Business, Innovation & SkillsSupplementary written evidence submitted by the Forum of Private Business

Overall view of the Hargreaves Report

The Forum recognises that Professor Hargreaves was working within tight guidelines but we did feel there was an imbalance of focus towards issues around copyright (as opposed to patents and registered designs) as well as a slight imbalance towards helping firms to innovate and break into an area dominated by larger rivals, instead of the protection of their IP. Both are of course important but we would have liked to have seen a little more thought given towards the affordable detection and prevention of IP infringement. After all, it will be small firms, not small bands, which lead the economic recovery of the country. We do however welcome the fact that small businesses are kept in mind throughout the document, rather than segmented into a specific chapter.

Intellectual Property is important to Growth

We agree with Professor Hargreaves but would note the wider economic conditions are more important. Issues such as accessing finance, a competitive tax regime and a good skilled workforce will all support greater growth in IP-rich SMEs. At present, the cost of employment and manufacture in the UK has led to innovative designs and products being produced under licence outside the EU, meaning companies transfer a significant amount of knowledge to other countries without any control over how that knowledge is used.

A Digital Copyright Exchange

This sounds a deceptively simple idea but if it can be made to work then in principle it has our full support. Small businesses can access what they need more simply and more quickly, with a clear idea of what fees are involved. This will lead to less infringement and allow the law to come down harder on those that continue to do so, as there would be little excuse for not accessing a single, simple, online, well-publicised and free register. On that last point, we do believe any DCE should be free at the point of use and further, would prefer the Government—or the IPO—to run it, rather than a big player in the private sector.

Collecting Societies

Playing music in the workplace is an issue our helpline receives a large number of calls about. Currently, businesses no matter what their size must obtain a license from both the Performing Rights Society and the PPL if they play music at their premises. Many small businesses are unaware of the law in this area and are confused as to why they have to pay for a single license at all, let alone two. Even more worrying are the reports of the aggressive nature in which PRS for music try to collect their fees. There need to be more transparency and we welcome the Government’s decision to publish minimum standards for voluntary codes but this will only produce change if the ombudsman has more power to enforce the codes.

We believe that the Copyright, Designs and Patents Act 1988 needs to be reformed. The way people consume music has dramatically changed since 1988, with developments in digital technology and increasing levels of online consumption. We believe small businesses should not have to pay for a license unless they are playing music for their customers’ benefit. Two test cases in court concluded that “workpeople are an audience” but we believe this should be reviewed. Businesses that must pay for a license should not have to pay for two licenses. There should be some form of coordination with the money split by the collecting societies, rather than businesses charged twice.

Case study 1

Forum member Tony Wade owns the Otley-based Trade Labels Ltd, which supplies to the printing industry. After receiving a call from the PRS telling him he must pay for a license he investigated and found he does not have to pay. “Apparently, because only one person can hear the radio, we don't have to pay but I can't explain why,” said Mr Wade. “The system is completely confusing. When they initially called there was the assumption that we would have to pay. I can only presume they are geared towards getting the maximum amount of money they can. I knew nothing about an ombudsman. I had never heard this was available, nor did any other business I've discussed the PRS with.”

Case Study 2

Business owner Adam Aaronson is a glass artist and has a studio based in London. He has recently received calls from the PRS for Music.

“I have a number of issues about PRS for Music and the misleading and unhelpful manner in which they operate in parallel with PPL. I have recently become aware that I needed a PPL licence as well. I particularly object to the fact that PRS do not point out to people that they might need a PPL licence, whereas PPL do point this out to people. Given that it is legal for one of these two licensing bodies to surcharge a company that has one and not the other, it is almost a form of entrapment not to point out the possible requirement. As one of the founders of Anti Copying in Design, I am very concerned to ensure protection of copyright, but this is a system that has gone mad and certainly needs much more regulation than it seems to be getting. It is big business preying on small business. It was only when I asked if there was an ombudsman that the operator directed me to a page buried in their website that shows the code of practice.”

Adapting the Patent and Design Frameworks to Changing Circumstances

Although the report states that the patent system is broadly working well, this is not always the experience of our members. It remains costly to get a patent and when it is achieve, many businesses feel that a large company can still get their idea anyway.

Case Study 3

A chemical manufacturer has various utility patents but it has been a struggle to get some of them accepted. The Managing Director spends a lot of time looking through catalogues of competitors to make sure people aren’t selling patented products without permission. Then the company has to call firms and get them to take their products out. This is very resource intensive. Since 2004 they have spent £56,000 on maintaining all their European patents. This does not include the lawyers’ fees, patent applications etc. They estimate to have received about £15,000 back for these. They also go through a company that manages all the patents, so some of this cost will be fees for them. A European patent would really help as there are different fee structures for each country—hence why small firms have to go through an agent.

