Draft Patents County Court
(Financial Limits) Order 2011

The Committee consisted of the following Members:

Chair: Hugh Bayley 

Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab) 

† Campbell, Mr Alan (Tynemouth) (Lab) 

† Dakin, Nic (Scunthorpe) (Lab) 

† Davey, Mr Edward (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

† James, Margot (Stourbridge) (Con) 

† Johnson, Joseph (Orpington) (Con) 

McGovern, Jim (Dundee West) (Lab) 

† Marsden, Mr Gordon (Blackpool South) (Lab) 

† Morris, James (Halesowen and Rowley Regis) (Con) 

† Mowat, David (Warrington South) (Con) 

† Newmark, Mr Brooks (Lord Commissioner of Her Majesty's Treasury)  

† Reckless, Mark (Rochester and Strood) (Con) 

Simpson, David (Upper Bann) (DUP) 

Stride, Mel (Central Devon) (Con) 

† Swinson, Jo (East Dunbartonshire) (LD) 

† Tomlinson, Justin (North Swindon) (Con) 

† Watts, Mr Dave (St Helens North) (Lab) 

† Wood, Mike (Batley and Spen) (Lab) 

Adrian Jenner, Committee Clerk

† attended the Committee

Second Delegated Legislation Committee 

Tuesday 3 May 2011  

[Hugh Bayley in the Chair] 

Draft Patents County Court (Financial Limits) Order 2011 

4.30 pm 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey):  I beg to move, 

That the Committee has considered the draft Patents County Court (Financial Limits) Order 2011. 

It is a great pleasure to serve under your chairmanship, Mr Bayley. I am not sure whether you are responsible for the musical entertainment that we have in the background, but I am sure that it will not delay our proceedings. 

The order is part of a package of measures to improve the patents county court. As my colleague in the other place has explained, the Government’s purpose is to make it easier for small firms and entrepreneurs to navigate legal processes, giving them more time to concentrate on business activities. We often hear that intellectual property litigation is expensive and time consuming. For many small businesses, that can be a barrier to justice. Indeed, a 2006 study for the European Patent Office found that the cost of IP litigation for UK small and medium-sized enterprises was roughly three times higher than elsewhere on the continent. If it costs too much for small businesses to litigate, they will be unable to defend their rights, and we cannot have a legal system with such barriers. 

A reliable IP enforcement regime must be accessible in the truest sense, not simply in terms of access to finance. Lord Justice Jackson recognised as much in his comprehensive and independent review of civil litigation costs last year. His report, which was commissioned by the previous Government, recommended that we should improve access to justice, reduce the cost of civil litigation, and ensure that costs and remedies are proportionate. 

The patents county court was established in 1990 to provide a cost-effective forum for IP cases. It has jurisdiction over disputes in relation to IP rights and should hear less complex and lower value cases, and offer an alternative to the High Court. Until recently, the procedures and the costs it awards have been the same as in the High Court. The damages it awards remain the same as in the High Court, and it is that that we wish to change. The order will set a maximum limit of £500,000 that can be awarded in the patents county court. Without that limit, an SME with a legal case worth less than £500,000 may face litigation in either the patents county court or in the High Court and not know the financial risk it faces. However, the order means that the same business will have certainty that the patents county court is the appropriate forum and that there is a limit to its financial risk. 

The principle of a damages limit has been examined through numerous consultations, including Lord Justice Jackson’s review. The patents county court judges and senior judiciary are eager to see that limit introduced, and legal practitioners and court users recognise its usefulness. A host of businesses and associations support the move. A recent Intellectual Property Office consultation found that 77% of respondents supported the £500,000 limit. 

I reassure the Committee that, assuming the order is passed, we will monitor the effectiveness of the damages cap, with a formal review in 2014. The order addresses the need for a damages limit for patents and design cases within the jurisdiction of the patents county court. Similar work is in hand to take forward comparable changes to other IP rights, such as trademarks and copyright. 

The measure is consistent with our broader reform effort. For example, we have already simplified procedures for cases heard in the patents county court and introduced a recoverable costs cap of £50,000. In a court where litigants can represent themselves, those changes have been warmly welcomed. As Lord Justice Jackson recognised, a further possible positive consequence of these reforms is that they may increase the availability of IP insurances to SMEs. At present, they are not widely available at affordable prices. 

We all recognise that litigation around intellectual property is complex. These changes on their own are no panacea, but they will help businesses and entrepreneurs who are seeking to innovate, providing clarity about legal processes, certainty over risks and giving them confidence that they stand on an equal footing with financially stronger companies. The bigger picture, of course, is that innovation is essential to economic growth, which is the abiding goal of this Government. I commend the order to the Committee. 

4.34 pm 

Mr Gordon Marsden (Blackpool South) (Lab):  It is a great pleasure to serve under your chairmanship, Mr Bayley, and to see you for the second time today during such proceedings. I thank the Minister for his clear, specific and precise comments on the order. 

We do not intend to divide the Committee. As the Minister rightly said, the process and the report were initiated and commissioned by the previous Government, although members of the Committee looking through the explanatory memorandum will see that the order has had a lengthy gestation period. It follows the 1987 Oulton committee report and the 1996 Woolf reforms, coming through to 2010. Although not quite of “Bleak House” proportions, we should nevertheless try to bring the process to some sort of conclusion. I hope that that will be entirely possible through what is said today. 

