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Mr. James Arbuthnot (North-East Hampshire) (Con): I largely agree with what the Minister just said and I hope that he does, because I would love to give him an exam on what he has just told us. There are some Bills that grab the attention of the British people and change the course of British history or even that of the world, but this is not one of them.

Mr. Ian Taylor (Esher and Walton) (Con): My right hon. Friend may be right in the narrow sense of the Bill, but he is certainly not right in the wider sense of the importance of patents, many of which have transformed British history.

Mr. Arbuthnot: My hon. Friend is way ahead of me, as always. However, the Bill does not change the law of patents very much. It is one of those Bills that tidies things up a little and brings things into line; there is nothing radical or far-reaching about it. There is,
 
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however, one very important matter that we need to clear up from the beginning: is it "pa-tent" or "pay-tent"? The Minister covered the ground adequately by using both pronunciations, but we need to work out which it is to be.

Mr. Sutcliffe: I took advice on this matter. The pronunciation depends on which part of the country people come from, so I thought it important to use both, so that I did not upset or offend anybody.

Mr. Arbuthnot: Wonderful—that is a Liberal Democrat remark really.

Paul Flynn (Newport, West) (Lab): The accepted wisdom among the 1,000 people in my constituency who work in the Patent Office is to say the word with a short "a" because it takes a nanosecond less and, as they use the word several hundred times a day, they get home earlier for their tea.

Mr. Arbuthnot: We have probably used up all the nanoseconds that we might have saved so far in the debate, so I had better move on.

The Bill attempts to improve an area that, as my hon. Friend the Member for Esher and Walton (Mr. Taylor) said, is of huge importance to the British economy—that of innovation and invention. It is therefore an important Bill in spite of its generally uncontroversial nature. I should like to express my gratitude and appreciation for the work that has been done by my noble Friend Earl Attlee and many others in another place. The Bill comes to us in pretty good shape because of that. I also thank the Minister for encouraging his Bill team to brief me, and I thank the team for its useful and clear information. I thank, too, several other professionals and professional bodies who have helped me with this very technical Bill.

The Minister explained that the Bill's purpose was to bring British law into line with the minor changes recently made to the European patent convention and to take the opportunity to make a few further minor changes to our patent law. I agree with his explanation.

Before I go into the detail of the Bill, I should consider the backdrop against which it stands. Patents are one method of protecting our intellectual property. I am delighted to say that the first known cause of letters patent being granted in England was in 1449 to John of Utynam for a method of making stained glass windows in Eton college. The whole purpose of patents is the protection of new and improved products and processes that are capable of industrial application. They allow the patent holder, in return for making public his idea—a very important concept—the benefit of a monopoly of exploitation of that idea for up to 20 years. For that reason, they are crucial to what we regard as one of the unique selling points of the British economy: our high-tech, highly skilled businesses.

Increasingly, businesses send offshore activities that can be done abroad equally well, less expensively and, I might add, with less Government interference and bureaucracy. If we are to compete we will have to do so in those areas where our skills and inventiveness make the difference, as the Minister said—I was listening to him. Patents are one way of protecting that
 
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inventiveness. The alternative is usually thought to be to keep the invention secret, but that deprives us of the knowledge of an invention that might spur further thought, inventiveness and innovation. Secrecy is antipathetic to the knowledge economy and bad for science.

At the Lisbon summit in 2000, the European Council of Ministers rightly expressed the wish for the EU to become

"the most competitive and dynamic knowledge-based economy in the world by 2010".

That is why we need a thriving patent culture in this country. Unfortunately, we do not have one. In an article in the Financial Times of 11 September 2001, we learned that although patent applications in the UK increased by more than 2 per cent. between 2000 and 2001, small and medium-sized enterprises in the UK used patents less than similar companies in other countries. The article noted:

"Bottom of the pile for patent enthusiasm was the UK, where only 23 per cent. had used the system. In contrast, more than half the Spanish SMEs were using patents."

Britain is falling behind within Europe, but there is also a widespread lack of patent use in Europe as a whole compared with the USA and Japan. There seem to be several reasons for that, one of which is that, in the USA, it is possible to take out patents for processes that, in Europe, are not patentable—for example, business methods. Of course, that leads to more patents being taken out in the USA. The Opposition do not suggest that the UK should go down that road, however, as the USA has run into considerable difficulties.

Other reasons why the USA and Japan have more patents than we do are more germane to the Bill. The first is costs. To obtain a patent in the USA costs about £10,000; in Japan, it costs about £16,000; but in Europe, it costs £50,000. Little wonder that Europe is falling behind in the use of the patent system. A large part of the European cost—about £12,600, according to the House of Commons Library—relates to translation, but renewal fees and agents' fees in Europe are far greater than in the USA or Japan. There seems to be a similar discrepancy in the time required to take out a patent: one inventor told me that whereas it takes three years to obtain a patent in the UK, the same process can sometimes be completed in much less than one year in the USA.

