the patent

Combined Patent Search and Examination (CSE):

UK Patent Office initiati

e to combine

patent search and examination and thus reduce time to grant a patent

Community acquis:

The body of common rights and obligations which are acknowledged by

all the Member States of the European Community

Community Patent:

A patent law measure being debated within the EC which would allow an

applicant to obtain a unitary patent which would ha

e effect throughout the Community

Community Patent Review:

A peer re

iew system for patents currently being de

eloped at

the USPTO

Community Registered Design:

A design right that gi

es protection throughout the

Community, administered by OHIM

Community Trade Mark (CTM):

A trade mark that has unitary effect and gi

es protection

throughout the Community, administered by OHIM

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L O S S A R Y

Companies House:

An executi

e agency of DTI which registers and pro

ides information on

all UK companies under the Companies Acts

Competition Commission:

An independent public body which conducts enquiries into

mergers, markets and the regulation of the major regulated industries

Copycat packaging:

Competitors using packaging designs for their products that mimic

closely the packaging of familiar brands

Copyright:

A set of exclusi

e rights granted by the CDPA, which last for a limited time to

protect the particular form, way or manner in which an idea or information is expressed.
Copyright arises automatically in the UK

An Act which go

erns UK copyright laws,

created an unregistered design right and contained modifications to the law on patents and
registered designs

Copyright Tribunal:

An independent body set up under the CDPA to settle

arious types of

ides a

secretariat to the Tribunal

An act which amended the CDPA

988 and

introduced exceptions to copyright law that remo

e the need to obtain permission from the

rights holder of a copyright protected work in order to produce an “accessible copy” for those
with

isual impairment

Counterfeit:

An imitation of a good made to represent the original, which is not authorised by

the rights owner

Creative Commons:

A non-profit organisation which offers a set of copyright licences to

promote freedom of use and reuse of creati

e works

DCA:

Department for Constitutional Affairs

DCMS:

Department for Culture, Media and Sport

DfES:

Department for Education and Skills

DRM:

Digital Rights Management, technology used by content owners to control the use of

their work

DTI:

Department of Trade and Industry

EC:

European Community

ECJ:

European Court of Justice

Educational Exceptions:

Certain exceptions to copyright which allow works to be used for a

range of non-commercial educational purposes

EPC:

European Patent Con

ention, a treaty which created the European Patent Organisation

and sets the rules of the European patent

EPLA:

European Patent Litigation Agreement, a proposed single European patent judicial

system

EPO:

European Patent Office, the executi

e body of the European Patent Organisation

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The Gowers Review

L O S S A R Y

EPOrg:

European Patent Organisation, an international organisation set up by the EPC which

pro

ides a centralised patent grant system administered by the EPO

Esp@cenet:

A patent search ser

ice de

eloped by the EPO

EU:

European Union

Executive Agency:

An organisation which carries out some executi

e functions of UK

ernment. Do not generally set policy but ha

e flexibility in managing the implementation

of policy

Fair dealing:

A series of copyright exceptions which permit a work to be used for limited

purposes, pro

ided the use is “fair”

Fair use:

Exceptions to US copyright law which allow limited use of copyright material

without requiring permission from the rights holders

FDI:

Foreign Direct In

estment, in

estment in one country by firms owned in another

country

Free riding:

When one person benefits from the actions and efforts of another without paying

for or sharing the costs

GDP:

Gross Domestic Product, the total

alue of goods and ser

ices produced by a nation

Get-up:

isual appearance of a product that may require protection as part of the total image

or o

erall impression created by the product or its packaging in the marketplace

GNP:

Gross National Product, the

alue of a country’s final output of goods and ser

ices in a

year

Gross Value Added:

The difference between output and intermediate consumption for a gi

sector or industry

High Court:

In England and Wales, the High Court hears the most important ci

il cases and

appeals from the County Courts

IFPI:

International Federation of the Phonographic Industry

Industrial application:

In order to recei

e patent protection, an in

ention must be capable of

being made or used in some kind of industry

Information Society Directive (“InfoSoc”):

Directi

e 200

/29/EC on the harmonisation of

certain aspects of copyright and related rights in the information society

Intangible assets:

Items of

alue owned by a firm or indi

idual without a physical existence,

such as goodwill and the

alue of patents

Inventive Step:

The concept that an in

ention is not an ob

ious de

elopment on what has

been done or published before the priority date

IPAC:

Intellectual Property Ad

isory Committee, a body formed to gi

e independent ad

ice to

ernment on IP issues

IPID:

Intellectual Property and Inno

ation Directorate, the Directorate at the UK Patent

Office which deals with IP policy

ISP:

Internet ser

ice pro

ider

ITMA:

Institute of Trade Mark Agents

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L O S S A R Y

JPO:

Japanese Patent Office

Licence of Right:

