I beg to move, That the Bill be now read a Second time.
In his foreword to the Government's innovation report at the end of last year, the Prime Minister stated:
"The creativity and inventiveness of our people is our country's greatest asset and has under-pinned the UK's economic success".
Unsurprisingly, I agree with him. That creativity and inventiveness was vital to the emergence of the UK as the first industrialised nation in the 19th century and it remains the key to maintaining the UK's position as one of the G8 leading industrial and economic powers in the 21st century.
A mature economy like ours cannot compete with the newly emerging economies of the far east in terms of cost of labour or production. As my noble Friend the Minister for Science and Innovation reminded us in the other place, wages in China are 5 per cent. of what they are in the UK. In South Korea, which has an equivalent proportion of university graduates in the work force, the labour costs are about 50 per cent. of those here in the UK.
Our future prosperity is dependent on how effective we are at using our knowledge, or in other words our intellectual capital, to compete in the ever more rapidly changing global marketplace. Creativity and inventiveness are essential if we are to deliver more high value, high quality sustainable jobs. Those factors are also important if we are to continue to reduce our environmental impact. Innovation will help to build further successful businesses and provide even better services and products for consumers.
The most important assets for today's company are the knowledge and expertise of its work force. That knowledge and expertise represent the intellectual capital of the company. In exactly the same way that financial capital must be managed effectively to ensure the survival of the business, intellectual capital must be developed. That will ensure that a company can create new products and develop existing ones. In the 21st century economy, successful UK businesses are increasingly characterised by a high investment of intellectual capital. Such investment permits them to create high value knowledge-intensive products or services.
It is no coincidence that the computer and office equipment industry, which showed average annual growth of 16 per cent. between 1991–2001, is also one of the highest employers of graduates. More than a quarter of the employees in companies in that industry have university or college degrees. Every time that a company applies new knowledge, or uses existing knowledge in a new way, to solve a business problem, it is making effective use of its intellectual capital. Protecting those unique knowledge-based solutions will be an increasingly important part of a company's business activity.
Worldwide there has been a rapid rise in the use of patents, and other forms of intellectual property rights, by companies to protect their intellectual assets—the fruits of their intellectual capital. For example, applications for patents using the international route under the patent co-operation treaty have grown from just over 7,000 in 1985 to almost 104,000 in 2001, representing a nearly 15-fold increase in as many years.
A patent provides a company with a legally enforceable means to prevent others from taking advantage, without its agreement, of the unique solutions, products or services that it has developed. The holder or owner of such a patent has the exclusive right, for up to a maximum period of 20 years, to recoup the investment he has made in developing the invention. The recovery of investment can take a number of forms. For example, the patent holder may grant a licence to a third party to use his invention, and be paid a licence fee by them for doing so. On the other hand, the patent holder could decide to use the patent as a means to prevent competitors from entering the market, while he establishes his business manufacturing the product, or performing the process, protected by the patent.
I would be the first to admit that the whole area of patents is not one that I was especially acquainted with before being asked to present the Bill to the House. I am sure that many hon. Members are in a similar situation. The Government's innovation review has identified a similar lack of awareness about all aspects of intellectual property amongst UK businesses. However, after only a brief involvement with this topic, I have come to appreciate just how important it is for UK businesses to safeguard their intellectual assets.
UK businesses have to compete in national, regional and global markets. As a result, they need a system that will deliver protection of their valuable intellectual property assets in all those markets. The Patents Act 1977 is key legislation in the area and, in its nearly 30-year existence, it has fulfilled two functions. First, it delivered the modernisation and reform of UK domestic patents law. Secondly, it allowed the UK to ratify a number of international patent agreements, which provide UK businesses with regional—that is to say, European—and global routes to patent protection for their inventions.
Ratification of the 1973 European patent convention has allowed UK applicants to obtain patents that are effective in any combination of up to 28 European countries using a single one-stop procedure. That includes nearly all our EU partners, as well as the UK. That one-stop approach provides what is in effect a bundle of national patents, which provide enforceable protection in each country, once an official translation has been filed and the appropriate fee paid.
Following an intergovernmental meeting in November 2000 of representatives from all the European states that had ratified the convention, a significant updating and streamlining of the 1973 European patent convention was agreed. All the states represented agreed to implement the changes into their domestic law as soon as possible.
As a consequence, the first objective of the Bill is to amend the 1977 Act to give effect in UK law to the changes to the 1973 European patent convention agreed in 2000. Failure to ratify the revised European patent convention would mean that the UK would have to leave the European Patent Organisation, the body set up to provide a single one-stop procedure for obtaining European patents. The consequences of such a failure for UK businesses would be unacceptable.