The cost of translation is one of the greatest costs that fall on someone taking out a patent. In his winding-up speech, will the Minister say where we stand on that issue? In another place, Lord Sainsbury said:

"The cost of translation of patents is stupendous and we need to have one language for them all."—[Official Report, House of Lords, 26 January 2004; Vol. 657, c. 42.]

We agree with him, especially if that one language turns out to be the one most spoken in the developed world—English. Am I right in thinking that the prospect of reaching agreement on a single language has now receded? What has caused that breakdown and how are the negotiations to get back on track? What are the Government doing about a matter that causes inconvenience and expense not only to Britain, but to all the signatories to the European patent convention? How can Europe expect to compete with Asia and the Indian subcontinent if we cannot agree even on that?
 
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The system in the USA is three times quicker and five times cheaper than the one in Europe. A survey last month by the Swiss business school IMD showed that the most competitive economy in the world was that of the USA and that the UK had fallen a further three places to 22nd. Not only are we not meeting the goal of the Lisbon summit, we are going fast in the opposite direction. To see at least the symptoms of that decline, we need look no further than the way in which we run our patent system. Yet here we have a Bill that deals with none of that—it is a steady-as-we-go Bill, but we are not very steady at all. The costs and the time taken could be shaved a little, which we welcome, but we need to see a step change, and we are not seeing one.

The Bill brings us into line with the revised European patent convention. Unless that happens, we cannot remain a signatory to the convention. That would be a bad thing for all manner of reasons that I shall not go into, but principally for the reason of commercial convenience. When an inventor takes out a patent in the European patent office, he takes out a bundle of national patents in different countries to protect his invention. If we ceased to be a signatory to the convention, the alternative would be for the inventor to take out lots of individual patents in those different countries or to forgo the protection that a patent would grant.

It might be worth our while to consider why the European patent convention needed changing at all in 2000. The changes were both substantive and procedural, but will the Minister explain why they were necessary? We accept, of course, that they have now happened, but was there some glaring lacuna in the previous convention that was holding Europe back? What was the commercial demand for the changes that were made at Munich in November 2000? Might it be said that, while the Munich convention dealt with some of those issues, it left a great deal still to be dealt with, including the issues of a single language, computer programmes—currently the subject of a review—and biotechnology?

If there is still much to be done, what is the prospect of a new patents Bill being introduced in the near future to put into effect any further changes to the European patent convention that might be needed? The Minister will be pleased to hear that it was agreed at the meeting in Munich in 2000 that there should be a meeting of patent Ministers every five years to review the convention. I know that the Minister will look forward to those meetings, as do I. It surely follows from that that we can now expect a patents Bill every five years, if only to allow this country to remain a signatory to the convention. Will the Minister confirm that he expects that to be the new pattern? After all, we have had only three Patents Acts since the 1940s.

One important aspect of patents that is barely covered by the Bill is enforcement. The enforcement of patents is extremely expensive. It involves the examination of technical processes and the use of expensive litigators, and cases can—and often do—go on for years at a cost of millions. It has been suggested to me—I stress that I do not know whether it is true—that large companies frequently steal the technical know-how of small and medium-sized enterprises, relying on the relative poverty of the SMEs and the huge enforcement costs in
 
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time and money involved in fighting off any patent action. The Minister might suggest that there is no evidence for that, but will he tell us what surveys he has conducted to find out whether it is true? What evidence would he expect there to be? If SMEs are so daunted by the costs of enforcement that they simply do nothing, how does he propose to find evidence of that nothing?

The patent reform group is a pressure group that has come into being to take action on this issue and it described one of the most important reasons for there being fewer patents granted in the UK. In the normal course of a patent action, the patent holder first tries to communicate with the alleged infringer, and those communications are largely ignored. The patent holder then begins an action. The alleged infringer responds that the patent has not been infringed and that it is anyway invalid. Then, if the patent holder is an SME, the alleged infringer applies for security for costs, which could amount to hundreds of thousands of pounds. The patent holder is then precluded from applying for exemplary damages because he is suing for breach of patent, not breach of copyright. Finally, to add insult to injury, according to the patent reform group, any damages achieved by a successful patent action are subject to tax, while the infringer can get tax relief on the legal costs of even an unsuccessful defence. That may be so and I will be interested to hear the Minister's reaction.

One of the proposals of the patent reform group has been that a fighting fund should be set up to help small businesses finance infringement court cases. The Opposition are not sure whether such a fund could in practice do much more than scratch the surface of the problem. It could also be argued that such a fund, which would have to be paid for by all those who apply for patents, would be yet another burden on those applicants, who have enough to cope with already. Nevertheless, we recognise that for some businesses it is a problem of great seriousness and we intend to probe the Government's thinking in Committee. It is a huge issue and the Minister may tell us that this is too small a Bill and that it is too early to deal with so large a point, but let him take care not to fiddle while the patent system burns.