The endorsement of a patent as licence of right enables the owner to pay

half renewal fees. In return anyone may ha

e a licence upon reasonable terms

Licensing (in-licensing/out-licensing):

Contractual agreement granting permission to use IP

under specific conditions. “In-licensing” refers to licensing of another’s IP, “out-licensing”
refers to licensing of one’s own IP to others

London Agreement:

An international agreement under the EPC aimed at reducing European

patent costs by reducing the post-grant translation requirements

Madrid Protocol:

Pro

ides for the protection of trade marks in a number of countries by

means of a single application

MCPS:

Mechanical Copyright Protection Society, a UK collecting society

Mediation:

The negotiation between two parties to resol

e differences, aided by a neutral

third party

National IP Crime Strategy:

A strategy set up to tackle IP crime by bringing together different

parts of go

ernment, industry stakeholders, policymakers and enforcers, to create a

coordinated approach to intellectual property enforcement. Currently led by the Patent
Office

NGO:

Non-go

ernmental organisation

Novelty:

The concept that the claims defining an in

ention in a patent application must be

new for an in

ention to be patentable

Observations (“Section 21”):

In the UK, the ability to comment on whether the Patent Office

should grant a patent for a particular in

ention after it has been published

OFT:

Office of Fair Trading

OHIM:

Office for Harmonisation in the Internal Market, the recei

ing and examining Office

for applications for Community Trade Marks and Design rights

ONS:

Office for National Statistics

Open Source:

A program whose source code is distributed, often with copyright licensing

terms allowing others to use that source code

Orphan work:

A copyright work where the rights holder cannot be found

P2P:

Peer to peer, the sharing and deli

ery of files among groups of people logged on to a file

sharing network

Paris Convention:

The first treaty on industrial property rights which was originally agreed in

883. It pro

ides for national treatment, priority and some minimum standards

Passing off:

A common law claim which can be used to protect the reputation of a trade mark,

brand or get up of a product

Patent opposition:

A request to a patent office by an opposing party that an application

should be refused, or that a granted patent should be annulled; there is no patent opposition
under UK law

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L O S S A R Y

Patent Pools:

A cooperati

e agreement between se

eral patent owners to cross-licence

patents relating to a particular technology

Patentability:

The ability of an in

ention to satisfy the legal requirements for obtaining a

patent, including no

elty, in

ing an in

enti

e step (non-ob

iousness), ha

ing industrial

application and not be “excluded” (e.g. computer software may not be patentable in many
countries)

Patents County Court:

A court founded to cater for the needs principally of medium and

small size firms in litigating patents and designs, recently extended to trade marks

PCT:

Patents Cooperation Treaty, the treaty that facilitates filing of applications between

member countries by pro

iding a single international application procedure

Performers Rights:

Rights, additional to the rights of copyright owners, initially belonging to

the performer with respect to the performance and subsequent exploitation of the
performance

Piracy:

Unauthorised duplication of goods protected by IP law

PPL:

Phonographic Performance Limited, a UK collecting society

Preliminary examination:

The initial study of an application by a patent office to check that

it meets formal requirements, in particular that it is properly formatted

Prior art:

Pre

iously used or published technology, that may be referred to in an application

Priority date:

The initial date of filing of a patent application, normally in the applicant’s

domestic patent office. This date is used to help determine the no

elty of an in

ention

Proceeds of Crime Act (POCA):

A law which enables property obtained by unlawful conduct

to be reco

ered by enforcement agencies

PRS:

Performing Rights Society, a UK collecting society

Punitive Damages:

Also known as exemplary damages, are damages used to punish a

defendant for his or her wrongdoing, they are generally una

ailable under English law

R&D:

Research and De

elopment

RDA:

Regional De

elopment Agency, non-departmental public bodies for the de

elopment of

each of the UK’s regions

Registered Design:

A monopoly right granted in respect of the appearance of the whole or

part of a product

Relative Grounds (for refusal):

The decision to reject a trade mark application as it is identical

to or similar to earlier marks

Renewal fees:

Payments that must be made by the applicant to keep a registered right in force

and pre

ent it from lapsing

Retrospective/Retroactive term extension:

Extension of copyright term for works that are

already in copyright (retrospecti

e) and for works that ha

e fallen out of copyright, but which

would still be in copyright if the longer term existed when they were created (retroacti

al of copyright)

Reverse Engineering:

The process of understanding how a product is made from disassembly

of the product

125

The Gowers Review

L O S S A R Y

Search report:

The list of citations of published prior art documents prepared by the Patent

Office examiner in checking the no

elty of a patent application

SEEDA:

South East England De

elopment Agency

SIPO:

(State Intellectual Property Office), China’s IP Office

SME:

Small and Medium-sized Enterprise

SOCA:

Serious Organised Crime Agency

Specification:

