Gowers Review of Intellectual Property

Introduction

The UK’s Intellectual Property framework, both in legal provisions, and in the operations of Government, is a critical component of our present and future success in the global knowledge economy. Our economic competitiveness is increasingly driven by knowledge- based industries, especially in manufacturing, science, and the creative industries. The creative industries alone accounted for 7.8 per cent of Gross Value Added (GVA) in the UK in 2003 and grew by an average of 6 per cent per annum between 1997 and 2003. (DCMS Creative Industries Economic Estimates, DCMS (2005))

Intellectual Property protects the value of the knowledge that resides within goods and services. IP is one way of giving incentives to people and firms to invest resources in creative or inventive activities ranging from Pharmaceutical R&D to television documentaries. The IP system is made up of a small number of flexible instruments (copyrights, patents etc.) that are broadly adapted for creations, inventions, designs and product identifications. Whilst these statutory monopolies provide the incentive to invest, they are strictly limited to balance their costs: principally limited competition, high prices, and limited ’spill-over’ benefits of that knowledge. The state must ensure that this balance is appropriate. Equally important is the state’s role to award IP efficiently, and enable the market to use, licence and exchange that intellectual capital. Finally, it must ensure that IP owners can enforce their rights through both technical and legal means.

Globalisation & technological change have both raised tensions in the existing IP system. UK firms have greater opportunities to maximise the value of their IP abroad, and are simultaneously subject to foreign competition in domestic markets. Digitisation has radically lowered the cost of duplication as well as distribution, and the process of innovation has become ever more ‘networked’, particularly in high-tech sectors: a new invention typically involves more IP, and more firms collaborating, than 30 years ago. Indeed, in many areas it is no longer just firms who are responsible for innovation – consumers themselves increasingly play a part in developing innovative goods and services.

While it has been suggested that the present UK system strikes broadly the right balance between consumers and rights-holders, it also appears that there are a variety of practical issues with the existing framework. For example:

• Past legislative reform has resulted in a highly complex IP system. While a degree of complexity is inevitable in a system covering a wide range of products and innovations, aspects of the system appear to have become increasingly opaque. There may be options to improve the transparency of the system and increase business awareness of IP, making the system easier to navigate.

• Obtaining IP rights can impose significant costs on businesses and innovators. For example, evidence suggests that securing patent protection in a selection of European countries and in the USA typically costs around £75,000 over the first seven years, including legal fees and renewal fees. (The Financial Realities of Patent Protection, Frank B. Dehn and Co., Patent and Trade Mark Attorneys (2003)) Moreover, it appears to be considerably more expensive to obtain patent protection across Europe than it is in the US, largely due to translation fees and other costs at the national level. These figures do not include the costs of enforcing IP and challenging infringement through litigation, which also appear to be very high, often prohibitively so, especially for small and medium enterprises. This may be acting as a barrier to efficient enforcement of IP rights and equally as a deterrent to innocent parties being able to challenge dubious rights. Efforts to agree a European Community Patent, aimed in part at reducing these costs, have repeatedly foundered.

• While patents provide a vital incentive for innovation, the granting of overly broad patent protection, together with restrictive or restricted licensing of IP, can impede the development of the next generation of products and reduce competition. The practice of obtaining patents defensively also appears to be widespread in some industries, where rights holders have no intention to develop marketable products or to license the IP to others, but wish to prevent others from undertaking research and development in similar areas. Others may hold defensive patents and seek to generate revenue not by commercialising them, but by seeking out potential infringers and proposing licensing agreements to them under threat of litigation. While such practices are legal, they may hinder innovation if the original patent was dubious or too broad in scope, and impose barriers to market entry for those who have legitimate innovations but are unable to risk litigation. Use of a patent in a way that places a burden on innovation rather than stimulating it will not be achieving the objective of the patent system.

• The increasing complexity of high-tech products and of scientific research may also be leading to problems. Firms often need to use large numbers of existing patents to develop a new product. They may find themselves having to negotiate complex licensing agreements, often with multiple rights-holders holding overlapping patents, in order to emerge from so-called “patent thickets”. Delays in patents being granted can also lead to new products inadvertently infringing on patents issued after these products were brought to market. These problems are at their most extreme in high-tech industries such as computing and telecoms because of the complex and fast moving nature of the innovations concerned and the need to set formal technological standards and ensure interoperability.