The Legal 500

Andrew Gowers, former editor of the Financial Times, has been commissioned by the Chancellor to lead a review of the UK intellectual property (IP) framework. While the review will no doubt address many topical IP issues, and this article looks at some of them, it can be expected to focus on broader issues, and in particular on the contribution that the IP framework in the UK could make to the future success of the UK in the global knowledge economy. That is no doubt why the Treasury has commissioned the review rather than the DTI or the Patent Office, and why Mr Gowers has been chosen to lead it. The scope for radical change in IP law is, however, limited by the UK’s international obligations.

Terms of reference and objectives
The Chancellor announced the review in December 2005. The terms of reference set it a variety of objectives, including such topical issues as modernising copyright and other forms of IP for the digital age, providing incentives for innovation and investment, avoiding inefficiencies and monopoly costs and improving the balance between consumers and rights-holders.

However, the terms of reference also reflect a new perception of the importance of IP within the economy generally when they assert that our economic competitiveness is increasingly driven by knowledge-based industries.1 Indeed, the announcement itself was made as part of a visionary speech by the Chancellor about the global economy and Britain’s (and particularly London’s) place in it. Mr Gowers has spoken of IP being at the heart of Britain’s success in the knowledge economy.

Against this background, the review is to provide an analysis of the performance of the UK IP system, including:

• the way in which government administers the awarding of IP and its support to consumers and business;
• how well businesses are able to negotiate the complexity and expense of the copyright and patent system, including copyright and patent licensing arrangements, litigation and enforcement;
• whether the current technical and legal IP infringement framework reflects the digital environment, and whether provisions for ‘fair use’ by citizens are reasonable; and
• whether the current term of copyright protection on sound recordings and performers’ rights is appropriate.

The review will run for 12 months. It will be evidence-led and at the time of writing there was to be a call for evidence in February 2006. Companies wishing to influence the eventual recommendations should make submissions to the review team.

One of the objectives of the review is to fulfil a manifesto pledge to modernise copyright for the digital age – a commitment which appeared towards the end of Labour’s 2005 manifesto along with its proposals on libraries, film, television and the National Lottery. The economy was dealt with at the beginning of the manifesto, where there was no reference to IP at all. It is a measure of the new perception of IP’s importance that this modernisation project has been plucked out of its relative obscurity and placed in the economic spotlight. It is also significant that it is the Treasury which has done so. Normally this would be a matter for the Patent Office, which has general responsibility for IP in the UK. This gives us a clue as to the nature of the inquiry.

Unlike the last great review of copyright under a High Court judge2, this review is being led by a business journalist. The economy, rather than more or less arcane points of IP law, is likely to be the touchstone for the inquiry. There are some exceptions. Government had previously committed to examining whether the current term of protection for sound recordings and performances – 50 years compared with the author’s life plus 70 years for other kinds of work – was appropriate, and this is to be conducted within the review. But in-depth examination of what might be described as routine copyright policy issues seems likely to be the exception rather than the rule.

This article therefore looks at two business issues to which the review has been directed by its terms of reference – first, the cost of enforcement of IP rights, and, secondly, the appropriateness of the system to the digital environment. It also points to a number of constraints that will limit the review’s freedom of action.

Enforcement costs in the UK
In the UK, the cost of enforcing IP rights is widely regarded as more expensive compared to our EU counterparts, particularly for patents. Article 3 of the Directive on enforcement of intellectual and industrial property rights, however, requires member states to provide enforcement measures that are fair and equitable and not unnecessarily complicated or costly.3 The Directive is to be implemented by 29 April 2006. The UK Patent Office, which has been consulting on its implementation, believes that the current UK framework is broadly consistent with the Directive and no action is required in respect of Article 3 as the Civil Procedure Rules are largely coincident with the aims of the Article. This is surprising given the widely held view of the relative expense of enforcement in the UK compared with other EU member states.

The UK Patents Court is recognised as being of high quality, but its thoroughness in determining validity in patent actions can lead to costs which are prohibitive for some small and medium-sized companies. Efforts have been made to reduce the costs, such as the introduction of a streamlined procedure, but many believe that costs need to be further reduced to encourage smaller companies to use the patent system to protect their innovations.

The Gowers Review is an opportunity for an independent assessment of this issue.

Digital environment
Copyright law in the UK has already been updated once for the digital age by the implementation, in October 2003, of the Directive on the harmonisation of copyright and related rights in the information society, known as the Information Society Directive.4 It is perhaps a surprise for the government to embark on this inquiry so soon afterwards, but the Directive was in fact giving effect to a World Intellectual Property Organisation initiative in the 1990s. The rapid spread of broadband and the growth of innovative uses of networks has put the new law under pressure.

