To be published as HC 1498 iv

House of COMMONS



Business, Innovation and Skills Committee

Hargreaves Review of Intellectual Property

Tuesday 15 November 2011

Baroness Wilcox, John Alty, Ed quilty and adrian Brazier

Evidence heard in Public Questions 217 - 267



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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 15 November 2011

Members present:

Mr Adrian Bailey

Mr Brian Binley

Paul Blomfield

Julie Elliott

Margot James

Simon Kirby

Ann McKechin

Mr David Ward


Examination of Witnesses

Witnesses: Baroness Wilcox, Parliamentary Under-Secretary for Business, Innovation and Skills, Minister for IP, John Alty, Chief Executive and ComptrollerGeneral, Intellectual Property Office, Ed Quilty, Copyright and IP Enforcement Director, Intellectual Property Office, and Adrian Brazier, Head, Digital Economy Act Implementation and Creative Industries, Department for Culture, Media and Sport, gave evidence.

Q217 Chair : Good morning. Minister, I welcome you and the other interviewees and thank you for agreeing to speak to the Committee. We are a minute or two ahead of schedule, so I will use the minute, if I may. For voice transcription purposes, could you introduce yourselves and then we will get into the questioning proper?

Baroness Wilcox: Adrian Brazier is the Head of the Digital Economy Act, Implementation and Creative Industries, Department for Culture, Media and Sport. Next to me is Ed Quilty, who is Copyright and IP Enforcement Director for the Intellectual Property Office, and then John Alty, who is the Chief Executive and ComptrollerGeneral of the Intellectual Property Office. I am Judith Wilcox and I am the Minister for Business, Innovation and Skills; I also have the joy of being the Minister for Intellectual Property. That’s my own bit.

Q218 Chair : First of all, I think we can start with a very general question. The Hargreaves Review said the UK’s IP framework was "falling behind" but that much of the system is actually working satisfactorily. What is the Government’s position six months after the publication of the Review?

Baroness Wilcox: I wonder if just for the first minute you would allow me to say quite how this came about. The Prime Minister, brand new in post, was looking for his first speech and asked each Department if there was anything happening in their Department that was going to come forward as part of the new adventure. There was I with just the intellectual property as my particular brief and, lo and behold, they were bringing out the thing called a fast-track green patent just at that moment. It was a new concept for the new world of green issues to see if they could fast-track through to get some of the smaller businesses going, so he put it in his first speech. It has now been copied by the Americans and other countries because it was a world first. That explains why the Prime Minister has had intellectual property well within his sights from the beginning. It is a very small area, but of course it turns out that as the world is growing so all of this becomes far more important.

Therefore, the Prime Minister quickly asked, "Can the intellectual property system do more to help the economy grow?" Therefore, we asked Professor Hargreaves to take a look at what we should consider and what we might do. He did not conclude that the IP system is in crisis in any sense, but he did say that it needs to adapt and that it needs to be more adaptable in the future. As you know, the Government have, in broad terms, accepted all the recommendations that Professor Hargreaves made. If you like, I will just outline what it is that the Government thinks it has accepted.

Chair : Okay, please do.

Baroness Wilcox: The UK will lose out on some of the benefits of technology unless we can adapt our copyright system. The system should support activities that help growth and do not undermine creativity. For instance, it should support new research opportunities. The patent system works well for most businesses and the UK is considered to have one of the best systems in the world, but there is room for improvement. We want an effective unitary patent in the European Union to streamline the system across Europe. The intellectual property system has to work for all businesses and we want to ensure that small businesses get the opportunities and support they need to make good use of the intellectual property system. On enforcement, clearly we have an issue. Intellectual property rights must be enforceable if they are going to be of any value.

That adds up to what the Government feel that they are supporting at this time. I had hoped this morning to be able to tell you who is going to take the piece of work forward for the next six months, but unfortunately we haven’t yet got final clearance to be able to do that.

Q219 Chair : At the time, there were assertions that companies such as Google would not start up in this country because of the UK copyright law. Do you still hold that theory now and will Government policy reflect that or accommodate Google?

Baroness Wilcox: We certainly don’t hold that theory.

Chair : You don’t hold it.

Baroness Wilcox: Nor did we hold that theory. Somebody spoke to the Americans, who said on a day in summer when everybody was on holiday, "We’d never have started here. You can’t start here." If you report that to a new Government, they will be terribly worried, but the truth of the matter is that the Americans were arguing for a thing called "fair use". Fair use is a system that they use; we have a system in the European Union and, obviously, within Britain that is not fair use but it is good. That does not mean to say that we will not look at it to see if there are areas within fair use that we could adapt for us, but there would be no point in our changing completely to the American fair use system. John, do you wish to add to that?

John Alty: That is a pretty comprehensive answer. As the Minister said, one of the questions that Ian Hargreaves was asked to look at was whether the fair use system for copyright in the US could and should be transplanted into the UK. As Baroness Wilcox said, his conclusion was that that was not practical, but he did make recommendations to try and achieve some of the benefits of that system; that really goes to the balance between the ability of companies and businesses to make use of copyright material without undermining the original incentives to creativity.

Q220 Chair : Have you come across any evidence either from Google or any authoritative source that would substantiate this allegation that without a fair use regime in this country, companies such as Google would not invest or start up here?

Ed Quilty: The way to look at it is more about where the companies concerned would want to start. One of the advantages of the fair use system is that you can get something going and then you can test it out later on in the courts. If people challenge what you are about to do, you can go to the courts and if you win then you can take the stuff forward. Under what the Minister described as the European system, which is a fair dealing system, the uses you can make of copyright in the exception form are set out in statute, so there is more clarity.

If you were setting up something new, you may well choose to do it in a regime like the US and then see where it got to. If you are asking what the things are that the US system offers but ours does not, because of fair use, one example is parody; there is more freedom to use parody. Another example is the Google Books settlement issue where you could get the stuff going in the US because of the legal system there. Whether or not you could do it in the EU is a different question, but certainly it may be a more propitious climate in which to start it. The other thing to say is that there are other factors that you have to bear in mind. For example, in the US there are different approaches to research-Silicon Valley, the people and so on-that might make it more attractive to start somewhere else. It is more complicated than just copyright or IP.

Q221 Chair : Given the fact that you just announced the nonannouncement of somebody to take this forward, do you think the timetable to get the policy of this Review implemented by mid–2012 is realistic anymore?

Baroness Wilcox: As a politician, my answer is yes. I do think it is. Everything we have done here with this work done by Hargreaves was done quickly because we need the answer quickly: "Yes or no? Do we need to do something?" In the next session, particularly for the digital copyright exchange, we have to have somebody who will bring people together, see if they can agree on a way forward and, if there is a good, tight timescale on it, we have far more chance than if you allow things to drift. Obviously, as you know because you have had evidence before this Committee from different stakeholders, different people-Sir Robin Jacob, and so on-have views on how this should be done, so the idea is to get all their views, get everybody agreed that we will agree to do something and then get on and do it. We really do not have any time to lose on this.

Q222 Chair : I can understand why, politically, you need to say that.

Baroness Wilcox: Now I’ll let you have the other answer.

Chair : I can also understand the difficulty because, as a Minister, obviously you cannot be involved in the detail of the implementation of it, but you do not have anyone in place to actually bang those heads together and put the different things in place yet. How can you be so confident that you will keep to timetable?

Baroness Wilcox: Maybe you would like to hear an official answer then in that case.