The description, drawings and claims of an in

ention prepared to support a

patent application

Substantive examination:

The examination by the patent office examiner of a patent

application to determine whether a patent meets the patentability criteria

Sui generis:

(“of its own kind”) A right specifically designed to address the needs and concerns

of a particular issue

Supplementary Protection Certificate (SPC):

Additional protection equi

alent to an

extension of patent term which gi

es certain products (in particular pharmaceutical

products) longer protection due to the additional regulatory requirements

TellPat:

The National Intellectual Property Intelligence System

Term:

The number of years that a particular IP right lasts

TPM:

Technical protection measure, designed to pre

ent unauthorised use of copyright

protected content

Trade mark:

A distincti

e sign or identifier that can distinguish the goods and ser

ices of one

trader from those of another

Trade Mark Opposition:

After a trade mark has been published, the period of three months

during which time anyone can raise an objection to the Patent Office decision to accept the
mark

Trading Fund:

Parts of Go

ernment which operate in specialised fields and rely on their

ability to deri

e income in order to co

er their costs. Each is established by their own Trading

Fund Order

Transformative works:

Works that use other works protected by copyright for a purpose such

as to comment upon, criticize or parody the copyrighted work

TRIPS:

Trade Related Aspects of Intellectual Property Rights Agreement, a treaty administered

by WTO which sets down minimum standards for IP regulation

UK Trade and Investment (UKTI):

ernment organisation that supports companies in the

UK doing business internationally and o

erseas enterprises seeking to do business in the UK

UKPO:

United Kingdom Patent Office

Unregistered design right:

A right which comes automatically into being to protect an

original design

USPTO:

United States Patent and Trademark Office

Utility model:

A kind of patent a

ailable in some countries (but not the UK) which in

es a

simpler in

enti

e step than that in a patent. Also known as a petty patent

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The Gowers Review

A L L F O R E V I D E N C E

The Gowers Review

B.1

The formal Call for E

idence was published on 23rd February 2006. It set out the

scope of the Re

iew and asked respondents to comment on a range of general and specific IP

issues, and to highlight other issues they considered important. The questions posed in the
Call for E

idence are set out below. The Call for E

idence closed on 2

st April 2006.

B.2

The Call for E

idence elicited 5

7 responses and a petition on extending copyright

term for sound recordings. Responses not designated as confidential can be

iewed on the

Gowers Re

iew website. The full list of respondents is below.

