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Grand Committee

Thursday, 13 June 2013.

Intellectual Property Bill [HL]

Intellectual Property Bill [HL]3rd Report from the Delegated Powers Committee

Committee (2nd Day)

2 pm

Relevant documents: 3rd Report from the Delegated Powers Committee

Clause 13 : Offence of unauthorised copying etc. of design in course of business

Amendment 23

Moved by Lord Clement-Jones

23: Clause 13, page 15, line 4, at end insert—

“35ZE Offences committed by partnerships and body corporate

(1) Proceedings for an offence under this Act alleged to have been committed by a partnership shall be brought against the partnership in the name of the firm and not in that of the partners, but without prejudice to any liability of the partners under subsection (4).

(2) The following provisions apply for the purposes of such proceedings as in relation to a body corporate—

(a) any rules of court relating to the service of documents;

(b) in England and Wales or Northern Ireland, Schedule 3 to the Magistrates’ Courts Act 1980 or Schedule 4 to the Magistrates’ Courts (Northern Ireland) Order 1981 (procedure on charge of offence).

(3) A fine imposed on a partnership on its conviction in such proceedings shall be paid out of the partnership assets.

(4) Where a partnership is guilty of an offence under this Act, every partner, other than a partner who is proved to have been ignorant of or to have attempted to prevent the commission of the offence, is also guilty of the offence and liable to be proceeded against and punished accordingly.

(5) Where an offence under this Act committed by a body corporate is proved to have been committed with the consent, connivance or neglect of a director, manager, secretary or other similar office of the body, or a person purporting to act in any such capacity, he as well as the body corporate is guilty of the offence and liable to be proceeded against and punished accordingly.”

Lord Clement-Jones: My Lords, in moving Amendment 23, I shall speak also to Amendment 24. Amendment 23 is very straightforward. Really, it is a question for the Minister: as regards the new criminal penalties that apply to registered design rights, why has Section 110 of the Copyright, Designs and Patents Act, “Offence by body corporate: liability of officers”, which ensures that company officers are liable if conniving or consenting, not been replicated here for registered designs? I could read out the relevant offence under the CDPA but I am sure my noble friend is familiar with it. However, it seems odd that everything else replicates what is contained in the CDPA for copyright but not the application concerning the liability of company officers. Considering that so much business is conducted through companies, it seems extraordinary that that provision is not included in the Bill.

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I see that there will now be a clause stand part debate. I am not surprised because this is clearly a subject that needs airing. Rather more controversially, Amendment 24 is an attempt to advocate the extension of criminal offences for infringement of unregistered designs. As we know, Clause 13 introduces a new criminal offence of deliberate infringement of a registered design right. While this is a welcome move, to be of any benefit to the vast majority of designers in this country, the Bill needs amending so that criminal sanctions also apply to the deliberate infringement of unregistered designs.

Design is of key importance to the UK economy. There are around 350,000 designers in the UK and UK businesses spend around £35.5 billion on design each year. The majority of the UK’s design community are lone, micro and SMEs, with 87% having fewer than 10 employees and 60% having fewer than four. Approximately 4,000 designs are registered annually in the UK and approximately 5,000 are registered in the EU. However, the great majority of designers rely on unregistered rights.

Each year, between 18,000 and 25,000 unregistered designs are lodged with ACID—which represents designers and was mentioned at Second Reading and in these proceedings—by its some 1,100 members. ACID’s design data bank does not add to any intellectual property rights but provides evidence of the date on which it received a design. It encourages designers to keep an IP audit trail from the seed of an idea to market reality, which provides essential evidence if designs are copied. Extrapolating from that figure of 1,100, it is therefore reasonable to assume that the majority of the UK’s designers rely on unregistered design rights, and on copyright of course.

Why, then, is the new criminal offence limited to infringement of only registered designs? Surely criminal sanctions need to apply to unregistered design rights as they apply to copyright, in order to have any real and lasting benefit for UK designers. The introduction of criminal sanctions for deliberate infringement of registered designs is a progressive step. This is the first time that criminal sanctions have mirrored copyright. While I accept that registration offers designers a longer-term and stronger right, unlike trade marks and patents, there is no extensive examination for registration, so design registration is a very different type of protection.

To register a design costs £60 per design. Regrettably for most lone and micro designers, the cost of registering every iteration of a design would be prohibitive. ACID receives between 18,000 and 25,000 designs annually, so it is clear that informed designers take their design audit trail seriously. However, to ask them to pay £60 would be a real barrier. The majority of ACID settlements have been based on unregistered design rights and the ability to provide a design audit trail held on the ACID design data bank. In its 2010 survey, 89.7% believed that design infringement was deliberate and blatant. In a further survey in 2012, 97% believed design infringement was deliberate and blatant. Given the cost, time and scale of opponents in the majority of these cases, deterrence against copying is critical. Extension of criminal sanctions to unregistered design

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rights for the majority of the UK designers would be a deterrent to persistent copying in much the same way as it is for copyright and trade mark infringement.

Criminal sanctions have been available for copyright infringement since 1862 and for trade mark infringement since 1994. Criminal prosecutions have been used sparingly, sensibly and appropriately. Copyright is a property right. A trade mark and an unregistered design right are property rights, as is registered design. Whereas persistent copying of the first two constitutes a serious criminal offence, punishable by up to 10 years’ imprisonment, which exceeds the longest sentence for ordinary theft, currently persistently copying designs is not a criminal offence at all. This is completely anomalous. Persistently copying a 2D drawing of a design or a design document can give rise to criminal liability under Section 107 of the CDPA, but when this 2D work is converted into a 3D design, unless it is protected as a work of artistic craftsmanship, which we have previously discussed, copying that 3D version would not be a criminal offence.

I fail to understand the policy decision behind this. Nearly all designs are copied from the 3D original, not the 2D drawing. How do the Government justify giving a higher level of protection to a 2D design brought than they to the 3D manifestation of that design? A telling point was made by designers when they gave an example of the scale of opponent in the three latest cases involving members of ACID. This demonstrates the inequality of arms between infringers and designers. For instance, one ACID member had a turnover of £50,000 and two employees, and its opponent in this infringement case a turnover of £8.7 billion and 78,000 employees. How on earth can a lone designer gain justice in those circumstances?

In a second case, an ACID member with a turnover of £500,000 and 15 employees was opposed by a major retailer with a turnover of £20.5 billion and 145,000 employees. I will not try the Minister’s patience much further—these are difficult cases, where members are seriously prejudiced—but in a third case, an ACID member with a turnover of £250,000 and 10 employees was opposed by, again, a major retailer with £3.4 billion turnover and 52,000 employees.

If anything, in these circumstances, there are quite honestly stronger reasons for imposing criminal offences for unregistered design right infringement than there are for infringing a registered design. I hope that the Minister can elucidate why this is not being done and perhaps give us some assurance that this is under consideration. I beg to move.

Lord Stevenson of Balmacara: My Lords, I am very grateful to the noble Lord, Lord Clement-Jones, for his lucid introduction of these two amendments. As he says, the first seems to deal with an error. We shall wait to see what the Minister says about it, but we would support it if he chose to take it further.

Amendment 24 picks up the debate where we left it on Tuesday. For most of the time we reflected on why the Government have adopted a two-track approach, although unfortunately in this case the tracks lead in opposite directions. In one there is no attempt to simplify the design rights field. The points made by

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Ian Hargreaves in his report, and picked up by many commentators, seem to have been ignored. I know that it is difficult to eliminate unregistered design rights; nevertheless the fact that we have five different ways of classifying or approaching these designs is still an irritant and source of confusion for the industry. It cannot be effective in terms of building up the creative industries more generally. It is something that will have to be addressed at some point, if it is not dealt with in this Bill.

The second track is this: why should one penalise on the registered design side but not on the unregistered design side? We will be opposing the question that Clause 13 should stand part in the next group, so my position on this is somewhat complex because I would not want to see criminal penalties brought into this area at all. That is not the right direction of travel and I will expand on that when I speak in the clause stand part debate. Parking that for a moment, I accept absolutely the points made by the noble Lord, Lord Clement-Jones. There is no substantive difference in how unregistered and registered designs are treated. The fact that they are registered does not in any sense imply approval or otherwise of them, or give them any status that is different from unregistered ones. The figures are exactly what they are. Most of the people who operate in these fast-moving areas, particularly fashion, tend to use unregistered designs, and those who do so have no real protection when there is a problem.

I was particularly struck by the points made by the noble Lord, Lord Clement-Jones, about the way in which the design copying process might happen. Most people would take the 3D representation of a design, not the 2D design. As he pointed out, the discrepancy in how such malfeasance is then approached by the courts is obviously a stark example of how the process is not working.

The noble Lord’s final point about parity of arms is one that we will return to. It is clear that there is a real danger in the creative industries these days that those with the resources can use the system to obtain advantage in the knowledge that people will not be able to defend their designs. Yet we rely on these individuals and small companies to provide the design initiative that is necessary to grow our creative industries. For all these reasons, I support the noble Lord in his amendments.

Lord Howarth of Newport: My Lords, consistency is not necessarily a virtue and I think that we should be very careful in the field of intellectual property. We legislate not simply out of tidy-mindedness or a desire to achieve a satisfying consistency by transferring rules and regulations that may have applied relatively successfully in one area to another. However, it seems that the noble Lord, Lord Clement-Jones, has made a strong case for consistency in the treatment of registered designs and unregistered designs in terms of the proposed criminal offence. I would be grateful if the Minister could give us his explanation.

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie): My Lords, before I begin, I hope noble Lords will allow me to take the opportunity to

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correct a reference made in my closing speech at Second Reading. In the context of wider points about infringement and the copying of designs, I spoke briefly about the right to license certain intellectual property rights. This is where rights become available to third parties for exploitation under certain conditions. As an example, I cited a figure of 2,097 applications to use designs in this way, but the example in fact referred to patents.

Now that that formality is out of the way, I shall turn to the substantive points that have been debated about the Government’s proposal to introduce a criminal sanction for the deliberate copying of a registered design. I begin by reminding noble Lords of the purpose behind the Bill, which is pertinent to the points that have been raised in the debate. Our objectives, as set out in the consultation on the designs legal framework, are: simplification; improving the services offered by the IPO; strengthening rights, including enforcement; and improving how disputes are resolved. There is clearly a balance to be reached in some of these objectives. Simplification cannot be achieved at the expense of loss of protections in the marketplace. Equally, strengthening rights cannot be at the expense of follow-on innovation.

2.15 pm

It was clear from the responses to the consultation that there was strong support for the UK unregistered design right. We were told that it is relied on when other forms of protection are impractical or inapplicable—for example, when a design is functional or consists of the internal shape or configuration of a product, or when a business produces a large number of designs but only a few will go on to make a profit. Although reducing the complexity of design law was a key element of the Hargreaves review, respondents felt that this should not be at the expense of the unregistered design right, which protects many designs produced by business in the UK. This is why the Government have chosen to retain the UK unregistered right.

Furthermore, the Government heard from stakeholders who made the case for ensuring that the balance is kept between ensuring that a designer is able to see an appropriate return on their investment and supporting follow-on innovation. Many rely on the ability to take inspiration from existing designs to engage in legitimate follow-on innovation. This is a delicate balance, which the Government had at the forefront of their mind when considering criminal sanctions—in particular, the profound difference between rights that arise informally, as is the case with unregistered rights, and those that do not, as is the case when they are available on a publicly accessible register.

I will now respond to the points made in relation to Clause 13, and specifically to Amendments 23 and 24 of my noble friend Lord Clement-Jones. Amendment 23 would insert into the Registered Designs Act 1949 an equivalent to Section 110 of the Copyright, Designs and Patents Act 1988 and Section 101 of the Trade Marks Act 1994. Broadly speaking, the result achieved under the amendment would be that where a body corporate or a partnership has committed an offence, any of its officers or partners involved may also be liable to be proceeded against and punished accordingly.

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I should like to bring to my noble friend’s attention Section 35A of the Registered Designs Act 1949, which relates to the liability of companies. This provision reflects Section 110 of the Copyright, Designs and Patents Act 1988 and was inserted into design law by Schedule 3 to that Act. This provides that where a company is proven to have committed an offence with the consent or connivance of a member of the company’s management, then it, too, will be liable and subject to appropriate sanctions. By accepting the amendment the Government would in part be duplicating a provision that already exists in designs legislation.