John Alty: Since the Government response was published we have not been idle; we have been talking to the industry. We are confident that very shortly we will have someone to lead that work. The first piece of work that person will do will be a six-to-eight-month project. As the Minister said, they would be looking at the feasibility of this and talking to everybody. There is a lot of interest in this topic from all sorts of stakeholders, as you have heard, so we do think there is quite a lot of interest and enthusiasm. There are different views about how it should best work and how it links to other initiatives, but we would hope that before next summer we would have a clear way forward and then that could start to be implemented. I think Ian Hargreaves hoped to see something up and running or in place by the end of 2012, so I don’t think we are off-track from that yet.

Q223 Chair : It does seem to me that words like "We would hope" and so on, hardly give the ring of authority and confidence that it will be up and running. Can you be a little more upbeat?

John Alty: Yes, as I said, we have a plan for delivering the feasibility study by next summer. Clearly, what happens after that depends on what has come out during that study, but you were talking about the timetable and I cannot see any reason why we cannot stick to the timetable on the basis of where we are now.

Ed Quilty: It may be worth just adding to that that digital copyright exchange as a concept is essentially breaking new ground; it is something going beyond what most people in the industry have looked at. There are lots of people out there who will say, "You can’t do it; it can’t be done", but whenever you hear people say, "It can’t be done" you ought to say to yourself, "Well, maybe there are others who say it can". As John says, we can certainly assume the feasibility study can be delivered on time, but whether or not this quite ambitious project can be taken through to completion depends upon what the feasibility study tells us and how much more work there is. This is a journey and we do not know quite how quickly the end will come and exactly how far along the road we will get.

Baroness Wilcox: May I just add to that that this is very new thinking? This is a commodities exchange. People have been tinkering at it and trying to do bits to see if they can make something like this work but have not managed it yet. If we can do this, then Great Britain will be the first. If we are the first it will mean that we will write the rules in the way that we want them to be written. Our caveat in working on the single patent with the European Union is the Court: we must have the Court to suit our way and the way that we feel will be honest and true, straightforward and not complicated, and we can all be doing it together. It is the same with this, but we really do feel that we should try. Even if we cannot get this to work, we think we should try, if we can be first with this.

Q224 Ann McKechin: Professor Hargreaves spent quite a bit of time and attention on the quality of the evidence, and he seemed to have some difficulty in ascertaining where he could get good quality evidence. In the Government’s own response you talked about evidence not being "sufficiently open and transparent". Open Rights Group told us that when they had asked DCMS for evidence on what to do about illegal web content they were told it was not available. They had a similar experience with the Digital Economy Act methodology. Do you actually put into practice what you preach? How would you comment on their assertions and how is it consistent with basing policy on evidence?

Baroness Wilcox: If I may, I will make a few comments and then I will pass to DCMS because Adrian will be able to answer the detail of your question. Hargreaves rightly attached high importance to a good evidence base for policy making and IPO has been strengthening its research and evidence capability because, as you say, it is important that we should have that. Hargreaves did some broad-brush on this, but that is all he could do in the short time that he had. The idea of doing it quickly this way was for him to signpost where he saw the trouble or where he saw the opportunities, and he could see that this was going to be very important, so he only signposted it. Now I will pass it to Adrian and see if he can go further on your question.

Adrian Brazier: Thank you, Minister. I think it would be only reasonable to acknowledge that Open Rights Group has something of a point about the evidence that was used for the Digital Economy Act. It was somewhat opaque; the impact assessment was not based upon new evidence or new research that had been commissioned by us; we had no independent source of information. I think it would also probably be fair to say of the evidence that we had been offered by rights holders that they were unwilling, essentially, to lift the bonnet and let us see the engine: their workings and methodology.

Q225 Ann McKechin: Can I just clarify that? Open Rights Group made the point that they had not seen the methodology and you would not make it public, but you are now saying that you had not seen the methodology either.

Adrian Brazier: That is correct. Essentially, we were left with trying to make the best brick we could with what straw we could find in those circumstances. However, I would say that we were always very clear-or at least I hope we were always very clear-about the provenance of the figures that we quoted. We never claimed that they were Government figures; we always made it very clear that these figures were published with something of a health warning. These were figures that had been provided by rights holders. We were as transparent as we could be in those circumstances, even if we could not be transparent about the workings themselves because we did not have that information ourselves.

I would also say that in many ways our experience in terms of the Digital Economy Act underlines the importance of Professor Hargreaves’ first recommendation-that this was not a comfortable position for us necessarily to be in and that if we essentially had to commission proper evidence first, we probably should have done so. I think it is also fair to say that in defence of the Digital Economy Act-if one can defend an Act in that sense-it contains within it a recognition that there needs to be clear and independent evidence going forward. Indeed, that is reflected again in Professor Hargreaves’ eighth recommendation about our Government not hanging around and waiting for the whole thing actually to start before collecting that information.

Q226 Ann McKechin: In particular, I think Open Rights Group were looking at this claim about the cost of infringement to the economy. The figure of around £400 million was mentioned. Would you agree that the economics of infringement are not always about losses? Their assertion was that infringement can spark renewed interest in a copyright work, for example, which had been lost. It might also be for the benefit of the original owner if it is actually revived at some point.

Adrian Brazier: Again, I would accept that they have a fair point. I am not too sure whether we would necessarily go quite as far as they would wish on that, but certainly there seems to be industry evidence-and this is not necessarily something that they would quote in their favour-of a certain amount of tasting before you buy. There seems to be some evidence of people using download sites and file-sharing sites to sample music and then essentially pay their money for a ticket or whatever it might be. It is certainly fair to say that one needs to look at something of a broader picture here.

Q227 Ann McKechin: Minister, you mentioned that Professor Hargreaves had taken a rather broad-brushed approach. There has been criticism that his economic impact assessment has been oversimplistic. As individual policy items go forward, are you reviewing the credibility of the supporting data?

John Alty: Absolutely. As Baroness Wilcox said, inevitably the estimates that the Hargreaves Review produced were broad-brush. Where we are now taking forward the recommendations, we are in any case required to produce much more detailed impact assessments. That is what we have been working on over the last few months and so our plan, for instance, in the copyright area will be to publish a consultation with much more detailed costs and benefits. Obviously, part of the point of that is to consult people on the policy, but it will also be to get people’s opinion on the strength of the analysis and of the cost benefit. For reasons you have just been exploring, in many of these areas there is not a huge, good database or set of evidence.

Q228 Ann McKechin: If I could take the recommendation Professor Hargreaves made about the benefit of a digital copyright exchange, he stated a rather bold figure, not even a range: £2.2 billion. That is a very big figure and has obviously been used in terms of the Government saying, "This is how much the advantage would potentially be to the economy". Would you agree with me that the Government really should consider a range of figures rather than one bold figure based on one study that looked at the European content and not the UK itself?

John Alty: You can debate whether it would have been a good idea to produce a range or have one figure. As you say, the derivation of the figure is from quite a high-level study looking at the costs of barriers to digital licensing. Because of the way it was done, there was no particular reason to go for an upper and lower figure, but how it was derived was set out pretty clearly, and that is probably the most important thing at this stage.

Q229 Ann McKechin: Can I just press you a little bit further about that? That is fair enough, but there is no corroboration of this figure; it is taken from a report, which UK Music in their submission pointed out was an analysis of the European Union as a whole, looking at a whole range of factors, not just this issue of a copyright exchange. It seems to me that perhaps the evidence base was weak, to say the least. Would you accept that?

