Select Committee on Regulatory Reform Second Report

Removal or reduction of burdens

182. The Department proposes to amend section 23 of the 1977 Act to remove the prohibition on UK residents filing patent applications abroad without first filing in the UK or seeking the permission of the comptroller. The prohibition and criminal sanction will only remain in the following cases:

a)  if an application is of a kind which would require filing by secure means if it were filed in the UK (i.e. containing sensitive information); or

b)  if an application was first filed in the UK and either

i.  the comptroller has issued directions restricting its publication or communication, and has not revoked them, or

ii.  the application is of a kind which requires secure filing, less than six weeks have elapsed from the date of filing, and the comptroller has issued nothing.[97]

183. The Department has argued that this will remove a burden on the majority of UK residents seeking to file patent applications overseas, as only those whose applications contain sensitive matter will continue to be restricted. We agree.

New burdens

184. The Department argues that the overall liberalisation of the regime applying to overseas filing requires the reform of the provisions relating to the comptroller's determinations about applications containing sensitive information. It proposes to place several new burdens on applicants, namely:

• a requirement to file affected applications in the prescribed manner;
• a restriction preventing those applicants who have filed securely from publishing or communicating the contents of an application until the comptroller has indicated that they may; and
• a liability to criminal sanctions if an application containing sensitive material is filed in a non-secure manner, or published or otherwise communicated without the authorisation of the comptroller.[98]

185. The Department recognises that the new procedures would transfer to the applicant the responsibility of determining whether the schedule to the order applies to the application, and would impose a restriction on the free exploitation of a patent containing sensitive material. It concedes that the procedures are complicated, but argues that they will affect far fewer applications. It considers that the need to file securely will be evident to inventors in the relevant fields, as they and their representatives will already expect much of their work to be classified and will in practice be used to secure communication with the Patent Office.[99]

186. The Department also recognises that there may be areas of genuine doubt as to whether or not an application should be securely filed. The proposals therefore also include a statutory duty on the comptroller to provide advice about whether an application falls within the scope of new section 22(1), and therefore whether it requires secure filing.

187. The Department is at present unable to say how many directions may be issued under the new regime. It is also unable to say how many applications may need to be filed by the new secure manner of filing. While it believes that applicants may take advantage of the requirement on the comptroller to give advice on filing, it recognises the prospect that applicants may choose to err on the side of caution.[100]

Imposition of new burdens: proportionality

188. Under the proposed order, applicants whose applications contain sensitive information would be required to file their applications by secure means and seek the permission of the comptroller to disclose the information contained in them. The purpose of this requirement, according to the Department, is to prevent the disclosure of sensitive information before the comptroller or the Secretary of State have had the chance to consider whether to issue directions restricting the publication or communication of its contents. The Department has argued that this burden will apply only to a few applicants, and would be no more onerous than the present burden imposed on all UK residents applying for patents.

189. The Department believes that the new burdens imposed, which derive from the need to safeguard national security, are proportionate to the benefit which is expected to result, namely the liberalisation of the overall filing regime. It argues that directions may be issued by the comptroller in a flexible manner, to prohibit all publication or communication, or to allow some forms of communication of the technologies concerned (to allow the applicant to carry on working). It states that directions issued in relation to national security are subject to regular review by the Secretary of State, and are revoked when no longer required.[101]

190. The Department further considers that the targeting of the secure filing requirement more narrowly on specified categories of application will allow the Patent Office to develop other more convenient means of filing for other applications (such as electronic filing). It argues that otherwise all applicants wishing to file electronically would have to use secure communications methods, which are elaborate and unlikely to be generally attractive.

191. Several consultees had expressed significant reservations about the proposals as set out in the consultation paper. We therefore sought their views on the revised proposal, and found that a number of them remained far from content with its provisions.[102]

192. The grounds on which doubts over the proportionality of the new burden have been raised are summarised below. We consider that had the Patent Office not indicated its intention to revise the proposal, these doubts are sufficiently serious to have merited further investigation of the proportionality of the proposed new burden.