By bringing UK patent law into line with those revisions to an international treaty, we will ensure that UK businesses can continue to use that single one-stop procedure to obtain European patents valid in the UK and Europe. In 2002, UK businesses were the third largest users of the European patent system, both in terms of patents applied for and patents granted. On average, each patent provided protection in 10 countries. If we had to leave the system, UK businesses would experience increases in bureaucracy and costs. They would no longer be able to obtain patent protection that included the UK and all other European countries, using a single application and one set of fees.
As one of the prime movers in setting up the European Patent Organisation, it is important that the UK is seen to take a leadership role in its ongoing improvement. In meeting our obligation to ratify the revised European patent convention, we can continue to influence future developments for the benefit of UK business.
Clauses 1 to 5 deliver the required changes to the 1977 Act to honour our undertaking to implement the revised European patent convention. Clause 1 does two things. It makes it clear that a patent cannot be obtained for a method of medical treatment or diagnosis, such as a new surgical technique. It also gets rid of the need to use a rather specialised and complex form of language when obtaining patent protection for a new medical use of a substance that already has a known use in medicine. Patent protection will be easier to obtain if, for example, someone discovers that a substance that has already been patented for use as a painkiller can be used to treat heart disease.
Clauses 2 to 4 cover various issues arising from the new procedure, referred to as central limitation, which will be possible under the revised European patent convention. The procedure offers a new way for the patent holder to limit or reduce the scope of protection given by the European patent, through a single process at the European Patent Office based in Munich. It will avoid the patent holder having to go through the expensive and time-consuming process of amending his European patent separately in each of the countries where it is in force.
Clause 2 ensures that existing procedures for amending patents in the UK are aligned with the relevant procedures for doing so under the revised European patent convention. It does that by ensuring that the courts and the Patent Office take account of
"any relevant principles applicable under the European Patent Convention".
That will ensure that consistent standards are applied to the amendment of patents that are in force in the UK, regardless of the route chosen to make those amendments. The proposal was strongly supported by UK users of both the domestic and the European systems. Although it may restrict the current discretion of the courts or Patent Office on the issue, which is exercised to protect the public from patent holders who act in bad faith, clause 2 contains new measures to ensure that the public remain protected, but in a different way from that used at present.
In proceedings before the courts or the UK Patent Office, a problem may be identified as to the scope of a European patent that is in force in the UK. Clauses 3 and 4 ensure that in such circumstances the holder of the patent can use the new limitation procedure to address the problem, thereby preserving the validity of his patent. He will be able to limit, or reduce, the scope of his European patent centrally, in one step, at the European Patent Office. That change will then be effective in all the countries in which the European patent is in force, including the UK.
Schedule 1, which is introduced by clause 5, covers all the other changes to the 1977 Act necessary to meet our international obligations. It is worth noting that some of those changes involve updating the relationship between UK domestic patent law and the patent co-operation treaty, which provides a system for obtaining patent protection in up to 123 countries based on a single patent application.
The second part of the Bill is concerned with amendments to the 1977 Act, which will improve the handling of disputes over patents and make the UK patents system more responsive to the needs of its customers. The Patent Office has jurisdiction to consider a wide range of disputes over patents.
Issues that can be dealt with at the Patent Office include whether the patent is valid; in other words, does it meet the legal requirements for granting a patent? Is there confirmation, for example, that a certain act using process y or making product x does not fall within the scope of a particular patent and does not thereby constitute infringement of that patent? Has an employee who made an invention received just and fair compensation from his employer who holds the patent and has successfully exploited it? Are all the people listed as applicants on the patent entitled to be so?
The Patent Office has built up a large reservoir of relevant experience in dealing with many of the issues that arise in patent disputes. We feel that this experience is not being exploited to its full potential. At the same time, we are aware that some users of the patent system are becoming increasingly concerned about the enforcement of their patent rights. This concern has focused on the cost and time taken for patent litigation. A report on a patents case in the Financial Times on 28 November 2003 brings this point home. The judge hearing the case was sharply critical that a four-day hearing had involved costs of £850,000.
A consequence is that many companies, especially those in the small and medium-sized sector, which are so important in terms of creating jobs and are often the most forward thinking and innovative, may find it too difficult to support the financial and time requirements to enforce their patent rights. It is argued by some—although it is by no means a universally held view—that this leaves some companies unable to gain any real advantage from their inventions and acts as a disincentive to innovate.
