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Paul Flynn (Newport, West) (Lab): Those of us who believe that Britain's involvement in the Bush-led war was unnecessary and has cost us dearly through the loss of 70 lives and financially, none the less accept that our involvement imposes certain obligations to stay in Iraq until peace is assured. How does my right hon. Friend react to the statement made by Plaid Cymru this morning that its policy is now immediate withdrawal of troops? Should not that be dismissed as a piece of cheap, opportunist electioneering?

Mr. Straw: Yes, it should, and I note that no Plaid Cymru representative is present in the House. It would be utterly irresponsible for British troops suddenly to withdraw. The people most at risk and who would suffer most would be the Iraqi people. Many more would be killed or injured as a result of peremptory withdrawal, and we shall not do it.

Jeremy Corbyn (Islington, North) (Lab): On what date does the Foreign Secretary expect all British and American occupying forces to withdraw from Iraq? Have there been any discussions at any level regarding a permanent base in Iraq for regional purposes for either Britain or the United States after withdrawal of the occupying forces?

Mr. Straw: I answered my hon. Friend's first question earlier, when I said that the mandate of the multinational force would terminate on 31 December 2005. I cannot anticipate—I simply cannot—whether a fully elected Government of Iraq will ask multinational forces, including the UK, to remain or in what numbers,
 
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except to say that if they were to do so, I would anticipate that the numbers would be many fewer than today. On my hon. Friend's second question, speaking for myself, I have seen no proposals for any kind of permanent base.

Mr. Harry Barnes (North-East Derbyshire) (Lab): Is there not a distinction between legal authority, which should be transferred to Iraq on 30 June but may still have elements of the rubber stamp about it, and genuine political sovereignty, which will hopefully be achieved by 30 January next year? In achieving that, is not the role of the Iraqi independent electoral commission of considerable importance? What will be the United Nation's position in respect of achieving that goal? Will the UN be in sole control of the advice? That is a crucial role for the UN to play.

Mr. Straw: My hon. Friend is right to say that overall legitimacy of the Government of Iraq will be much greater once they are properly elected. Everyone recognises the need for that, but we need a process for getting from where we were with the country under Saddam to where we want to be. The UN is playing a crucial role, particularly regarding the political process. The UN ran the arrangements—more than 1,400 candidates were involved—for the verification teams and the electoral commission, which will supervise the electoral process within Iraq. It is their call, not that of the coalition.

Chris Bryant (Rhondda) (Lab): Every hon. Member in the House will be delighted to see fair and democratic elections taking place in Iraq in January next year, but fair and free elections will depend on the paraphernalia of civil society being in place. That means active trade unions, active political parties, independent media and, of course, an accurate electoral register. Does the Foreign Secretary anticipate Britain providing significant support for putting all those in place?

Mr. Straw: We have already provided a good deal of support and we are happy to do so. Altogether, the British Government have provided £287 million worth of assistance to Iraq, covering all sorts of activities, including the sort of support that my hon. Friend mentioned.

Mr. Stephen McCabe (Birmingham, Hall Green) (Lab): Does my right hon. Friend share my sense that we are now at a crossroads on this issue? Whatever the differences of the past, we can now all unite around the interests of the Iraqi people and the reconstruction of Iraq. Does that not mean that we all have to give support to the fledgling Government? Is it possible to do so while simultaneously using Iraq as part of the domestic political agenda—as just another football?

Mr. Straw: I entirely share my hon. Friend's views. It is impossible to do both and we all have a responsibility to back the new Government. As my hon. Friend says, we are at a crossroads. What lies ahead, if we all get behind it, is something that we have all dreamt about, regardless of our view on the military action—a stable, democratic and peaceful Iraq, able to take its place within the international community.

 
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Point of Order

Mr. Tam Dalyell (Linlithgow) (Lab): On a point of order, Mr. Speaker. May I appeal to your theological erudition and ask whether "Jonah" is a proper parliamentary term? While you are thinking of the answer, Mr. Speaker, may I point out to my right hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) that, under the previous Saddam regime, there were, for all its faults, substantially more women in the Iraqi Parliament than in the House of Commons?

