House of Commons - The Hargreaves Review of Intellectual Propert: Where next? - Business, Innovation and Skills Committee

The Hargreaves Review of Intellectual Propert: Where next? - Business, Innovation and Skills Committee Contents

3 Designs and patents

Designs

115. The Hargreaves Review concluded that the role of IP in supporting the design industry has been neglected and recommended that the Intellectual Property Office conduct an evidence-based assessment of policy in this area including whether access to the proposed Digital Copyright Exchange would assist creators and users.

116. Sir Robin Jacob set out his views on the UK system of design protection:

Now, nobody in their right mind would have such a complicated system. Personally, I would get rid of the British design right and the British registered design right, which has not been used a lot. The European one is very cheap, and can be sued upon in this country, so I do not really see the point of the complexity. But the underlying question, which is the really important one, is: is this helping designers or is it not helping designers? […] Take a simple thing: one of the great cities of design in Europe is Milan. Historically, the law courts in northern Italy did not work at all for practical purposes but it did not stop the design industry being great.

Somebody ought to go out and talk to design schools and designers and say, "What commercial problems are you finding?" If they are not finding any or anything significant, and the litigation patterns you are seeing do not suggest there are any, maybe it is not such a big problem except it is frightfully untidy.[105]

Interestingly, however, the Forum of Private Business told us that patents and designs were of more concerns to its SME members than copyright issues.[106]

117. Pursuant to Professor Hargreaves's recommendation, the IPO in December 2011published an assessment of the possible need for a reworking of UK design law based on business survey data, economic research and an earlier call for evidence which had identified several key findings, including that:

few firms register designs;
a very high proportion of respondents had personal experience of designs being copied (59%), but only a few of these claimed to be more likely to register a design as a result; very few of the firms that had experienced designs being copied took successful action in defending against this copying;
some firms however noted their view that it is increasingly sensible to register through the EU, for the immediate benefits of wider coverage, despite a marginally higher cost;
procedural issues such as cost, time or complexity of registering did not appear to be strong disincentives for registering a design amongst any of the firms;
there was some anecdotal evidence that firms are a little confused by the range of options available for protecting their designs; this includes the UK, EU and International options for registering designs, as well as the UK and EU non-registered rights. But, significantly, protection might also be provided under other modes of intellectual property (trade marks and copyright). Given this complexity, the specific benefits of registering a design are not sufficiently transparent.

118. Since then, the IPO has announced a consultation to be launched in June 2012. This will be a further opportunity to 'go out and talk to design schools and designers' as counselled by Sir Robin Jacob.

119. We welcome the review of UK design law being undertaken by the Intellectual Property Office. The present complexity of the design protection system in the UK might be acting as a disincentive to use and hence as a brake on innovation. If a revision of the law is called for by the industry, the Government should press forward with proposals for implementing a new and simplified structure of design rights following that review.

Patent thickets

120. The Hargreaves Review heard evidence that many aspects of the patent system are functioning well. However, it observed:

The most striking aspect of the patent system in recent years is the worldwide increase in the number of patent applications […] causing delays in the granting process. These delays have led to backlogs at patent offices. Meanwhile, in some business sectors patent proliferation is causing regulatory blockage in the form of "thickets" of pre-existing patents and pending patents which impede genuine innovators wishing to enter markets.

121. The Review noted:

There is no single solution to the growing problem of patent thickets. The market itself has already devised partial solutions in the form of standards, patent pools, and the like. These enable players in a particular area of patenting to set terms for access to each others' patents. Government can take three further steps to resist the growing damage of patent thickets by:

i. preventing the extension of patenting to business sectors where the incentive effect of patents is low compared with the overheads imposed;

ii. resetting financial incentives for assessing whether to renew patents;

iii. and ensuring that only high quality patents are granted.[107]

122. The Review recommended evaluating whether graduated scales of patent fee might provide incentives for patent owners to weed out their less valuable patents, or to license them, commenting in particular on the disadvantages suffered by SMEs:

The evidence shows that SMEs suffer disproportionately from the effects of patent thickets. Given their importance to innovation it would be logical to explore the potential for differentiating the patent fee structure in favour of smaller companies. The current UK patent framework includes a provision for a reduction in renewal fees for patents endorsed with a Licence of Right (which means anyone may obtain a licence at a reasonable rate). These provisions could be built upon as an additional means to reduce renewal costs while having the added benefit of encouraging patentees to make their patents available to third parties, subject to an appropriate royalty fee.[108]