Disclosure of inventions

193. The Defence Industries Working Group (DIWG),[103] BAE Systems plc[104] and QinetiQ[105] argued that the requirements for secure filing placed a significant new burden on the defence technology sector. DIWG and BAE Systems outlined a practice common in the defence industry, whereby companies which wish to patent an invention will often file a patent application immediately before the disclosure of its content at a trade fair, a conference or in discussions with commercial partners. They argued that the requirement prohibiting disclosure, without the authority of the comptroller, of any information contained in an application relating to national security, until the comptroller had given directions prohibiting or restricting publication or had notified the applicant of a decision not to give directions, would effectively prevent defence contractors from engaging in this practice.[106] BAE Systems further considered that the new burden to be imposed by new section 22 was disproportionate in its effect.[107]

Determination of nature of application

194. Under the proposals, the applicant would be required to judge whether or not an application was of a type the disclosure of which would compromise national security, and would therefore require secure filing.

195. A number of respondents to the initial consultation expressed significant reservations about the procedures proposed in the consultation paper, and the way in which the burden of judgment was to be shifted onto the applicant. The Department has summarised the concerns raised by consultees and has indicated the changes made to the proposals in the light of consultation.[108] These changes may be summarised as follows:

• the provision that criminal sanctions will only apply to an applicant who files an application concerning sensitive material abroad, or not in the prescribed manner, when the applicant knew, or ought reasonably to have known, that the application should not have been filed in that way;
• the drafting of the legislation makes it clear that if the Secretary of State notifies the comptroller of the existence of a sensitive class of technology not provided for in the Schedule, no criminal sanction applies to any person who fails to file an application falling within that class in the prescribed manner, or who files it abroad;
• the drafting of the Schedule has been clarified; and
• the comptroller is to be placed under a statutory duty to issue guidance.

196. Several of the consultees whose views we solicited welcomed the changes to the proposal. BP considered that there was still some uncertainty over the scope of the matter covered by the schedule to the order, but that any doubt could be clarified by seeking guidance from the Comptroller.[109] The Trade Marks, Patents and Designs Federation (TMPDF) welcomed the statutory provision for the comptroller to issue guidance.[110]

197. Nevertheless, TMPDF questioned the Department's assertions that the applications likely to be affected would originate only from a small number of specialised applicants. TMPDF considered that the schedule to the order, setting out the technologies affected, was long and complex, embracing "many technologies that may have no obvious security implications. Administering it, and the threat of new criminal sanctions, will be a significant new burden on all applicants."[111]

198. The Department appears to argue that the nature of the judgment which has to be made by an applicant under the present regime, and under the proposed new regime, is essentially the same. We consider that the judgment required is in fact substantially different. At present the degree of judgment required by every UK-resident applicant is basic: whether to file an application abroad, in the knowledge that such filing without prior filing in the UK, or permission from the comptroller, is illegal. Under the proposed new regime, a UK-resident applicant will have to make a far finer judgment as to whether the subject of an application falls within one of the classes specified the schedule to the order. The argument advanced by the Department, that persons working in sensitive areas are likely to err on the side of caution, is immaterial: a protection against accidental breach of the law should not have to rely on the judgment of the applicant.

199. We consider that there is a doubt about the extent to which the new burden will fall on patent applicants generally. This doubt necessarily calls into question the assessment which the Department has made about the proportionality of the new burdens being imposed in this respect.

Criminal sanction

200. The Department indicates that the proposed new criminal sanction in respect of filing an application containing sensitive material in an insecure manner is to be 'selectively targeted away from innocent offenders'. The provision applies the sanction only to those persons who knew, or who ought reasonably to have known, that the special secure manner of filing was required. The Department considers that the sanction is necessary and similar to the sanction already contained in section 22. In view of the fact that it is to be targeted, the Department considers that the burden of the sanction is proportionate.

201. TMPDF and the Chartered Institute of Patent Agents (CIPA) expressed concerns about the drafting of the provision and the targeting of the sanction. TMPDF considered that the Department's amendment to its original proposal had not adequately taken into account its previous reservations. It stated that the introduction of a new criminal offence in new section 22 (8A) and (8B) "is onerous to applicants, and contradictory in what purports to be a deregulating instrument".[112] Given the complexity of the specified classes of material in the schedule, it cast doubt on whether an assessment of what an applicant "reasonably should have known" can be made.

202. TMPDF considered that a criminal sanction should only apply where an applicant, in filing an application, had recklessly disregarded security implications. CIPA considered that the criminal sanction should only apply to actions taken deliberately.[113]

Proportionality and fair balance of new burden: conclusion

203. The Department has argued that in general the provisions of proposal F provide a greatly liberalised regime, where the majority of UK-resident applicants are free from the restriction on filing overseas and not subject to the national security provisions which the proposed order would apply to the handling of sensitive material. It considered that in general the new burdens were proportionate to the benefit conferred, in that they were to fall upon the small class of applicants who deal in sensitive material in a way which is no more onerous than the present regime.