Ed Quilty: If I could just make a comment on that. We are in a situation in this industry where the evidence base has been weak to nonexistent for a very long time. Only a year or so ago there was a report that said there is very little evidence of the benefits of copyright. We have now moved to a situation where Hargreaves has put a lot of new thinking down. That has actually been an opportunity for lots of people to criticise the thinking and to say they disagree with it. However, it has opened up a debate about what the right evidence should be and that is the most important conclusion from all this. We can now start debating. As for the Government, when the digital copyright exchange project gets going those questions will have to be looked at, but there will be something that gets that debate going and we should welcome that.

Q230 Ann McKechin: I have just one further question: do you consider that there is a case for this economic impact assessment to be peer-reviewed by an outside body such as the Regulatory Policy Committee and for those recommendations to be made public so people can then carry on this very interesting and important dialogue about what the benefits actually might be?

Ed Quilty: Absolutely.

John Alty: All the regulations and all the policy proposals for legal changes are going through the Regulatory Policy Committee, so that will all come out.

Q231 Paul Blomfield: To almost take a step back, as you will probably be aware, we have had the point made to us that bodies such as Getty Images and PRS for Music already provide licensing options. Mr Quilty, you have talked about the digital copyright exchange as breaking new ground and the question might be: do we need to break new ground? Could the DCE be criticised as a solution waiting for a problem?

Ed Quilty: When the concept of the digital copyright exchange was first mooted, the telephone started ringing and many people said, "There’s no need for the Government to do this; we already have a digital copyright exchange, thank you, so you can park that recommendation and move on". We started talking to the various people and it is true that PRS, PPL and others have big databases. They are databases of records of their members, the licensing rights and entitlements, and they can be characterised as a digital telephone directory. Right across the copyright industries there are these digital telephone directories and if you look them up, they will effectively tell you who owns the rights and who to go to to negotiate about the use of those rights. I would regard that as a step one in this process of building the exchange.

Using these cups as an aid, imagine that you have a telephone directory here and a telephone directory here. If you know which rights you need in order to develop a new proposition you can go and say, "Well, I need only number one and number two. I don’t need number three, so I will talk to these two and I’ll get the rights". If you do not realise you need right number three and you do not get it, when you launch a business model you are in trouble; you could be sued by the owner of this right. In a sense, what the DCE would do is first of all bring all these digital telephone directories together so they would be interlinked and you would have a better chance of finding the rights you want. Then it would build on top of it-this is where it becomes dangerous-the second layer, which is the commercial exchange, or commodity exchange that the Minister talked about. It would then be possible for people to interact with the system and actually buy the rights or the bundle of rights they need without needing to go to each individual rights owner or database, and without needing to go to each individual solicitor.

The advantage of that is that you should not need a lawyer for every single transaction and every single rights holder. That would be the benefit of the DCE. It is true that there would be very big rights for which this system is very unlikely to be relevant. For example, I cannot imagine at the moment the rights to sell a new Harry Potter novel ever being traded on the DCE, but there probably are-and this is something the project needs to do-a large number of rights that are not necessarily profitable to exploit because of the legal costs and the overheads associated. That is where the DCE might make a big benefit. That is what that project needs to look at.

Q232 Paul Blomfield: As you explained it, and indeed illustrated it, the advantages seem very clear. However, there does still remain concern-apart from that of the lawyers who would lose out-within the industry; why do you think that concern is still there?

Ed Quilty: There is some concern because Professor Hargreaves talked about ways of bringing this about with incentives. In his Review he mentioned a number of incentives and a lot of people who read that Review took this to mean that the Government were going to legislate these things into place in order to make the exchange work. Our current view is that the exchange will work best if it can be run as something for the industry and, probably, by the industry.

Baroness Wilcox: Exactly. If I can just follow that, that is why I was so annoyed at not being able to have the introduction this morning of somebody who is going to come and bring these people together. What we need is for people to come into the room to express their difficulties amongst themselves and with each other; this is not the heavy hand of Government. We need to get as far back from this as possible to allow the industries to talk to each other and to find out how best they can have something that suits them all. It would be great if we can do it. We do keep stressing there is no guarantee this can be done, but there are parts in it that have already been done quite successfully.

We need to be able to get growth, access and a way in that does not cost a fortune for maybe some of our newer companies coming through, so that our universities can teach that this is a good thing to our engineers. I was a governor of Imperial College until I had to give everything up to have my current good job. One of the things we did there was to embed a business school within the college so that the engineers, scientists and those with all the brilliant ideas could realise quite what it was they had hold of. We need these helps all the way along the road because it is all a bit of a mystery for many people; we have figures about small businesses and the amount they are walking around with in their heads that they never get a patent for; they never go forward to get the things they could do to protect or to grow, or to go to the bank with and say, "We need money to develop this".

I might say we have allparty support on this; this is building on work that the previous Government did. With everything that we are trying to do with intellectual property, it is in all our interests to get it to work. If it does not, we need to know quickly so we can back off it because we do not want to waste people’s valuable time and money on something that just cannot happen.

Q233 Paul Blomfield: Thank you, Minister. Can I just pursue the point that you made about growth and follow on from the questions that my colleague was asking? Professor Hargreaves told us that his estimate of 0.3% to 0.6% for the contribution of the DCE might be an underestimate. We are six months on since the Review was published; how do you see that and what would your estimate of growth be?

Baroness Wilcox: We just can’t see it yet.

Ed Quilty: In order to determine just what the potential for the DCE is, we will have to do some more work on it and that is what the project will do. I am hoping that that would start to show just the scale of the benefits. Hargreaves has outlined a concept. There needs to be a lot of fleshing out about it and we need to do a lot of work to make sure we can understand whether practically it can be delivered and whether institutionally it can be delivered. When we know that, we may realise the scale of the benefits. They could be a lot higher than Hargreaves said and they may not be, but I think it is too early yet to say.

John Alty: If I could just add one comment on why this is quite difficult, again illustrating that from the Review. We just do not know how the market will react to some of the things we are trying to do. In another part of the evidence, Ian Hargreaves looked at what might be the benefits of a private copying exception and cited a range, which goes back to the point about whether you have a range. The range was broadly between what might happen if that led to a company in the UK developing a new iPodtype device that had millions of sales all around the world or what might happen if something rather more incremental, such as work arising from some of the businesses that are currently operating in this sphere, happens. Although we will do our best to make estimates, and so did the Review, inevitably we are talking about trying to set up a framework that the market and businesses will try to use. It is quite difficult to predict how that will develop.

Q234 Paul Blomfield: Can I just follow that up? If you are even now, with all the work you have done, not in a position to make an estimate, on what basis did Hargreaves pin a growth figure down to 0.3% to 0.6%? Are you questioning the credibility of that?

John Alty: No. You asked whether it could be more than that or you were asking how we would feel about the proposition that that might be an underestimate. I was just trying to illustrate the sorts of things that might happen. What we are saying is that broadly we think that that range is reasonable; we certainly see benefits coming out of these recommendations and that is why we are taking them forward, but it is inevitable that there will be some areas where we can be more confident and clearer and others where we will probably always have a range of possibilities.

Q235 Margot James: Is the idea for a compulsory exchange definitely rejected, even for broadcast content?

Baroness Wilcox: As far as I know, yes.

Ed Quilty: The Government’s policy at the moment is to press ahead to see if we can develop the thing as a proposition that is commercially interesting for the parties concerned. The Government have no plans to make that compulsory.

Baroness Wilcox: Just to emphasise again: the Government are trying to stay as far back off this as possible. The whole idea is to see if industry out there will come together and do see the benefits in it, so if we are sounding a bit woolly, that is the answer.