R E S P O N S E S : I N D I V I D UA L

129

Alan Bunting

Alan Cox

Alasdair Poore

Albert Pattison

Alexander Mckenna

Alistair Kerr

Alister Mitchell

Andrew John

Andrew John Hughes

Andrew Shuttlewood

Andy Green

Andy Turner

Anne Duffill

Anthony Austin

Anthony Barnett

Anthony Bradley

Anthony H Ratcliffe

Anthony Skyrme/Michael
Schofield

Antony Howard

Antony Watts

Ashley Karyl

Austin Powell

B F Woodgate

B J Moore

Barry McCanna

Bernard Smith

Bharath Manu Akkara

eetil

Bill Myatt

Brian Hawkins

Brian Matthews

Charles Harrison

Chris Bartram

Chris Brand

Chris Newton

Lord Chris Smith

Christopher Lee

Christopher Wood

Colin Charman

Cristian Miceli

D B Fletcher

D C Kendal

D M Soall

Dan Re’em

Daniel Moylan

e Bishop

e Glass

e Jessop

e McAleer

id Ades

id and Nansi Mottram

id Colp

id Cummings

Professor Da

id Kirkby

Lord Da

id Puttnam

id Robinson

id Symes

Derek Holt

Derek Metheringham

Don Cox

Donald Petter

Duncan Curley

Edward Barrow

Eric Smith

Fiona Frank

Frank Bristow

Frank Cullen

Frank French

Fred McCormick

A L L F O R E V I D E N C E

Gary Holloway

Geoff Dann

Geoff Wallis

Geoff Wilding

Geoff Woolfe

Glenn Mitchell

Glenn Thorpe

Howard Hope

Ian Bruntlett

Ian Forbes

Ian Gillis

Dr J Pelan

J R Wrigley

James Cort

James Hogg

James Nice

Jamie Robert Thompson

Jim Marshall

John Adrian

John Booth

John Capes

John Earl

John Goslin

John Hope

John Howkins

John Walsh

Jonathan Sanders

Jonnie Dance

Jui Hsuan Tang

Julian Dyer

Julian Myerscough

Julian

ein

K F Harris/ A J Reid/
S J Goddard/G Goddard

Ken Caswell

Ken Sephton

Ken Strachan

Kenneth I Brown

Lee Raymond

Leonard Nicholson

Les Hurdle

Leslie Da

idson

Louis Barfe

Louise Pryor

Lyn Shailer

M Highton

M I

Malcolm Austen

Margaret Smith

Mark Berresford

Mark Spry

Maurice McCarthy

Mel

in Metcalfe

Michael Asser

Michael Martin Foreman

Michael Pointon

Michael Smith

Dr Michael Steele

Michael

an Boolen

Michelle Mathurin

Mike Child

Mike Ellis

Mike Feist

Neil Jeffares

Neil Manthorpe

Neil Rennoldson

Neil Thomas

Nicholas Bentley

Norman Jones

Ossie Dales

P Rees

Pali Rao

Paul Collenette

Paul Hampton

Paul Holroyd

Paul L D Rank

Paul Massot

Paul Morris

Paul Pedley

Paul Roberts

Peter Adamson

Peter Charlton

Peter Cripps

Peter Luck

Peter Sandercock

Peter Wallace

Phil Brooke

R Dixon Smith

Ray Spendley

Rexton Bunnett

Richard Allen

Richard Baker

Richard Porter

Richard Powell

Richard Watts

Rob Twisse

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The Gowers Review

A L L F O R E V I D E N C E

Robert Watson

Robert Young

Robin Broadbank

Robin Cherry

Robin Mukerji

Ronald Prentice

Ross Anderson

Roy Waters

Russell Barnes

Sally Ramage

Sarah Smith

Sheldon Greeberg

Simon Booth

Simon Le

ene

Simon Moss

Simon O’Neill

Sonia Wood

Soon Ong

Stanley Smith

Stephen Marshall

Ste

en Anderman

Susan Bell

Swithun Crowe

Syl

ia Panrucker

Ted Kendall

Theo Morgan

Tim Brooks

Tim Gander

Tom Duffy

Tom Ellis Huckstep

Tony Dean

Tony Langford

Tre

or Taylor

Wallace J McLean

William J Clark

William Kingston

William Scott

Willie Liam

131

The Gowers Review

R E S P O N S E S : O R G A N I S AT I O N S

Accent Software Ltd

Acti

e Rights Management

and Netresult

AHDS

isual Arts

AHRC Research Centre for
Studies in IP and Technology
Law, Uni

ersity of

Edinburgh

All Party Parliamentary Jazz
Appreciation Group

All3Media

Alliance Against IP Theft

Antenna Audio Ltd

Anti Copying in Design

ARM Ltd

Arts Council England

Ascot Racecourse Ltd

Ashurst

Association for Uni

ersity

Research and Industry Links

Association of Art Historians

Association of Independent
Music

Association of Learned and
Professional Society
Publishers

Association of
Photographers

Association of Scottish
Colleges

Association of Streaming
Media Companies

Association of the British
Pharmaceutical Industry
(ABPI)

Association of United
Recording Artists

AstraZeneca

Atmosphere Picture Library

Authors’ Licensing and
Collecting Society Ltd

BAe Systems

BBC / BBC Worldwide Ltd

Biodi

ersity Organisation

BioIndustry Association

Biomedical Industry
Ad

isory Group

Bournemouth Uni

ersity

Brightman Art Library

British Academy

British and Irish Association
of Law Librarians

British Association of Picture
Libraries and Agencies
(BAPLA)

A L L F O R E V I D E N C E

British Brands Group and
Anti-Counterfeiting Group

British Chambers of
Commerce

British Copyright Council

British Design Inno

ation

British Equity Collecting
Society (BECS)

British Film Institute

British Geological Sur

British Library

British Music Rights

British Phonographic
Industry (BPI)

British Screen Ad

isory

Council

British Society of Plant
Breeders

British Telecom

British Uni

ersities Film and

ideo Council (BUF

British

ideo Association

BSkyB

Business Software Alliance
(BSA)

CALL (Communication Aids
for Language and Learning)
Centre, Uni

ersity of

Edinburgh

Cambridge Assessment

Centre for the History and
Analysis of Recorded Music,
Royal Holloway, Uni

ersity

of London (CHARM)

Channel Four Tele

ision

Corporation

Channel 5 Broadcasting Ltd

Chartered Institute of
Journalists (CIJ)

Chartered Institute of Patent
Attorneys (CIPA)

Chartered Institute of Public
Relations (CIPR)

City of London Law Society

City of London Phonograph
and Gramaphone Society

Clifford Chance

Comite Interprofessionnel
Du

in De Champagne

(CI

Competition Commission

Computer &
Communications Industry
Association (CCIA)

Computer Patent Annuities
(CPA) Management Systems
Ltd

ConcurrentComputing.co.uk

Confederation of British
Industry (CBI)

Consumer Project on
Technology

Contra

ision

Creati

e Commons

Creators Rights Alliance

Crop Protection Association

Cuillin FM

Dart Sensors Ltd

Data Publishers Association

enport Lyons

Design and Artists Copyright
Society (DACS)