123. However, Professor Hargreaves told us:

We were deep into an examination of the potential for differential fees, especially differential renewal fees, in the patenting process, which we thought might shift the balance of incentives and give people an incentive to get rid of patents at the elderly end of their holding. We were not able, in the end, to establish with sufficient evidential clarity that that would work.[109]

124. In November 2011, in accordance with the timetable set out in the Government Response, the IPO published an interim study of this issue.[110] The study stated that it had three key aims:

(i) to begin to take the debate around patent thickets away from anecdotal and micro-study approach, toward a more generalised methodology by providing a general taxonomy for discussing patent thickets;

(ii) to generate an automated methodology for detecting patent thickets in published patent data; and

(iii) to assess whether or not patent thickets present a barrier to entry for companies, particularly SMEs, in the UK.

125. The study concluded:

This report has raised more questions than provided answers. It can be seen that there is no clear consensus on terms used to describe patent thickets and the entities involved with them. By applying these terms consistently it is hoped that further debate on any issues can be conducted on a level playing field.

The indicators appear to show that there is a possibility of different forms of thicket occurring where there are different types of technology linked to the degree of maturity of that technology space. These potential types can be subdivided into areas where there are large numbers of small patent holdings, or areas where there are small numbers of big players, each of which creates a thicket that any new entrant will have to negotiate in order to be able to operate. Additional research into more technology areas will serve to elucidate this possible link.

Is there a barrier to entry, in particular for SMEs? Again, the analysis work is not conclusive and further work is required.[111]

126. Following the November study, the next step will be a research project to look at impacts of patent thickets for which tenders were submitted in March. The commission to undertake the project has been won by NIESR group which will report back by September 2012. We understand that the Government will share the results in due course with international bodies (USPTO, EU, Competition authorities). Picking up on Professor Hargreaves' observation, we suggest that the study consider whether part of the increase in patent filing numbers over recent years is attributable to businesses wishing to establish large patent portfolios as a negotiating platform.

127. Patent thickets are clearly an area that requires in-depth analysis. We therefore applaud the level of detail as well as the alacrity with which the IPO approached its initial study. Further work needs to be done to establish whether a proportion of increased patent filings has derived from the wish to support negotiating strategies. We look forward to hearing more on this from the further studies being conducted on behalf of the IPO.

The proposed unified patent and patent court system

PRESENT SYSTEM

128. At present, there are essentially three routes available to UK inventors to obtain patent protection:

a national application via the UK Intellectual Property Office (the IPO);
a European application via the European Patent Office (EPO); or
a World Intellectual Property Organisation (WIPO) application via one of WIPO's designated offices (which include the IPO and the EPO).

Each process has its benefits and disbenefits including on matters such as cost, speed and scope. Provided the application is successful, however, all three routes end in the grant of national patents; there being as yet no such thing as an EU patent. Instead, in the case of a European patent application, applicants specify in which of the EPO contracting states they would like protection, and on successful granting of a European patent they obtain a bundle of individual, national rights in the designated territories.

129. These national rights are enforceable only in the relevant country. Notably, there is no supervening European patent tribunal with authority to determine whether a patent is infringed across the EU or in multiple EU member states. Rather than bring legal actions everywhere, litigants therefore often resort to filing claims in the countries of major markets, endeavouring to persuade their opponents to follow the eventual result in other territories by using the deterrent effect of the cost of parallel litigation as leverage toward settlement in those territories. The UK, Germany and the Netherlands as well as France and to some extent Italy and Spain are among such lead territories. However, this does not entirely avoid parallel litigation and its concomitant costs. Nor does it rule out conflicting decisions between states.[112]

CONTRAST WITH OTHER JURISDICTIONS AND OBSTACLES TO A PROPOSED SUPRANATIONAL PATENT

130. By contrast, US patents apply throughout the US, and although there are different court circuits for litigating them, the ultimate result is definitive for the whole United States. It has long been argued, therefore, that Europe is disadvantaged by the need for costly parallel litigation to enforce patents over EU states despite those states together having a population and spending power similar to that of the US.

