Written evidence submitted by the Initiative for a Competitive Online Marketplace (ICOMP)

1. Introduction

1.1. The Initiative for a Competitive Online Marketplace, ICOMP, welcomes this opportunity to offer this submission of evidence to the Business, Innovation and Skills Select Committee’s inquiry into the Hargreaves Review of Intellectual Property and the Government’s response to that Review. ICOMP members support efforts to advance core principles that we believe are essential to the growth of a vibrant, competitive online ecosystem – including strong respect for intellectual property rights (IPRs). IPRs form the basis for much of the investment needed to produce compelling content that is made available by authors, publishers, broadcasters, designers, musicians, artists and other creators online – making strong, balanced IP protections essential to a diverse, competitive, and sustainable online marketplace.

1.2. ICOMP has been closely following this IP review since it was announced by the Prime Minister in November 2010, and we are grateful to have had prior opportunities to present our views. Most recently, in March 2011, ICOMP filed a submission responding to the Government’s call for evidence, in which we emphasised the importance of maintaining a harmonised IP framework across the EU and noted our concerns with regards to any changes in the UK IP framework that would prevent creators from realising the commercial value of their efforts or "would make money for one type of stakeholder while depriving other stakeholders of the ability to make a living."1 While we support several conclusions contained in the Government’s response to the Hargreaves Review, certain recommendations set forth in that response pose a risk, in our view, of significantly diminishing existing incentives for high-quality content creation in the UK and undermining the Government’s broader goal of promoting online content and commerce.

2. About ICOMP

2.1. ICOMP has a broad and diverse membership of more than 70 companies and organisations brought together by our common interest in healthy online competition and sustainable growth of the Internet. Our membership includes content owners, ISPs, search engines and other online intermediaries, technology companies, advertisers, and publishers. Our members2 include small start-ups, large multinationals, and a great variety in between including, here in the UK, the Premier League, the online news navigator OneNewsPage, and the vertical search and price comparison service Foundem, among other UK businesses. We seek to advance core principles that we believe are essential to such growth, including transparency, privacy, competition, and respect for intellectual property rights.

2.2. Since its founding in 2007, ICOMP has devoted considerable resources to exploring the role of IP rights in promoting a sustainable and competitive Internet. Most recently, we authored a white paper on Intellectual Property on the Internet: The Search for Sustainable Business Practices, a copy of which is attached to this submission.

2.3. ICOMP is funded by member contributions as well as sponsorship from Microsoft. Burson-Marsteller acts as the secretariat. For further information please visit our website – www.i-comp.org.

3. ICOMP response to the recommendations

3.1. We welcome the UK Government’s recognition that IP is "the foundation for a substantial portion of the UK's innovation and economic growth" and "intensely valuable to the UK." As we noted in our March 2011 submission on the Hargreaves Review, "[a]n IP system that rewards creators should not be seen as a ‘barrier’ to our digital economy but rather a key ingredient of its growth." We also agree strongly with the Government’s conclusion that a 21st century IP regime must both respond to the challenges posed by technology and seize the opportunities for growth that technology presents.

3.2. We also welcome the Government’s recognition that piracy remains a serious problem and its commitment to devote further public resources, including potentially police resources, to combat online piracy (especially where it is undertaken by criminal organisations or otherwise on a commercial scale). This commitment, like the Government’s intention to explore ways to further support SMEs looking to access the IP system, will undoubtedly help to encourage more innovation and competition online.

3.3. Despite these and other helpful proposals, we are concerned that the Government’s response, in calling for a host of new limitations on IP protections, fails to recognise the degree to which the existing IP rules promote a diverse and sustainable Internet economy. Specifically, the response overlooks what we believe to be among the greatest challenges to IPR owners online: that there increasingly is a breakdown in the "virtuous cycle" of the Internet that otherwise would benefit creators, online services and intermediaries, infrastructure providers, and consumers alike. Instead, there is a significant risk that, if certain of the proposed recommendations are adopted, companies with market power in key sectors of the online economy will have even greater ability than they do today to exploit this market power to capture the online value of content created by others and thereby further entrench their dominance.