However, my noble friend Lord Clement-Jones makes an interesting point with regard to partnerships, which I understand are a common vehicle for business today. Section 101 of the Trade Marks Act also covers business partnerships, which is not replicated in Section 35A of the Registered Designs Act 1949. The issue of the effect on business partnerships is something to which the Government would want to give careful consideration.

Amendment 24 introduces a new clause to widen the scope of the proposed criminal sanctions to also include unregistered designs. For several reasons, the Government consider that this would, in practice, be problematic. First, the register represents a clear starting point for any prosecution. Registered rights can be readily accessed from the Intellectual Property Office and the EU designs registry websites. They include crucial information, including the design that is protected, the date on which protection commenced and whether it is still in force. This is not the case with an unregistered design right. Important information, such as what rights are claimed in an article, who owns those rights and when they came into existence—even whether those design rights existed in the first place—would all need to be assessed before any consideration of whether there had been deliberate and unlawful copying could begin. By contrast, a registration certificate makes it far simpler for the design owner to prove if there has been copying and for the authorities to weigh up the validity of this claim.

Secondly, the uncertainties surrounding unregistered designs, such as the difficulty of knowing when the design right came into existence, mean that it is more difficult for third parties to ensure that they are not infringing that design right. Therefore, against the backdrop of a threat of a criminal conviction, third parties are more likely to wait longer than necessary to be sure that the design is in the public domain before building on it, thereby extending the design right beyond its term and delaying potential innovation. This inhibiting effect is likely to be a particular problem in relation to functional designs, which the UK unregistered right also protects. As a functional result can be achieved only in a limited number of ways, the inhibiting effect on innovation is likely to be more serious or pronounced.

Thirdly, because the UK unregistered right affords protection to functional designs, this could cause difficulties in criminal proceedings where such designs are complex, as they well might be. For example, determining whether the interior of one alternator has been copied from the interior of another is a highly technical issue, probably requiring expert knowledge.

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This is not the sort of discussion the Government believe should be dealt with in the criminal courts, especially where any element of doubt means that the high standard of proof required is unlikely to be met.

A number of points were raised by noble Lords. My noble friend Lord Clement-Jones raised the issue of design application fees and said that they could be perceived to be somewhat expensive. In respect of fees, it is, I believe, a question of balance. By setting fees too low, we may encourage unscrupulous businesses to register designs that they have no intention of using in the UK, but which may be used to stifle a competitor due to its monopoly right. Design registration must be a considered purpose. For example, it is of no benefit to business or the IPO to have a register of designs that will never be brought to the market. However, we also understand the cost implications for lone designers and SMEs, so we will be looking at the fee structure further in the future. I hope that my noble friend is reassured to some extent by that response.

My noble friend also asked why we cannot use the date of lodging a design from ACID. While no doubt useful, I must emphasise that the voluntary lodging of designs with ACID is not to be taken as being the same as formal registration under the statutory scheme, as a registered design is. My noble friend also referred to SMEs, which do not tend to register their designs, and asked whether they would be disadvantaged. The answer is that those businesses that rely on unregistered design rights will not be disadvantaged by this proposal. This offence adds to existing protections for registered designs; it does not remove anything. Design owners, as now, will have to consider how best to protect their designs and in many fast-moving areas such as fashion will continue to rely on unregistered designs, which may better suit their business models.

My noble friend asked: why two-dimensional and not three-dimensional? The copying of 3D products is not the same as copying the original design document. Competitors therefore take inspiration from existing designs. Copying original design documents is closer to theft and that is why the law treats these matters differently.

The noble Lord, Lord Stevenson, asked why there was no attempt to simplify designs generally. I believe that was more of a general comment. Noble Lords touched on this issue in Committee on Tuesday. As I hope I made clear, we have retained multiple types of design protection in light of the strong calls for users to do just this.

In light of my response, I ask that my noble friend withdraws the amendment.

Lord Clement-Jones: My Lords, I found the Minister’s reply absolutely fascinating, although the intellectual logic of many parts of it escaped me. He gave a very helpful response to Amendment 23. It just shows that you can trawl through the Registered Designs Act and not find what you are looking for. However, I am impressed that the department found the relevant passages in there. I appreciate that an overlap exists except with regard to partnerships. It is very interesting that there is no reference to partnerships in the existing

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legislation. Partnerships are interesting bodies. Some of them have unlimited liability whereas others are limited liability partnerships. Therefore, some interesting drafting needs to be done in that regard because LLPs are quite akin to corporate bodies.

Therefore, how does the legislation work? If I divined from what the Minister said that there is intent to come forward with an amendment on Report, I would be extremely happy with that response.

Viscount Younger of Leckie: To clarify, we will give this very careful consideration but I cannot guarantee that we will move an amendment on Report.

Lord Clement-Jones: My Lords, guarantees in Committee are a luxury that Ministers cannot afford. I appreciate the words that he said.

It is a very different kettle of fish with Amendment 24. It is almost difficult to know where to start because the skittles of the argument fall in almost every single case by reference to copyright. On the problematic starting point, the registered design right is of course quite straightforward to prosecute because of the registration but copyright is not so easy. There are relatively few prosecutions for breach of copyright. There would be relatively few unregistered design right prosecutions if my amendment was accepted.

The important thing is the factual basis and establishing the facts. Of course, those prosecuting have the burden of proof on their arguments. That is where it starts from and it is analogous to copyright. There is no register of copyright. There may be one in the States but there is not one here. On the difficulty of knowing when something came into existence, not every 2D document has the date on it saying exactly when it was created and so on. There are matters of fact to be established. Again, it is very similar in copyright to unregistered design rights.

On the point about the inhibiting effect, that is absolutely splendid but I cannot see that that is any greater than would be the case with copyright in 2D. In some respects, you could argue that because 2D is more thematic than 3D, 2D has a much greater inhibiting effect because you can extrapolate from 2D into 3D to a much greater extent. When you spin off and think about software or things of that sort, much of which is covered by copyright, establishing the date, genesis and all those aspects of software creation is fraught with difficult issues but nevertheless people are entitled to the protection of criminal law. That means that those who cynically exploit copyright or design—copyright certainly and trade marks sometimes—are prosecuted.

The fashion industry is not much different from that. I feel quite strongly about this. The Minister mentioned that the fashion industry uses unregistered design but one must think about the economic issues associated with copying of designs in the fashion industry and the cynical way that rip-off retailers take advantage of the original designs by fashion houses and so on. That is an absolutely clear-cut area where the protection and deterrent effect of the criminal law would be extremely useful. I did not make the claim that the voluntary register with ACID would be the killer argument but this is all about evidence. Will it be

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possible to mount prosecutions using evidence of copied designs or infringement of unregistered designs? The evidence of a register, albeit a voluntary one, would still be extremely useful.

Finally, I am sure that the Minister can recognise that I am somewhat frustrated by the rather circular argument being employed here. The Minister said that this should not apply to unregistered 3D because 2D is not the same, being closer to theft—that is an entirely circular argument. I do not quite see that theft of a 3D design and theft of a 2D design are morally different. In many ways they are not different factually. Why should either of them be closer to theft? I find that a rather interesting argument to mount.

I hope that the Minister will reconsider this issue. It is a matter of huge importance to 350,000 designers, who would cheer the Minister in the streets and bear him aloft through Westminster if he acceded to this, which I am sure would be a great attraction to him. I very much hope that between now and Report he will reconsider but, in the mean time, I beg leave to withdraw the amendment.

Amendment 23 withdrawn.

2.30 pm

Debate on whether Clause 13 should stand part of the Bill.

Lord Stevenson of Balmacara: My Lords, that was a very interesting debate and prefigured what I am about to say about the question of criminality in this area. The noble Lord, Lord Clement-Jones, has made the arguments and is correct about them, and it is up to the Minister to make the best of if. If the industry is voting with its feet and adopting the unregistered design right as its mode of operation, and if it is true that there is a sense that having criminalisation in this area will improve the quality and quantity of our economic activity in it, it must follow logically that criminal sanctions should apply. However, I shall devote the next few minutes to arguing against exactly that proposition, but then, this is Committee.

Clause 13 introduces a new section into the Registered Designs Act, creating a criminal offence of unauthorised copying of design in course of business. It would apply in respect of UK-registered designs and registered Community designs. As I have said, we are concerned about the fact that this is being introduced as a criminal sanction.

There are two categories of offence, and I shall refer to that as I carry on with my remarks. One is about the making of a product by copying a registered design,

“so as to make a product exactly or substantially to that design”,

and the second offence is dealing in products that have been copied. Both will carry sentences of up to 10 years, which, as the noble Lord, Lord Clement-Jones, mentioned, is very high on the list of tariffs. The arguments for and against criminal sanctions for designs have been extensively aired over recent years, and we should bear in mind that levels of piracy have risen.

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To recap briefly, proponents of this move feel that the current civil enforcement is expensive for small innovators and that current civil sanctions are not dissuasive enough for large infringers. Opponents are concerned that unexamined IP rights are a dangerous basis for taking criminal sanctions and that there is a risk of stifling competition in useful products.

We understand the Government’s aim—I have just referred to it—but we worry about whether the proposal for criminal offences in general is the right tool for the job and, in particular, whether it is appropriate and proportionate and would deter those pirates and counterfeiters whose behaviour the public would, I accept, consider to be criminal. There is rather an important discrepancy here. Those who champion criminal sanctions are largely talking about unregistered design rights, which we have been talking about, and, of course, the huge preponderance of design rights are in that category, but the Bill is about only registered design rights and registered Community designs.

Registered design rights are better defined and have a much longer lifetime but, as we discovered, they are not in any sense better examined, so the proposed introduction of criminal sanctions may not work, and I would like to bring some particular problems to the attention of the Committee. The penumbra around a design, which is to be found in the uncertainties about how “exactly or substantially” is defined, makes it unclear what is or is not a criminal act. Unlike parallel trade mark or copyright offences, mere use, whatever that is, of an infringing product, even if no copying is involved, will become a criminal offence. Furthermore, the maximum sentence is very high for what, in fact, could be just a mere business misjudgment without deceptive intent.

The Bill introduces a defence as it states:

“It is also a defence for a person charged with an offence under this section to show that the person did not infringe the right in the design”.

However, the inclusion of the new section contributes to the bizarrely complex nature of the offence. For example, if the prosecution shows that D copies the design, and produces something exactly or substantially to that design, D can attempt to show that the product would not produce, for an informed user, the same overall impression as the registered design. These distinctions are hard for specialist lawyers to comprehend, let alone lay people such as jurors or magistrates. I will return to this point in relation to a recent case. Implied in what I have just said, of course, is the major concern that the courts that will deal with these cases will be criminal courts, which have no real experience at all in design law.

The defence that the registered design was not in fact copied raises difficult questions, as many of the cases on copyright infringements have shown. As already mentioned, there is a concern that the proposed provision could turn into a tool to be used by unscrupulous companies, to the detriment of UK designers. It is reasonably inexpensive to register a design, especially as there is no effective examination, and an unscrupulous company could apply to register designs it copied from a UK designer and then threaten that designer with criminal sanctions for producing his or her own

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design. The prospect of defending a criminal action might be enough to make the designer give in. What sort of fairness does that speak to?

I have some questions for the Minister on the thinking behind this move. Why does the Bill not state a requirement as to where the act occurs? On the face of it, there seems to be no reason why it should not cover making unauthorised copies elsewhere in the EU, where the acts would infringe an RCD, so the defence that it did not infringe the right in the design would not apply.

Secondly, why does new Section 35ZA define “registered” designs as including “registered Community” designs? Does this not leave open whether the offence might not be committed by copying, or dealing in copies of, a foreign-registered design, for example those with a Benelux registration?

Thirdly, following the implementation of the designs directive, the scope of registered design protection has been broadened. This gives rise to the situation where registered design right is now infringed by use of the same design in different products. Can the Minister confirm that, if a design is registered in relation to one type of product—for example, an image of Bugs Bunny on a mug—that design would be infringed if the person featured it on another product such as a pillowcase? If so, in the latter case, would criminal sanctions be applied?

New Section 35ZA(3) applies to dealers infringing products—both importers and traders. One might wonder how stockists of, for example, Samsung Galaxy phones might have behaved towards what were initially allegations made by Apple in respect of infringement. At that point, if the Bill had been enacted, dealers in those products would have faced criminal liability, and up to 10 years’ imprisonment, if they had made an incorrect judgment call as to whether the Samsung products they were attempting to sell would infringe Apple’s registered design. One can only imagine that this would have done serious—and, as it turned out, unnecessary—harm to Samsung.