204. The Department has assessed proposal F against the fair balance test, and believes that, taken as a whole, the provisions of this aspect of the overall proposal do strike a fair balance between the public interest (which it takes to be the national security interest) and the interests of the persons being affected.

205. The views we have received from those consultees whom we asked to comment on the proposals indicate that the impact of the new burdens to be imposed on those affected may be disproportionate to the overall benefit which the removal of the burden is intended to confer. There is therefore a doubt as to whether the proposal meets the proportionality test, although we do not at present have sufficient evidence to reach a conclusion. But since the Department has indicated that it is to withdraw the element of the proposal which has given rise to the doubt, we have not sought further evidence on this point.

Effect on necessary protections

206. The Department has argued that the proposal maintains necessary protections for all applicants. It recognises the possibility that, in placing upon applicants the responsibility of determining whether the application is sensitive or not, the applicant may make the wrong choice, and therefore risk prosecution. It nevertheless argues that the risk exists in current provisions (in that a UK-resident applicant may file an application abroad without permission), and that, therefore, the new burden is no more onerous. The Department notes the present provision of section 22(5) of the 1977 Act, which requires the Secretary of State to review directions issued under section 22 no more than nine months after the date of the application and annually thereafter: this requirement for regular review is to be continued.

207. The Department also considers that necessary protection in respect of national security will be maintained by the proposal.

208. We consider that the present proposal does not remove any necessary protections.

209. We note that the amendments which the Department has indicated it is to make to the proposal will affect the proposed amendments to section 22, which were intended to provide necessary safeguards for national security. We remind the Department that, in bringing forward any revised proposal or draft order, it should take care to demonstrate how this protection is to be retained.

Drafting of the proposal

Safety of the public

210. The 1977 Act provides that the comptroller may issue directions prohibiting the disclosure of information in patent applications which is of a character notified to him by the Secretary of State as being 'prejudicial to the defence of the realm'.[114] There is separate provision for the comptroller to issue directions on his own account in respect of the disclosure of information which he considered to be 'prejudicial to the safety of the public'.[115]

211. The Department considered that the provisions for safeguarding the public would be adequately contained within the provisions for defence of the realm, and therefore believed it was not necessary to have a separate category for these provisions. It proposed to amend the 1977 Act to remove all references to the safety of the public.[116]

212. It appears that there is no express definition of 'defence of the realm' in the draft Order or the 1977 Act. While the Department argued that 'public safety' is a term necessarily included within the concept of 'defence of the realm', the present drafting of section 22 of the 1977 Act suggested to us that it was not. We therefore asked the Department to elaborate on the matter.[117]

213. In response, the Department indicated that disclosure of information which might, for instance, assist terrorists was not considered to be information 'prejudicial to the defence of the realm' when the 1977 Act was passed, but could at that time have been considered to be information 'prejudicial to the safety of the public'. It considers that disclosure of such information would now be likely to be considered 'prejudicial to the defence of the realm.[118] It has nevertheless examined the issue anew, and has found that there may be issues which relate to the safety of the public which would fall outside the category of 'defence of the realm'. It therefore intends to amend the draft order to restore the existing provisions. We concur in the amendment.

Issue of directions by the comptroller

214. We sought clarification from the Department on the effect of the provisions to be inserted into section 22 by article 9 of the draft Order. The Department accepted that the present draft of section 22(1C), (1D) and (IG) was unclear, and proposed an amendment to clarify the position.[119] Since, as we indicate below, the Department now proposes to remove article 9 from the draft Order, we do not propose to pursue the matter further.