Mr. Speaker: May I tell the Father of the House that I leave my theology to the Speaker's Chaplain?
 
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Orders of the Day

Patents Bill [Lords]

Order for Second Reading read.

4.28 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I beg to move, That the Bill be now read a Second time.

In his foreword to the Government's innovation report at the end of last year, the Prime Minister stated:

"The creativity and inventiveness of our people is our country's greatest asset and has under-pinned the UK's economic success".

Unsurprisingly, I agree with him. That creativity and inventiveness was vital to the emergence of the UK as the first industrialised nation in the 19th century and it remains the key to maintaining the UK's position as one of the G8 leading industrial and economic powers in the 21st century.

A mature economy like ours cannot compete with the newly emerging economies of the far east in terms of cost of labour or production. As my noble Friend the Minister for Science and Innovation reminded us in the other place, wages in China are 5 per cent. of what they are in the UK. In South Korea, which has an equivalent proportion of university graduates in the work force, the labour costs are about 50 per cent. of those here in the UK.

Our future prosperity is dependent on how effective we are at using our knowledge, or in other words our intellectual capital, to compete in the ever more rapidly changing global marketplace. Creativity and inventiveness are essential if we are to deliver more high value, high quality sustainable jobs. Those factors are also important if we are to continue to reduce our environmental impact. Innovation will help to build further successful businesses and provide even better services and products for consumers.

The most important assets for today's company are the knowledge and expertise of its work force. That knowledge and expertise represent the intellectual capital of the company. In exactly the same way that financial capital must be managed effectively to ensure the survival of the business, intellectual capital must be developed. That will ensure that a company can create new products and develop existing ones. In the 21st century economy, successful UK businesses are increasingly characterised by a high investment of intellectual capital. Such investment permits them to create high value knowledge-intensive products or services.

It is no coincidence that the computer and office equipment industry, which showed average annual growth of 16 per cent. between 1991–2001, is also one of the highest employers of graduates. More than a quarter of the employees in companies in that industry have university or college degrees. Every time that a company applies new knowledge, or uses existing knowledge in a new way, to solve a business problem, it is making effective use of its intellectual capital. Protecting those unique knowledge-based solutions will be an increasingly important part of a company's business activity.
 
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Worldwide there has been a rapid rise in the use of patents, and other forms of intellectual property rights, by companies to protect their intellectual assets—the fruits of their intellectual capital. For example, applications for patents using the international route under the patent co-operation treaty have grown from just over 7,000 in 1985 to almost 104,000 in 2001, representing a nearly 15-fold increase in as many years.

A patent provides a company with a legally enforceable means to prevent others from taking advantage, without its agreement, of the unique solutions, products or services that it has developed. The holder or owner of such a patent has the exclusive right, for up to a maximum period of 20 years, to recoup the investment he has made in developing the invention. The recovery of investment can take a number of forms. For example, the patent holder may grant a licence to a third party to use his invention, and be paid a licence fee by them for doing so. On the other hand, the patent holder could decide to use the patent as a means to prevent competitors from entering the market, while he establishes his business manufacturing the product, or performing the process, protected by the patent.

I would be the first to admit that the whole area of patents is not one that I was especially acquainted with before being asked to present the Bill to the House. I am sure that many hon. Members are in a similar situation. The Government's innovation review has identified a similar lack of awareness about all aspects of intellectual property amongst UK businesses. However, after only a brief involvement with this topic, I have come to appreciate just how important it is for UK businesses to safeguard their intellectual assets.

UK businesses have to compete in national, regional and global markets. As a result, they need a system that will deliver protection of their valuable intellectual property assets in all those markets. The Patents Act 1977 is key legislation in the area and, in its nearly 30-year existence, it has fulfilled two functions. First, it delivered the modernisation and reform of UK domestic patents law. Secondly, it allowed the UK to ratify a number of international patent agreements, which provide UK businesses with regional—that is to say, European—and global routes to patent protection for their inventions.

