Patents Bill

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Mr. Ian Liddell-Grainger (Bridgwater) (Con): The hon. Gentleman makes a valid point, but he may remember that Microsoft took on the American Government and won. We will not get people who have the capability to look at such cases in an arbitrary way. One manufacturer took on IBM, and IBM's entire aim was to bankrupt that person. We will not get people who are far enough away from any one concern to undertake that employment.

Malcolm Bruce: The hon. Gentleman raises a legitimate point of concern, but I counter it by saying that if no attempt is made to do what I suggest, that gives Microsoft or IBM a completely free rein. I do not believe that there are not people—probably ex-employees of the likes of Microsoft and IBM—who are in a position to make an independent judgment.

The hon. Gentleman offers a poor argument for not trying. The counter to it is that it would, effectively, concede that the big guys always win because they have the ability to bankroll the litigation to the point where the small guy has to back up and go away. That is the concern. As 95 per cent. of useful inventions come from small businesses—to repeat a statistic—this is not a fringe issue, but central to what patents are all about.

A binding opinion would give smaller firms greater certainty. If an alleged infringer still decided to go to court even after expert opinion had found against them, the patent holder would have the comfort of knowing that the judge could take that expert opinion into account. The judge will, of course, make his own independent evaluation, but at least he has an expert view to draw on. An alleged infringer who did not have

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a real case, but who had the resources to question the validity of a rival's patent, would be deterred from going to court in the first place if an independent judgment suggested that he would lose. The alleged infringer would not automatically be guaranteed to win simply because they had the resources to take things to the nth degree. That point might be relevant to the hon. Gentleman's intervention.

The new clause would help to even the balance. We think that it is worthy of serious consideration, and that is what we are asking the Government to do. I am not going to force a Division, and I do not think that the Minister would expect me to, but he should accept that this is a serious proposition. Also, if the patent enforcement project has validity, the Government should at least consider its recommendations. It is a problem that we are considering the Bill before the consultation has reported. I do not wish to detain the Committee, but it might have been more desirable had we dealt with the Bill after the consultation. Nevertheless, the Government can, perhaps, take that it into account, so that small firms are in a better position as a result.

Another option has been suggested. Instead of setting up the compulsory binding expert arbitration, a fighting fund might be provided for small and medium-sized enterprises. If they were able to draw down on such funds, that would even up the imbalance. In his report ''Making Patents Useful to Small Firms'', Professor William Kingston of Trinity college, Dublin suggests that an obvious source of funding would be the subsidy paid to the national offices by the European Patent Office, which he claims is currently running at Euros 250 million. I am not sure whether he is being facetious, but I am less attracted than him to that proposition because all it would do is set up a fund that small businesses can draw on to even up the balance.

The proposal that there should be expert binding arbitration is a move in the right direction. We should ask, ''How good is the intellectual property?'' rather than, ''Who has the deepest pockets?'' That is the crux of the argument. Can we not ensure that the Bill allows justice and fairness and does not give the spoils to the bigger operators, so that they can put the small guy out of business?

Mr. Arbuthnot: The hon. Member for Gordon (Malcolm Bruce) has given an interesting expose of an important argument. The aim behind the non-binding opinion proposal is to encourage people not to go straight to court because they have an alternative method of resolving patent disputes, by negotiation if possible. That is a laudable aim, and we would like it to come true. However, I am not quite sure how it will be achieved—perhaps the Minister can set that out in his response.

3.15 pm

I do not know whether compulsory binding technical arbitration is the answer, but it may be. It is easy to pick holes in new clause 1, but if we do not go down that route, how does the Minister intend to support small and medium-sized enterprises that find

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the cost of litigation completely unaffordable? It is not surprising that it costs £1 million to take a patent enforcement action, because it deals with highly technical issues of great difficulty and involves expensive scientists and lawyers—and I declare an interest as an expensive lawyer. It is necessary to find small and medium-sized enterprises a small degree of relief. If the Minister intends to pick holes in the new clause, it will be interesting to hear what he is going to do instead.

The Minister, as graciously as ever, said that he supports the patent enforcement project, yet somehow it always seems to be just over horizon; it is about to report—but not yet. I would love to know when it will report and whether, when it does so, it will produce anything to help small and medium-sized enterprises. The Minister asked the hon. Member for Gordon where the technical experts were to come from. In a sense, his intervention contained an implication of despair—namely, that technical issues in patents cases have to be decided by the ignorant. That is not necessarily true.