Designs IQ

Dial Solutions

Digital Content Forum

Digital Curation Centre,
Uni

ersity of Edinburgh

Disability Rights
Commission

D J Association

D J Licensing Working Party

Dr P R Lewis and Associates
Ltd

Dramatico Entertainment
Ltd

Dress Circle

Dutton

ocalion

East London In

entors Club

Educational Recording
Agency (ERA)

Electronic Frontier
Foundation (EFF)

Electronics Leadership
Council/UK Electronics
Alliance

Element Design

Elysium Ltd

EMI

Enfis Ltd

Entertainment and Leisure
Software Publishers
Association (ELSPA)

isage Ltd

Equity

Esterco Biofuel Ltd

Ethical Medicines Industry
Group (EMIG)

European Federation of
Journalists

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The Gowers Review

A L L F O R E V I D E N C E

European Publishers
Council

ergreen Melodies

Federation Against Software
Theft (FAST)

Federation of Small
Businesses (FSB)

FeONIC PLC

Field Fisher Waterhouse

Film Distributors’
Association Ltd

Flare Records

Fo’c’sle Folk Club
Southampton

Foldback Media Ltd

Foundation for a Free
Information Infrastructure
(FFII) UK

Foundation for Information
Policy Research (FIPR)

Freddysays.com

Freeth Cartwright

Glasgow Caledonian
Uni

ersity

GlaxoSmithKline (GSK)

Global

illage Ltd

Google

Handy women

Hospital Broadcast
Association

Ian Anderson Group of
Companies Ltd

Iansyst Ltd

ICI

Incorporated Society of
Musicians

Institute of Child Health

Institute of Patentees and
In

entors

Institute of Professional
Sport

Institute of Trade Mark
Attorneys

Institute of

ideography

Institution of Engineering
and Technology

Intel Corporation, Europe,
Middle East & Africa

Intellect

Intellectual Property
Institute

Intellectual Property
Lawyers’ Association

International Association for
the Study of Popular Music
(IASPM)

International Association of
Music Libraries, Archi

and Documentation Centres
(IAML)

International Chamber of
Commerce (ICC)

International Concertina
Association

International Federation of
the Phonographic Industry
(IFPI)

International Military Music
Society (UK Branch)

International Policy Network
(IPN)

IP Wales

Jazz Ser

ices

Johnson Matthey PLC

Joint Information Systems
Committee (JISC)

JSP Records

Just Media Resources

Lancaster Uni

ersity

Law Society

Law Society of Scotland

Libraries and Archi

Licensing Executi

es Society

Lowlights Publishing

MacRoberts

McDonald Bridge

Mechanical Copyright
Protection Society and
Performing Rights Society
Alliance

Mellotone Records

Microsoft

Milbank Tweed Hadley and
McCloy

Motion Picture Association

MP4

Muirhead Management

Museum Documentation
Association

Museums, Libraries and
Archi

es Council

Music Business Forum

Music Hall Magazine

Music Managers Forum

Music Traditions Records

Music Users’ Council (UK)

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The Gowers Review

A L L F O R E V I D E N C E

Music

ideo Producers

Association

Musical Stages Magazine

Musicians’ Union

National Academies

National Archi

National Association for
Music in Higher Education
(NAMHE)

National Consumer Council
(NCC)

National Council on
Archi

National Library for the
Blind

National Library of Scotland

National Library of Wales

National Museum Directors
Conference and Museums
Copyright Group

National Union of
Journalists

Naxos UK

National Endowment for
Science Technology and the
Arts (NESTA)

Newspaper Licensing
Agency Ltd

Newspaper Society

NHS Inno

ations East

Midlands

NHS Inno

ations South East

Northern Lights PR

ntl

Open Plan Solutions Ltd

Open Rights Group

Open Uni

ersity

Opendawn Ltd

Ordnance Sur

Organisations representing
Specific Learning Difficulties

Own It

Oxford Intellectual Property
Research Institute

PACT

Past Perfect

Patent and Trade Mark
Group (PATMG)

Peninsula Medical School

Periodical Publishers
Association

Personal Managers’
Association (PMA)

Philips Intellectual Property
and Standards

Phonographic Performance
Ltd and

ideo Performance

Ltd

Pierian Records

Pink Floyd

Poppy Records

Professional Contractors’
Group

Proper Music Group

Public Patent Foundation

Publishers Association

Publishers Licencing Society

QinetiQ Ltd

Queen Mary IP Research
Institute, Uni

ersity of

London

Queen’s Uni

ersity of Belfast

Racecourse Association Ltd

Racehorse Holdings Trust
Ltd

Random House Group Ltd

Rangers Football Club

Redeye The Photography
Network

Reed Else

ier Group plc

Research Councils UK

Research Information
Network

Reuters

Right to Read Alliance

ers Consultancy

Roehampton Uni

ersity

Rollercoaster Records

Royal Bank of Scotland
Group plc

Royal National Institute of
the Blind (RNIB)