Ratification of the 1973 European patent convention has allowed UK applicants to obtain patents that are effective in any combination of up to 28 European countries using a single one-stop procedure. That includes nearly all our EU partners, as well as the UK. That one-stop approach provides what is in effect a bundle of national patents, which provide enforceable protection in each country, once an official translation has been filed and the appropriate fee paid.

Following an intergovernmental meeting in November 2000 of representatives from all the European states that had ratified the convention, a significant updating and streamlining of the 1973 European patent convention was agreed. All the states represented agreed to implement the changes into their domestic law as soon as possible.

As a consequence, the first objective of the Bill is to amend the 1977 Act to give effect in UK law to the changes to the 1973 European patent convention agreed in 2000. Failure to ratify the revised European patent
 
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convention would mean that the UK would have to leave the European Patent Organisation, the body set up to provide a single one-stop procedure for obtaining European patents. The consequences of such a failure for UK businesses would be unacceptable.

By bringing UK patent law into line with those revisions to an international treaty, we will ensure that UK businesses can continue to use that single one-stop procedure to obtain European patents valid in the UK and Europe. In 2002, UK businesses were the third largest users of the European patent system, both in terms of patents applied for and patents granted. On average, each patent provided protection in 10 countries. If we had to leave the system, UK businesses would experience increases in bureaucracy and costs. They would no longer be able to obtain patent protection that included the UK and all other European countries, using a single application and one set of fees.

As one of the prime movers in setting up the European Patent Organisation, it is important that the UK is seen to take a leadership role in its ongoing improvement. In meeting our obligation to ratify the revised European patent convention, we can continue to influence future developments for the benefit of UK business.

Clauses 1 to 5 deliver the required changes to the 1977 Act to honour our undertaking to implement the revised European patent convention. Clause 1 does two things. It makes it clear that a patent cannot be obtained for a method of medical treatment or diagnosis, such as a new surgical technique. It also gets rid of the need to use a rather specialised and complex form of language when obtaining patent protection for a new medical use of a substance that already has a known use in medicine. Patent protection will be easier to obtain if, for example, someone discovers that a substance that has already been patented for use as a painkiller can be used to treat heart disease.

Clauses 2 to 4 cover various issues arising from the new procedure, referred to as central limitation, which will be possible under the revised European patent convention. The procedure offers a new way for the patent holder to limit or reduce the scope of protection given by the European patent, through a single process at the European Patent Office based in Munich. It will avoid the patent holder having to go through the expensive and time-consuming process of amending his European patent separately in each of the countries where it is in force.

Clause 2 ensures that existing procedures for amending patents in the UK are aligned with the relevant procedures for doing so under the revised European patent convention. It does that by ensuring that the courts and the Patent Office take account of

"any relevant principles applicable under the European Patent Convention".

That will ensure that consistent standards are applied to the amendment of patents that are in force in the UK, regardless of the route chosen to make those amendments. The proposal was strongly supported by UK users of both the domestic and the European systems. Although it may restrict the current discretion of the courts or Patent Office on the issue, which is exercised to protect the public from patent holders who act in bad faith, clause 2 contains new measures to ensure that the public remain protected, but in a different way from that used at present.
 
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In proceedings before the courts or the UK Patent Office, a problem may be identified as to the scope of a European patent that is in force in the UK. Clauses 3 and 4 ensure that in such circumstances the holder of the patent can use the new limitation procedure to address the problem, thereby preserving the validity of his patent. He will be able to limit, or reduce, the scope of his European patent centrally, in one step, at the European Patent Office. That change will then be effective in all the countries in which the European patent is in force, including the UK.

Schedule 1, which is introduced by clause 5, covers all the other changes to the 1977 Act necessary to meet our international obligations. It is worth noting that some of those changes involve updating the relationship between UK domestic patent law and the patent co-operation treaty, which provides a system for obtaining patent protection in up to 123 countries based on a single patent application.