131. A further complication is that patent litigation frequently involves two issues: whether the patent is infringed,[113] and the additional question of whether it is valid.[114] Traditionally, UK (and US) courts have examined these issues together, seeing it as potentially unjust to grant relief against infringement of what later transpires to be an invalid intellectual property right. German courts on the other hand have often considered infringement and validity separately, not least because historically the validity of a patent was a federal matter in Germany whereas infringement was dealt with by the courts of the different Länder. Dealing with the two issues separately is known as 'bifurcation'. It can seem attractive to patent owners, because it leads to speedy infringement findings, but ultimately it may be of questionable merit, since a subsequent validity challenge tends to lengthen litigation and make it costlier.[115]

132. Some type of supranational European patent has been seen as desirable for decades,[116] but obstacles have arisen in, for example, the form of the permissible languages of the patent, the permissible languages of the litigation, the location and jurisdiction of the court (or courts), who should pay for it (or them), the issue of whether to permit bifurcation and the need to build consensus around pan-European enforcement of patent rights based on a experienced, reliable and trusted court system.

THE CURRENT PROPOSALS AND CONCERNS ABOUT THEM

133. The current proposal is for a non-EU international agreement for a patent covering 25 of 27 EU Member States, which would be obtained in English, French or German.[117] The court system (collectively known as the Unified Patents Court or UPC) would consist of local, regional and central courts, with an appeal court. The central court would hear cases concerning only validity. The local courts would be free to hear infringement and validity issues if both came before them, but controversially they would also be free to bifurcate. Other controversial issues relate to: the funding of the court (as EU funding will seemingly no longer be available); language issues, including the operational language of the court, the language of proceedings, the language of court documents, and the language of judgments; and the question of whether judges will have sufficient expertise.

134. An additional concern is the risk of so-called 'forum shopping', whereby a litigant chooses the location of litigation deliberately so as to disadvantage its opponent. This is often a risk in litigation, but the additional worry with the UPC is that rather than the result being confined to the relevant territory, businesses could be sued in remote jurisdictions (with all the resulting costs of hiring lawyers to defend themselves) and find that the result applied throughout Europe.[118]

135. Sir Robin Jacob expressed concern to us that the current proposal could do disservice to British business:

The plan as it currently stands is not to have one court in which you sue, and where it is held and what languages are used is decided depending on who the parties are, but to have regional divisions. If you do that, the immediate consequence is the plaintiffs will choose to find a division where they think they are going to win, which is called forum shopping […]. So the whole system will not achieve what it is intended to achieve, which is a uniform position all the way across Europe. If you watch what is happening in the United States, the same thing has happened there with all their uniformity, because they have got differences in different places.[119]

136. Sir Robin preferred the idea of a more regionally focused system with a small number of courts each with parallel jurisdiction, not least because they would be easier to populate with suitably trained intellectual property judges.

EUROPEAN SCRUTINY COMMITTEE REVIEW

137. When she came before us, Baroness Wilcox updated us on the Government's negotiating position in relation the UPC.[120] However, since our evidence sessions with Sir Robin and the Minister, the European Scrutiny Committee has examined the UPC proposals, held a short series of evidence sessions in January to March of this year and published a subsequent report on 3 May 2012. That Committee referred to the extensive concerns that had been set forth in evidence submitted to it. [121] Submissions had been made by a number of specialist organisations, including the European Patent Lawyers Association, the Intellectual Property Bar Association, the Chartered Institute of Patent Attorneys, and the Intellectual Property Lawyers Association. Importantly, concerns were not confined to UK representative bodies.[122]

138. Forum shopping was cited as a particularly important issue. As was pointed out by Henry Carr QC in evidence to the European Scrutiny Committee:

There is a real fear in some quarters that SMEs will fold because they are unable to get themselves properly represented in a distant European division.[123]

139. Asked about forum shopping, the IPO argued in the case of, say, an Estonian court issuing an injunction against a UK company throughout Europe, that the court would not be Estonian but "a local division of the unified court." As the European Scrutiny Committee pointed out, that was simply cavilling. The IPO's responses on this issue seem to have irked at least one member of the European Scrutiny Committee greatly.