New Section 35ZA(3) includes as a criminal act the use of a product in the course of a business and the stocking of the product for use. Does the Minister accept that the word “uses” is an unacceptably vague notion for criminal prosecution? What is the Government’s reason for removing the defence of reasonably believing that the defendant’s design was not an infringement—that the designs were different and would not produce in the informed user the same overall impression? This is often the crux of design infringement cases between competitors. It is worth thinking about what Judge Birss said in the Apple v Samsung case in holding that Samsung products did not infringe Apple’s registered designs:

“This case illustrates the importance of properly taking into account the informed user’s knowledge and experience of the design corpus. When I first saw the Samsung products in this case I was struck by how similar they look to the Apple design when they are resting on a table. They look similar because they both have the same front screen. It stands out. However to the informed user (which at that stage I was not) these screens do not stand out to anything like the same extent”.

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If Section 35ZA had been in force, would not Samsung have escaped criminal liability only because it got the judgment call as to infringement—the views of the informed user—right? Had Samsung got that wrong, there would be no defence. Is this what the Government really intend?

Absent either a positive requirement of dishonesty or some sort of broader defence, where a person reasonably believes that they are not infringing, this law could have a significant chilling effect on competition—so much for a Government who trumpet themselves as supporters of competition and opponents of unnecessary regulation.

Lord Clement-Jones: My Lords, I shall be very brief. The beauty of Committee is that entirely opposing propositions can be put forward by the same person. It is only when we get to Report that we have to get serious by being absolutely clear about the propositions being put forward. I therefore do not intend to respond in great detail to the noble Lord, Lord Stevenson, who, I believe, was taking an argument out for a trot. Earlier in Committee, I previously talked about frightening the horses and I am afraid that we are back to horse analogies. It has been an entertaining trot in many respects.

The way that the argument was put together misunderstood what happens in court. It is about the adducing of evidence. It was reassuring that the judge listened to the arguments and evidence and felt as a result that he understood far more about the genesis of the design right. Of course, in a criminal court you add mitigation to all that. It is not worth suddenly locking up people as a result of being prosecuted for design infringement. If you do something reasonable in the eyes of a criminal court in such circumstances, you will be able to mitigate the offence, even though technically you may be guilty of it.

I am afraid that I do not accept the noble Lord’s argument. However, I have wanted to use the expression “a fortiori” for many years in Committee; if you have the ability to prosecute in a criminal court for an infringement of registered design, you should have that ability for unregistered design. If you have it for copyright, you should be able to prosecute for unregistered design. If you have it for trade marks, you should have it for unregistered design. All these intellectual property rights may be complex but they are a vital underpinning for our creators and our creative industries. I am unashamed in my wish for those creative industries to thrive in this country and for their intellectual property protection to be as solid as we can make it, without falling unduly into a monopoly situation, about which the noble Lord, Lord Borrie, is ever vigilant, I am glad to say.

Lord Howarth of Newport: My Lords, the noble Viscount needs to offer us some compelling reasons for the creation of a new criminal offence. It is undesirable in principle to create new criminal offences unless there is a clearly demonstrable need for them. Successive Governments over decades in this country have been promiscuous in the creation of new criminal offences. They have been trigger-happy in this matter. It makes

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them look as if they are being tough and it is quite popular in certain quarters, but it has not been very good for our national life or our culture. It tends to create a more pervasive culture of distrust, suspicion and fear within our society.

There are also a lot of practicalities to think about. If you have a criminal offence, you must commit policing resources. You are laying another burden on the courts. The police and the courts are already excessively burdened and their resources are diminishing. You must consider the capacity of the prisons, which are bursting. I hope that we will not have to anticipate many people being incarcerated in consequence of the noble Viscount’s measure but that is clearly what it points towards. I do not know what thought the noble Viscount has given to the cost of all this. We understand that the Government are intent on reducing the deficit but he is proposing here a measure that will have clear implications of additional public spending. I can quite understand why the measure is popular with small and medium-sized enterprises in the design field: the burden of the enforcement of rights will be transferred from civil action being taken by them where necessary to criminal prosecution by the police and the Crown Prosecution Service. It saves SMEs troublesome, tedious and possibly expensive activities. I can see why they like that. However, I am a bit surprised that the Minister has been willing to gratify them in this way.

2.45 pm

I always think of the noble Viscount as a mild and kindly man, but here he is about to expose people to some draconian penalties. I do not know what the maximum fines would be for people found guilty of the offence that he is going to create, but I see that he plans to bang them up for up to 10 years. That seems uncharacteristically harsh. One would have thought that that scale of penalties would be more appropriate for major fraud and expropriation. As I have suggested in earlier proceedings on the Bill, a governing principle should be that we protect intellectual property no more than is necessary to encourage and reward innovation suitably. It goes too far to extend that protection by creating offences in the criminal world. I understand that there is a case for criminalisation in a situation in which a powerful corporation is deliberately and systematically trawling and appropriating the designs created by individual designers, sole traders, and small and medium-sized enterprises. There is inequality of power and arms here.

As my noble friend Lord Stevenson said and as the noble Lord, Lord Clement-Jones, also indicated earlier this afternoon, there are many situations in which there are definitional issues. There are penumbra and grey areas where it seems far from clear that we should be reclassifying behaviour that we consider wrong as criminal. The creation of this criminal offence is taking a sledgehammer to crack nuts of various sizes, which may not be the right thing to do.

The noble Viscount has much more to do to persuade the Committee of the case for creating a criminal offence. When he spoke earlier he made his case in terms of the desirability of simplification and presumably of consistency with the laws that apply in the fields of

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copyright and trade marks. As I also suggested earlier, simplification or consistency are not necessarily paramount virtues, not least in the field of intellectual property, which is highly differentiated and complex, and in which pragmatism and common sense are always required. He suggested that it would be helpful in the enforcement of rights but, as I have said, I am not clear that the state should take over the enforcement of the maintenance of their rights from individual designers and design companies and partnerships. The case has to be made more strongly.

Lord Browne of Ladyton: My Lords, my intention in contributing to my noble friend Lord Stevenson’s debate on whether Clause 13 should stand part is to take advantage of the opportunity to ask some very Scottish questions about the nature of this provision and the implications for the devolution settlement in Scotland. Before I do that, I encourage and cannot resist the temptation to engage in the more general debate that has been conducted so far, simply because of the curtailed response of the noble Lord, Lord Clement-Jones, to my noble friend’s opening remarks.

I have some significant experience of practice in the criminal courts. This was perhaps a long time ago, but I practised in the criminal courts at all levels in Scotland for the better part of 20 years before I became an elected politician. The noble Lord, Lord Clement-Jones, is right. One has to have a proper sense of perspective on how courts operate. The burden and onus of proof in criminal prosecution lie and will continue to lie with the prosecutor. Obviously these offences, although complicated and requiring some understanding of design and design rights that I do not have, will require the prosecutor to persuade the court that design rights have been infringed in the way set out in these provisions.

However, I say to the noble Lord, Lord Clement-Jones, with respect—and, of course, when lawyers start talking to each other with respect, there is a sense among others that it is last thing they have for each other—that after 20 years of practising in part in criminal courts, I resist the temptation to describe convictions as technical. There is no such thing as a technical conviction. You break the law, you are convicted and you have, except with a very few limited exceptions, a criminal record thereafter. There is no such thing as a technical crime. For people who are convicted in the criminal courts, but not for lawyers who appear in them, these are life-changing events. The people who are furthest removed from this culture are those who are most affected by it, which is why jailing people for drink-driving has over time been the most effective use of jails for deterrence because that offence tends to be committed by people who would otherwise not be near a criminal court. I make that caveat. If we are using criminal sanctions in relation to commercial practices or commercial operations, that is criminal law impinging on people who are not normally around the criminal courts and who do not have the kind of relaxed attitude to them that some of us who have practised in them sometimes get.

The point my noble friend Lord Stevenson made was not about whether the courts would be able to deal with the issue of mitigation, which becomes relevant only after a conviction, because they are well capable of doing that; I have some experience. His point was

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about whether a by-product of criminalising this sort of behaviour would be the fear of the stigma of criminal proceedings. The stigma of criminal proceedings can for some people be as significant as criminal conviction. We are used to seeing in the media that people are arrested, bailed, brought back in, charged, bailed and then, sometimes months later, told that they are not to be prosecuted. We see that pattern of behaviour regularly now because of the nature of some of the public investigations that are going on as a consequence of the interaction of the police, newspapers and other organs of our society, including the BBC. We see that, and we see, from interviews that people who are savvy enough to be able to move in the media give, the life-changing effect that it can have on people.

My noble friend’s concern is that the stigma of criminal proceedings, the risk of a criminal record and the possibility of a quite swingeing sentence—these crimes can carry up to 10 years’ imprisonment—will affect the way in which businesses conduct themselves. If the effect is that they become risk-averse in the way that the noble Lord, Lord Clement-Jones, and those who overtly support the sparing use of criminal prosecutions, hope, their judgment becomes more acute and they are less likely to take the risk of doing something that they instinctively know is wrong, that will be a good thing. However, the risk-aversion results in the stifling of innovation because lawyers tell people who are making management decisions that they are running a personal and much greater risk with their liberty and reputation than they would have been before the Bill became an Act of Parliament. Those people might say, “It’s fine if the business has some risk of a civil penalty, we will make a judgment here and go with innovation as opposed to the conservative choice of not touching this product”. However, if they say, “It’s my head that’s on the line”—that is, to some degree, what the Government are trying to do—“It’s my personal reputation that is on the line, and it may surface in the criminal courts”, that may stifle innovation. If the balance goes the wrong way, this will not be a correct thing to do.

There is one more important issue here to which we need to give some consideration when we agree to criminalise behaviour. It is that the rich and the powerful will threaten or imply the possibility of criminal prosecution. Those of us who have been involved in debates and the consideration of legislation in your Lordships’ House over the past couple of years know about the concept of chilling effect. We were dogged in this country, particularly in England and in the courts, because London was the defamation capital of Europe. The rich and powerful threatened court proceedings and had a chilling effect in stifling free speech, publications, scientific research and other areas. There is no question that if we add this possibility of prosecution to what powerful people can threaten or imply then we run the risk that they will again deploy that threat which stifles innovation.

I have not made up my mind whether adding criminal prosecution to this armoury is a good thing. There are others in our debates who know much more about the way this area of commerce operates. I have some sympathy for people, particularly in the fashion industry,

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whose designs come and go. If something else is not added to this then they must go through the same processes as they do presently. Civil actions are of no use to them because the fashion season moves on and the damage is done. Within minutes of unveiling their dresses or jackets, they appear almost exactly the same in somebody else’s cut-price window. I have not made up my mind about this area but there are serious considerations about whether we should extend the criminal law in this way. It would be interesting to hear what the Minister has to say about these arguments and where the Government think the balance will lie once the Bill becomes an Act of Parliament. How do the Government intend to ensure that that balance stays there and is not exploited by others?

Let me finish by asking my Scottish questions. There is a well established convention now—thanks to the noble Lord, Lord Sewel, and what has become known as the Sewel Motion—that we will not legislate on matters that are devolved to the Scottish Parliament, Welsh Assembly or Northern Ireland Assembly without their consent. The general answer to this is that international property law is not devolved. I welcome that, and as a unionist celebrate that there are still important parts of commercial life that we control on a UK basis. I believe in the union and we should make more about what we do to improve the opportunities for commercial advantage in Scotland when we can by using UK powers. I suggested at Second Reading that I would have liked the Government to have made more of a presence about what was being done in this area of law in Scotland, so that Scottish people knew the relevance of this Parliament and this area of law in their lives, particularly in the present circumstances. That has not been done and I regret that. I wish it had.

In the detail of this particular legislation, there is a provision on page 13 of the Bill for new Section 35ZD—we must find some better way of numbering sections so we do not get these ridiculous references. It introduces new Section 35ZA, “forfeiture of Scotland”, which essentially amends the Criminal Procedure (Scotland) Act 1995. That legislation predates the Scottish Parliament, which started in 1999, but all amendments to that legislation since then have been in the area of devolved law. Criminal procedure in Scotland is devolved. We are indirectly, if not directly, amending an area of devolved law in Scotland. I think that requires a Sewel Motion. It requires the consent of the Scottish Parliament. I am happy to be corrected on that, but it seems to me that it does. If it does, that implies, as far as I am concerned, that there has been some communication between the Government and the Scottish Government on the subject of a Motion being laid by the Scottish Government and passed by the Scottish Parliament, where the SNP has a majority. Therefore, there will have been some discussions on that matter.

