Baroness Neville-Rolfe
Main Page: Baroness Neville-Rolfe (Conservative - Life peer)Intellectual Property (Unjustified Threats) Bill [HL]
Baroness Neville-Rolfe Excerpts(7 years, 11 months ago)
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The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills and Department for Culture, Media and Sport (Baroness Neville-Rolfe) (Con)
My Lords, it is pleasing that a number of technical and uncontroversial reforms have in recent times gone through the special procedure before this House which is reserved for Bills arising from the great work of the Law Commission. The most recent example was the Insurance Act 2015, which this House scrutinised towards the end of the last Parliament.
The Bill before your Lordships’ House today is similarly concerned with a complex and specialist area of law. It concerns a particular aspect of our intellectual property framework, and I am very grateful to the Law Commission and to legal, IP and judicial stakeholders who have worked together so effectively to produce these reforms. I hope my explanations today will help noble Lords to appreciate their efforts.
In my two years as the Minister for Intellectual Property, I have come to appreciate how important IP is to this country. The UK’s investment in intangible assets protected by IP rights has been estimated at more than £60 billion, equivalent to approximately 4.2% of total UK GDP. IP-intensive industries have been estimated to generate 37% of UK GDP. This Government also understand that a well-functioning IP regime is a vital foundation for economic growth. This is reflected in our manifesto commitment to make the UK the best place in Europe to innovate, to patent new ideas and to set up and expand a business.
To be successful, our intellectual property system needs to strike a balance. On the one hand, the law must reward innovators and ensure that their IP rights can be enforced. On the other, it is crucial that threats to sue for infringement are not abused, stifling new ideas and distorting competition. This concern is a real one, and the Bill before us today is designed to counter these risks. The costs of IP litigation are such that many businesses, understandably, wish to avoid it at all costs. The consequence is that the mere threat of proceedings for IP infringement is capable of driving customers away and causing significant commercial damage, especially if the threat is issued by someone with deep pockets and the other party is less favourably placed.
A threat to sue where there has been no infringement, or where the IP right in question is actually invalid, is known as an unjustified threat. Such threats are, I regret to say, not a new phenomenon. As long ago as the 1880s, unjustified threats were misused to damage trade rivals. In an early example, threats of patent infringement were made to the customers of a steam engine manufacturer by one of its competitors. The intention was simply to drive those customers away, and it worked. Parliament intervened in 1883 and provided a remedy for the person abused. Since then, similar statutory remedies have also been introduced in respect of trademarks and registered and unregistered design rights. These “threats provisions” offer much needed protection and provide remedies to those whose commercial interests have been affected by an unjustified threat.
But time moves on and new difficulties arise. Business and IP professionals have told us that the existing provisions do not work as well as they should, partly because they are overly complex. Experts can exploit loopholes in the law, while the unwary can find themselves unintentionally caught up in litigation. In addition, the provisions have developed in a piecemeal fashion across the different IP rights. Consequently, there are plenty of inconsistencies to further muddy an already complex area of law. This is particularly problematic for small businesses, which are disproportionately affected by the cost of any legal advice they require. They are a particular concern to this Government and to me personally.
A further problem arises over who should be approached when a question of infringement arises. Not all infringers are the same. Some, such as manufacturers and importers of infringing products, do more commercial damage than others and are better placed to determine whether a threat of infringement proceedings is justified. The threats provisions must differentiate between different types of infringement. This encourages rights holders to approach the most appropriate person or business, while protecting others, such as retailers, from unfair approaches and unreasonable threats.
In 2012, against this background, we asked the Law Commission to review the existing law of unjustified threats. The Law Commission consulted extensively in 2013 and made detailed recommendations for reform in 2014 and 2015. The Bill reflects those recommendations. The provisions in the Bill are essentially the same for patents, trademarks and designs—both registered and unregistered. For each right there are five main parts which deal, first, with the test for what constitutes a threat; secondly, with which threats are actionable; thirdly, with the safe harbour of permitted communications; fourthly, with the remedies and defences; and, finally, with exemptions for professional advisers.
It may be helpful to noble Lords if I briefly set out what each of those parts aim to do. The first is the definition of a threat. There are three elements to the test, which are to be understood from the perspective of a “reasonable person” receiving a communication such as a letter or email. Would a reasonable person, knowing what the recipient knows, understand from that communication that an IP right exists, that a person intends to bring proceedings for infringement of that right, and that the alleged infringement relates to an act done—or to be done—in the UK? If the answer is yes to all three aspects, then the communication can be said to contain a threat to sue for IP infringement. The test is taken from existing case law, with one change that provides the necessary link between the threat and the UK market. It also allows the provisions to apply to the forthcoming Europe-wide unitary patent, but not to apply outside the UK.
