Written evidence submitted by the Alliance Against IP Theft

· The Alliance Against IP Theft welcomes the decision by the Business, Innovation and Skills Select Committee to hold an inquiry into the Independent Review of Intellectual Property and Growth conducted by Professor Ian Hargreaves and the Government’s response to that Review.

· Hargreaves was given a clear remit to "develop proposals on how the UK's intellectual property framework can further promote entrepreneurialism, economic growth and social and commercial innovation."

· Given the urgent need to promote economic growth, the Alliance Against IP Theft (the Alliance), believes that the findings of the Review and the Government response must be evaluated in exactly those terms.

· Whilst we have no desire to provide detailed comment on how the Review was conducted, there is a sense that the Review had decided before it began that reform was required. There seemed to be a pre-emptive attitude that IP law was a barrier to innovation and growth, when it is clear from all available economic data, and the significant innovation in the last few years in business models, that this is not the case. Please see our submission to the Review for further information.1

· We appreciate that the Committee is seeking new comment, as opposed to that which organisations have already submitted as part of their response to the Review. Therefore, the Alliance is limiting its response to the following specific issues:

Absolute economic growth

The Alliance is concerned that the findings of the Review and the Government response have become too focused on promoting relative growth. By that, we mean that whilst the reforms proposed may stimulate growth in certain companies, sectors and industries, the consequences of the proposals for others has been glossed over. There is little benefit to the overall national economy of certain sectors or companies experiencing 100% growth as a result of favourable policies if at the same time these policies prejudice other sectors and cause even a 0.1% reduction in the output of existing IP rich industries, which would lead to an overall reduction in economic output. Therefore we think the Review and Government needs to be clearer about the overall impacts of their proposals, and demonstrate how the recommendations will deliver a real net increase in economic output.

Risks to growth

The Alliance is also concerned that risks to the new ‘potential’ growth espoused by the Review has been underestimated. The growth of new businesses is as impacted by issues such as finance or taxation policy as it is by IP policy – ‘fixing’ IP policy may not lead to an increase in economic growth as there are numerous other reasons why businesses succeed or not such as access to finance, availability of skilled employees and employment law. At the same time the risk the recommendations expose to existing businesses will impact on investment decisions now. In this scenario, not only would the UK see lower growth from existing businesses, but the substitution effect might fail to materialise. We are therefore concerned that the Review has placed too much emphasis on the impact of IP policy reform on innovation and not enough on other factors.

Branding and counterfeiting

The Review appears to have become nearly entirely focused on copyright. The Review should have placed more emphasis on the importance of branding and of trade marks in the digital economy as these are as central to consumer confidence, strong competition and the effective commercialisation of new business ideas. Branding is as powerful in the online world as it is in the physical world. UK-generated brands play a key role in the economy and in the UK’s global competitiveness and yet this is not acknowledged or even mentioned in the Review. To explain this omission by claiming that trade mark policy is "fit for purpose" is inadequate. The UK continues to lag behind other economies in not providing business with effective tools to tackle the parasitic copying of packaging of consumer products, for example. Equally it is disappointing that the harm to consumers caused by counterfeits was not highlighted and there was not a clearer analysis made of the potential benefit of greater enforcement in this area.

Design

Whilst the Government is saying how important design is to the UK economy (£23 billion invested in 2009) it is also suggesting that design protection could be diluted. There is concern that the Government wants further research on whether to eliminate national unregistered design rights and bring UK unregistered rights in line with EU. This would mean that 99% of the UK’s 232,000 designers who do not register their rights (only 2111 did last year), would have their protection cut from 10 to 3 years. This is unfair when comparisons are made with a songwriter or artist who will get copyright protection for 70 years after their death. European designers also benefit from unfair competition law which kicks in and runs alongside the rights so once the 3 year period is over, there is still an available remedy. In the UK designers can only rely on passing off which is ineffective and for small businesses who find it difficult to provide evidence of consumer confusion.