EU Patent Court and Patent System

We welcome an EU Patent Court but need to ensure it is properly introduced. To cause further delays with patent backlogs would be a barrier to growth, so whilst we are frustrated with delays to an analogous EU system (40 years and counting) we want to see it working when it is delivered.

However, it is also important to remember the wider international context. Whilst the Patent Court will help firms to grow in the EU by allowing them to better protect their IP, the Government’s ambition is to increase as a proportion the amount of export with countries outside the EU. We need to ensure an emphasis on supporting IP in the emerging economies where the real economic prizes are.

Effective Enforcement Requires Education, Effective Markets, an Appropriate Enforcement Regime and a Modern Legal Framework

We agree with Professor Hargreaves that ineffective regimes are worse than no regimes at all, as they appear to offer certainty but do not. We recommended in our submission stronger enforcement of UK patents and intellectual property overseas. The first a business knows about their intellectual property being abused is when a customer asks them why their product is more expensive than a competitor’s. Time and resource issues to enforce – government backed institution can do this better, particularly as the Coalition has indicated that UK embassies should do more to help UK exporters. Agreements like the ones we have recently signed with Mexico and Nigeria can be of enormous help.

We also support the renaming of the Patents County Court to the Intellectual Property County Court as it better defines its role and standardises the landscape for small business.

Helping SMEs to Realise the Potential of IP

The problem for many of our members is that they have a vague idea that IP is defended by a law (criminal and not civil) and that it would be defended by the normal legal system. Some do not understand that images are subject to copyright and we have had problems with people paying for websites which contain copyright images put on by the website maker and not realising that they are responsible for this infringement.

Whilst we encourage business to protect intellectual property and to avoid infringing anybody else’s, as well as outlining the differences between copyright, trademarks etc, there is only a certain level of support we can provide. We would signpost businesses to the IPO on specialist matters. Therefore it is of great importance that the support and advice are simple and easy to access. Whilst it doesn’t necessarily have to be in one place, any government advice should be consistent.

The Hargreaves report survey of small businesses found that two thirds of SMEs indicated that they would be interested in having access to an intermediary who can provide basic advice on IPR (applications, maintenance, licensing, disputes or enforcement) in place of a legal advisor or attorney. One quarter agreed that “there are too many services available—it’s difficult to choose the right one.” Two fifths “you cannot tell which services are reliable or trustworthy.”

Proposals for a one-stop shop of regulatory, financial and legal advice would be welcome but of most use to small firms with little experience of IP. For larger businesses or those more versed in IP issues, more specialist, sector specific advice would be needed. Further, the IPO—I have no direct knowledge of this but this is what our members are telling us—are constrained in the assured advice they can give and it’s that consistency that would help some of our members. Professor Hargreaves saw an opening for a new kind of intermediary but there were no exact details.

HMRC’s Lack of Clarity over Use of Research and Development Tax Relief

The Forum fully supports R&D tax credits as well as the Patent Box. The measures announced in the Budget to extend the rate of relief for small and medium-sized enterprises (SMEs) were particularly welcome. This move, plus the decision to remove the NIC/PAYE cap and the current minimum spend amount of £10,000, will further encourage SMEs to innovate, especially start-up firms.

We have two issues over R&D Tax Relief. Firstly, we don’t think it is widely enough known about by entrepreneurs. Further, among those that do know about it they do not think it is applicable to their business. So for us there is an issue with HMRC awareness raising and therefore a need to more clearly publicise the extent of R&D Tax Relief. A Deloitte Survey, Entrepreneurship UK: 2011–12—Is collaboration the key to success? suggested 12% of entrepreneurs hadn’t heard of the scheme and 46% had heard but felt it was not applicable to their business.

Secondly, we have concerns over the consistency of advice from HMRC. Where companies have heard and taken part in the scheme then for the most part the process is easy. However, complaints to us from members are around the advice they are given on eligibility to claim for R&D tax relief by HMRC over the phone, only to be told that this was not the case when tax returns were submitted.

We would also be interested to learn whether research done into existing patents can be classed as research within this tax relief?

A Lack of Support within the UK’s Public Procurement Process?

We feel the current public procurement system is designed against innovative companies who could provide a unique service or product that provides a solution to the problem.

Procurement processes are not just bureaucratic they are in most cases restrictive:

Businesses with less than three years accounts cannot bid for work.

Call for tenders advise on detailed specifications rather than an output focussed model.

The model for evaluation is weighted towards bureaucratic compliance and is not always transparent (sometimes inessential requirements such as use of ICT, diversity of the workforce, environmental policy are more important than doing the job).

Funding is restrictive—pots of money are allocated on a very specific basis eg Funding could be allocated for improving signage on a high street rather than offering funding on the basis of increasing footfall and the image of the area.

Framework agreements and bundling contracts do not allow for small pilots of innovative solutions.

9 November 2011

Prepared 26th June 2012