The second part sets out which types of threats trigger the threats provisions and which do not. The provisions set out that threats may be made freely to manufacturers or importers and their equivalents and they will not trigger the provisions. This allows rights holders to approach the trade source of a potential infringement, which could cause the most commercial damage. Manufacturers and importers are likely to be able to assess whether a threat to sue is justified and, having invested in the product in question, will be more willing to challenge the threat if it is not justified. In contrast, retailers, stockists and customers are unlikely to be able to make an informed decision about whether a threat to sue is justified. They are likely to be risk averse and want to avoid being taken to court and, as a result, they will probably simply stop stocking or buying the product in question without investigating further. Clearly, this is potentially unfair and damaging to a legitimate business. For that reason, threats made to businesses and people such as these are generally not allowed. Of course a rights holder may legitimately need to speak to such businesses, so the third part of the provisions gives guidance on what can safely be said to retailers or customers, and for what purpose. It clarifies the existing law by introducing the concept of “permitted communications”.
The fourth part of the Bill sets out remedies available in the case of a successful threats claim and the defences available to a defendant—the person who made the threat. The range of remedies available will be unchanged by the Bill. Damages may be awarded for commercial damage done by the threat and the claimant may seek an injunction to stop the threats, as well as a declaration that the threats were unjustified. I should stress that the threats provisions are not intended to stop rights holders being able to protect their assets, but to prevent the unscrupulous use of unjustified threats to manipulate the marketplace and prevent fair competition. Consequently, the ability to prove that the threat was in fact justified because an infringement occurred will remain a defence. An additional defence was introduced by the 2004 patents reforms. A person making a threat to a retailer or the like would have a defence if their efforts to find the trade source of the infringing patented goods were unsuccessful. This Bill will extend that limited but useful defence to trademarks and designs. The provisions also clarify that the person making the threat must use “all reasonable steps” to find the importer or manufacturer of the product in question before they are safe to approach the retailer.
The fifth part of the Bill prevents threats claims being brought against regulated professional advisers acting on instructions from their client. Currently, liability for making threats is not limited to the rights holder; any person who issues a threat will risk a threats action being brought against them. This means that professional legal advisers, such as solicitors and registered patent or trademark attorneys, may be held personally responsible for making threats even though acting on client instructions. This disadvantages rights holders as well as the legal advisers themselves. Threats actions can be used as a tactic to disrupt relations between adviser and client and may result in advisers asking for indemnities or telling clients that they can no longer act for them. The Bill therefore provides an exemption for professional advisers in relevant situations, but the instructing client will still remain liable for making the threat.
I hope that this explanation of the Bill’s provisions has been of assistance. I very much look forward to hearing what noble Lords have to say and to taking the Bill through the special procedure before the Committee, which I have not had the pleasure of using before and to which it is very well suited. These are worthy and important reforms, which will make a real difference to UK innovators, inventors and designers. I beg to move.
Baroness Neville-Rolfe
My Lords, I am very glad to hear such a welcome for the provisions in the Bill. It is based on careful and detailed recommendations from the Law Commission, which worked very closely with stakeholders to develop the proposed approach and the Bill itself. However, as I said in my opening remarks, this is a very complex area—“highly specialised”, in words of the noble and learned Lord, Lord Hope of Craighead. I therefore welcome the expertise in the Room and the experts we have in this discussion. That will be helpful when we come to Committee. I am especially grateful to the noble Baroness, Lady Bowles of Berkhamsted, for bringing her enormous experience to this area and for illustrating her comments with telling examples, which I am sure we will come back to when we come to the next stage of proceedings.
I also agree with the noble and learned Lord, Lord Hope, and my noble friend Lord Hodgson of Astley Abbotts, that we should thank and congratulate the Law Commission for and on its work. The debate shows what tough and specialist judgments it has to make all the time in the work it does. I agree with the noble and learned Lord that the Law Commission gives us ample reasons for supporting this reform—it seems to be of the right kind. I am obviously very aware of Sir Robin Jacob’s views, which do not, as he said, tally with those of most stakeholders, and I was glad to hear from the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and was pleased that he was struck by the quality of the Law Commission report. I also take this opportunity to thank my noble friend Lord Hodgson for the work he has done with the Law Commission, which I know it values. On his comments on the dissemination of better information on the Law Commission’s wider work, we will see how we can progress that, and if it would be helpful I will write to noble Lords.
Lord Hodgson of Astley Abbotts
It is not so much the dissemination of the Law Commission’s work but the question of where the individual reports have got to. It is not that nobody knows it is happening—its electoral law report is excellent—but it needs to be followed through, and if it is not, we need to be told why. Frankly, asking about this was a way to put pressure on the Government to make sure that this very good work is not dissipated. I understand that what the commission does may not always be acceptable—that is fine—but let us make sure that we either bring it forward and use it or kill it off and say that we do not want it. That is why I hope that the Minister will be able to tell us—not now; I quite understood that she could not do that, but perhaps she could write to those of us who have interests in this—the situation with regard to the tremendous work that the Law Commission has been doing on individual projects, not just this one.