Margot James: No, not at all. In fact, Mr Quilty gave the clearest description of this exchange I have ever heard.

Baroness Wilcox: That’s great.

Q236 Margot James: I, for one, am most grateful to him. On the rules, what rules do you see as governing this open and contestable trading scheme?

Ed Quilty: Obviously I do not want to tread in the path of a person whom we appoint to look into this, so I choose my words with caution. There are different bits of this project, in a sense. One of the things that needs to be done is a technical assessment of what is and what is not feasible, and what it is reasonable for the exchange to do. Some people, for example, assume that the exchange must mean one single, vast database that spans the globe. There is no reason why it necessarily should be like that; it could be an interlinking of databases. It might even just be a protocol that regulates the way the databases interact.

There are also a series of issues about how the thing would be set up, structured and managed. What sort of legal or corporate form does it take? Is it a company? Is it a trust? Is it something else? What do we need to do to address any competition concerns there may be in it? Does the governance need to reflect that? Then I think on top of that there are a series of really quite important questions about how you get the thing up and running. To make this work, at the beginning it would really need to be a coalition of the willing. There will be plenty of people who will say, "This really is not going to work and I want nothing to do with it". In a sense, to get the thing moving you are going to have to work with the people who actually want this to happen. Then you will have to see what rights holders and content holders are prepared put their rights into an exchange, what sort of arrangements have to be made to define what the products on the exchange are, how they can be made and how they evolve, and who is going to use it. All those sorts of questions have to be answered and we hope the forthcoming study will address that territory.

Q237 Margot James: Stop43 told us that the proposal for the exchange will not be consulted on and that there will not be any legislative framework defining the due diligence. Do you think those concerns are justified in any way?

Ed Quilty: There may be two separate issues there. When we talk about due diligence, we are talking generally about the orphan works problem, which is a slightly separate problem from the DCE. The DCE is essentially about monetising better the rights that already exist and allowing us to know who the owners of those rights are. That is how a properly functioning DCE would work. If you had an orphans works scheme, which is separate, it was suggested that the DCE might be the place to check whether those rights had been placed on the DCE. The reason you might do that is that as part of an orphan works scheme you would need to check in various places to try and establish the owner of those rights. An exchange that had rather a lot of rights on it, accessed in an easy, oneclick way, would be part of those checks.

If we had an orphan works scheme, and that is one of the recommendations in Hargreaves that we need to pursue, and it is something the European Commission are pursuing as well, then-

Chair : We are going on to orphan works in a moment.

Ed Quilty: Okay, fine. I hope I have answered your question then so far.

Q238 Margot James: Yes, thank you. I will look forward to hearing what you have to say about orphan works later. Could I just ask you about whether you have reached a conclusion on whether restricting remedies to those who participate in the exchange complies with the Berne Convention on not having formalities for copyright and ownership?

Ed Quilty: The simple answer to that question is if we develop the exchange as a purely commercial project and we do not need legislation in there, then people who will put their rights on the exchange will have put them on voluntarily and there should be no conflict with Berne. It is important to understand the exchange is not a compulsory vehicle. It is something that people could use if they want to, in the same way as if you wanted to put your works on Amazon to sell them or if you wanted to sell them through a distributor, you are not forced to do it, but you can use it as a mechanism; that is how we should look at it.

Margot James: We have already had very clear answers to some of my other questions, Chairman, so I think we can move on.

Q239 Julie Elliott: What is the evidence that a wholesale release of orphan photographic works will have the massive impact on growth and innovation predicted by Professor Hargreaves?

Baroness Wilcox: One estimate suggests that between 30% and 40% of the British Library’s collections could be orphan works. They are very excited by an idea like this.

Ed Quilty: If I am right, the question about the release of photographs reflects the anxieties being expressed by photographers about the release of large numbers of orphan works that they regard as being potentially in conflict with photographs they have taken, in offering a substitute. There have been discussions with photographers for a long time on this and I think a lot of photographers would want, in an orphan works scheme, to see some guarantee that the prices at which substitutable photographs were available were not such as to undercut their own products. In principle, that may well be a way to go. If we go down the orphan works route, we will need to consult on it and we will need to talk to people, but that is not necessarily an option we would rule out. There may be some attraction to it if it is possible to establish a market price for the works in question. In some ways, that should deal with the issue.

The other point to make is that photographs as a whole are not necessarily substitutable for modern photographs. Old photographs are not a substitute for modern news and other photographs. It may be possible that there is substitutability in some areas, but I do not think it is necessarily the case that we will have large numbers of orphan work photographs released into the public domain in a way that inhibits photographers from current-day activity. It seems unlikely.

Q240 Julie Elliott: We asked Professor Hargreaves to explain why releasing orphan works was economically necessary and he referred to the benefits of releasing archive material. Why not just create an exception for archiving alone, along the lines that the EU Directive proposes?

Ed Quilty: We currently do not have an exception in the Info Soc directive that allows you to deal with orphan works, so you cannot actually create an exception that would allow you to put those on the market. The previous Government looked at it in the Digital Economy Bill, as it was, and what then became the notorious section 43, and the legal principles behind it were more based upon bona vacantia; that is to say these works were rather like an empty house where the owner has disappeared and the abilities to operate in that context were considered. That is how we got that in the legislation. That is something we would need to look at if we had an orphan works scheme in the UK based on our own statutes now.

At the same time, it is worth saying that the European community is looking at an orphan works scheme. If that orphan works scheme does introduce a new exception, then we would be able to use that exception, provided it goes far enough. From the signs of what is happening at the moment in Brussels, the sort of exception that they may be using for orphan works may be quite narrow and restricted to culturalonly uses, which may mean it is not possible to use it beyond some fairly limited ways. It is an evolving picture at the moment; we have to wait and see how that all shakes out.

Q241 Julie Elliott: Stop43 gave us a lot of evidence and their proposals for a national cultural archive would allow viewing of works but not copying. Have the Government given any thought to those proposals?

Ed Quilty: I expect that when we begin the consultation Stop43 will make their proposals to us. We are very happy to listen to everybody; we understand photographers have serious concerns. Where those concerns are real and justified, we should try and do something about them; where it is just misunderstanding about the system, we should also try and make sure that we have explained it properly. I would envisage in the consultation process we would take up those sorts of suggestions.

Q242 Mr Binley: Good morning, Minister. It is a pleasure to see you again. Can I ask you whether the Government believe that extended collective licensing schemes and schemes exploiting orphan works can be compatible with existing law, including the minefield of human rights?

Baroness Wilcox: Oh dear. Gosh, human rights: that’s really moving it. I think you have covered some of the explanation on the very first part of that question, Ed, so maybe you would like to continue, as human rights is a delicate area.

Ed Quilty: On human rights, I was at a symposium a few weeks ago and someone asked me the same question. My initial reaction was to think, "How was it Government lawyers had missed this point for so long if it was so important?"

Baroness Wilcox: Avoid it.

Ed Quilty: But the answer is actually that human rights in this case are a balance. Our legal advice has been that nothing that we would be doing here would actually impact on those. If you want me to give you more, I am quite happy to put a note in it because I cannot claim to be an expert in the area, but I think the human rights problem about ECL that has been expressed, again largely by photographers I think, is not one that would necessarily stand in the way of doing extended collective licensing. More to the point, the extended collective licensing system has been practised in the Nordic countries for many years and there are other countries in the EU that have taken it up. There are a lot of practical advantages to it, not least that it makes the operation of collecting societies, who would be the people who would benefit, a lot easier with ECL in place. To give you an example, at the moment PPL, PRS or any of the other societies collect revenue on a very large-scale area and the legal theory is that they can only collect it for people who are mandated members of the society. Many of the societies have to collect revenue without necessarily being clear at any given moment who is the owner or beneficiary of the rights, so to that extent they appear to be collecting on the basis of people who are not in their mandate. An extended collective licensing system actually would make it easier to regularise that situation. It would mean their business models were more consistent with the legal framework they were operating in, and it would also perhaps bring in revenue to people who did not know.