Mr. Sutcliffe: I am not suggesting that things are hopeless, or that all this is about people who have no knowledge of the matter. The right hon. Gentleman knows that the patents county court, which I will mention on winding up, has a user group comprised of technical people. Mandy Haberman, one of the people to whom the hon. Member for Gordon referred, is a member of the patents county court user group. There are experts, but they operate in a particular framework.

Mr. Arbuthnot: Yes, and that is fine as long as we do not have biotechnologists examining the difficulties of computer software. That is the sort of issue that we should consider. Many countries make greater use of court-appointed experts, but the leaders in their fields do not necessarily go in for that sort of work. If the Minister does not like this, what is he going to do instead?

Mr. Sutcliffe: As ever, we have had a useful debate on issues affecting many of the people involved with patents, including small and large companies. It has always been the intention of the Secretary of State, of the Department of Trade and Industry and of Ministers to do whatever we can to support small businesses. The Small Business Service considers regulation issues to ensure that there is an impact on small businesses. Hon. Members should consider the Bill in the wider context of the DTI's and the Government's motivation and their concern with small businesses.

We keep returning to why the Bill is being introduced now, why we do not wait until the enforcement project reports and why we are not considering other issues as we progress. There was a great deal of debate on Second Reading about things that were not in the Bill, but which should have been. I acknowledge that some hon. Members have concerns about that. The reason that I gave for the Bill's being

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processed now, and why it was urgent to do so, was that we had to bring UK patent law in line with the European patent convention. However, that does not mean that Europe has forced us into it. We are key players in the convention.

It would be wrong to delay the Bill until the results of the research of the patent enforcement project are known. Failure to bring UK law into line with the EPC provisions would mean that the UK was outside, and we would have to leave the convention. We discussed earlier how disastrous that would be. Nobody has introduced that as a possibility—it would be detrimental to all UK stakeholders.

Mr. Arbuthnot: It would have been wrong to delay the Bill. I was not suggesting that; I was just saying that the patent enforcement project was being delayed.

Mr. Sutcliffe: The right hon. Gentleman will know, from his years of experience, that it is important to get these things right. He would not want us to rush into making decisions that were wrong. The patent enforcement project report will be here in the summer, although I know that the definition of ''summer'' varies depending on which Department people talk to.

Within the project, there is an issue around the fighting fund, which, if we introduce it, might mean that we do not have to rely on primary legislation. That could still flow from this, and I know that discussions will take place. People accept that delaying the Bill would have caused problems that nobody wanted.

I should have welcomed the hon. Member for Gordon this afternoon; as usual, it is a delight to see him. He has argued for his new clause, following the strong contributions from the hon. Member for Weston-super-Mare this morning.

The right to control who is allowed to exploit an invention covered by a patent is legally enforceable and resides with the patent holder. That right is challenged if a third party does something that the patent holder believes is covered by the patent. For example, a third party might produce competing goods, using a process that the patent holder believes falls within the scope of his patent. At that point, the patent holder would have to decide how best to deal with that challenge. He would want to stop the third party from carrying out what he believed was an infringement, because that would reduce his ability to gain commercially from the patent.

That is the purpose of the whole exercise. The patent holder takes out the patent to recoup the investment that he made, having come up with the invention in the first place. A third party should not be able to piggyback on the work of the patent holder without paying him. The third party could agree to pay him a licence fee for the use of the patent, or agree to stop any infringing behaviour and reimburse him financially for any unfair use.

However, the third party may argue that what he is doing is not covered by the patent, and is therefore not an infringement, and that he is merely providing a

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product that competes with the patent holder's, using an alternative process, which, although it may bear some similarity to the patented process, does not fall within the scope of the patent.That is the key issue. There has to be a balance between giving the patent holder the exclusive right to prevent others from exploiting his invention without his permission, so that he gains commercially from his efforts, and making sure that such exclusive rights do not inhibit others from entering the market and providing fair competition, so that the public can have access to a wide range of products at an affordable price. For that reason it is important, as we said during consideration of clause 13, that the patent for an invention that is the subject of such a dispute, which would provide the basis for an exclusive right, should be valid.