Baroness Neville-Rolfe
I think I have already said I will write. In his inimitable way, my noble friend has pressed me on details. I am delighted to say that I will look into his points and write.
We can encourage the Government to do more to take up the Law Commission’s good work and progress it into Bills, if this Bill has a smooth passage. We need to resist the temptation to make it too much of a Christmas tree. I think that others have said the same thing. As the noble and learned Lord, Lord Brown, said, the Law Commission is a model of pre-legislative scrutiny, and we obviously should have proper regard to that.
As noble Lords have said, getting the IP framework right is key to supporting business, especially small business, entrepreneurs and the economy and society. I was so glad to hear from my noble friend Lady Wilcox from her own experience of pressing ahead and having success in defending her own inventions—a role model, if I might say.
We also need to prevent the misuse of threats to sue for IP infringement as a way to distort competition, so getting the IP threats provisions right is important for supporting our creators, innovators and businesses large and small.
The noble Baroness, Lady Bowles, had a number of questions on the Bill which I will seek to address. I suppose there is a flavour of being underwhelmed. I would say that the Law Commission made 18 detailed recommendations across the whole area to tackle the problems that stakeholders had identified. The Government have accepted all these recommendations, and so have brought forward changes across the whole scope of the Law Commission’s work. I think the noble Baroness felt that there might have been a missed opportunity to change the Civil Procedure Rules. The Law Commission has at all times been mindful of fitting the new provisions into the framework of negotiation and settlement set out in the Civil Procedure Rules. That was a good point to make.
The noble Baroness also asked about compliance with the Paris convention, which I am sure we shall hear some more about. This was a complex point which the Law Commission discussed in its report. However, I do not accept that the Law Commission would, after its careful work, put forward reforms which were somehow non-compliant with international obligations. That is not the case.
The noble Baroness and the noble Lord, Lord Stevenson, looked forward to a more dramatic reform—a new tort. Of course, the Law Commission’s wide public consultation received responses from lots of different stakeholders. It ranged from rights holders and industry bodies to IP professionals and members of the judiciary, and explored the possibility of a wider new tort. But it has to be said that, by a large majority, the consultees—not just the legal stakeholders who you might expect but also organisations like the BBC and Qualcomm—preferred the model which this Bill will implement. Furthermore, as has been said, the introduction of the long-awaited Unitary Patent and Unified Patent Court means that change is needed. I think that makes it more urgent. Without question, protection against unjustified threats should apply to unitary patents. However, that is not going to be possible under the existing framework that we have. If we do not make the reforms that we are proposing today, we will, I fear, leave a loophole which might allow threats to be made freely regarding the unitary patent infringement.
As the noble Lord, Lord Stevenson, said, there are some wider issues here. I am keen to keep on the straight and narrow to progress this Bill but I am sure that there will be wider debates on these subjects here and, indeed, on other occasions.
The noble Baroness, Lady Bowles, also said that the Bill did nothing for threatened parties. Our businesses tell us that the problem is not that the existing threats provisions are too weak but that they are unclear, inconsistent and do not allow proper pre-litigation talks. Therefore, the measures in this Bill make it easier for all parties involved in a dispute over IP infringement to negotiate a settlement and avoid litigation. They provide a much clearer framework within which innovative businesses and third parties can operate, giving more certainty over what approaches can be made legitimately to potential infringers. I was especially interested in her US example because, in about 10 years of being head of legal affairs at a major retailer, the only time I experienced disturbing threats from an attorney was when I was engaged in an antitrust case in the United States. You cannot believe—or perhaps you can—the aggressive nature of the call I took, not that it changed my position. The noble Baroness also said that under the legal adviser exemption you should still be able to pursue extreme or abusive behaviour. I understand her sentiment, but malpractice will remain an issue for professional regulatory bodies. The exemption applies to regulated professionals. Lawyers who go beyond their instructions will still be personally liable, so I am not convinced that a complex exception to the new legal adviser exemption is right.
I should take this opportunity to respond to the point that the noble Lord, Lord Stevenson, made at the end of his contribution when he questioned whether there was a case for an exemption for legal advisers. There are two problems. One is that suing the adviser is used simply as a tactic to play games and disrupt negotiations. That also means that the clients have to indemnify their legal adviser to cover any damages or legal costs that the adviser may face when pursuing potential infringement, which means that the client ends up paying, rather than the adviser. Industry figures say that this is a worry for small businesses and makes them reluctant to tackle alleged infringers which, as we know from my noble friend’s experience, is right for them to do. The new exemption deals with this and will therefore benefit rights holders as well as professional advisers. It exempts only advisers who are acting on their clients’ instructions in a professional capacity and are regulated in the provision of the services they provide. Where the adviser is exempt the instructing client will remain liable for making the threat, as they are now. Therefore, as we see it, no loophole is created.