Handling of proposal F

215. The Department has indicated that, in view of the representations it has received, proposal F (national security) will be amended. The Department now proposes to retain the provisions of section 22 of the 1977 Act without amendment, while section 23 is to be amended "so as to allow applications which do not relate to national security matters to be filed abroad without either obtaining permission from the comptroller or first filing an application in the UK."[120] It will be made clear that it will be a defence against contravention of this section that the applicant neither knew nor believed that an application related to national security matters.[121] It states that "the overall effect of the revised proposals will be a reduction in the burden currently imposed by section 23 without any concomitant increase in the burdens imposed by section 22."[122]

216. The evidence we have thus far received on this element of the proposal has led us to doubt whether the new burdens to be imposed by the proposed amendments to section 22 would meet the tests of proportionality and fair balance.[123] Had the Department not indicated that its proposals in respect of section 22 were to be withdrawn, we would undoubtedly have sought further evidence on their likely effect. In our view, there is presently sufficient doubt over the likely effect of proposal F, and the degree to which it meets the statutory tests, for us to recommend that it should not, in its present form, be included in any draft order subsequently presented to the House. We consider that the proposal should be amended by the removal of articles 9 and 10 from the draft order before it is laid before the House.

217. The Department has stated that since its proposed revisions fall within the scope of the original consultation, it does not consider that further wide consultation is necessary. [124] It nevertheless intends to seek the approval of all the respondents to the original consultation who expressed concerns over the original proposal relating to national security provisions.

218. We are at present in no position to report to the House on whether a revised proposal is likely to meet the relevant tests against which we are required to assess it. We are, however, sympathetic to the Department's overall aim, as expressed in its memorandum, to provide for a deregulation of the existing section 23. Should the Department wish to lay a draft order before the House for 'second-stage' scrutiny which contains amended provisions relating to national security, we would be prepared to consider it, assessing it against the relevant criteria in the Regulatory Reform Act and in our standing order.[125]

219. The Department should note that this option carries a significant risk. The time for consideration of draft orders at second-stage scrutiny is short. If we were to have reservations arising from the amended proposal which the Department could not allay very quickly, we would have no choice but to recommend that the House should not approve the draft order.

220. Should the Department not wish to take this risk, other avenues are open to it. It could lay a fresh proposal in the form of a draft order for first-stage scrutiny. Alternatively, it could amend section 23 of the 1977 Act by seeking amendments to the Patents Bill [Lords] at Committee stage in either House. We note that the Bill at present makes provision not only for the amendment of the 1977 Act as it stands, but also for amendment of those sections to be inserted and amended by means of the proposed order.[126]

Proposal G: Transactions outside Scotland

221. Proposal G would remove a burden and an anomaly which the Department claims presently exists between the signature formalities required to make a transaction in a patent in Scotland and elsewhere in the UK.

Removal of burden

222. Under section 30(6) of the 1977 Act, a transaction in a patent requires the signatures of all parties to the transaction, if that transaction is done anywhere in the UK except in Scotland. Section 31(6) of the Act, which applies in Scotland, provides that a transaction in a patent need only be signed by the granter.

223. The Department points out that transactions in respect of most other intellectual property rights may be done in the whole of the UK with only the signature of the assignor, mortgagee or other person assenting.[127]

224. The Department therefore proposes to remove the requirement in section 30(6) that transactions in patents must be signed by or on behalf of parties other than the party assenting to the transaction. It believes that this will remove a burden on other parties to the transaction, and remove the anomaly between patent law as it applies in Scotland and in the rest of the UK and the Isle of Man.

225. We consider that the proposal removes a burden without removing any necessary protection.

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97   Explanatory statement, para 6.182 Back

98   Explanatory statement, para 6.205 Back

99   Explanatory statement, para 6.171 Back

100   Explanatory statement, para 6.189 Back

101   Explanatory statement, para 6.211 Back

102   Responses to this report are set out in full in the Appendices to the Report. Back

103   Appendix H Back

104   Appendix D  Back

105   Appendix G Back

106   New section 22(1C), inserted by article 9 of the draft order Back

107   Appendix D Back

108   Explanatory statement, annex C, paras C36-C46 Back

109   Appendix E Back

110   Appendix F Back

111   Ibid. Back

112   Ibid. Back

113   Letter from CIPA to the Patent Office (not printed) Back

114   Patents Act 1977, s. 22(1) Back

115   Ibid., s. 22(2) Back

116   Explanatory statement, para 6.197 Back

117   Appendix A, Qq 16-19 Back

118   Appendix B, para 10 Back

119   Appendix B, annex 1, para 8 Back

120   Appendix J, annex 1, paras 11-12 Back

121   Ibid. Back

122   Ibid. Back

123   See above, para 205 Back

124   Appendix J, annex 1, para 11 Back

125   Standing Order No. 141(7) Back

126   See above, para 48 Back

127   Explanatory statement, para 6.237 Back

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Prepared 17 February 2004