Labour Members strongly support any initiatives that will reduce the burden on SMEs. We commend the Federation of Small Businesses for the very strong role it has played in that area. The need to reduce such pressures was reinforced by my right hon. Friend the Member for Doncaster North (Edward Miliband), the Leader of the Opposition, at the FSB conference. As the Minister rightly pointed out, the measure is warmly welcomed across the board in the legal profession and all across the block. 

Although I do not intend to divide the Committee, I would like to press the Minister on the principle behind the order. Edison’s famous quote was about invention being 99% perspiration and 1% inspiration. I hope that there will not be too much perspiration caused by the questions that I put, but I would like to ask one or two. How do the Minister and his officials see the review process working in practice? I have one or two specific questions on that. 

The order is delegated legislation, and there was considerable discussion about the level at which the financial limits are set. The current limit of £500,000 seems to be strongly acceptable to the broad majority of respondents. However, time and inflation wait for no one, and although we have been in a period of historically low inflation, what mechanisms or procedures does the Minister envisage for uprating the limit? Will the consumer prices index or the retail prices index be used? At some point, that might become a significant factor—who knows? 

I would like to ask a little more about the review process and what opportunities there will be to involve the industry in the monitoring process. Does the Minister plan to have a standing committee of the organisations involved in the review process? We all know that legislation, whether considered on the Floor of the House or by a Delegated Legislation Committee, cannot always have the effects, and not always the speedy effects, that we might wish it to have. It would be appropriate, and in keeping with the spirit of what the Government and the Opposition have said about the involvement of business, for industry to be closely involved in the process, so I would like more detail—if not verbally today, then perhaps in writing—on how he intends to involve it. 

The Minister referred specifically to the initiatives of small firms and entrepreneurs, which brings me to another question: how will those entrepreneurs who do not constitute a small business, but are self-employed or part of an unincorporated business, fit in? 

Finally, to what extent will the impact assessment be looked at again when the review takes place, which I think the Minister said will be in 2014? With those comments, I repeat our broad endorsement of the aims of the order and ask the Minister to respond to my specific points. 

4.40 pm 

Mr Davey:  I thank the hon. Gentleman for offering the support of the official Opposition for the order. As he said, the order developed over a long period, but as I mentioned, it results in particular from the review by Lord Justice Jackson, which was begun by the previous Administration. I hope that we will reach the end of the line and that we will not have to continue through the corpus of Dickens novels before we arrive at the end. 

The hon. Gentleman was correct to say that the order is part of our agenda of reducing burdens on SMEs. It is a modest part, but the Department for Business, Innovation and Skills is taking a range of measures to meet that agenda. We are grateful to the FSB for its support in that process. 

The hon. Gentleman wanted to know about the process of review, which is something about which we

asked during the consultation. The respondents and the judiciary were keen for us to have a review, and they liked the proposed three-year period. I mentioned that we intend to hold a review in 2014. That is the minimum deadline expected under Better Regulation Executive guidance. We are not delaying it, so we will not have a repeat of the “Bleak House” process. We will have the review at an early juncture, which deals with the thrust of the hon. Gentleman’s other remarks. Although we very much expect and hope inflation to be low during that period, a three-year review would be timely. 

The hon. Gentleman asked how we will involve people in that review. Clearly, the judiciary will be involved. As active participants, members of the judiciary have been extremely helpful in the process of reform and consultation. We will want to monitor closely the effect of the limit with the judiciary, not least because judges might push cases to the High Court, and we will want to know how they feel the system works in practice. That will not in any way exclude business organisations from making their voice heard. 

I am not sure whether we will set up a standing committee, as the hon. Gentleman invited us to do. Given the time that we spent reaching this point and the level of consultation, we need not engage less over the next three years. People will at least know that a review is not far off, so we can see whether the £500,000 limit is right. The hon. Gentleman was gracious enough to confirm that the value of that limit was widely supported by respondents. 

The hon. Gentleman asked where entrepreneurs, unincorporated businesses and sole practitioners fit into the regime. They fit in precisely and they will not be excluded at all, so that is not a problem. On the impact assessment, he will understand that the order is deregulatory. There is not a huge amount in it, in the sense of scrapping regulations, but it will help small businesses because they will not face the risk of financial exposure should they take up such cases, and we hope that they will be more active in doing so. 

Before the sitting, I tried to get a feel for how active SMEs are in member states that do not face the high-cost regime that we have in this country and whether they are more active in pressing their rights. We have to exercise a degree of caution about any such figures because it is difficult to make exact comparisons between different jurisdictions and traditions. I am told, however, that in 2007 the German EU presidency had a working party on intellectual property that indicated that, in the lower courts in Germany, on average 600 or more patent cases were filed each year, and in France 450 or more, whereas the corresponding figure in the UK was around 75. That indicates that the high-cost regime prevented small firms from finding justice and being able to enforce their rights. 

In the consideration of the importance of competition and driving innovation for growth, the order can be seen as modest but important. On that note, I commend it to the Committee. 

Question put and agreed to.  

4.45 pm 

Committee rose.