An example is home copying of copyright works, which is in general an infringement if done without the consent of the copyright owner. In 1988 an exception was introduced for home timeshifting in response to the spread of VCRs, so that it was not an infringement to make a recording of a broadcast ‘for private and domestic use’.5

When the Information Society Directive was implemented, the government amended the timeshift exception so that it applied only to the making of recordings ‘in domestic premises’. This may have seemed a reasonable step but, by focusing on the location of the copying, it appears to have arbitrarily excluded timeshift functionality provided to a home by a network or other service provider. Making a recording on domestic equipment such as a VCR or personal video recorder (PVR) would plainly fall within the exception, but it is not so plain that a recording made using a network facility would do so. To be sure of getting within the exception, timeshifting needs to be done with a ‘box’ and not with a network facility. Where the network facility is used, the practical effect would be no different from using a box and the making of the recording would be initiated in the home by the user but the copy would be physically located elsewhere. Could it be said that the recording was nevertheless made in domestic premises? If not, the legislation discriminates against network services in favour of equipment vendors, which is hardly designed to promote full exploitation of digital networks.

Furthermore, the exception applies only to recordings of a ‘broadcast’. The new law defines ‘broadcast’ to include cable transmissions, but excludes Internet and other transmissions unless they have the character of a conventional linear broadcast. So the timeshift exception is not available in relation to many new on-demand or non-linear services. Whatever the rationale for this difference of treatment, it is becoming difficult to apply because the boundary between conventional linear broadcasts and new services is breaking down.

For example, where a conventional broadcaster chooses to address its audiences through a peer to peer (P2P) network such as catch-up TV, or through podcasting (uploading programmes for download to portable devices), the programmes may be no different from those in the conventional linear broadcast schedule. However, because of the means of delivery, the timeshift exception would not apply even if the copying were done in domestic premises because P2P uploads and podcasting are not broadcasting. The legislation discriminates against new on-line programme services in favour of conventional linear broadcasters.

Another example of the effect of network technologies is Google’s controversial print library project, which involves the scanning and copying of libraries in the UK and elsewhere. Copying, even for the limited purpose of a search engine, requires the consent of every author whose book remains in copyright unless the copying falls within an exception. The exceptions differ in different jurisdictions. Under US copyright law, a ‘fair use’ exception exists which is generally broader and more flexible than its counterparts elsewhere, including the fair dealing exceptions under UK law.

It is not difficult to see how a circumstance of this kind might lead search engine businesses to locate themselves and their servers in the US. Where a library was located in some less generous jurisdiction, they might scan the books and send the scans remotely via telecoms networks in such a way that copies were not made until the signals reached the US servers, where the copying would have the benefit of the US fair use exception.

This is not a minor problem. Search engines generally work by scanning and copying vast amounts of material. If they can make the copies only in certain jurisdictions, their business will gravitate to those jurisdictions even if the material is located elsewhere. Since search engines are becoming a major economic force, this is a problem that needs to be addressed urgently and it is encouraging that the terms of reference of the Gowers review require it to consider whether current provisions for ‘fair use’ are reasonable.

Comment
One of the challenges for the review may be to consider whether, as digital network services develop, copyright in the digital age should focus less on copying and the location of equipment and more on the underlying economic activity of communicating a copyright work to the public, irrespective of the means used to do so. Digital coding and transmission liberate the communication of works from the old copying technologies, whether bookbinding, the manufacture of DVDs or even the use of PVRs. The physical means by which a work is communicated to the public may no longer be a convenient foundation on which to build a copyright framework. Applying different rules according to the different physical means by which works are made available to the public, as existing copyright law still largely does, leads in the digital environment to some functionally equivalent services being treated differently.

What may be needed is a new approach where the principal act that is restricted by copyright is the communication of a work to the public, whether by copying, electronic transmission or performance. But it is difficult to do this on a national basis. The ability of the UK to fix even the timeshift problem is constrained by a prescribed list of exceptions in the Information Society Directive, not to mention the copyright conventions. Even a European solution is not necessarily the answer, since differences between the European and, say, US approaches may skew business in favour of one or the other, as in the example above of the search engines. The challenge for Gowers will be to find solutions within the constraints of the UK’s existing international obligations.

Tony Ballard, partner and head of the communications group, Field Fisher Waterhouse.