The patent reform group dismisses the effectiveness of the new patent county court, which was introduced by the Copyright, Designs and Patents Act 1988. It is true that it has taken a while to find its feet. In another place, Lord Sainsbury said that it had had a slow start. In recent months, however, it has been working well and perhaps ought for the time being to be given the benefit of the doubt.

The Government have taken the opportunity of this Bill to tidy up aspects of the law that consultations suggested required it. It seems to me that those tidying-up aspects are of considerably greater significance than those bringing UK law into line with the European patent convention.

One important issue addressed in another place as a result of amendments tabled by the Liberal Democrats and supported by the Conservatives was inventor confidentiality. Those working in bioscience have an understandable desire to keep their names secret, in view of the attacks that have sometimes been made on them, their families and their businesses. As a result, the Government amended the Bill, after initially refusing, as a result of the consultation, to do so, to allow the Patent
 
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Office to keep the inventor's name secret. But there is a new difficulty, which has been raised with me by the BioIndustry Association. It is concerned that, if inventors' names are kept confidential, the ability to search for, and challenge, UK patents will be restricted. How do the Government expect this to work? The BIA suggests that it would be preferable to withhold simply the inventor's home address. I do not know whether that is the right answer, but it may be.

In practice, how do the Government expect this to work within the jurisdictions of the other signatories to the EPC? Clearly, there is little point in concealing something in the UK Patent Office if it is readily available elsewhere, perhaps even readily available on a website that is accessible from the UK. Do the other countries have similar problems with the safety of bioscientists? Does the Minister believe that they would be prepared to adapt their rules to allow a confidentiality that does not currently exist?

On employee inventions, clause 10 amends the law to state that, when an employee has made an invention that belongs to the employer, and there is as a result an outstanding benefit to the employer, the employee shall be entitled to compensation. The amendment relates to the Government's view that that compensation should arise not just when the existence of the patent is of outstanding benefit to the employer but when the making of the invention—or a combination of the two—is of outstanding benefit to the employer. It may be that that is not a distinction of huge importance. In most cases, it probably will not be. Nevertheless, I am afraid that the Opposition simply do not understand it; at least I do not—my hon. Friend the Member for Esher and Walton (Mr. Taylor) understands all about these things, so he will probably be able to explain it to me. I would be grateful if the Minister could explain what is the thinking behind this change and why it is necessary. The whole rationale behind the employee compensation provisions in the Patents Act 1977 seems questionable and this extension appears to require some justification that we have not heard so far.

Let me present two cases to the Minister. In one, an employee has produced an invention for which the employer decides to apply for a patent. In the other, the employer decides not to apply for a patent. Am I not right in thinking that the compensation provisions apply in the first case but not in the second? If so, that strikes me as a silly anomaly. It may exist under current law, but it seems odd to extend the chances of its applying.

Most good employers already provide for such compensation in their workplace schemes because it is commercially sensible to do so. That may be why there has never been a successful case relating to it. I put that the other way round from the way in which the Minister put it, just to prove once again that I was listening to what he said. It seems odd to us that there should be a role for the law to play in what ought to be a very subjective area of the relationship between employer and employee.

Clause 13 introduces a new procedure, involving an opinion from the Patent Office on the validity or infringement of a patent. As the Minister explained, the new procedure will be non-binding. It has been the
 
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subject of much comment: indeed, in the Hen and Chicken in Froyle they talk of little else. Perhaps most people's reaction has been, "If it is not binding, who cares?" Some have said that the proposal is not as bad as it might have been, others that the Government had to think of something to help small businesses and this, unfortunately, was the best that they could come up with. It has been extensively damned with faint praise.

We think that that is a little unkind. The aim behind the proposal, taken with the new provisions on threats of infringement proceedings, was to provide some mechanism through which people in dispute over a patent could engage in some form of negotiation rather than heading straight for the courts. It remains to be seen whether these provisions will achieve that.

If the proposal constituted an excuse for the Government to fail to take proper and effective action to help small and medium-sized enterprises we would wish to hold them to account for that, but for the time being we are prepared to give the proposal the benefit of the doubt. Likewise, we are prepared to give the whole Bill the benefit of the doubt. I shall not be inviting my Conservative colleagues—either of them—to divide on it, because the thrust of the Bill, modest as it is, is largely benign. Our general approach will be to examine the Bill in Committee and improve it wherever possible. It is modest, however. It does not do much, although it may do a bit of good. It is workmanlike and, no doubt, useful but if I were the Minister, I would want a better epitaph than that.

5.18 pm

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