Q243 Mr Binley: Do I detect just a little more hope rather than expectation by the Government in this area at the moment?

Ed Quilty: You should always detect hope, I hope.

Baroness Wilcox: This is groundbreaking work. When you first read Hargreaves it looks a bit dry: "Intellectual property? I don’t know if I know all about that". However, it is a very exciting field because if we are looking at it from growth, we are trying to open doors where we can. At the same time, it is absolutely essential that we protect the rights of people who have already had the initiative and have already done what they should. So there is a delicacy between these things and that is why it does not sound as if we are being very definite on some things. A lot of it needs good discussion and I think it will bring people together in a way that these organisations have not, which is why some of the assumptions they make are wrong. It is only because they have not had access to the information to be able to get it right, and some of this is really getting people to get better access, particularly as we think, for the people who are coming through from the small and medium-sized companies that we really do need.

Schools and universities all would very much like to be able to use the orphan works to see the things they need to record. I was just thinking when we were asking the question earlier: "Why can’t you just leave them there and everybody go and look?" To take a whole school in to look at one thing is not very easy, but from my involvement in the past 18 months, I know that photographers in particular have been very worried that people do not understand their circumstances.

Mr Binley: I understand that.

Baroness Wilcox: Apologies if we are sounding a bit more hopeful than confident.

Mr Binley: I just wish you well through the minefield.

Baroness Wilcox: I am hoping very much that you will be travelling along with us.

Mr Binley: No, following at a distance behind, I might say.

Baroness Wilcox: I know you have a report to write at some stage and I hope that we will be as helpful as we possibly can.

Q244 Mr Binley: Can I ask if photographs and audio-visuals represent a special case in this respect? Do you see any special concerns there?

Ed Quilty: The one thing about photographs, which does make them different from some other types of work, is that they can often increase in value as they get older, whereas for many other works the value tends to reduce. In my conception of the thing, that is something we need to watch to make sure that the system takes account of that. The legal points about who owns it, the protection of the rights and avoiding abuse are exactly the same for photographers as any other form of work. I feel there is a bit of an education campaign to be done to make sure that everyone understands what the proposals are, so that we have a debate on what the proposals actually are rather than what people think they are, which is often a slightly different thing.

Q245 Mr Binley: There is a need to guard against misidentification of photographic works as orphan works and especially the deliberate stripping of metadata intended to demonstrate ownership. That is a particular concern; how do you guard against that?

Ed Quilty: If we had had this discussion five years ago the answer might have been different, but what is happening as technology goes on is that it is becoming increasingly possible to look at visual images and identify where they have come from. It may be that we have that happy coincidence of legal progress or change in this area accompanied by the technical ability to do something about it. If, for example, we had an orphan works registry, then every photograph and any other work could be put up on the registry and it would enable people who were photographers, for example, to look at what is there and see if they think their stuff is there even if it had been stripped of metadata, which it should not be. It would also mean that you could use technical abilities to find the stuff.

For photographers, you have to think, "Where are the photographers today and where can they be tomorrow?" Today, their photographs are often routinely infringed, metadata stripped off, etc and people sell them masquerading as orphan works on websites. There is very little they can do about it. At least if you had an orphan works registry, they would be able to go to the registry and if they could find a licence there for the use of the orphan works they could say to the person, "Why aren’t you selling this in accordance with the regime we have devised?" If there is no sign of an orphan work and they were able to prove that the thing was an orphan work, using the technology I have described, then you have a very strong case when you turn around to the bogus seller and say, "Why are you selling this stuff? There is an orphan works registry. If you thought this was an orphan work, why aren’t you putting it on there? Why isn’t it registered?" The business of pursuing infringes for photographers in particular ought to become easier as a result of this.

One of the anxieties that I have heard expressed by photographers frequently seems to me to be based on the notion that as soon as we put this orphan works system in place there will be widespread and complete abuse and infringement of it. I do not think that is going to be the case. There will be some, but it should be controllable and we have to build the system to avoid it.

Q246 Mr Binley: You have been very helpful. I rather wish we had had you earlier in our review, quite frankly. That’s a compliment, isn’t it? Can I move on to the question of books? Lending a book is not the same as lending a digital MP3 file; the second can be copied and then transmitted much more easily. I think you know that Sir Robin Jacob told us that there was a huge difference between the two. How does the Government plan to translate that distinction into workable law?

Ed Quilty: My answer to that is in a sense is that I think it has already been done. It may not have been done enough or well enough, but the Info Soc Directive, which was the EU’s Directive on the digital area, was actually a way of recognising that the digital world needed slightly different rules than the online world did. Your point about the books is perfectly right. If you buy a book you actually do not have to concern yourself overmuch with copyright, licences or anything; the rights are exhausted when you purchase it, so you can lend it to your friends and so on, and you are not engaged by the sort of copyright problems that typically dog the digital age.

The Info Soc Directive is there and a lot of our law is based upon it and as Hargreaves identified, we do not always use the flexibilities as fully as we might. However, as the digital world goes on, we will have to keep a constant eye on the law and make sure that the law stays up-to-date to reflect the way the digital property is evolving. To some extent, the Digital Economy Act was an illustration of that and there may be more to come. Who knows?

Q247 Mr Binley: I talked about minefields and we are now going into EU law, which impacts upon this very sizeably. I wonder what the maximum and minimum options are, with regard to what EU law would permit, on format shifting, and why does the Government believe that levies on recording equipment are necessary?

Baroness Wilcox: The law is out of step with what people think is reasonable. We have done research into this and it undermines public confidence in law; it is not good when the law looks to be-

Q248 Mr Binley: Can you explain what you mean by, "What the public thinks is reasonable"? I apologise for pressing you.

Baroness Wilcox: Can I talk about iPods on this? I suppose the most obvious example to me is when they went out and asked about iPods. You asked youngsters with iPods, "Do you download music onto your iPod?" They say, "Yes". You say, "Do you know what you are doing is illegal?" "Yes" "Do you think that you’re going to be prosecuted?" "No". When the law gets to that point, it is unenforceable.

Mr Binley: I understand.

Baroness Wilcox: That means that you need to go back to the industry and say, "We’ve outgrown that one. You’re going to have to find another way of making your living". We cannot have a situation whereby that happens. It is going to happen more and more because everything is advancing so quickly. This is not like growing corn in a field where you can actually see it happening. It creeps up behind you and suddenly you realise quite what you have hold of there. I use the iPod example because it makes it easier for me to explain it.

Mr Binley: It is very helpful to us too, I might add. Thank you.

Baroness Wilcox: Of course, that is the problem. Do you want to continue that?

Ed Quilty: It is worth saying, of course, not every download is always illegal.

Baroness Wilcox: No, that’s right.

Ed Quilty: There are a lot that are and there are a lot that aren’t. When you buy them in online stores that will give you a certain amount of copies

Baroness Wilcox: But the general public does not know which is what.

Mr Binley: I understand that point.

Baroness Wilcox: This is the problem.

Mr Binley: I do understand.