3 pm

Inevitably, those discussions will touch on a number of issues such as the resource implications of the Scottish law being changed in this way. Those resource implications will impact in turn on local authority resources, given that trading standards fall under local authority jurisdiction in Scotland. That area of public

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life in Scotland is facing reduced resources, as are all areas of public life across the United Kingdom. What are the Scottish Government and the Scottish Parliament’s expectation of these implications? How will they manage them? What will this mean for the prosecuting authorities and their ability to understand this complex area of law? What training will be provided for those who have to understand this complex area of law? Listening to this debate for a short time this afternoon and having listened to the noble Lord, Lord Clement-Jones, and the Minister, with their expertise, and my noble friend Lord Stevenson, who has developed expertise in this area, I can see that this is a very complicated area of law. It is not clear whether a particular item will infringe somebody else’s design rights on another item. What assessment has been made of how many prosecutions there will be? We all hope that they will be brought sparingly as we hope that the measure will have the effect we want it to have—namely, of reducing infringements.

I should have given the Minister notice of these questions but I did refer to them in my Second Reading speech when I said that I was interested in this area. His officials can relax as I do not expect him to respond to all these questions immediately, but I would like to know the answers in due course. I give him prior warning that if this matter requires a Sewel Motion and it goes to the Scottish Parliament and its committees, these are just the sort of questions that people will ask. Therefore, it would be good to know what the answers are. I could probably add a list of other things that Members of the Scottish Parliament might be interested in, but they can do that for themselves.

Viscount Younger of Leckie: My Lords, Clause 13 will introduce a criminal offence for the deliberate copying of a UK or EU registered design. This should help to reduce the scale of unlawful design copying in the UK while increasing the level of protection that is available for holders of registered designs. The Government believe that they have achieved a fine balance in the substance of the clause to ensure that the criminal offence targets only those people who deliberately steal someone else’s ideas and creativity. As we have already discussed today, there are a number of reasons why this clause applies only to registered designs, and this decision forms part of the fine balance of protection that it achieves.

The focus of the offence being on registered designs rather than unregistered designs also reflects the majority of responses to the designs consultation. As with other legislative changes, the Government plan to evaluate the impact of the change within five years of implementation. The offence gives registered designs the same level of protection as copyright and trade marks, creating a coherent approach to enforcement and protection. It also brings design rights in the UK to a level with other European design leaders such as Denmark, which noble Lords will know is noted for design in its furniture manufacturing industry, as well as Italy and Germany.

Criminal sanctions already exist in these countries and are considered necessary as a deterrent and to punish those who deliberately copy for commercial gain. For example, in Germany in 2011, a total of

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12 trials were held concerning a criminal charge based on design copying. In three of the cases, the charges were dropped during the trial. In eight out of the nine cases in which a sentence was passed, the court issued a fine. In one case, a prison sentence of nine months to one year was imposed. These figures show clearly that the offence is brought forward only selectively, but that a need for the sanction does exist. This may help to reassure the noble Lord, Lord Howarth, in his concerns over the criminal sanctions. He alluded to the fact that they might be a little too draconian.

On the same subject, the noble Lord, Lord Howarth, raised the issue of the costs to this country. In their impact assessment, the Government have estimated a cost of £8.18 million over the course of 10 years. This figure was arrived at by estimating the costs to the police, the Crown Prosecution Service, Her Majesty’s Courts and Tribunals Service, and potential legal aid costs. However, it is difficult to estimate the benefit of the offence to business. The organisation Anti Copying in Design has estimated that the cost of infringement to the design industry is around 5% of the total value of design to the UK economy. Based on the most recent estimates from NESTA of £15.5 billion as the value of design investment in the UK, this equates to an annual cost of infringement of £0.775 billion.

In relation to costs, the noble Lord, Lord Howarth, also asked what the provisions are for maximum penalties. As the noble Lord may be aware, the Ministry of Justice is currently bringing Sections 85 to 87 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 into force. These provisions will increase the fines for all intellectual property related offences in the magistrates’ courts in England and Wales. This work needs to be allowed time to be implemented before further increases in penalties can be considered.

The noble Lord also asked a plain question: can the justice system cope with this? We do not believe that the offence will create a burden on enforcement agencies. Trading standards departments have the resources to pursue only a certain number of intellectual property cases each year. As a discretionary power, it will be up to each department to balance the importance of pursuing a design case against the other kinds of intellectual property crime in which it is interested. This is in keeping with many other statutory provisions under which local authorities have no duty to enforce, but can and frequently do, instruct trading standards departments to take action. The Crown Prosecution Service will treat any new offence with the same approach it does for the other forms of intellectual property, using its usual discretion and margin of appreciation, including such factors as evidential sufficiency and the public interest in pursuing a conviction.

Lord Howarth of Newport: Perhaps the noble Viscount will allow me to intervene. Does the figure of £8.18 million over 10 years include the costs to local government as well as to central government; namely, the costs of trading standards officers? Whether or not it does, the public expenditure cost of £8.18 million that is already cited is a multiple many times over that of the expected cost of infringement per annum. We are going to spend more on enforcement than we will lose on the

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costs of infringement. On the face of it, that does not seem to be good value for the public purse or for the economy.

Viscount Younger of Leckie: My Lords, the noble Lord has cited certain figures and I think it would be wise for me to give him a fuller answer than I have before me. Although I would say this, I believe that our arguments are robust. However, I will follow up his points and write to him.

Clause 13 specifies that various conditions must apply in prosecuting the offence. In particular, it must be established that the person accused of the offence should, first, have copied a registered design; secondly, knew that the design they copied was a registered design; and thirdly, copied the design without the consent of the registered design holder. Under the clause, it is also an offence knowingly to use a copied design in the course of business activities in order to profit from that copying. This would include acts such as marketing, exporting, using or stocking the design in the course of business. A prosecution will be successful only if the evidence is sufficient to satisfy the criminal legal burden of proof; that of being “beyond all reasonable doubt”. This is a high standard to achieve and will help to ensure that the offence does not affect innovation or legitimate and competitive risk-taking within business. The offence will not apply if the defendant can show reasonable grounds for believing that the design in question was invalid or where the person charged with the offence shows that there was no infringement of the registered design.

The clause provides that a trial may be on summary trial in a magistrates’ court or trial on indictment in a Crown Court. Of course, this will depend on the severity of the case. In a magistrates’ court, conviction could result in a term of imprisonment of up to six months in England and Wales and Northern Ireland and 12 months in Scotland, or a fine up to the statutory maximum, or both. In the Crown Court, conviction on indictment could result in imprisonment for up to 10 years, or to a fine, or both. The offence in this clause will be applicable only to designs registered prior to infringement, not to those registered after the copying has taken place. Under the clause, trading standards departments will have the power to enforce registered design copying, as they do now for trademark and copyright offences. They will also have powers of forfeiture.

Noble Lords raised a number of points. The noble Lords, Lord Stevenson and Lord Browne, raised the issue of the “chilling effect” of criminal sanctions. I reiterate that the clause is not intended to have a chilling effect on innovation or legitimate and competitive risk-taking within business. This is something that we were very much mindful of during the drafting of the offence as our policy intention was to target only those people who deliberately use somebody else’s ideas and creativity. Further, the offence depends on the infringing product having been made “exactly or substantially” to the registered design, and this should catch only those who set out to copy a registered design, not those who make distinguishable follow-on designs. This is why the offence requires the defendant

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to have known or have reason to believe that the design he or she copied was registered by someone else. Furthermore, this will have to be shown to the criminal standard of proof of “beyond all reasonable doubt”, which is an exceptionally high standard for prosecutors to meet in court.

As I mentioned earlier, this chilling effect has not been seen in Germany and the assertion of a chilling effect does not appear to be borne out by the experience of other jurisdictions that retain a criminal sanction for design copying. Germany is renowned for having a highly effective design system and it retains both civil and criminal sanctions. Although it is difficult to draw direct causality between Germany’s use of criminal sanctions and its successful system, we know that Germany has 10 times as many registered designs as the UK and it is unlikely that the criminal sanction has had an adverse effect on the number of registered designs or on the strong innovation performance of German SMEs, which is so evident to us all.

The noble Lord, Lord Stevenson, asked whether it was fair to prosecute those who unknowingly stock or sell copied designs and cited the examples of Apple and Samsung. The innocent use of a copied design in the course of business would not be caught by the offence; for example, a retailer would be protected if a third party had manufactured the copies and sold them to the retailer as their own. In this case, the retailer would not be acting with the knowledge that the design was a copy and would not be found guilty of committing the offence. The activities that constitute using a design under the offence reflect the definition for “use of a design” contained in Section 7 of the Registered Designs Act 1949. Innocent acts are protected, therefore, under the clause because it contains the test of,

“knowing, or having reason to believe”,

that a design is copied.

Lord Howarth of Newport: I am most grateful to the Minister and apologise for intervening on him again. I just wonder whether the chilling effect may not work in another sense. As the Minister says, there is no evidence from the German experience that the existence of criminal sanctions has had any chilling effect on the registration of designs. But what evidence does he have to reassure us that people who might be uncertain as to whether the design that they wish to develop was so close to another design that it could be proved in court to be sufficiently similar to incur a penalty, they would therefore decide not to bother? Given the difficulties of definition in this field, is it not possible that the chilling effect may be to deter innovation and enterprise on the part of people who are worried that they would be moving too close to a design that was already registered?

3.15 pm

Viscount Younger of Leckie: It is not the case that that would never happen but overall it may be of some reassurance to the noble Lord that much consultation has taken place on this. If there were clear indications that the examples he gave were to lead to a chilling effect, that would certainly have arisen during consultation.

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However, the noble Lord made a fair point and we will review the consultation. I will write to the noble Lord again if we can furnish him with some extra, new information. It is not the Government’s intention to criminalise businesses that use products based on copied designs incidentally in the course of their business but do not profit from any trade in those particular products.

The noble Lord, Lord Stevenson, raised the issue of applying Bugs Bunny to various products and how the law would work. This is probably the first time that anybody has said that Bugs Bunny is a complex issue, but he is and it would be best if I wrote to the noble Lord on the details of that particular point. The noble Lord also asked why it is a proposed offence to copy “exactly or substantially”. It is our intention that very minor modifications—possibly imperceptible ones—should not excuse deliberate copying and the sanctions that would follow. The noble Lord asked if the offence was “appropriate and proportionate”—I think he used those words. We recognise the concerns about proportionality and that is why the defence has been carefully crafted. We do not believe that it will lead to countless people being placed in custody, as can be seen by my previous references to Germany in this particular debate.

In fear of pouring fuel on the fire of the points made on the last amendment by my noble friend Lord Clement-Jones, making comparisons between unregistered designs and copyright and its criminalisation, I will reiterate our position on this. A comparison to copyrighted material, which is also unregistered but attracts criminal sanctions, is unhelpful because the protection for copyright lasts 70 years plus the lifetime of the author. This makes it unlikely that copyright will have expired, and infringement is therefore much more likely to be the result of copying. The shorter period of protection for unregistered design, together with the difficulty of knowing when those design rights came into existence—a point that I made earlier—means that it is more difficult for third parties to be sure they are not infringing. The introduction of criminal sanctions for unregistered rights could lead to a negative effect on business and innovation.

Furthermore, copyright protection is denied to the shape and configuration of industrial designs by Section 51 of the Copyright, Designs and Patents Act 1988. Applying criminal sanctions to an unregistered design right would criminalise some copying that would not be caught under the law of copyright. I am sure that the noble Lord will have some further points to make on this matter but I thought it wise to raise the subject again.

The noble Lord, Lord Stevenson, asked whether the issue of criminalisation was too complicated for magistrates and juries. Provided that it is limited to registered designs, we believe that the criminal courts can decide whether a design has been copied exactly or substantially. Similar issues arise in copyright, as the noble Lord will be aware. The noble Lord also asked why new Section 35ZA includes community designs and asked whether this would cover designs from the European Union. It does, because EU designs have effective rights here in the UK.