Extension of copyright exceptions

We are disappointed to see the Government agreeing with the Review that the UK should seek the widest possible exceptions to copyright. We do not agree with the Government’s conclusion that the system of copyright exceptions requires a radical overhaul, but instead believe answers lie in, collectively, doing more to raise awareness of the importance of IP and the value, both financially and culturally, that it brings to the UK. Transparency, education and licensing are key to this, not the addition of new exceptions which, in some cases, look to impose a ‘one size fits all’ solution to different sectors with different business models. For example, the recommendation to introduce a blanket format-shifting exception will create consumer confusion about how it applies to different copyright industry sectors and has the potential to harm existing business models where format shifting has an economic value built in to current commercial propositions. For further information on this please see the submission from the British Video Association.

In addition, the Hargreaves proposal to widen exceptions to allow data and text mining, both within the current European framework and eventually through amending European law, is an unnecessary, blunt instrument. Licensing models which are highly sensitive to the needs of users are already in place and publishers strongly support those seeking to access data for research purposes. An exception to allow untrammelled copying would expose works to copyright abuse. The Publishers Association will be submitting to the Committee’s inquiry with further detail on this issue.

Evidence and the economic impact assessment

The Review and the Government response make significant commitments to an evidence based policy making process for IP policy. Yet the economic impact assessment provided by the Review makes assumptions on the basis of questionable and, in some cases, a lack of evidence.

1. It states that technological innovation and markets are restricted when it is illegal for consumers to format shift legally purchased content. However, no evidence is provided to support this statement and it fails to take into account the innovation and new markets that have been created which absolutely allow consumers to format shift legally purchased content using existing licensing.

2. Contradictory statements are also made in relation to whether or not the introduction of such an exception would require ‘fair remuneration’, as allowed for under the Copyright Directive. On the one hand it comments that consumers already format shift and therefore no levy would be required as its introduction would not distort the market, but then on the other it states that content industries would benefit as they ‘should experience increased demand as output can realise higher value’. Both cannot be the case.

3. The Alliance also believes the calculations used by the Review to reach the conclusion that the growth impact of the introduction of a format shifting exception would be potentially £2 billion are highly suspect. Simply halving what Apple made from the iPod over the past decade as the basis for this figure is poor economics and should not be used to justify such a significant change to UK law.

4. It is also unclear why the Review is so certain that the UK is better placed than other EU economies to benefit from the predicted explosion in technological innovation which they believe would accompany a private copying exception. Many other EU nations have had such an exception in place for years but seen no such accompanying growth and indeed less innovation than the UK.

5. Even given our conditional interest in a Digital Copyright Exchange, we recommend the Committee evaluates whether the Copenhagen Report, used by the Review to make the economic case for a Digital Copyright Exchange, is an appropriate piece of research to use in this context. This report does not look at how changes in the UK market can improve growth and productivity, but is about cross-border market unification of digital services. The assessment also ignores the economic impact or risk to innovation from a Government inspired intervention and the creation of a monopoly. It is possible this could lead to higher prices to users of licensed material and consumers than if companies were able to licence in competition in competition to each other.

6. The evidence base to support the introduction of an exception for parody appears equally questionable. It is stated as fact that a reduction in moral rights will have no effect on a creator’s incentive to produce new works but with no evidence to support such an assertion. It also paints a curious picture of the state of British comedy and its success, or otherwise, on the global stage.

7. The Review Team’s selective discarding of evidence provided to the Review is contrary to its intention to have policy made on the basis of evidence. Abundant evidence was supplied to the Review that shows that economic growth and effective enforcement are linked, and so economic growth in the UK can be linked to better enforcement of IP rights. To simply discard this evidence because it did not appear to fit with the Review’s own perception of the markets was extremely disappointing.

It is a positive step that the Government has said the IPO will be providing guidelines on transparency and methodology in relation to evidence that will guide its development of IP policy. However, any policy recommendations proposed by Hargreaves and accepted by Government must, as they are consulted on, be accompanied and led by a similar evidence base rather than the broad and sweeping assumptions found in the Hargreaves review economic impact assessment and repeated in the Government response.

Summary

While we do have concerns with the Review’s findings and the Government’s response, as expressed above, there are elements of Government policy in relation to IP which we welcome. In particular, we support the publication of the new IP Crime Strategy and the commitment to more joined-up thinking in this area. The strong commitment to support UK businesses seeking to exploit and protect their IP internationally is to be commended.

Continuing investment in IP rich industries relies on an ability to monetise and protect IP rights. The Government needs to understand better the importance of IP to economic growth and the economic consequences of weakening the IP regime at a time when the economy is so delicately balanced.