Royal Society

Royal Society of Arts

S4C

Sage

Scientific Generics Ltd

Scottish Funding Council

Scottish Intellectual Assets
Centre

Scottish Screen

Sepia Records

Share the

ision

Sheffield Hallam Uni

ersity

Sheridans Solicitors

Skyscan Photolibrary

Society for Computers and
Law

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A L L F O R E V I D E N C E

Society of College, National
and Uni

ersity Libraries

(SCONUL)

Society of Information
Technology Management
Open Source Software
Group (SOCITM)

Society of London Theatre
and Theatrical Management
Association (SOLTTMA)

Sports Rights Owners
Coalition (SROC)

Stanford Law School

Stock Artists Alliance

Stockholm Network

Sun Microsystems Inc

Swedish Society of Popular
Music Composers (SKAP)

Technical Ad

isory Ser

ice

for Images, Institute for
Learning and Research
Technology, Uni

ersity of

Bristol

Tertullian Project

Tesco plc

The Blacksmith Collection
Ltd

The British Association of
The International
Federation of Industrial
Property Attorneys (FICPI -
UK)

The Laureate Company

The Learning Machine

The Monster Factory

This England and E

ergreen

Magazines

Tiny Quest

Tony Smith Personal
Management

Trade Marks, Patents &
Designs Federation
(TMPDF)

Trading Standards, North
West (TSNW) IP Group

UCB S.A.

UK Association of Online
Publishers

UK Film Council

UK Hydrographic Office

UK Professional Football
Leagues

UNICO: The Uni

ersity

Companies Association

Unile

er plc

Uni

ersities UK

Uni

ersities UK & Standing

Conference of Principals
(UUK&SCOP)

Uni

ersity of Edinburgh IP

Academics

Uni

ersity of Glasgow

Uni

ersity of Hull

Uni

ersity of Leicester

Uni

ersity of Li

erpool

Uni

ersity of Loughborough

Uni

ersity of Manchester

Uni

ersity of Newcastle

Uni

ersity of Oxford

Uni

ersity of Southampton

Centre for Enterprise and
Inno

ation

Uni

ersity of Surrey

Uni

ersity of Sydney

Uni

ersity of Wales,

Aberystwyth

Uni

ersity of Wales, Swansea

Uni

ersity of Warwick

ideo Networks Ltd

illeroy & Boch

Warner Brothers
Entertainment UK

Wedlake Bell

Welsh Assembly
Go

ernment

wePod

West Country In

entors

Club

Wheal Associates Ltd

Yahoo

Yorkshire Garland Group

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A L L F O R E V I D E N C E

C A L L F O R E V I D E N C E

B.3

This Call for E

idence will form a key part of the e

idence base that the Re

iew team

can use to de

elop its analysis. It will be used alongside a range of other e

idence sources,

including quantitati

e data; sur

eys and

iews of representati

e groups;

isits; seminars; and

inter

iews.

We encourage stakeholders to submit evidence in three areas:

•

First, we in

ite e

idence on a series of

General Questions

for each of these

elements of the IP system identified. These are set out below.

•

Second, there are also a number of

Specific Issues

on which we would

particularly welcome e

idence. These are also set out below.

•

Finally, we also in

ite respondents to

highlight other issues

on which the

iew should focus its attention that are within our scope, but not listed

below.

G E N E R A L Q U E S T I O N S

H o w I P i s a w a r d e d

Are there barriers to obtaining IP rights due to system complexity? What could be done
to impro

e this situation?

How easy is it to find out about obtaining IP rights? What could be done to impro

awareness for businesses and inno

ators? Is there sufficient awareness of the need to

protect IP internationally?

Are there barriers to obtaining UK IP rights on grounds of cost? What dri

es these costs?

How do these costs compare internationally in your organisation’s experience?

Do you ha

e any comments on the UK Patent Office fees structure for obtaining and

renewing IP protection?

Is lack of trust in the system a barrier? To what extent do you rely on other tools to bring
inno

ation to the marketplace, such as being first to market, maintaining trade secrets,

or using an open inno

ation model to generate

alue through reputation or network

effects?

Are there specific barriers to obtaining IP rights in your sector?

Are there specific barriers to obtaining IP rights for small businesses or indi

iduals?

How well does the national system for awarding IP, administered by the Patent Office
perform? How well do the international and European systems work?

H o w I P i s u s e d

What types of IP does your organisation use and why?

To what extent do you seek multiple o

erlapping forms of IP protection?

To what extent are these decisions influenced by sector-specific considerations?