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The noble Lord, Lord Stevenson, asked whether it is right that the use of a copied design is caught by the provision. The activities which constitute using a design under the offence reflect the definition for use of design contained in Section 7 of the Registered Designs Act 1949. Innocent acts are protected under the clause because it contains the test of knowing, or having reason to believe, that a design is copied.

The noble Lord, Lord Browne of Ladyton, was particularly concerned about those he described as “rich and powerful people” using the threat of criminal sanctions against small businesses. That is a fair point, but I draw on the UK’s experience in relation to other intellectual property rights, which have also been retrospectively subject to criminal sanctions. Although there is no quantitative evidence, the introduction of criminal sanctions for piracy and counterfeiting provides no indication of a chilling effect on creativity, copyright or brand development—trade marks—in the UK. They are generally acknowledged to be in robust health, with the number of trade mark applications at a historic high according to unpublished figures from the Intellectual Property Office.

Finally, I think it would be useful to provide a further response to a point made by the noble Lord, Lord Howarth. He asked how the Government defend setting up more criminal offences. I certainly do not propose to start discussing the wider criminal justice system today—I hope the noble Lord will forgive me for that—but the important point is that there are compelling reasons why we believe this new sanction is right, which I trust I have set out in my response.

I reiterate to the Committee that we believe it is right that deliberate, wide-eyed copying of registered designs is punished.

Lord Browne of Ladyton: Before the Minister concludes, will he remember Scotland? At this stage, I only seek an answer about whether this requires a Sewel Motion. All the consequential questions would arise if it does not.

Viscount Younger of Leckie: The noble Lord is quite right. I think it is best if I write to him on a number of the points that he has raised about Scotland. I could say something now, but I think a full answer is required. The noble Lord raised a number of questions, and we should give a holistic response.

The Government have sought to create a balance between protecting the rights of design owners and ensuring that innovation is not restricted. We believe that in this clause we have drawn the right balance. I commend the clause to the Committee.

Lord Stevenson of Balmacara: My Lords, I thank all noble Lords who have spoken on this topic, in particular my noble friends Lord Howarth and Lord Browne. Between us, including one or two of the points made by the noble Lord, Lord Clement-Jones, we have raised a sufficiently significant question about the desirability of this step being taken by the Government for us to think again before we return to this on Report. On the one hand, there is the question about whether the right approach to protecting the desirable

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end of making sure that those who design are able to proceed to the manufacture and exploitation of their designs without being ripped off by others is by some simplification of the overall system that might arrive at a better system or whether the criminalisation element will provide the necessary bulwark.

The argument is finely balanced. My noble friend Lord Browne said that he is uncertain about which is the right way, and I join him in that. I was not taking horses out for a trot on this point. I was, to change the metaphor, casting a fly on the water and seeing what would come up. I went fishing last weekend, which is why it is in my mind. I caught myself with my own fly and fell in, which was not a very successful outcome, but I was struck by the efforts of those with rods make to attract unwilling objects, such as fish, to come to the surface and bite the fly. You have to be careful what you are casting for sometimes, and my unease is that the simplicity of the central point—whether to introduce criminal sanctions—is becoming obscured by the complications of what might emerge if it happens. There is the question of the cost of the engagement of the police, trading standards and prisons and the impact on public spending, which my noble friend Lord Howarth raised. My noble friend Lord Browne was supportive in the sense that the criminal courts can easily take this on, as they have taken on many other things that Parliament has opined should be criminalised in the past several hundred years. On the other hand, it is a real change—from a specialist court dealing with well rehearsed topics, with practitioners who are knowledgeable in this area, to the hurly-burly of a magistrates’ court, or a sheriff’s court in Scotland, and then coming up through the system.

This is all quite a big step and I do not feel that the arguments have been as well marshalled as they could have been. The Minister brought forward some evidence but there may be more in his letters. I am looking forward to having many of those as we proceed through this, particularly my one on Bugs Bunny, which I can hardly wait for as the excitement is so intense. Germany is not necessarily the right model for this. We would have been happier if we could have seen more evidence from right across the design community. It is not a small community—we know the numbers, and there are lots of them. The danger in consultations of the type the IPO has carried out is that you hear from those who shout the loudest but do not hear from those who are going to have to make the thing work when the dust is settled. With those reservations in mind, we might have to return to this on Report.

Clause 13 agreed.

Amendment 24 not moved.

Amendment 24A

Moved by Lord Jenkin of Roding

24A: After Clause 13, insert the following new Clause—

Part 1ACopyright

Exploitation of design derived from artistic work

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(1) The Copyright, Designs and Patents Act 1988 is amended as follows.

(2) In Schedule 1 (copyright: transitional provisions and savings), omit paragraph 6.”

Lord Jenkin of Roding: My Lords, I hope to be able to deal with this very briefly, as I shall explain. The purpose of the amendment, along with the amendment grouped with it, is to try to make sure that artistic works prepared before 1 June 1957 will still be protected despite the repeal of Section 52 of the Copyright, Designs and Patents Act 1988. I remind the Committee that we discussed this at some length during the passage of the Enterprise and Regulatory Reform Bill.

I have learnt that the group of manufacturers who are concerned about this have a meeting set up with the IPO for a week today. It was suggested to me—and I have suggested it in turn to my noble friend and given notice to the noble Lord, Lord Stevenson—that perhaps it would be better to wait to see whether the outcome of that consultation meets the concerns of those companies. If it does not, and the issue turns out to be serious, we can, of course, return to this matter on Report. On the assumption that my noble friend will share my anxiety to let that meeting proceed first, I hope that he will be able to respond with equal brevity. I beg to move.

Lord Howarth of Newport: My Lords, I rise to speak very briefly. One has a pleasant sense of déjà vu when the noble Lord, Lord Jenkin of Roding, tables an amendment in relation to works that he is careful to label as “artistic” created before 1957. However, he then spoke of a group of manufacturers who are shortly to meet the Intellectual Property Office. I am a little puzzled about the relationship of artistic property to the activities of manufacturers. If the noble Lord were able to clarify quite what the relevance of one is to the other, I would find that helpful.

Lord Jenkin of Roding: I apologise if through brevity I omitted some obviously important facts. We are dealing with iconic pieces of design, many of which were created in what is known as the Bauhaus period. These would include such things as the Corbusier chaise, the Wagenfeld lamp and what we frequently refer to as the Eames lounge chair. They are indisputably works of fine art and are protected by copyright throughout the European Union. The manufacturers want to be sure that they will continue to be protected in the UK.

3.30 pm

Lord Howarth of Newport: I am grateful to the noble Lord for that clarification. Given that clarification, I have to say that I find myself profoundly opposed to what it is that I think he is seeking to achieve. While of course it is right that designers from the Bauhaus stable—Wagenfeld, Corbusier or Eames, although he was not from the Bauhaus—deserve to be recognised and to enjoy the protection of their intellectual property for a reasonable length of time, we are talking about a period that goes back to before 1957, half a century ago. I cannot see how it can be in the public interest

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that a monopoly should continue to be held in those designs. That is not least because no protection is being given to the designers themselves. The design rights have been sold on and inherited. Surely it must be desirable to limit the term of monopoly so that more people are able to have the benefit of iconic artefacts created according to these very beautiful and important designs at reasonable prices. The protectionism that the noble Lord is seeking to perpetuate through his amendment is not in the interests of our society, of our culture or, indeed, of our economy.

Viscount Younger of Leckie: My Lords, I turn now to Amendments 24A and 24B. I am grateful to my noble friend Lord Jenkin for the constructive spirit in which he has offered them and indeed that he has agreed to wait for the results of the meeting to which he alluded. These amendments are related to the repeal of Section 52 of the Copyright, Designs and Patents Act 1988 through the Enterprise and Regulatory Reform Act 2013. For the benefit of the Committee, and indeed of the noble Lord, Lord Howarth, I ask noble Lords to let me summarise briefly the reasons for the change.

The Government wish to ensure that all categories of artistic work enjoy the full term of copyright protection; that is, the life of the creator plus 70 years. Some artistic works that were industrially produced had 25 years’ protection. Once the repeal comes into force, which will take place after the consultation on the timing of the repeal and publication of a new impact assessment, these works will have the same term of protection. If a particular type of table is an artistic work protected by copyright, one will not be able to make a physical replica or reproduce an image of that table in a book without permission. Similarly, one will need the rights owner’s consent to make wallpaper that reproduced an artistic work, such as a print. Designers and companies that own rights in classic design furniture have been supportive of this change. As my noble friend Lord Jenkin said, next week my officials are meeting representatives of one such company as part of the Government’s ongoing dialogue with interested parties. We shall see what comes of that.

I am grateful that my noble friend Lord Jenkin continues to pay such close attention to the details of this change and for the intervention from the noble Lord, Lord Howarth, but I am not convinced that any further changes are necessary or desirable until the consultation has been completed.

Lord Jenkin of Roding: My Lords, I am most grateful to my noble friend. Perhaps I may respond very briefly to the noble Lord, Lord Howarth. A month or two ago I was approached by, as it happens, a British company which complained bitterly about Section 52 extending the period from 25 years to life plus 70 years. I took the matter up with my right honourable friend and discussed it with one or two other people. They said, “Ha ha. Yes, of course. They use nothing but Chinese-manufactured fakes. They are simply importing imitations of these hugely important artistic designs. Of course they are cross about it because it is their business”. The fact is that that company has been

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behaving rather disreputably. The repeal of Section 52 is intended to give the designs the protection that my noble friend has indicated is the intention of the Government. We will have to have this debate later. In the mean time, I am grateful for what the Minister said and beg leave to withdraw the amendment.

Amendment 24A withdrawn.

Amendment 24B not moved.

Clause 14 : Infringement: marking product with internet link

The Deputy Chairman of Committees (Baroness Pitkeathley):My Lords, Amendments 25 and 25ZA are grouped together. I am advised by the Public Bill Office that Amendment 25ZA is a duplicate and has been printed in error, so I will not be calling that.

Amendment 25

Moved by Lord Clement-Jones

25: Clause 14, page 15, leave out lines 15 and 16 and insert—

“(b) which directly displays clearly the product and its complete trade designation and associates the product with the number of the patent or patents which relate to it”

Lord Clement-Jones: My Lords, I am indebted to the Chartered Institute of Patent Attorneys for having drawn my attention to the issues on Clause 14. Generally, the institute welcomes this proposal, but considers that it needs to be tightened up. If a product has a patent number or patent application number on it, it is easy for any third party to identify the patent or application and make any such subsequent inquiry as it needs to. If, however, all that is marked on the product is an internet link, it could turn out to be a considerable job even to identify the patent or application. The internet link, for instance, could be to the home page of a company and the patent number could then be buried deep in the sublevels of the internet site. Alternatively, the link could be to a page where all a company’s patents and applications are listed, but in an unsearchable format. This proposal could provide a way for a company to conceal the information that is supposed to be present on the product. To ensure that the internet link provides the required information directly, I hope that the Minister will see the virtues of this amendment. I beg to move.

Lord Young of Norwood Green: My Lords, I know that imitation is the sincerest form of flattery, and I doubt that the contribution of the noble Lord, Lord Clement-Jones, is copyright-protected. However, it would not be very good if, having found the same source, I repeated exactly the same words. We share the sentiments of the noble Lord, Lord Clement-Jones. We think that the government proposal is good but, in this age of the internet, it could be made even more effective. On those grounds, we support this amendment and look forward to the ministerial response.

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Viscount Younger of Leckie: My Lords, Amendment 25 would place a requirement on businesses to provide the complete trade designation of the product, alongside the product’s associated patent numbers, on their websites. It is helpful that my noble friend has raised this issue, as it will allow me to set out some more information about how the Government are expecting the marking of products with the web address to work.

The Bill aims to reduce burdens on patent holders by modernising the ways in which they can provide public notice of their patent rights. Allowing patent owners to mark their patented product with a web address will lead to cost savings for business while making it easier for the public to access up-to-date patent information. Under current UK legislation if, in the event that a patent is infringed, a patent holder wishes to be in with the best chance of being awarded damages or other financial remedies, it must mark its product with the word “patent” or “patented”, together with the number of the patent. It is, therefore, in a patent holder’s interest to ensure that it is straightforward for the public to ascertain which patent or patents apply to a particular product. Doing so will ensure that the public is put on notice about the patent rights, making others think twice before infringing that patent.