Baroness Wilcox: Once you get to the consumer angle.

Ed Quilty: It’s true. I do not know how many people here have-

Q249 Margot James: Chairman, could I just clarify something? I was very surprised at our initial hearing when Professor Hargreaves told us that it was illegal to download onto your computer a CD that you had purchased some years ago, and then download the content onto your iPod. I did not know that.

Ed Quilty: It certainly true. The one thing I would say on that is I would distinguish between unlawful and illegal, although they are not necessarily terms of art. If you buy a CD, for example, and then you format-shift the stuff onto some other piece of equipment you have at home that is generally unlawful, if you use "unlawful" to mean that you have committed an infringement and you are liable to pursuit by the owner in the civil courts. If you buy a CD and make lots of copies for commercial purposes or enough to cause a loss of sale-

Margot James: And go down the market.

Ed Quilty: Yes, that may engage criminal liability. When people talk about it being illegal, they are technically right but I think it would be easier if we talked about that being unlawful, and used "illegal" to mean criminal. I wonder if that helps.

Margot James: It’s some relief.

Mr Binley: I found that very helpful, thank you.

Q250 Simon Kirby: Data mining: if an exception were created for data mining, how would publishers monitor that the users were not illicitly copying?

Baroness Wilcox: We do not yet know enough about this area, but I think supporting research is a priority. That includes ensuring we do not seriously damage our research publishers, so we need to find out more about this through public consultation.

Ed Quilty: The Minister is quite right. The publishing industry has expressed their concerns about it and we have heard the concerns expressed in different ways. We have heard people say that the opening up of their databases to the access required to do data and text mining will overload the servers and make it impossible to operate. At the moment I do not know how far that is true or not, but it does suggest that there may be costs associated with opening a service. That is something we need to look at.

There is certainly also this question about abuse: how do you arrange things so that the copies in question that are made do not find their way into other areas. That is something that we would have to consult people on and I think the publishers have views on that, and we will have to take their views in designing a system. However, it is worth saying that under our own law at the moment, the data and text mining or the exceptions that we could do within the Info Soc Directive would be for non–commercial research. The big gain there would be if you could persuade the European Union to open up an exception for commercial research and then you would be in a different place. There is what you can do domestically and there is what more you could do with a European system.

Q251 Simon Kirby: If I may say so, that sounds in its formative stages. What is the status of the current review? Where are you in it?

Ed Quilty: As John Alty mentioned, we are working on impact assessments to look at what widening all our exceptions to the fullest extent possible within the EU-level Info Soc Directive would mean. Obviously, that would be one of them. If you take the question to Brussels and say, "What do you think about widening out the research exceptions to make data and text mining possible?" The answer you will get is, "Well, that would require reopening the Info Soc Directive and that is quite a big project in itself, and so that might be something we have to think about." At the European level we have to work on Brussels and other member states to raise some interest in the subject and to raise some political head of steam behind it.

Baroness Wilcox: I wouldn’t like you to think that we don’t already. I spend a lot of time in the European Union, at the moment trying to get a single patent, but we do spend a lot of time there trying to see if we can bite away at the edges of these things and see if we can get a move. If it comes to opening a Directive, then the Commission is always very nervous about doing that because it opens such an enormous thing, so we just have to keep at it.

Q252 Simon Kirby: Thank you. That is very useful. Can I move on to the parody exception? It is fair to say that there was a degree of scepticism from the creative industry about whether it was realistically or, indeed, economically beneficial.

Baroness Wilcox: Parody is not a novel concept, of course. We are talking about it now, but the United States has had one for years, France has had one for years, and Germany has had one for years. Let’s face it: we are famous for our sense of humour and our parodies, and we do it really well. I think we are almost pushing at an open door here, but once again, once we have our person in place to bring everyone together then we will start to hear all the conflicting views on this and where the worry is coming from. The great thing about looking at Hargreaves, or the Prime Minister asking Hargreaves to look, is it has allowed us to open up so many doors in terms of intellectual property. This one, parody, is just one of them. I think we are usually more tolerant than most countries about parody, aren’t we, or is it just that we do not want to enshrine it?

Ed Quilty: There are two sides to this. With all copyright questions, there are two sides and they are often quite opposed sides. When the "Newport State of Mind" video came several months ago it lasted on YouTube for a short while before it was removed. One of the reasons was, obviously, that the rights in the music were owned by various rights holders; the parody song had been put on top of it. You could see why the owners of the rights of the music were saying, "Well, hang on a minute. There’s loads and loads of people listening to my music with different words. Why shouldn’t I benefit from that?" That is one of the reasons why the parody thing did not really work for them. On the other side, of course, there is the fact that because we do not make use of the parody exception, the situation for people who do want to do parodies is actually slightly unclear. That obviously impacts upon a potential industry: the comedy industry or other things like that. It might well be that by clarifying that area we can actually make it easier for people to do parodies, to build a business and to perhaps build growth in a way that is not possible at the moment. That is the possible attraction of it.

Q253 Simon Kirby: My final question: Sir Robin Jacob suggested that review of the 1988 Copyright Act should start right now and he reckoned it should take 18 months. Does the Department agree with his view?

Baroness Wilcox: I spoke to Robin Jacob; he came and had a long morning with me and there is a lot of what Robin Jacob says that I agree with. In principle, we agree with Hargreaves and Robin Jacob together, but we are not convinced that things can be done that quickly; the review of company law took 10 years. It is one thing for a legal expert to draft an Act, but it is quite another thing for it to pass through Parliament. To pass through Parliament, of course, there are experts in both Houses and, as we have just said, the Company Law Act took 10 years to get through, so I think he is being very optimistic if he thinks that it can be done in 18 months. As far as we are concerned, the immediate priority is to act where change is needed now in order to support growth and that is what we are looking at first. That does not say that we do not think that in principle we should be looking at it. Yes, we should, but we think we should be doing the growth work first. I know he will push for this, but I certainly do not think that it can be done within 18 months.

Q254 Simon Kirby: So you agree with some of the urgency, but you think the timetable is unrealistic.

Baroness Wilcox: I always agree with that; yes, of course. However, it will take time to achieve and in the meantime we must act where change is needed and that is now for growth, so we will be acting there first, and then when we have the moment to do so we will move straight on. I am going to continue to speak with Robin Jacob on this. I know that he is now very engaged; he is free to speak. He has been a judge for a very long time and has not been free to say anything, so he has let loose now like some great bird, and he is so clever. It is just wonderful to have him around, so I would like to see him every week really. We will come to it, I am sure. He is great company.

Simon Kirby: Thank you so much for that answer.

Baroness Wilcox: I hope that’s acceptable as an answer.

Margot James: He was a wonderful witness.

Baroness Wilcox: Yes, he was a wonderful witness.

Chair : I must confess, I did not realise that practitioners of IP law could be so devastatingly attractive.

Q255 Ann McKechin: Another pearl of wisdom from Sir Robin Jacob was that he told us patent thickets are like the poor: they will always be with us. I do not personally agree with that assumption, but how optimistic are you, Minister, that the solutions can be found to over-patenting?

Baroness Wilcox: We agree with Hargreaves that the patent system works well overall. Looking ahead, following Hargreaves, our top priority is, obviously, the development of the European Union patent. When it comes to patent thickness, Hargreaves identifies some potential competition problems with the socalled patent thickets and we have launched a research programme to try and clarify this. We will publish a report by the end of November, which will start to answer some of the questions that you are asking now that we are not able to answer at the moment. Unless you would like more detail-

Ann McKechin: No, I think we can probably await that report.