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How does your company

alue its IP? Are there problems with raising finance against

intangible assets based on IP? What impro

ements could be made in this area?

To what extent does the term of IP rights at the margin affect in

estment decisions?

How well does the UK IP system promote inno

ation?

To what extent does your organisation make use of other methods used by Go

ernment

to encourage inno

ation, such as public funding?

Are data on the use of patents and other forms of IP useful as a means of measuring
inno

ation?

Do you ha

e any e

idence as to the static or dynamic costs that IP rights (as statutory

monopolies) impose on the economy?

e you encountered patents or other IP rights being used defensi

ely, i.e. obtained

not to de

elop products, but only to pre

ent others from doing so? Under what

circumstances do you consider this acceptable?

H o w I P i s l i c e n s e d a n d e x c h a n g e d

How easy is it to negotiate licences to use others’ IP for commercial or non-profit
purposes?

What mechanisms do you use for finding potential licensing partners?

How easy is it to use others’ IP for research purposes? Ha

e you experienced difficulty

around research exemptions?

Are there specific barriers to licensing in the main forms of IP currently used: patents,
copyright, trade marks, and designs?

Are there barriers to licensing IP on grounds of cost? What dri

es these costs?

Are there specific barriers to licensing IP in your sector?

Does your organisation use methods to facilitate exchange of IP - such as cross-licensing
or pooling IP rights with other firms or organisations?

Are there specific barriers to licensing IP rights for small businesses or indi

iduals - for

example barriers to entry to patent pools?

Are there barriers to trade and exchange of IP internationally?

Does your organisation consider renewing patents using “licence of right” pro

isions in

patent law (which entitle any person to a licence under your patent and reduce your
renewal fees by half )?

What could be done to impro

e “licence of right” pro

isions and business awareness of

them?

Do you ha

e any experience of the compulsory licence pro

isions within current patent

law? Are they effecti

e? How could they be impro

ed?

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H o w I P i s c h a l l e n g e d a n d e n f o r c e d

Are there specific problems with enforcing the main different forms of IP: patents,
copyright, trade marks, and designs?

Are there barriers to challenging infringement and enforcing your IP rights on grounds
of cost? What dri

es these costs?

To what extent does your organisation make use of other methods than litigation to
resol

e IP infringement cases, for example the Patent Office opinion ser

ice, mediation

ser

ices, Alternati

e Dispute Resolution, or the Copyright Tribunal?

To what extent do you use IP litigation insurance? How effecti

e is it?

Are there barriers to using such methods to settle IP disputes without recourse to
litigation? How might they be remo

ed?

Are there specific barriers to challenging and enforcement of IP rights for small
businesses or indi

iduals?

To what extent is the risk of litigation a factor in your organisation’s in

estment in

inno

ation?

What are the principal barriers to efficient and successful challenge and enforcement
internationally?

S P E C I F I C I S S U E S

C u r r e n t t e r m o f p r o t e c t i o n o n s o u n d r e c o r d i n g s a n d
p e r f o r m e r s ’ r i g h t s

Background: The Re

iew will fulfil the Go

ernment’s commitment to examine whether the

current 50 year term of protection on sound recordings and performers’ rights in sound
recordings is appropriate, in the light of its extension to 95 years in a number of other
jurisdictions.

What are your

iews on this issue?

Is there e

idence to show the impact that a change in term would ha

e on in

estment,

creati

ity, and consumer interests?

Are you aware of the impact that different lengths of term ha

e had on in

estment,

creati

ity, and consumer interests in other countries?

Are there alternati

e arrangements that could accompany an extension of term (e.g.

licence of right for any extended term)?

If term were to be extended, should it be extended retrospecti

ely (for existing works) or

solely for new creations?

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C o p y r i g h t e x c e p t i o n s – f a i r u s e / f a i r d e a l i n g

Background: There are a number of exceptions to copyright that allow limited use of
copyright works without the permission of the copyright holder.

What are your

iews on the current exceptions in copyright law?

Could more be done to clarify the

arious exceptions?

Are there other areas where copyright exceptions should apply?

Are the current exceptions adequate or in need of updating to reflect technological
change? For example copyright law in the UK does not currently ha

e a pri

ate “fair use”

exception. Such an exception might allow indi

iduals to copy music CDs onto their PC

and MP3 player for their personal use. Should UK law include a statutory exception for
“fair use”?

How would you see content owners being compensated for such use?

To what extent has technological change presented difficulties in use of copyrighted
material in the field of education?

Are there issues concerning the archi

ing of material co

ered by copyright?