The noble Baroness, Lady Bowles, also said that she felt the remedies were not sufficient. I was interested to hear her remarks, but I do not believe that there was evidence in the Law Commission’s extensive consultation —the working group discussions—for extending the remedies, which we believe are effective, clear and well understood.
My noble friend Lord Hodgson, in a wide-ranging intervention, reminded us of the problem of Henry VIII powers and asked about the situation in the Bill. Stakeholders were keen that law on permitted purposes could evolve, so it is not a wide power. The courts must have regard to the exemptions that already exist, and the Bill sets out limits regarding what may not be a “permitted purpose”. He was also concerned that it addresses bullying of small firms by big business and the provisions provide a much clearer framework within which businesses and third parties can operate. We believe that this clarity helps SMEs to navigate the law. Less complicated provisions also mean that less complicated legal advice is required, so there is a proportionately bigger saving for SMEs. The new provisions are clear that the rights holders must be sure that the right is valid before making threats. They cannot just bully people, and the threats provisions exist to ensure that threats of infringement action are not misused. ADR was also mentioned by a couple of noble Lords, and I am sure that people will want to understand the context with regard to ADR at the next stage.
I was glad that my noble friend Lord Lucas joined the discussion today. He added the issue of copyright to our debate, and I am very grateful to him for sharing his own experience in such detail. It is of course outside the scope of the Bill, but it might be helpful if I make a few observations. We needed to repeal Section 52 of the CDPA to give the full term of copyright to artistic works, whether industrially manufactured or created as one-offs, and to meet legal obligations, which have been made very clear. Guidance has been published for effective businesses and this is a living document, which we can refine to explain terms such as works of artistic craftsmanship, as the need arises.
We cannot speculate as to what individual companies will do in terms of threats of legal action, but I do not agree that all defences have been swept away by this appeal, as he perhaps suggested. A range of copyright exceptions still apply—indeed they were the subject that we debated on my first day as Minister. Photographers can rely on Section 62 if their work of artistic craftsmanship is in a public place, so that is not restricted to sculptures. It is also not the case that a photograph of a painting of a street scene will now infringe the rights of creators in all cases bar sculptures.
We have put transitional provisions in place for those who had pre-existing contracts, so they have a little more time to adjust, but I am of course happy to provide further clarification if my noble friend would find that helpful.
My noble friend asked what we are doing about aggressive invoicing. I am aware that there are some firms of solicitors who are still in the habit of contacting alleged copyright infringers with a financial offer to settle out of court. We must remember that when carried out properly this approach is legal. The Solicitors Regulation Authority has shown itself able to act effectively where firms repeatedly step over the line and we support their efforts in that regard. The IPO has published guidance on what its users should do if they receive a notice alleging that infringement has taken place using their internet connection. The Government remain a great supporter of the Get it Right from a Genuine Site campaign, which sends out notifications which never ask for money but instead educates the internet user about the consequences of infringement and where they can access content legitimately. This work is very important in upholding respect for IP and ensuring that our creators get the return on their inventions.
My noble friend Lord Hodgson asked about guidance on the changes. There will of course be extensive guidance on them. He suggested that perhaps this should be a standalone measure, but the Law Commission has decided to include the provisions in the relevant parent Acts. I suppose this is, again, a point about good regulation. Not only is it less likely that changes are missed that way but it ensures that the parent Acts remain a one-stop shop for relevant law on each right. I hope I have understood correctly what my noble friend was asking.
I believe that reform of the threats provisions is long overdue and I am delighted that we have been able to find some parliamentary time to progress this important Law Commission Bill. It will deliver the changes desired by stakeholders. It will help business negotiate fairly over IP disputes, while protecting those businesses which can be most harmed by unjustified threats. It will provide clarity and bring much-needed consistency across a complex area of IP law. As a result, the reforms in the Bill will help us, in some measure, to deliver our manifesto commitment to make the UK the best place in Europe to innovate, to patent new ideas and to set up and expand a business.
As the noble Lord, Lord Stevenson, said, the provisions of the Bill will be subject to a special procedure—a new one for me—and I very much look forward to taking advantage of your Lordships’ considerable expertise in carrying forward the debate. I look forward to constructive and helpful scrutiny in this interesting area, of the kind which I know, from working with your Lordships previously, we can certainly expect. I commend the Bill.