Clause 14 requires that, if an internet link is used, it must direct the reader to a web page which clearly associates the product with the number of the patent concerned, as is the case under United States patent law. This means that providing an internet link to the home page of a company website will not suffice unless on that home page there is a clear association between the product and the relevant patent number. It also means that the product must be clearly identified and associated with the relevant patent.

Just to be frivolous, I suspect that noble Lords’ mobile phones are switched off; I hope that they are. However, if you were to take them apart you may find—if the manufacturer operates in the United States—a website address with the patent details is provided. I particularly noted that it appears on my battery. Many hundreds of patents are likely to be associated with a single mobile phone, and listing them on a web page rather than on the mobile phone itself is therefore far easier for the manufacturer.

Amendment 25 would add an additional requirement that the web page must provide the “complete trade designation” of the product. I understand this to mean an identification of the exact product concerned, including, for example, any relevant model numbers and variants that exist. This is entirely the intention of the clause, which I believe already caters for this. The clause requires the provision of a web page address that,

“clearly associates the product with the number of the patent”.

The patent holder must therefore clearly identify the product and which patents apply to it. Currently, the Bill allows businesses to do this in a manner that best suits their circumstances to avoid placing an undue burden on business. Again, I remind noble Lords that it is in the patent holder’s interest to ensure that clear information is provided that makes it easy for the public to ascertain which patent or patents apply to a particular product. Doing so will ensure that they can

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benefit from the maximum protection available during any legal proceedings. In light of this, I ask that the noble Lord withdraws the amendment.

Lord Clement-Jones: My Lords, I thank my noble friend for that useful clarification. I am sure that it will be carefully noted by all those concerned. Given that it is the patent agents and patent lawyers who are heavily involved in this field, he will appreciate that their concerns are worth taking seriously. However, I take my noble friend’s clarification seriously, too, and I am grateful. I beg leave to withdraw the amendment.

Amendment 25 withdrawn.

Clause 14 agreed.

Clause 15 : Opinions service

Amendment 25A

Moved by Lord Clement-Jones

25A: Clause 15, page 15, line 28, leave out subsection (4)

Lord Clement-Jones: My Lords, I am afraid that this is a much more serious issue and I dare say that my noble friend is already aware of the strong concerns about elements of the clause that have been expressed not only by the patent agents but by the Law Society in a recent briefing paper.

In 2012, the Intellectual Property Office consulted on an amendment to the opinions service. That was responded to by a number of professional bodies. The CIPA agreed that the opinions service could be usefully expanded in some respects but was firmly opposed to the non-binding opinions service being turned into a binding service in relation to the existence of the patentee’s patent. Currently, the opinions service can give rise to four non-binding opinions: first, where the patent is valid; secondly, if the patent is invalid for lack of novelty or obviousness; thirdly, if the patent is infringed; and, fourthly, if the patent is not infringed. The Bill is proposing that one, and only one, of those four opinions should become something more than a non-binding opinion, while the other three retain their non-binding status.

The Bill proposes at subsection (4) to introduce into Section 73 of the Patents Act 1977 a power for the comptroller to revoke patents of his own motion when an opinion is given that the patent lacks novelty or is obvious. It is of concern that this proposal has not been fully thought through and I ask noble Lords to reconsider whether it should be kept in the Bill. The opinions service is very useful. It provides a low-cost forum for obtaining a first view as to the validity or infringement of a patent. The fact is that it is an opinions service, and a non-binding one, meaning that a certain approach is taken to such proceedings and costs are kept low. Moreover, the opinions are a useful commercial tool because the requester and the patentee can enter into negotiations regarding the patent. However, if the patentee knows that the opinion could lead to

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revocation of the patent, it is unlikely that any negotiations will be carried out on the same basis and it is less likely that settlement will be reached.

3.45 pm

The proposal in the Bill will turn requests for limited requests for validity opinions into something quite different and deprive the opinion service of its present advantages. One of the advantages of the opinion service is that it takes place on paper, with opinions being given within 12 weeks. However, the patentee is given only a few weeks in which to file comments. Where the patentee is overseas or there are language barriers, then such a short period is difficult. This is manageable where there is no further impact from the opinion. However, where there could be a knock-on to the validity of the patent, this becomes more drastic and potentially significantly more expensive.

Opinions on validity are usually sought by third parties, so the patentee is not a party. If there is a hearing, the patentee has no opportunity to present oral argument, nor does the patentee have the right to challenge evidence by cross-examination. As we discussed earlier with regard to design rights, the opinion service is not a judicial proceeding and there is no right of appeal to the court. In fact, Section 74A makes it clear that the patentee has no right of appeal against the opinion given. Although the patentee has a right to seek a review under Section 74B, the grounds for review are limited to whether the opinion was wrongly concluded. This falls short of being a proper appeal, and any appeal under Section 97 is similarly limited. Paragraph 22 of the IPO response noted:

“Fortunately the number of reviews and appeals has been small”.

If the outcome of an opinion has the potential to impact the patent, this number is likely to rise. This will be difficult for SMEs who will now have to file Form 2 and pay the fee as well as seek expensive legal help on how to deal with the,

“high hurdle for overturning a patent opinion that was established in one of only two review proceedings to go on appeal”.

In the amendment to the opinion service proposed in the Bill, it appears that the patentee will be placed in the position of having to overturn the presumption that the patent is invalid. Thus, the normal burden in revocation proceedings will be reversed. Moreover, the person requesting the opinion will, in effect, have placed a large financial burden on the patentee to defend his patent even though the requester has to pay only the fee for an opinion, which is comparatively low.

It is also not clear that the patentee will have recourse to a proper judicial procedure. It is not clear from the Bill or from the notes accompanying the Bill that the patentee will have a right to a full hearing on the merits. It is of particular note that neither the IPO nor the patentee will be able to cross-examine the requester’s witnesses or experts during the opinion procedure and nor would such opportunity be available during any subsequent Section 73 proceedings. It is difficult to see how this latter would be possible in what will essentially be ex parte proceedings. I shall not deal with the clarity of the invalidity because that will be dealt with by the subsequent amendment.

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I wonder whether the IPO has considered whether the proposal is TRIPS- compliant. Is the patentee afforded the necessary two levels of hearing? I further wonder whether the proposal in the Bill is future-proofed. It is likely that the unitary patent will come into effect in due course. Can the IPO give opinions on unitary patents? If it can, will it not be able to revoke a unitary patent? Surely exclusive jurisdiction for the unitary patent rests with the unified patent court. It seems odd to have a provision which will apply to some, but not all, patents effective in the UK.

I recognise that the IPO has a fundamental role as the regulator of the patent register. However, I do not see that the IPO has an obligation to clear the register of invalid patents. It is against its financial interest to do so. It does not do this for all the many patents on the register for which opinions are not requested. Why should it do it for patents on which opinions are requested? This is discriminatory and not a function assigned to the IPO by any legislation.

I recognise that the IPO also offers value-added services, such as assistance for private applicants, mediation services and opinion services. When offering such services, the IPO has to keep them entirely separate from its regulatory function. It must be careful about the advice it offers, and it has to be careful not to be both judge and jury. In offering value-added services, the IPO has to guard against the breakdown of the notional wall between, for example, a non-binding opinion service and the regulatory function. Notwithstanding the IPO’s comments in the response, this proposal breaches that wall.

If the patent is now to be put at risk by the opinion service, then all patentees must respond when invited to do so. The patentee will have to treat opinion service proceedings at the same level as patent revocation proceedings, thereby finding and submitting full evidence and opinions on why the requester is wrong. Although, as the IPO has noted, many already do this, that is not the case for all patentees—note especially my earlier comments on overseas patentees with language barriers. It then also becomes important that the patentee should have a greater right of redress when it does not agree with the opinion given. That would mean changing the procedure so that the patentee could appeal, but that is not part of the Bill’s proposals.

Allowing there to be legal consequences to the opinion, albeit after further proceedings, changes the nature of the opinion service and the costs for both parties, yet there is no provision for cost recovery. This also opens up possibilities for abuse. We have talked about the imbalance between parties in other contexts. Here, a rich party could target all the patents of an SME so as to remove both good and bad patents in an SME’s portfolio by requesting opinions on all of them. That would be at little cost to the requester but would require significant cost from the SME to defend all its patents. Even if the comptroller is to begin fresh proceedings under Section 73, there will be a perception, whatever the response to the consultation says on this topic, that the non-binding opinion would be a decision that the patentee had to overcome, as opposed to the IPO acting as an independent and impartial tribunal, as required by part 1 of Article 6 of the human rights convention.

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A further point needs to be considered. Amendments made under Section 73 are not advertised prior to acceptance and there is no procedure for a third party to intervene. While that may not be an issue for the other situations under Section 73, in this case, there is clearly a third party with an interest, even if it has chosen not to file for revocation. Depending on the amendments accepted, the IPO may have invented a procedure that negates the value of the opinion already given and undermines the decisions and settlements formed on the basis of it. The third party may then find that its further opinion on non-infringement no longer held water and it had to start that process all over again.

I understand the IPO’s concern that, should its value-added services give an opinion, whether binding or not, that a patent is not valid, then it might seem strange that that patent remains on the register. However, there are many reasons for a non-binding opinion to be sought and many reasons why the patentee may not take part in those proceedings or only take part to a limited level. If it is important to the applicant for the validity opinion or to a third party that the patent be revoked, then IPO inter partes proceedings are available under Section 72. Where the applicant does not wish to pursue those, the IPO can step in and take them over. Section 72 proceedings are judicial proceedings where there is a full exchange of evidence, disclosure, cross-examination and oral hearing. The proposed subsection potentially turns the opinion service into a cheap form of revocation proceedings and this will debase the value of the opinion service. These are formidable arguments against that subsection and I beg to move.

Lord Stevenson of Balmacara: My Lords, although we come at this matter from a slightly different angle in trying to amend the clause to bring out a particular point, our intention is very similar to that of the noble Lord, Lord Clement-Jones. The points I would make on the narrowness of our amendment would rather duplicate what he is doing. It is better to simply say that we associate ourselves with what he said. I agree with what he is trying to do here to unpick a wrong turning proposed by the IPO. Where we are in terms of opinions on patents is well respected, understood and supported across the industry. To add this additional function, or change one of the existing pillars of the operation, would in fact change all the natures of the way it operates and is not to the benefit of where we are. With that, I support the amendment.

Viscount Younger of Leckie: My Lords, Amendments 25A and 25B relate to the patent opinions service. Amendment 25A, tabled by my noble friend Lord Clement-Jones, seeks to remove the power that will allow the Intellectual Property Office to initiate revocation proceedings where an opinion concludes that the patent is invalid. Amendment 25B, tabled by the noble Lords, Lord Stevenson and Lord Young of Norwood Green, seeks to insert the word “clearly” into the clause so that revocation will be initiated only when novelty or inventive step is clearly not satisfied.

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Clause 15 allows a limited extension of the IPO’s existing powers to initiate revocation proceedings. It will help in particular SMEs and lone inventors who may simply be unable to afford to bring revocation action themselves. More broadly, it will be in the public interest to allow the IPO to seek the removal of certain invalid patents from the patents register. I reassure noble Lords that the IPO will only initiate such proceedings in clear-cut cases—where there is no reasonable argument to be made that the invention is new or not an obvious replacement of what has gone before. However, in those cases which are not clear cut there will be no revocation action.

I also wish to clarify that initiation of action will not always result in revocation. The patentee can submit observations that may demonstrate that his patent is valid. Alternatively, amendment may reduce the monopoly afforded by the granted claim. The patent holder will also be able to appeal any decision to revoke to the courts. The Explanatory Notes accompanying the Bill make it clear that the power to revoke will be exercised only in the most clear cut of cases. Therefore, I do not feel it is necessary to insert the word “clearly” into the legislation itself, as suggested by noble Lords in Amendment 25B.

Inserting the word “clearly” into the legislation may also lead to argument about what that word means, thus adding an unnecessary further strand to the dispute. For example, if the patent holder disagrees with the revocation and appeals to the courts, the court should not have to decide whether a patent is “clearly invalid” but should instead be free to decide the core question of whether the patent is or is not valid. The IPO is already able to seek revocation of a patent under certain circumstances. Experience shows that its officers would be well placed to assess whether revocation proceedings should be initiated following an opinion that concludes that a patent is clearly invalid.