The second part of the Bill is concerned with amendments to the 1977 Act, which will improve the handling of disputes over patents and make the UK patents system more responsive to the needs of its customers. The Patent Office has jurisdiction to consider a wide range of disputes over patents.

Issues that can be dealt with at the Patent Office include whether the patent is valid; in other words, does it meet the legal requirements for granting a patent? Is there confirmation, for example, that a certain act using process y or making product x does not fall within the scope of a particular patent and does not thereby constitute infringement of that patent? Has an employee who made an invention received just and fair compensation from his employer who holds the patent and has successfully exploited it? Are all the people listed as applicants on the patent entitled to be so?

The Patent Office has built up a large reservoir of relevant experience in dealing with many of the issues that arise in patent disputes. We feel that this experience is not being exploited to its full potential. At the same time, we are aware that some users of the patent system are becoming increasingly concerned about the enforcement of their patent rights. This concern has focused on the cost and time taken for patent litigation. A report on a patents case in the Financial Times on 28 November 2003 brings this point home. The judge hearing the case was sharply critical that a four-day hearing had involved costs of £850,000.

A consequence is that many companies, especially those in the small and medium-sized sector, which are so important in terms of creating jobs and are often the most forward thinking and innovative, may find it too difficult to support the financial and time requirements to enforce their patent rights. It is argued by some—although it is by no means a universally held view—that this leaves some companies unable to gain any real advantage from their inventions and acts as a disincentive to innovate.

That has been an important driving force behind recent efforts to update the patents county court to provide a more flexible, user-friendly and less expensive forum for the litigation of patent disputes. Following extensive consultation and the involvement of users, a new streamlined procedure for handling such disputes
 
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has just been implemented under the able guidance of the patents county court judge, his honour, Judge Fysh. Early signs are encouraging that these efforts are starting to bear fruit, although patent litigation is still likely to involve a cost that small and medium-sized companies would find difficult to bear. As in any area, litigation should be embarked upon only after very careful consideration of the costs and alternatives.

With those issues in mind, the Government have decided, in the Bill, to make a number of improvements to how patent disputes can be handled and to make greater use of the acknowledged expertise of the UK Patent Office. Clause 13 provides the framework for a new procedure whereby the Patent Office can provide, on request, an impartial opinion on certain issues that are likely to arise in a patent dispute. The two most common questions in such disputes are, first, whether a certain act, such as making product x or using process y would fall within the scope of the invention defined by the patent and so result in an infringement of that patent and, secondly, whether new evidence, such as an article published in a scientific journal, that was not considered at the time that the patent was applied for means that the patent should not have been granted—in other words, does that mean that the patent is not valid?

A realistic assessment of the answers to such questions is essential for anyone considering or facing patent litigation. The earlier such an assessment is made the better, as the more helpful it can be in deciding the best course of action. A patent holder may ask himself, "Should I litigate? Should I seek a licence? Do I need to think about amending my patent? Should I seek a settlement?" Such opinions will not be legally binding on any party, but they will provide an affordable and prompt assessment generally based on a consideration of both sides of the argument—for instance, that of the potential infringer and of the patent holder. The details fleshing-out this framework will be laid down in secondary legislation, following consultation with users and stakeholders on how best to implement this new procedure. We believe that such a procedure, with its emphasis on balance, affordability and timeliness, will be useful to any party, but especially to those, such as small and medium-sized enterprises, that must decide how best to enforce their patent rights.

Clauses 11 and 12 provide useful improvements in the area of infringement disputes. Following the spirit of the widely adopted reforms proposed by Lord Woolf some years ago, clause 12 would make changes to help a patent holder who is genuinely interested in settling a dispute. An approach to those whom he believes are carrying out the infringing act—for example, making or importing a product that is covered by the patent—will be easier. In situations where that person is not easy to identify, an approach could be made, under this clause, to a retailer supplying the suspected infringing goods or services in order to find out from where or whom he is obtaining his supply. If such an approach is made in the manner consistent with clause 12, the patent holder will not leave himself open to legal action from the retailer for making a groundless threat to launch infringement proceedings.
 