In new clause 1, subsection (2) would put in place a new ''technical arbitration'' procedure, which would have to be used to decide whether infringement of a patent had taken place before any infringement proceedings could be brought before a court. It appears to follow from subsection (4) of the new clause that the comptroller would continue to have jurisdiction under section 61(3) of the 1977 Act, although he might decline jurisdiction in favour of a technical arbitration.

Subsections (5) to (8) would make corresponding changes to other provisions of the 1977 Act, giving jurisdiction to the comptroller or the courts. Technical arbitration would have to be used in the context of threats actions under section 70 and declarations of non-infringement under section 71, although it appears that, in the latter case, the provision would still be intended to be without prejudice to the jurisdiction of the courts under common law.

The proposal appears to raise more questions than it answers, although I do not mean that as an attack on the hon. Member for Gordon. For example, arbitration usually requires the agreement of two parties in dispute to enter the process and to be bound by the result. However, under subsection (1) of the new clause, such agreement would be a compulsory ingredient of every patent application; it is currently one of a range of available alternatives. The new clause would not provide anything not already available. Indeed, infringement proceedings before the comptroller under section 61(3) can be regarded as a kind of arbitration by technically skilled experts at the Patent Office, as the parties have to agree to the dispute being decided before the comptroller.

Perhaps the only novelty of the proposed procedure is that it removes any element of choice. Is it appropriate to compel people to use a process in this way? Is it appropriate to have only one forum to decide such issues? Presumably it is intended that some kind of appeal should be available to alleged infringers who lose their case before the arbitrators, although, as the new clause is drafted, it is difficult to see how that appeal mechanism would arise.

It is important that binding decisions on infringement, which have important economic repercussions for the alleged infringer, should not be made by a single forum without any possibility for

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appeal or review. What if the decision were wrong, or some serious abuse or error had taken place? The reason why I asked where the technical experts will come from was that in some areas of technology things are growing and developing rapidly. We wonder whether enough technical experts will be available. The hon. Gentleman answered that by saying that experts from industry would be involved, but that creates its own problems. Will experts working in industry be suitable or will they be considered to have an interest in the outcome depending on which company they work for? Will experts in academia be suitable? Are they likely to be up to date or will they have a problem because of their perceived increasing dependence on funding from industry for their research? They might be funded by a company that has an interest in the outcome. Would the experts come from the Patent Office, or are they considered to be too closely involved in the granting of a patent that is under dispute?

That latter point suggests another problem with the procedure: it does not take it into account that in infringement disputes the alleged infringer often raises the defence that the patent is not valid. That issue then needs to be explored, because an invalid patent cannot be infringed.

Lastly, there is the problem that the procedure would appear to increase the number of litigation steps that would have to take place before the issue was finally decided. That would be a big step backwards, and I hope that the Committee accepts that. Technical arbitration could decide whether or not infringement had occurred, but separate civil proceedings would be required to decide the relief that would be provided to the patent holder if the allegation of infringement were upheld—hon. Members may refer to new clause 1(2). Separate revocation proceedings would seem to be the only way that an alleged infringer would be able to raise the defence of invalidity. As I have mentioned, some mechanism of appeal would have to be provided for, although it is not part of the current proposal.

Despite the allegation put forward by some that big companies are always blatantly infringing the patents of little companies and relying on their financial clout and on time-consuming procedures to avoid having to face any legal consequences of their actions, few infringement cases are so simple and easy to decide. Although disputes on infringement often require careful consideration of technical issues concerned with the products or processes that are being compared, they also involve consideration of legal issues, such as the weight and value to be put on certain statements and what is relevant material. To separate those two kinds of issues, as the proposed new clause implies, or even to reduce them merely to consideration of technical issues, is too simplistic an approach. In any case, the courts and the Patent Office both have the power to use advisers to assist them in their work should the need arise. That is shown, for example, in section 122(5) of the 1977 Act.

The hon. Gentleman will not be surprised if I conclude that the new clause causes more problems than it provides solutions for. It confuses the situation

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and will do little to encourage patent disputes to be settled before expensive, time-consuming and financially draining litigation is undertaken. I do not see that the proposal would be any more helpful in resolving disputes between two small or medium-sized enterprises than the one in clause 13.

The system is in place in terms of the procedures that are proposed in the Bill. We should give the patents county court some opportunity to develop. It had a slow start, as I accepted on Second Reading. The users group is in place, as are the procedures, and I hope that with that explanation the hon. Gentleman will withdraw the new clause.

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