|Hargreaves Report in UK Identifies 10 Ways to Reform IP Laws|
In his greatly anticipated review, Professor Ian Hargreaves has found that intellectual-property law, and copyright law in particular, is obstructing innovation and economic growth in the UK.
Released on 18 May 2011 Professor Hargreaves' report, 'Digital Opportunity: A Review of Intellectual Property and Growth', makes ten key recommendations for reform. While some of the recommendations are specific to the UK or EU, others may present solutions for problems in the Australian system.
Evidence-based intellectual-property policy
The first recommendation was that government should ensure that intellectual-property policy is based on objective evidence. It should 'firmly resist overregulation of activities which do not prejudice the central objective of copyright, namely the provision of incentives to creators'. The report contains some very strong comments on the impact of lobbyists on policy and suggests that 'evidence' produced by private interests ('lobbynomics') requires close and critical examination. On copyright piracy, evidence is scarce and the available studies are unreliable. However, sales and profitability levels in most creative business sectors are holding up reasonably well. Professor Hargreaves concluded that although many creative businesses are experiencing 'turbulence' from digital copyright infringement, the measurable impact of piracy across the whole economy is not as stark as is sometimes suggested.
Changes to copyright licensing
Professor Hargreaves's most radical recommendation is the establishment of a 'Digital Copyright Exchange', a network of interoperable databases to provide a common platform for licensing transactions. The potential benefits of the concept may include more efficient licensing; increased transparency, adaptability, and flexibility; and greater competition in digital-content markets. Although use of the system would be voluntary, a range of incentives and disincentives would encourage participation in the exchange. Disputes over use of works within the exchange would be dealt with by a special low-cost dispute-resolution system. Once established, the exchange would operate under light regulatory supervision and a code of practice.
It is not clear whether the exchange would act merely as a registry to enable potential licensees to locate rightsholders, or fully automate the licensing process. If the exchange is intended to operate as a platform for the sale of licences without negotiation by reference to a standard scale of fees, the setting of that scale is likely to be a Sisyphean task.
The report also advocates the introduction of codes of practice for copyright collecting societies that would be subject to approval by the UK's Intellectual Property Office and competition authorities. Collecting societies in Australia have already adopted a Code of Practice.
Licensing of orphan works
In another interesting recommendation, Professor Hargreaves advocates legislation to enable licensing of orphan works. Use of individual orphan works would be subject to a clearance procedure, and mass licensing of these works would be conducted through an extended collective licensing system. If the Digital Copyright Exchange is established, it could be searched to determine whether a particular work has been 'orphaned'. This issue recently arose in Australia where 16,000 radio plays held at the National Film and Sound Archive could not be released because the relevant copyright holders could not be located. A licensing system allowing the use of orphan works without penalty for breach of copyright would resolve this and other examples of 'cultural negligence'.
Copyright exceptions and limitations
Professor Hargreaves concluded there was a clear need to rebalance the interests of rightsholders and consumers in copyright exceptions. A potential solution was to import the US 'fair use' defence, which gives courts a wider discretion to determine whether particular unauthorised uses of copyrighted material are acceptable.
Fair use has been lauded as one of the factors creating a positive environment in the US for innovation and investment in innovation. The review praises the doctrine as offering 'a zone for trial and error, for bolder risk taking, with the courts providing a backstop to adjudicate objections from rights holders if innovators have trespassed too far upon their rights'. According to Prime Minister David Cameron, the founders of Google have said they could never have started their company in Britain because of the absence of a fair use defence.
Some concerns were raised about the introduction of fair use in the UK. Many submissions to the review raised the possibility that fair use would result in an American-style proliferation of high-cost litigation, or in uncertainty because there would be no body of UK case law to rely on; or that it would further confuse suppliers and purchasers of copyright goods. In response, Professor Hargreaves noted that creative industries continued to flourish in the US.
The review ultimately rejected the importation of the fair use doctrine as inconsistent with European law. Professor Hargreaves recommended that the UK should take up all the copyright exceptions permitted under European law, and press within the EU for an additional exception permitting uses of a work enabled by technology that do not trade on the underlying creative and expressive purpose of the work. It is difficult to imagine how this exception would allow anything more than a very narrow range of uses such as data mining (search-engine indexing). It will certainly not be a substitute for the balancing effect that a fair use doctrine might have had.
The issue of the introduction of a 'fair use' doctrine in Australia has been the subject of discussion over many years. Recently it has gained further traction due to changing technology and the need for a more flexible approach.
Copyright and contract
The review also recommended that the law be amended to make it clear that no exception to copyright can be overridden by contract. A similar recommendation was made in Australia by the Copyright Law Review Committee's 2002 'Copyright and Contract' report, but that recommendation has not yet been acted upon.
The review is surprisingly unforthcoming on the issue of enforcement, perhaps because of scepticism about the Digital Economy Act 2010, which provides for a substantial increase in enforcement action against those suspected of online breaches of copyright. Professor Hargreaves emphasised that this legislation needs to be carefully monitored.
The review recommended that the government should respond in four ways: by modernising copyright law, with education, with enforcement, and by encouraging open and competitive markets in licensed digital content to produce more legitimate content at prices that appeal to consumers.
Small and medium enterprises
The review goes to some length to ensure that its observations and recommendations make sufficient provision for small and medium enterprises. Professor Hargreaves specifically recommended that these organisations be able to access lower-cost advice on intellectual property, and that a small claims track be introduced in the court to make it easier and cheaper for smaller organisations to protect their intellectual property. In Australia a similar approach was adopted by expanding the jurisdiction of the Federal Magistrates Court.
Patents and designs
Although the UK patent system is 'functioning reasonably well', increasing numbers of patent applications are resulting in higher transaction costs, patent thickets, strain on patent offices, and a disproportionately high number of patents of uncertain validity. Professor Hargreaves recommended that the government promote international efforts to extend 'work sharing' regimes with other national patent offices; ensure that patents are not extended into new sectors (e.g. non-technical computer programs and business methods) without clear evidence of benefit; and investigate ways to reduce patent thickets for example by increasing patent fees.
The design sector is likely to be disappointed by the review's summary discussion of designs. Professor Hargreaves confirmed that the patchwork of intellectual-property law that applies to design protection puts designers at a disadvantage, and recommended a thorough evidence-based assessment of the relationship between design rights and innovation 'with a view to establishing a firmer basis for evaluating policy'.
The review asserted that the implementation of all recommendations would produce a clearer intellectual-property law that would be observed by most people without controversy. It also cites economic-impact assessments estimating that the recommendations would result in an additional 0.3 to 0.6 per cent of annual GDP growth.
Given the fate of previous intellectual-property reports in the UK, like the Gowers report (2005), which was largely ignored, these sanguine claims are unlikely to have the chance to be disproved. However, the review offers a very useful high-level commentary on the state of intellectual-property law in the UK, and it can be expected to influence any future examination of Australia's copyright law.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on June 7, 2011