Before answering a number of questions, I will finish by sharing with you the story of one SME which responded to the consultation in support of the government position. Shortly after it was set up, this SME became aware of a competitor’s patent for a similar product to that which it intended to sell. The SME requested an opinion on the patent, which concluded that the competitor’s patent was invalid. However, despite this alleged invalidity, the competitor continued to contact potential customers of the SME, warning them of possible infringement of their patent, and as a result customers stopped placing orders with the SME. The SME was therefore faced with the stark choice of either closing down or bringing revocation proceedings against the patent. It was apparently told it would cost £100,000 to bring such proceedings, and it simply could not afford to do so. In the end, the SME was fortunate in that it received backing from a much larger company, which enabled it to carry on trading and, indeed, to significantly grow the business. However, I am sure noble Lords can appreciate that such support cannot be guaranteed for all SMEs. As the example demonstrates, it is important that intellectual property does not become the preserve of only those with deep pockets. The clause as it stands, limited as it is and

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with the necessary safeguards to protect legitimate patent holders, will, I believe, further help to ensure that does not happen.

In his usual perceptive way, my noble friend Lord Clement-Jones raised a goodly number of questions. I will attempt to answer them all. First, he asked whether the procedure was TRIPS-compliant. The proposed legislation mirrors legislation already in place for revocation under Section 73(1) of the Patents Act 1977. The process of revocation will also mirror the process of revocation under Section 73(1). This process means that the revocation will also be considered by a more senior official than the examiner who issued the opinion. He will look at the details afresh and will not be bound by the conclusions of the examiner’s opinion when deciding whether revocation proceedings should begin. The patentee will then have the opportunity to address the alleged invalidity by way of amendment of his patent or by argument. He will also be able to appeal any decision to revoke his patent to the High Court. Further appeals are still possible, and this ensures that the procedure is TRIPS-compliant.

4 pm

My noble friend Lord Clement-Jones asked whether opinions will be provided on unitary patents. Until the technical details of the unitary patent system and the unified patent court are finally in place, the IPO is not in a position to comment on whether it will issue an opinion on a unitary patent. However, once the system is established, the IPO will consider the requirements of stakeholders and the merits of providing an opinion on the validity of or infringement of a unitary patent. I hope that that goes some way to providing a reassurance for noble Lords.

My noble friend also asked whether this would change the non-binding nature of the opinion. Giving the IPO power to initiate revocation proceedings will not alter the non-binding nature of the patent opinions service. The decision to initiate revocation proceedings will be made by a senior officer independent of the opinions examiner, and that senior officer will reassess the facts of the case and will not be bound by the conclusions of the opinions examiner. In other words, the opinion may trigger a further separate investigation of validity, but in itself it will remain a non-binding opinion, which I think further emphasises the points I made earlier.

I was asked whether more input will be required from both parties in the process. It is always incumbent on the person requesting the opinion and the person filing observations to provide enough information to support their argument. Sampling observations submitted by patentees where validity has been challenged demonstrate that the majority of patentees are already providing a full and detailed response to the challenge. One respondent to the consultation indicated that the amount of work put into a patent opinion was similar to that put into proceedings before the patents county court, but without the added costs of evidence preparation. My noble friend asked whether this will lead to increased costs for the patent holder if he has to challenge the revocation before the courts. By limiting revocation action to those situations where there is clear-cut

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invalidity, we consider that the patentee will appreciate that any appeal to the court would be unlikely to result in success. However, if an applicant were to appeal the decision to revoke and the courts were to find in his favour, under the UK court system, the losing party would usually be required to pay all the costs.

My noble friend also asked whether timescales are inappropriate with revocation, as are the procedures. The timescales for revocation and the procedures are set out with the existing procedures in Section 73 of the Patents Act 1977 as it stands, so they are applicable to all. These work well and achieve the right safeguards for patentees; the proposal follows this existing model. My noble friend asked if users of the patent opinions service might not be interested in revoking patents, but any invalid patent that remains in force gives an unfair monopoly to the patentee in the commercialisation of his patent. This will usually have a wider impact than simply on the parties involved in any dispute as it can influence innovation and competition in the field—that is, the wider field beyond the particular patent. There is therefore a public interest in ensuring that clearly invalid patents do not remain in force.

My noble friend asked why we are not extending this further into other areas of invalidity, not focusing just on novelty or inventive step. The intention is to take action only against those patents that are clearly invalid. In practice, that means that the invention is clearly not novel or inventive. There are other grounds on which the validity of a patent can be challenged, such as whether disclosure of the patent is complete enough to allow a third party to work with the invention. Those grounds are almost invariably much less clear cut and would require a higher degree of input from parties than currently afforded and intended by the opinions service.

Earlier in his speech, my noble friend Lord Clement-Jones referred to the consultation. We argue that the response to the IPO’s consultation was mixed, although it did appear that some of the respondents against the proposal assumed that a patent would be automatically revoked, yet this is not the intention. In deciding whether to proceed with this proposal, the IPO took on board the concerns of representative bodies, such as CIPA, while also giving consideration to the comments of large corporations, such as Dyson, and the needs of SMEs and lone inventors, who supported the proposal.

The initial proposal was to initiate revocation proceedings following any conclusion of invalidity. However, the IPO acknowledges the burden that would be required upon a patentee to defend their patent in those areas of validity that are not clear-cut. For this reason the proposal has been significantly limited to initiate proceedings only where an opinion concludes that the patent clearly lacks novelty or inventive step.

Lord Stevenson of Balmacara: The noble Viscount has just misquoted the section of the Act to which he was referring. If I heard him correctly—I will check Hansard—he referred to the comptroller issuing an opinion under Section 74A that Section 1(1)(a) or (b) is not clearly satisfied, which, indeed, was the intention behind our amendment. I take the point that the noble

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Viscount said earlier that the notes clearly say that it is envisaged that this additional power to strike off a patent will be exercised only in the clearest of cases where it is indisputable that the patent invention lacks novelty or inventive step. We are not very far apart on this. As I and the noble Lord, Lord Clement-Jones, said, the industry argues that the current phrasing is too bland to get across the sentiment which I think the noble Viscount is expressing—namely, that there has to be a clear exceptionality about the nature of the opinion. I hope that the noble Viscount will reflect on that matter and come back to it at a later stage. We need to get across the concept that the power will be exercised only in the clearest of cases where it is indisputable that the patent invention lacks novelty or inventive step. It is fine in the notes, but the notes are not the law, and the law needs to be right.

Viscount Younger of Leckie: It may be helpful if I clarify for the noble Lord that I was speaking in relation to the IPO’s practice and policy, as stated in the response to the consultees’ comments, in other words, as part of the consultation. However, I will reflect further on the need to tackle the point that he has made, as he has asked me to do.

Finally, my noble friend Lord Clement-Jones asked why patentees cannot recover their costs. If the patentee appeals to the court following a revocation by the IPO and is successful, he may be able to recover costs, but only if the court thinks that that is right.

I hope that I have managed to answer all the questions. If I have not, I will certainly follow up with a letter. I thank my noble friend Lord Clement-Jones for putting so much effort and thought into his range of questions on this important subject. I hope that in the light of my comments, the noble Lord will not press the amendment.

Lord Clement-Jones: My Lords, I am very grateful to the Minister for his very full and careful response. However, the noble Lord, Lord Stevenson, has put his finger on the point. I thought that what the Minister said was entirely reasonable. I heard what he said about TRIPS and two steps. However, when I read the actual wording of the Bill, I do not see that. I see a kind of blancmange where the IPO and the comptroller can take this over and revoke a patent after an opinion without a very clear step between the opinion and the revocation procedure. I am not an expert patent lawyer, and I shall consult a number of organisations, including the Law Society and the Chartered Institute of Patent Attorneys, but it seems to me that they are entirely right to be concerned about the Bill’s wording.

I entirely accept that the Minister, absolutely in good faith, has read out how he and the IPO believe that this is meant to operate. However, we operate on the basis of the rule of law. The Minister, in a way, has made a Pepper v Hart statement whereby, if we were to have a judicial review of the IPO when revocation had taken place and everything had gone pear-shaped for a patentee, the patentee could rely on the Minister’s statement. I would much prefer to amend the Bill, and I cannot for the life of me see why if it is the intention

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to have revocation proceedings only in clear-cut cases where a patent is invalid for various particular reasons, it cannot be expressed in the Bill.

The bit of the Minister’s response that I found somewhat disingenuous was somewhat like political jujitsu, when he said that this is all for the benefit of SMEs. I thought that that was a cunning reversal of the arguments because, if we are not careful, SMEs will be faced with the power of a determined major company that wants to make sure that it gets opinions in place. It could then bring revocation proceedings that could be extremely threatening to some small patentees. That is not entirely helpful to the SME.

We need to chew over the Minister’s words, but this is a very serious issue for the professionals involved. They really understand the steps that need to be taken. They understand, as I do not, all the intricacies of TRIPS, they recognise novelty and they have to advise on such issues on a daily basis. They are extremely concerned that this is a woolly area that gives the comptroller too much power. However, we will no doubt come back to this on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 25A withdrawn.

Amendment 25B not moved.

Clause 15 agreed.

Clause 16 : Unified Patent Court

Amendment 25C

Moved by Lord Young of Norwood Green

25C: Clause 16, page 16, line 14, at end insert—

“( ) In making an order under this section, which confers jurisdiction on a court, removes jurisdiction from a court or varies the jurisdiction of a court, the Secretary of State shall—

(a) ensure he takes into account the views of—

(i) HM Courts & Tribunals Service,

(ii) the Scottish Court Service,

(iii) the Northern Ireland Courts and Tribunals Service; and

(iv) any other appropriate body;

(b) where the number of patent cases is such as to meet the requirements as set out in Article 7 of the Agreement on a Unified Patent Court, confer local divisional court jurisdiction on—

(i) in England and Wales, the High Court;

(ii) in Scotland, the Court of Session;

(iii) in Northern Ireland, the High Court.”

Lord Young of Norwood Green: My Lords, we welcome the introduction of the Intellectual Property Bill and are supportive of its policy intent and objectives, particularly as it provides for the power to establish a unified patent court, giving effect to the European agreement made in February 2013, which we also support.

Clause 16 amends Section 89 of the Patents Act 1977 and expressly provides the Secretary of State with the power to make an order conferring divisional

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jurisdiction on, or removing jurisdiction from, a court. With this amendment, we are suggesting that before this power is used, the Secretary of State ought to consult with stakeholders.

At present, under Article 7 of the Agreement on a Unified Patent Court, each contracting member state may request and establish one division of the court of first instance of the unitary patent court within its jurisdiction for every 100 patent cases in each calendar year during three successive years prior to or subsequent to the date of entry into force of the agreement. This is subject to a maximum number of such divisional courts per jurisdiction of four. We note that in the event that the UK jurisdiction as a whole has a sufficient number of patent cases to merit more than one such divisional court within the UK, the Secretary of State will have the power to designate other courts, which need not be in London.

At present, the Court of Session currently has exclusive jurisdiction in Scotland over patent cases, including UK and EU-UK patents. If it were to lose this jurisdiction in respect of the new unitary patent, which is of course designed to eventually supersede the current European patent and possibly national patents, patent litigants in Scotland would be forced to litigate their relevant patent rights elsewhere in the United Kingdom or further afield in the EU. That would add significantly to their costs and to their overall business burdens and administration. We believe that at least two divisional courts might be situated in the UK as a whole and suggest that one might be based in Scotland. There seems to be potential to ensure that future patent litigants who operate in the Scottish jurisdiction are not unduly disadvantaged.

4.15 pm

This amendment seeks to ensure that the Secretary of State consults HM Courts and Tribunals Service, the Scottish Court Service, the Northern Ireland Courts and Tribunals Service and other appropriate consultees, and takes their views and evidence into account before conferring, removing or varying court jurisdiction. In addition, where sufficient numbers of patent cases in the UK allow, the Secretary of State should confer on each legal jurisdiction throughout the United Kingdom a court which has local divisional court status, allowing patent cases, where appropriate, to be heard in that legal jurisdiction. This will effectively preserve the status quo under the existing national and EU patent regimes. Failure to confer local divisional court status may raise access to justice concerns and increase costs and inconvenience to all businesses and litigants, including SMEs, who may be impacted heavily by potential additional costs in bringing or defending actions. I beg to move.

Viscount Younger of Leckie: My Lords, the amendments tabled by the noble Lords, Lord Stevenson of Balmacara and Lord Young of Norwood Green, relate to the unified patent court. I will address each amendment in turn.