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As a result, provided that a patent holder behaves in an appropriate manner, he will find it easier to identify the source of material that he suspects is infringing his patent. Once that source is identified, the patent holder will be able to seek to negotiate a settlement of the dispute. If the manufacturer or importer cannot be discovered, after the patent holder has made "best endeavours" to do so, the patent holder will be able freely to approach the retailer and seek a settlement without fear of an action for groundless threats. Following successful infringement proceedings before the Patent Office, clause 11 makes it easier for the patent holder to enforce an award for damages.

A group of improvements deals with disputes on issues other than the validity or infringement of a patent. The 1977 Act recognised for the first time that an employee should have certain rights to compensation in relation to inventions made by him that have been successfully developed by his employer. Analysis of responses to the public consultation that preceded the Bill concluded that there was no appetite for a major change. There is concern that the provisions do not serve a useful function, based mainly on the fact that there have been no successful claims for compensation to date from employees. However, the provisions have provided companies with a strong incentive to put in place their own arrangements to reward employees who make important contributions to their businesses. One such contribution is, of course, inventing a new product or process that the employer has patented and successfully exploited commercially.

The modest change proposed in clause 10 will allow an employee who is seeking compensation to include benefits that flow from the invention itself, in addition to those benefits that flow specifically from the patent, when required to show that a patented invention is of outstanding benefit to the employer. That will provide the employee with a limited increase in the range of benefits he can suggest as evidence to meet the outstanding benefit threshold. The change does not upset the careful balance that has to be maintained between the rights of the employee on the one hand and those of the employer on the other.

Clause 6 ensures that in disputes over who should be named as the applicant for a patent—usually referred to as entitlement proceedings—the unsuccessful party cannot reduce the patent protection available to the successful party by making details of the patent application public.

The final change to disputes is set out in clause 14, which lays down the circumstances in which a party is required to provide a security for any costs that they may be required to pay at the end of the proceedings in the Patent Office. In that respect, it brings the law on patents into line with the more recent law on trade marks contained in the Trade Marks Act 1994, and will also ensure that the rules are consistent with those governing civil procedures in the courts.

The second part of the Bill also provides for a group of changes to the 1977 Act to improve the service offered by the Patent Office to users in practical and useful ways. Clause 8 gives users more flexibility when paying the fees to renew their patents. The deadline for paying such a fee will be changed to the last day of the relevant month in which the fee is due. That has two advantages. First,
 
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it simplifies the record keeping required to manage a UK patent portfolio. Secondly, it brings the UK into line with practice in the other countries in the European patent system.

If a patent is held or owned by more than one person, clause 9 makes clear the relationship between the co-owners in situations in which they have made no agreement or contract between themselves on how to act.

Clause 7 limits the occasions when a UK resident who wishes to apply for the patent in another country must seek permission from the UK Patent Office to do so. In future, only the small proportion of UK residents who apply for a patent that relates to military technology or to an invention that raises national security or public safety concerns will need to ask for or seek such permission.If the application relates to any other subject, the applicant will be free to file it abroad. However, a criminal offence will still apply to a deliberate or reckless failure to seek permission, when required.

Schedule 2 completes the group of changes and contains some more minor improvements. For example, it will be possible for the Patent Office to agree to a request from an inventor who wishes to keep his name and address confidential. It will also be easier for the Patent Office to change and update the application forms it uses, following feedback from customers. The schedule also deals with consequential amendments to the 1977 Act.

Although hon. Members may find the topic of patents technical and difficult to follow, we must all appreciate the importance to the UK economy of useful and effective legislation in the sector. Although the Bill is, thankfully, small, it is important. It is essential if we are to fulfil the undertaking that the UK gave in November 2000 to ratify the revised European patent convention. In doing so, we will be making clear our commitment, as its third largest user, to the development of the European patent system. At the same time, the Bill provides important improvements to patent disputes. It will permit UK business to make best possible use of its most important asset—its intellectual capital and knowledge resources. I commend the Bill to the House.

4.54 pm

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