Baroness Wilcox: Wait for the end of November, which is only a couple of weeks away, so we will come back with that.

Q256 Ann McKechin: Sir Robin Jacob also told us of industry concerns about forum shopping if the European Patent Court operates with regional divisions, and it will basically be people picking and choosing what they thought would be the best quote for them. What is the UK Government’s negotiating position on this particular point and has account been taken of these concerns?

Baroness Wilcox: We expected this question and John Alty is going to answer it.

John Alty: We are mind-readers, clearly. Yes, we do understand the industry’s concerns about forum shopping or consistency in the way that the court operates across the European Union. The reason that they have particular concern is clearly that, instead of the situation where if you lose a case in the UK, you have lost it in the UK but you still have coverage in the rest of Europe, once we set up this unitary patent and we have the new single court system, once you decide a case then it will be valid through the whole EU. That is a big commercial issue for businesses.

Some of the things that we have already seen in the agreements to try and ensure that there is this consistency and quality in the court are first to make sure that we do not just leave it to national judges, so there will always be a mix of judges to make sure that different legal traditions are represented. Secondly, we need provisions to ensure that there is proper training and the judges who are sitting are qualified. There are other areas that we are still discussing with our partners to try and make sure that as you change to this new system-as I have said, one can understand why industry is concerned that it works-it is going to work as well as possible. This ranges from the way appeals are handled to the way that the different parts of the court-

Q257 Ann McKechin: Can I just ask where the ultimate appellate court would be? If we took a case in the United Kingdom would that be the Supreme Court or would there be a further right of appeal to the European Court of Justice?

John Alty: It is quite a complex answer, but it is not a national court; it is an international court, so the appeals will go to a court of appeal that will be set up as part of the international court. On the whole, our objective and-again to use that word-hope and expectation is that the European Court of Justice would not be involved very often or in a very wideranging way because there would already be this appeals system. The ECJ would only be involved if there were an issue of European law. For instance, there are certain European laws in this field on biotechnology and if there was an issue of interpreting European law then that would potentially go to the ECJ.

Baroness Wilcox: And if I may repeat what I said at the beginning, it is 42 years since we have been trying to get a single patent in the European Union; it is the disunited states of Europe as far as this is concerned. As you know, it is very dangerous with China out there slamming out 100 patents a week and everyone else doing it, so it is very important for us to try and get that single patent, but we did put down the caveat that we really want the court to be right. We do not want this single patent to go forward at all until we are satisfied.

Q258 Ann McKechin: So you’re not happy with regional divisions then?

Baroness Wilcox: No. We want one court; we want one set of rules-

Ann McKechin: And one appeals court.

Baroness Wilcox: We want everybody trained for it. I do, anyway.

John Alty: Just on the technical point you are making, there may be different places in the EU where the Court sits.

Baroness Wilcox: Yes, sorry.

John Alty: But there needs to be consistency-

Baroness Wilcox: Across it and particularly in the training and particularly the point you have made about the appeals, where it would go and how it would go. Obviously, industry is very worried that some countries have ways of doing things that we maybe would not be too happy to be part of. As you know, this is one of the few times when Great Britain has agreed to this as a majority vote. Normally we do not like that system; it has not worked that well for us in the past because it is usually us outside the door saying that we do not like what is going on. In this case though, it is so important for us that we have agreed to do it and we have led on it. We do of course have Spain and Italy that will not sign at the moment and so those are the two countries that are sitting outside this. However, if it does go through, I believe that the industries in those two countries will say, "Well, look, this is an access that we need". At the moment, all the rest of us seem to be together and so if we can get the court system sorted it may be of great advantage to our people with their patents.

Q259 Chair : Earlier you referred to the report on patent thickets, which I think you said was to be published at the end of November. The Government also, in response to Hargreaves’ recommendation on design laws being changed, said a review would be put in place and announced by the end of the year. Where are we on that?

Baroness Wilcox: I’ll ask John to answer for you.

John Alty: We are in progress. We published some research on designs a little earlier in the autumn, which we’d already got in the pipeline, but specifically in response to Ian Hargreaves’ Review we put out a call for evidence on how well the design system was working. I think that that call for evidence is just about concluded in terms of the timetable for people to submit, and we will indeed be looking at that response in the run-up to Christmas. Absolutely we do think, at least prima facie, that there is a good case for simplifying the design system. There are UK rights, European rights, unregistered rights and registered rights.

Q260 Chair : Are we going to have it by the end of the year?

John Alty: Yes, our intention is to reach conclusions by the end of the year.

Q261 Paul Blomfield: I wonder if I could ask some questions about issues of enforcement. Minister, I guess you would agree that search engines need to be directing searches towards legitimate sites so that the paidfor, proper downloading sector can profit and compete effectively with pirating sites.

Baroness Wilcox: Yes, I want to make some broad views on enforcement in a minute, but maybe you would answer that first, Adrian.

Adrian Brazier: Indeed. IPO and DCMS, with Baroness Wilcox and Ed Vaizey in the lead, are looking at a number of ways in which we can tackle online infringement, in particular how we can facilitate industryled solutions rather than waiting for the big stick of legislation, which does not always necessarily precisely hit the target. One of those areas is certainly engaging with search engines, which tends to mean, very largely, Google, to be perfectly honest with you. Certainly, rights holders have considerable concerns about the way in which search engines facilitate people finding illegitimate sites, which the consumer may well not know are illegitimate sites. Certainly, you can put in almost any particular search term; for example-perhaps it is relevant to this Committee-if you put in "MP", essentially the first page at least would show you MP3 converters and unfortunately would have nothing to do with the Palace of Westminster at all.

Search engines respond with a certain amount of hurt feelings, I think, that they are already working on a number of things here. They have certainly put a lot of effort into making sure that when rights holders notify them that there is something that needs to be taken down, they take stuff down. In examples such as YouTube it is extremely quick. They have worked on predictive text, but perhaps not as well as they might have done bearing in mind my previous example, and they are prepared to discuss how they might work to tackle the top 20, 30, 40 or 50 sites, which are causing most economic damage. Where they are continuing to be extremely resistant, certainly for the time being, is on making any radical change to their natural search algorithm, for which they do not see justification until other things have been explored. We actually have a meeting in 12 minutes’ time, which Ed Vaizey is hosting, where the main rights holder organisations, and Google and Bing, are meeting to start discussing how we might approach this.

It is probably worth just adding that there are other strings to this particular bow because Baroness Wilcox and Ed Vaizey have met together with credit card companies and payment facilities such as PayPal, who are already working closely with the music industry and the City of London Police to identify those particularly serious sites: the ones that make no make no bones about the fact that they are there to make money from infringing copyright. They often present themselves extremely slickly and it is very difficult to tell that in fact they are infringing sites. One of the reasons why consumers might legitimately feel that the sites are kosher is that they can simply use their MasterCard, Visa or whatever it may be to pay. If there is a clear case to answer, and the City of London Police tend to agree that there is, then the credit card companies will withdraw those facilities. Not only does it cause the sites themselves a headache because it withdraws direct income, it also removes that appearance of legitimacy.

We have also been working with online advertising bodies to see if a similar sort of approach might be reached and, again, from the meeting that Ministers had with them they are very keen to work closely with us and industry to see if they can essentially attack those key sites of concern. I would guess-and this is perhaps preempting the meeting later on this morning-that search engines will again wish to focus down on the small number of sites, almost certainly no more than 50-odd, which are causing a great deal of the economic damage. There might be work that can be done with them in that particular area.