Amendment 25C seeks to ensure that the Secretary of State takes account of the views of the courts services and any other appropriate body when using

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the power to confer or amend the jurisdiction of a court. These bodies are already closely involved in the implementation of the unified patent court. Establishing this court is an enormous task that requires resources and expertise from across government. It is for this reason that the Government have set up a task force responsible for UK implementation of the unified patent court agreement. This task force is a joint endeavour between the Department for Business, Innovation and Skills and the Ministry of Justice, and I can assure noble Lords that Ministers and senior officials from each department are fully engaged in this matter.

Officials from Her Majesty’s Courts and Tribunals Service are leading on work to establish the UK-based divisions and on the discussions with European partners through the preparatory committee of the unified patent court. Similarly, officials from the Ministry of Justice are leading the work for the UK on the selection and training of judges for the unified patent court. The devolved Administrations in Scotland and Northern Ireland and the courts services in those jurisdictions are represented on the steering board which oversees the work of the task force. Noble Lords may be interested to learn that the Chancellor of the High Court and the patents judiciary in England and Wales are also involved in the work of the task force. The judiciary is represented on the steering board of the task force, and officials meet the judges on a regular basis.

I can confirm that the Government are consulting the Administrations in the crown dependencies and the British Overseas Territories on whether they wish the unified patent court agreement to apply to their territories. This forms part of the usual procedure for ratifying the agreement.

Given this close engagement across government departments and with the devolved Administrations, I trust that noble Lords will agree that the views of all concerned will be taken into account when implementing the unified patent court agreement.

Amendment 25C also seeks to ensure that local divisions of the unified patent court will be set up in each jurisdiction of the UK. I appreciate the arguments in favour of setting up a local division in England and Wales, Scotland and Northern Ireland. Ensuring local access to justice is a key element of the unified patent court, and this is why the agreement makes provisions for setting up local divisions. Let me be clear that no decision has yet been made about how many local divisions the UK will host and where those divisions may be located. Contracting states of the unified patent court agreement are not obliged to host a local division. Local divisions can be set up and disbanded upon request by a contracting state. These requests will be considered by the body that will govern the administration of the unified patent court. Noble Lords may also be interested to learn that it will be possible for a local division to sit in different locations as the need arises. A travelling local division could provide an alternative to hosting more than one division. This amendment would fix in primary legislation the number and location of any local divisions the UK may host. It is undesirable and unnecessary to be

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prescriptive in this case as it would restrict the UK in the administration of any UK-based local divisions in a manner not provided for in the unitary patent court agreement.

Amendment 25D raises a number of points. First, the amendment would require the Secretary of State to consider the need for “reasonable” access to courts across the United Kingdom. As I have already said, the Government are working closely with the devolved Administrations in Scotland and Northern Ireland to ensure that the needs of users throughout the UK are addressed.

Secondly, this amendment places a limitation on how the power may be used to require the payment of a fee. As it stands, Clause 16 is intended to account for various circumstances where a fee might be required. The Government do not currently anticipate that fees for the court will be paid directly to any government department. However, the details of the financial arrangements of the court are still being negotiated through the preparatory committee that has been set up by the contracting states of the unified patent court agreement. It is anticipated that court fees will be paid directly to the unified patent court. A change to UK law to facilitate the payment of a fee to the court, as proposed by Amendment 25D, is not required. The agreement sets out high-level principles for how the unified patent court fees will be decided, but it will be for the members of the preparatory committee, including the UK, to agree the level of court fees. In agreeing the level of fees for the court, the preparatory committee will need to balance the need to ensure that the court is accessible to users with the requirement that the system will eventually be self-financing. Ensuring the system is accessible and eventually self-financing is a priority for the UK, and the final details will be carefully considered before we ratify the agreement.

Thirdly, this amendment raises the issue of how the power may be used to align UK law with sections of the unified patent court agreement. As it stands, Clause 16 is intended to ensure that provisions of the Patents Act which relate to national patents may be aligned with equivalent provisions in the unified patent court agreement should this be necessary. For example, it may be desirable to align the law on infringement so that the same provisions apply for European bundle, unitary and national patents. This may be necessary to avoid a situation where patents valid in the UK will be subject to different infringement laws depending on whether they were national patents granted by the IPO or European rights granted by the European Patent Office. The unified patent court agreement does not make any provisions for national patents so it is necessary to ensure that the power conferred specifically allows for this eventuality. This amendment would not allow such an alignment to be made because the power would be restricted to giving effect to the provisions of the agreement.

Finally, this amendment would remove the ability to use the power conferred to amend any enactment other than the Patents Act. This would be an important omission from the scope of the power to ensure that the UK can fully implement the unified patent court

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agreement, which must be avoided. In light of all that I have highlighted, I ask noble Lords not to press their amendments.

Lord Young of Norwood Green: I thank the Minister for that very comprehensive and constructive response. He has shed light on a number of areas that we were concerned about, especially the inclusion of Scotland on the steering board. He talked about judges being trained. Do we have a figure for that yet or are we still determining the need? Other than that, the Minister certainly covered the waterfront, so to speak, and we will obviously read his response carefully. I welcome his openness and the range of the response. Given that, I beg leave to withdraw the amendment.

Amendment 25C withdrawn.

Amendment 25D not moved.

Clause 16 agreed.

Clause 17 : Sharing information with overseas patent offices

Amendment 25E

Moved by Lord Stevenson of Balmacara

25E: Clause 17, page 16, line 36, leave out from beginning to end of line 2 on page 17 and insert—

(3A) No information shall be sent to a patent office outside the United Kingdom (“the other office”) in reliance on subsection (3)(aa) unless the other office provides the application number of a UK patent application and the application number of a patent application being examined by the other office which claims priority from the UK patent application; and no such request shall be acted on before one year from the filing date of the UK application.

(3B) Any information sent to the other patent office must be limited to information on search or examination carried out on the UK application.

(3C) Information shall not be sent to the other office unless working arrangements have been agreed between the comptroller and the other office, including provision for ensuring that the confidentiality of the information sent to the other office is protected.

(3D) The applicant for a UK application for which a request for information has been made by another office shall be informed of the request and of the information sent to the other office.

(3E) Information shall not be sent to another office in reliance on subsection (3)(aa) unless that other office is an organisation which carries out, in relation to patents, functions of the kind carried out by the patent office and which is on an approved list, which may be varied from time to time by statutory instrument.””

Lord Stevenson of Balmacara: My Lords, Clause 17 relates to the exchange of information with other patent offices. The idea behind this provision is, we suppose, to allow the exchange of search and examination results for unpublished applications, as information about published applications is already exchanged. The current exchanges increase efficiency, save duplication and unnecessary work, and are in every way admirable. Perhaps such exchanges are contemplated only with major offices, such as the USA, Europe, Japan and Korea.

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The effect of the proposals is much less clear. The new power given by the section is extremely broad. Any information that the other patent office requests may be sent subject to the working arrangements made with the other patent offices, of which only protecting confidentiality is said to be essential. Any patent office, which is quite broadly defined, may request the information. Possibly in the case of smaller countries the information provided from the UK could substitute for a local search or examination, which is not unreasonable, unless such requests would make too much extra work for the UK office.

The working arrangements are completely at the discretion of the comptroller. They do not have to be approved by Parliament, unlike many other powers proposed under this Bill. There is no limitation on the type of information that may be exchanged or the form in which it might be requested. For example, a request might be for details and copies of all applications in the name of company X relating to technology Y. Our amendment suggests that the provision should be substantially limited, in the following ways. Information to be exchanged should be limited to search and examination results. Information should be provided about UK applications only, designated by a UK filing number, from which priority has been claimed in the country of the patent office seeking information. No information should be provided earlier than one year from the date of the UK filing unless the applicant agrees otherwise. The UK applicant should be informed of the request and the information provided. Information should be provided to patent offices of countries on an approved list only, to be added to from time to time by statutory instrument. I beg to move.

Viscount Younger of Leckie: My Lords, Clause 17 will allow the Intellectual Property Office to share patent information on unpublished patent applications with patent offices outside the United Kingdom on a confidential basis for their use in processing similar patent applications filed with them. This will help speed up international patent processing. I hope that noble Lords will bear with me, as I have much to say in speaking to this amendment.

Amendment 25E would place various restrictions on the circumstances in which information may be sent to a patent office outside the United Kingdom. First, the amendment would introduce a requirement that the other patent office must quote the application number of a UK patent application when it requests information. It is absolutely the intention that information will be shared with other offices only where they have specified what information is required and in relation to which patent application, identified by the application number. It is for this reason that Clause 17 applies to such information as that office requests and only in accordance with the agreements made by the Intellectual Property Office. This is the approach taken when the IPO provides information to the European Patent Office in accordance with Section 118(3)(a) of the Patents Act and the European Patent Convention.

Secondly, the amendment would restrict the arrangements so that information could be shared only when an application had been filed abroad following

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a UK application. In practice, it is only when the other office is dealing with an application, which follows on from a UK application, that it will be able to gain any benefit from seeing the results of the UK work.

4.30 pm

Thirdly, the amendment would restrict the work-sharing arrangements so that information could be shared only 12 months after an application had been filed at the UK office. Restricting the provision in this way is likely to detract from the usefulness of the information to other offices as they may not receive the information in time for the completion of their own search and examination work on related applications filed in that office. None the less, I can reassure noble Lords that, in practice, the first opportunity at which useful information can be shared is after completion of the search by the UK office. Indeed, the existing arrangements with the European Patent Office operate in this manner. Requests from another office will therefore in practice not be made until after the applicant has filed a later application in that office that follows on from the UK application.

Fourthly, the amendment would restrict the work-sharing arrangements so that they apply to the UK search and examination results only. Work sharing will be of the greatest benefit if the context of the search and examination work conducted by the UK office is also shared. It will therefore be useful to that other office if the IPO is able to share, for example, the claims of a patent application that define the invention. That will enable the other office to work most efficiently with the information provided by the UK. I can assure noble Lords present today that the types of information to be shared extend only to that information likely to reduce duplication. I also suggest that requirements such as what information can be shared are far more suitable for inclusion in the working agreements between the IPO and the other office than for primary legislation. I have already referred to the existing arrangements with the European Patent Office and remind noble Lords that the details are not set out in primary legislation.

Fifthly, the amendment would require the IPO to inform each applicant that a request for information had been made in relation to their application and what information was being shared. I appreciate that it is essential that patent applicants must be provided with a full and complete explanation along the lines of the following: what information is being shared; from what point onwards; with which other offices it is being shared; and what restrictions are in place on the use of that information. That will enable patent applicants to make fully informed decisions about their filing strategies. I reassure noble Lords that my officials at the IPO intend to provide such information on the IPO’s website, which will provide applicants with sufficient notice of future plans to enable them to make fully informed decisions about their filing strategies. For example, the website will explain to applicants that the work-sharing arrangements will not share any information until a search has been completed. Providing this general information will mean that there is no need to inform applicants on an individual basis.

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Finally, the amendment would require an approved list to be created, as the noble Lord mentioned, by statutory instrument, listing to which offices the IPO may send information. The schedule to the Bill removes the need for the Government to introduce secondary legislation simply to update lists of countries. To introduce the requirement here would be inconsistent with the aim of simplifying processes under the Bill. None the less, as I have already explained, I appreciate that it is essential that patent applicants must be provided with full and complete explanations of the work-sharing arrangements as and when they are agreed so that they can make fully informed decisions about their filing strategies. Providing an approved list in legislation of potential countries for future work-sharing arrangements is likely to lead to confusion for other offices and patent applicants. A country may be included on that approved list even though no work-sharing arrangements are yet in place or even being considered. Users will therefore still need to refer to the IPO’s website to confirm the details of any existing or forthcoming work-sharing arrangements.

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I trust that my somewhat lengthy explanations have provided sufficient reassurances for noble Lords. In the light of my comments, I ask that the noble Lord, Lord Stevenson, withdraws his amendment.

Lord Stevenson of Balmacara: I thank the Minister for his very full response to the amendment. I think we are very close on a number of the matters. I did not pick up from his response whether this is for unpublished patents only, but perhaps he mentioned it, so I shall read Hansard carefully. I am grateful for the assurance that he has given, which will be of considerable interest to the patent industry. I beg leave to withdraw the amendment.

Amendment 25E withdrawn.

Clause 17 agreed.

Clauses 18 and 19 agreed.

Committee adjourned at 4.35 pm.