3.4. This concern is especially pronounced in the areas of search, online advertising and related markets. As Ofcom has observed, "The main way that consumers discover content on the web is via search engines."3 This role makes search the gateway between consumers, on the one hand, and web publishers, content creators and brand owners, on the other. Search is the principle means by which many UK content creators are found online today, while online advertising is essential to the ability of these content creators to commercialise their content. Given the importance of search and search advertising to IP holders, it is noteworthy that in the UK, a single company – Google – holds an overwhelmingly dominant position in these markets. In the absence of measures to address this market imbalance, the Government’s efforts to promote new IP-driven online businesses and business models are at risk.

3.5. Similarly, the response proposes to expand existing copyright exceptions, but is silent as to how Government will ensure that these reforms serve to benefit a multitude of companies rather than simply reinforcing the dominance of a few existing firms. The proposed new orphan works regime is a case in point. ICOMP strongly supports legislation to facilitate online access to orphan works, and we have actively participated in discussions at the EU level in support of solutions that advance the public interest in expanding user access and spurring innovation.4 At the same time, it is critical that any such solution promotes competition by ensuring truly open access to books through multiple channels, including multiple private-sector channels. In this regard, we note that the Government’s response does not address whether the proposed orphan works legislation would require parties that have digitised orphan works without the prior authorisation of the IP owner to provide access to these unauthorised copies to third parties on fair, reasonable and non-discriminatory (FRAND) terms. ICOMP believes that current experiences of large scale book scanning projects (in particular that carried out by Google) demonstrate that such access should be a fundamental principle in relation to orphan works and an essential safeguard for online competition.

3.6. Despite rejecting proposals for a new "fair use" copyright exception, the Government nevertheless gives strong support for a re-opening of the exceptions to copyright in the current EU copyright acquis. Going forward the Government has announced that it will actively lobby at the EU level for "further flexibilities" in the EU copyright regime. If other Member States do so as well, there is significant risk that a host of new proposed exceptions to copyright will be floated at European level. As with the fair use exception, these new holes in the copyright regime could be extremely damaging to the UK’s copyright-based industries. Furthermore, there is no evidence that existing copyright protections are a barrier to economic growth or innovation or that additional limitations on such protections are necessary to address any barriers that might exist. Unless carefully tailored and specifically targeted to address proven problems, additional copyright exceptions could end up benefiting certain dominant firms that are aggressively lobbying for these exemptions while undermining the ability of countless thousands of UK content creators to develop sustainable businesses.

3.7. As well as voicing support for new copyright exceptions on the EU level, the Government’s response states that the UK will move forward with a list of new copyright exceptions in UK law within the scope of the existing EU acquis (to quote the review, "the Government agrees . . . that the widest possible exceptions to copyright within the existing EU framework are likely to be beneficial to the UK."). These include a widened non-commercial research and library archiving exception, text- and data-mining exceptions, and a new exception for parody. As noted above, however, there is a lack of evidence that such exceptions are needed or that socially beneficial activity is not occurring in these areas due to the risk of liability under the current IP regime. Although the scope of the exceptions has yet to be determined, it seems clear that, if they are not carefully circumscribed, any positive impact of these exceptions could be outweighed by their negative impact on UK artists, authors, and publishers. Their impact therefore needs to be carefully assessed in advance.

3.8. With regards to the proposal to establish a new non-compulsory digital copyright exchange, to facilitate a digital market in rights clearance and to act as a source of information about rights ownership, further details are essential. For example, it has yet to be determined how its incentives will be structured for rights holders. The Government will hold further consultations on this topic before a report is published at the end of this year. These may be positive steps towards a more efficient system of online IP enforcement, but ultimately will depend on the structure of the exchange, where it is important for industry to be fully involved.

3.9. As we noted in our submission to the Hargreaves consultation, any change in the UK’s IP framework must not exacerbate the current lack of competition in certain online markets such as search and online advertising, as doing so would make it even more challenging for IP owners to monetise their content - and thus survive - online. We encourage the Government to review its response with this in mind, and to ensure that the reforms under consideration ultimately serve to promote a competitive and sustainable Internet and to preserve incentives for the creation of diverse and high-quality content.