C o p y r i g h t – d i g i t a l r i g h t s m a n a g e m e n t

Background: Increasingly digital media content is distributed with digital rights management
(DRM) technologies that can enable rights-holders to track usage and pre

ent unlicensed

copying by technological means. Howe

er concerns ha

e been raised about interoperability

and that such technologies may impair the content consumer’s legal rights. For example they
may be unable to take into account exceptions to copyright, the ultimate expiry of copyright
term, or the future e

olution of technology. They may therefore undermine legitimate rights

to access digital content, now and in the future. (NB: We are aware of all formal submissions
that ha

e been made to the All Party Parliamentary Internet Group on this issue.)

Do you ha

e a

iew on how the use of digital rights management technologies should be

regulated?

C o p y r i g h t – o r p h a n w o r k s

e you experienced any difficulties in identifying the owners of copyright content

when seeking permission to use that content?

Do you ha

e any suggestions on how this problem could be o

ercome?

C o p y r i g h t – l i c e n s i n g o f p u b l i c p e r f o r m a n c e s

e you encountered problems with the system of licensing and paying royalties to

collecting societies for public performance of music and/or sound recordings?

Could the system be clarified or simplified, and if so how do you see this working?

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Pa t e n t s – u t i l i t y m o d e l s

Background: Some countries, notably Germany, ha

e a “utility model” system offering

protection for simple in

entions, usually subject to less examination and shorter terms than

standard patents.

Do you ha

e a

iew on some sort of second tier patent system?

Has your organisation encountered problems in protecting its IP internationally where
such systems exist?

P h a r m a c e u t i c a l S u p p l e m e n t a r y Pr o t e c t i o n C e r t i f i c a t e s
( S P C s )

Background: SPCs are a “sui generis” IP right a

ailable in EU Member States for

pharmaceutical products (as well as plant protection products). The standard patent term is
20 years. SPCs aim to compensate rights holders for the time required to obtain regulatory
appro

al for their products. Where regulatory appro

al is issued more than fi

e years after a

patent is granted, SPCs may be granted to extend the term of protection on the acti

ingredient in the patented product. SPCs last for a term corresponding to the period elapsed
between the fi

e-year point and the point at which the product reaches market, up to a

maximum term of 5 years.

Does your organisation use SPCs?

How fair and effecti

e are they in deli

ering an incenti

e for in

estment?

How could they be impro

ed?

Should the term of SPCs be more flexible – perhaps relating straightforwardly to the
period between patent award and regulatory appro

al?

Tr a d e M a r k s – i n t e r n a t i o n a l i s s u e s

To what extent does your organisation register its trade marks at the European rather
than national le

el?

Could the UK trade mark system be impro

ed to work better alongside the European

system?

D e s i g n s – r e g i s t e r e d d e s i g n s a n d u n r e g i s t e r e d d e s i g n
r i g h t s

To what extent does your organisation rely on registered designs? And on unregistered
design rights?

To what extent does your organisation register its design at the European rather than
national le

el?

To what extent does your organisation rely on the European unregistered design right
rather than the national UK unregistered design right?

Could the UK registered design be impro

ed to work better alongside the European

system?

Could the UK unregistered design right be simplified to work better alongside the
European unregistered design right?

Do you see a useful role for the UK unregistered design right alongside the European
design right?

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A L L F O R E V I D E N C E

L e g a l s a n c t i o n s o n I P i n f r i n g e m e n t

Are you aware of any inconsistencies or inadequacies in the way the law applies legal
sanctions to infringement of different forms of IP or to different circumstances?

For example, should criminal sanctions on online infringement be the same as those
relating to physical infringement?

C o h e r e n c e b e t w e e n c o m p e t i t i o n p o l i c y a n d I P p o l i c y

Has your organisation experienced any acti

ity linked to IP rights that you regarded as

unfair competition?

How did you deal with this problem?

Was competition law effecti

e at controlling this beha

iour?

Should competition law ha

e a greater role to play in regulating IP?

How would you see the system working?

Pa r a l l e l I m p o r t s / I n t e r n a t i o n a l E x h a u s t i o n

Background: European law does not allow firms to use trade mark or copyright law to pre

ent

their goods sold in one EEA Member State from being imported and resold in another
Member State – i.e. they are not able to segment the EU market. Howe

er European law does

allow the use of trade mark and copyright law to restrict the imports to EU Member States of
goods sold outside the EEA. It also specifically inhibits EU Member States from legislating to
remo

e such import restrictions at the national le

el – so called “international exhaustion” of

trade marks or copyright. There has been a good deal of debate, both here in the UK and at
EU le

el, about the costs and benefits of remo

ing restrictions on parallel imports. There is a

further issue of firms taking ad

antage of

ariations in prices on pharmaceutical products

across the EU and repackaging drugs bought cheaply elsewhere within the EEA to resell
within the UK.

Has your company been affected by parallel trade?

What would be the impact on your organisation of a change in the current rules?

What e

idence is there of the costs and benefits, both for consumers and firms of the

current rules?

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