Baroness Wilcox: If I can just add to this, Chairman, we really do IP enforcement well in this country; we really do. We get a lot of cases to court and we get a lot of wins. We have the Americans coming over to watch what it is we are doing and how we are doing it. We are really on top of this and it has been very good to work together across the two disciplines to see if we can get the industries themselves to actually form up as to how they can deal with this. Everywhere we can, obviously that is what we would prefer to do.

Ed Quilty: I just wanted to say: if we had had this sort of conversation a year ago the question you might legitimately have asked is, "Aren’t you playing WhacAMole?" You try and stop a site here and it pops up somewhere else. This approach of trying to throttle off the revenue to the site is actually international in a sense because if the site cannot get the money it does not matter which country it is in.

Chair : Okay, I am conscious that we are running out of time.

Q262 Paul Blomfield: Just briefly on enforcement, I wondered whether the issue of major companies advertising on pirate sites is something on which we could take reasonably easy action to discourage those sites.

Adrian Brazier: Yes, that is so and I think the advertising industry is well aware of it. Very few of such companies wish to have their brands associated with infringing sites. Quite often, they either have material or their own trademarks that they are very keen themselves to protect. Yes, there is a lot to be done and we are suggesting that we need to look at this in terms of an industryled initiative, certainly before looking at anything that might be more legislative.

Q263 Mr Ward: Just quickly: the Review acknowledged that "over the last decade the majority of productivity growth and job creation has come from innovation, primarily by small and young firms". Minister, you were talking earlier on about people going around with things in their heads but no patents to cover them at all. There was a criticism made that there was no one from the small business sector on the panel. How do you respond to criticism that not enough weight was given by the Review to the concerns of small businesses?

Baroness Wilcox: First of all, when Professor Hargreaves was asked to do the work and, given the short timeframe that he was asked to do it in, he decided that rather than having a big Committee, which included everybody, he would not opt for that. He would gather with him a group of experts who could hear and take on board the evidence and work through the evidence, which is exactly how they got the SME evidence that they did. You can imagine the big pharmaceutical companies all expected that they personally should be on this Committee; everybody thought they should be on this Committee, so at the end of the day nobody was. He put together a group of people who he knew could get through the piece of work with him rather than just playing their own game. This was an advantage to SMEs, of course, who just have to stay running their businesses and cannot send people off to keep giving evidence. In that regard, I think Hargreaves was right.

We have actually had complaints from some of the companies that gave evidence to this Committee saying that Hargreaves was anti–large business and too prosmall businesses. There you are; that is how some people read it, but the Government, the Prime Minister and everybody is aware of the fact that the new businesses coming forward, particularly the engineering, technical, scientific-the sorts of things that are intellectual property-are the businesses that we need to help grow. We need to make it possible for them to access things like trademarks, patents, etc. I have to say that just about everything is geared towards it. I’m sorry if small businesses feel at this moment that they are not being helped. You will know that the banks are being spoken to firmly to make sure that they will lend. It is often difficult for these techy companies to describe to banks what it is they actually need the money for. Everywhere along the line we are trying to help the small businesses.

Q264 Mr Ward: Let me give you something more to look at, which is an argument that many different forms of advice are required. There is obviously the legal and regulatory advice, which is available through practitioners in abundance and to a high level of expertise. Then there is the commercial advice and it was the Forum of Private Businesses that suggested this one-stop shop, where all forms of information could be made available.

Baroness Wilcox: Business Link, of course, is-

Mr Ward: Gone.

Baroness Wilcox: It is gone in the form in which it was known, but it is going to continue to be there available as a signpost for people to be able to access.

John Alty: Just briefly: you are right. Indeed, that is what the Hargreaves Review found: that there was a gap in the market. You can go to the attorneys and get excellent advice.

Baroness Wilcox: Expensive.

John Alty: Yes, it can be quite expensive. We give a certain amount of advice and we put out information on our website that can help people. The challenge was: could we encourage the development of a market or a sector to give this commercial and basic IP advice. That is what we are now working on and thinking about. Quite recently, we have done one or two things we may be able to build on. For instance, one of the problems that small firms said was not only was there a lack of this sort of advice, but where it was available they did not really know whom to trust and who was reliable. We did work with the British Standards Institution to develop a British standard covering commercial IP advice and that is quite new. It only came out at the beginning of this year, but we are now looking, very much picking up that Hargreaves recommendation, to see whether we can encourage, either ourselves or by working with others-which is probably more likely-the development of that market in a better way.

Q265 Mr Ward: And is the buddying idea realistic?

John Alty: Yes. Again, you heard from Sir Robin Jacob about that. What Hargreaves had in mind, and certainly the sort of thing we would consider, is about where large firms can mentor a small firm. It is not about different legal practices; it is more about people with a practical understanding of how you use IP and trying to use that to help others. That is one of the ideas we are looking at.

Baroness Wilcox: We also have Ipsum, which you have just brought up.

John Alty: That is an IPO service and, again, we are constantly looking at what more we can do. Perhaps the most helpful way to finish this is to say that we have committed to bringing forward some proposals in the light of Hargreaves and we will be planning to do that pretty shortly. We said we would do it during the autumn, and that is running out now.

Q266 Mr Ward: Half under your breath, you mentioned how expensive the IP attorneys could be. I think it was Sir Robin who told us some of those are without a doubt the best in the world, but they are very expensive. Is there anything that can be done and is there enough market competition there?

John Alty: That system works well when you know what you want to do and you know that you have something valuable worth investing in to get the returns. What does not work so well is when you are not quite sure what the value of what you have is and you do not really understand the IP system. That is the area that we want to focus on. We are not talking about trying to disrupt the attorney market; we are talking about whether we can find some other way prior to getting to a point where you know you need an attorney. One way that people have described this is the difference between a GP and a specialist. If you need a specialist that is fine and you may even be paying for it, but you want a GP who can help you diagnose the problem.

Baroness Wilcox: A lot of it is of course education. We even have something called Cracking Ideas at the Intellectual Property Office, which is for children to come along with their good ideas. We had 9,000 apply last year and Wallace and Gromit gave the prices for them coming up with these whizz–bang ideas. I would be very keen to see the organisations who represent small businesses-the Federation of Small Businesses, Chambers of Commerce, etc-all understanding quite what it is to go forward for a patent, what it is to go forward for a trademark and making sure that schools educate children when they are about to leave to let them know what their possibilities are. We need people better informed on what it is they can do. I come from a small business background and usually you are all working very hard and you do not have time for all this. Very often, with a small business you are walking out the door with the most valuable thing in the place and you are doing nothing with it because it is your idea and it is in your head. We need to say to people that there is a safe way of taking this out of your head and putting it somewhere you can protect it.

I had an experience with my own medium–sized business. We thought we would do a new range of things; we decided on a name and we started to go forward and thought, "Oh, we mustn’t do that"-

Q267 Chair : Sorry to interrupt you, Minister, in full flow. I’m sure it’s fascinating.

Baroness Wilcox: Sorry, I got excited; it’s terrible. They are forever telling me, "Don’t get excited about this subject". Sorry.

Chair : However, we really do have to bring proceedings to a close because we now have Questions in the House and Members will be involved. We do have a couple more questions, but they can be answered in written form, so we will send them to you. I thank you for your contribution. We have fleshed out a whole number of issues. We will look at the evidence in some detail and be coming forward with our recommendations fairly shortly. Thank you very much.

Baroness Wilcox: Thank you very much.

Prepared 22nd November 2011