It is very irritating. All of you have been doing it. You never answer questions straightforwardly. It is shocking.[124]

We agree that the approach that was being taken seems somewhat disingenuous.

140. There was a certain amount of complacency about funding. One of the officials giving evidence commented that the funding mechanism "does not make a lot of difference in terms of how the money gets there."[125] However, the European Scrutiny Committee observed that:

It does if it bankrupts small and medium enterprises that cannot afford to use this court because it is going to be funded by them and it seems to be a much more expensive structure than the one that exists at the moment within the UK.[126]

141. On the issue of why London should have the central court, the Minister commented:

You can imagine that we are hoping very much that the central court will be in London; and Paris is hoping that it will be Paris; and Munich is hoping that it will be Munich. This will make a decision.[127]

142. Earlier, she argued that London was the right choice because, "We have a brand-new building."[128] When pressed, the level of detail that emerged was:

We think that we have the best facilities; we think the country has a wonderful situation here; we know pretty well how much it will cost to run it per year—about £1 million-and we know the amount of money that it will bring to London.[129]

143. There was no rehearsal of other arguments such as the high regard for the UK's patent judges, the strength of the IP bar in London, or the historical depth of UK experience in patent litigation.

144. It is fair to say that the Minister did not convince the Committee Members of the merits of the UPC proposal, of the strength of the departmental line on it or of the thoroughness with which the Committee's concerns were being addressed. The Report commented: "We found her responses formulaic, or based on aspiration, and oddly detached from the practitioners' perspective."[130]

145. The European Scrutiny Committee also believed that there were issues on which the Government should have negotiating 'red lines', such as on avoiding European Court of Justice involvement in appeals.[131] Asked about this, however, the Minister said:

We are negotiating at the moment and, as you will know, negotiations change and they go along. There is no line in the sand.[132]

146. This apparent lack of clear desired outcomes was one reason why the Committee ultimately concluded that the UPC should not be proceeded with in its current form, stating:

We conclude overall that the draft agreement on the Unified Patent Court is likely to hinder, rather than help, the enforcement of patents within the European Union. This will particularly be so for SMEs, the intended beneficiaries.[133]

SUMMARY

147. In some circumstances we might have concluded that the apparent absence of negotiating "red lines" could be attributed to a desire not to give away the Government's negotiating position, but combined with the overall vagueness about direction and the lack of command of detail, the impression was instead of a lack of firm direction. The depth and range of concerns that have been expressed, from such a wide constituency of interested parties, leads us to conclude that the Government should resist the temptation toward the "need a win" argument in favour of proceeding with the UPC. This is especially so as there are options that would not involve such an irrevocable commitment to an untested idea. For instance, one possible compromise would be to set up the new court system with non-exclusive jurisdiction and let businesses become convinced of its merits over time. This would also allow the court to compete with the newly reinvigorated UK Patents Country Court.

148. It is clear to us and the European Scrutiny Committee that the Government's current negotiation strategy for a Unified Patents Court is not fit for purpose. As a matter of urgency the Government needs to take a firmer stand for UK interests in the UPC negotiations than was manifested in the recent evidence session held by the European Scrutiny Committee. In particular, it needs to set out clearly defined options for outcomes acceptable to the UK and a robust strategy on how to translate those options to an acceptable overall solution. Such a strategy has to clearly state the Government's position on avoiding European Court of Justice jurisdiction, avoiding the risk of remote and costly litigation for UK business, and neutralising or mitigating the effects of any bifurcation regime. Furthermore, that strategy should include a cogent argument for locating the central court in London and not one that relies upon hope and aspiration. Anything less runs the risk of undermining the competitiveness of British industry.

105 Qq 125 and 126 Back

106 Q 156 Back

107 Paragraphs 6.16-6.20 Back

108 Paragraph 6.38 Back

109 Q 52 Back

110 www.ipo.gov.uk/informatic-thickets.pdf Back

111 Ibid., section 4 Back

112 HC 1799, Ev 29 Back

113 That is, whether the scope of the patent as determined by its claims has been breached Back

114 That is, whether the patent was validly issued in the first place on the basis of novelty and inventiveness Back

115 HC 1799, Ev 43 Back

116 41 years, apparently; see Q 161, HC 1799 Back