That has been an important driving force behind recent efforts to update the patents county court to provide a more flexible, user-friendly and less expensive forum for the litigation of patent disputes. Following extensive consultation and the involvement of users, a new streamlined procedure for handling such disputes has just been implemented under the able guidance of the patents county court judge, his honour, Judge Fysh. Early signs are encouraging that these efforts are starting to bear fruit, although patent litigation is still likely to involve a cost that small and medium-sized companies would find difficult to bear. As in any area, litigation should be embarked upon only after very careful consideration of the costs and alternatives.
With those issues in mind, the Government have decided, in the Bill, to make a number of improvements to how patent disputes can be handled and to make greater use of the acknowledged expertise of the UK Patent Office. Clause 13 provides the framework for a new procedure whereby the Patent Office can provide, on request, an impartial opinion on certain issues that are likely to arise in a patent dispute. The two most common questions in such disputes are, first, whether a certain act, such as making product x or using process y would fall within the scope of the invention defined by the patent and so result in an infringement of that patent and, secondly, whether new evidence, such as an article published in a scientific journal, that was not considered at the time that the patent was applied for means that the patent should not have been granted—in other words, does that mean that the patent is not valid?
A realistic assessment of the answers to such questions is essential for anyone considering or facing patent litigation. The earlier such an assessment is made the better, as the more helpful it can be in deciding the best course of action. A patent holder may ask himself, "Should I litigate? Should I seek a licence? Do I need to think about amending my patent? Should I seek a settlement?" Such opinions will not be legally binding on any party, but they will provide an affordable and prompt assessment generally based on a consideration of both sides of the argument—for instance, that of the potential infringer and of the patent holder. The details fleshing-out this framework will be laid down in secondary legislation, following consultation with users and stakeholders on how best to implement this new procedure. We believe that such a procedure, with its emphasis on balance, affordability and timeliness, will be useful to any party, but especially to those, such as small and medium-sized enterprises, that must decide how best to enforce their patent rights.
Clauses 11 and 12 provide useful improvements in the area of infringement disputes. Following the spirit of the widely adopted reforms proposed by Lord Woolf some years ago, clause 12 would make changes to help a patent holder who is genuinely interested in settling a dispute. An approach to those whom he believes are carrying out the infringing act—for example, making or importing a product that is covered by the patent—will be easier. In situations where that person is not easy to identify, an approach could be made, under this clause, to a retailer supplying the suspected infringing goods or services in order to find out from where or whom he is obtaining his supply. If such an approach is made in the manner consistent with clause 12, the patent holder will not leave himself open to legal action from the retailer for making a groundless threat to launch infringement proceedings.
As a result, provided that a patent holder behaves in an appropriate manner, he will find it easier to identify the source of material that he suspects is infringing his patent. Once that source is identified, the patent holder will be able to seek to negotiate a settlement of the dispute. If the manufacturer or importer cannot be discovered, after the patent holder has made "best endeavours" to do so, the patent holder will be able freely to approach the retailer and seek a settlement without fear of an action for groundless threats. Following successful infringement proceedings before the Patent Office, clause 11 makes it easier for the patent holder to enforce an award for damages.
A group of improvements deals with disputes on issues other than the validity or infringement of a patent. The 1977 Act recognised for the first time that an employee should have certain rights to compensation in relation to inventions made by him that have been successfully developed by his employer. Analysis of responses to the public consultation that preceded the Bill concluded that there was no appetite for a major change. There is concern that the provisions do not serve a useful function, based mainly on the fact that there have been no successful claims for compensation to date from employees. However, the provisions have provided companies with a strong incentive to put in place their own arrangements to reward employees who make important contributions to their businesses. One such contribution is, of course, inventing a new product or process that the employer has patented and successfully exploited commercially.
The modest change proposed in clause 10 will allow an employee who is seeking compensation to include benefits that flow from the invention itself, in addition to those benefits that flow specifically from the patent, when required to show that a patented invention is of outstanding benefit to the employer. That will provide the employee with a limited increase in the range of benefits he can suggest as evidence to meet the outstanding benefit threshold. The change does not upset the careful balance that has to be maintained between the rights of the employee on the one hand and those of the employer on the other.
Clause 6 ensures that in disputes over who should be named as the applicant for a patent—usually referred to as entitlement proceedings—the unsuccessful party cannot reduce the patent protection available to the successful party by making details of the patent application public.
The final change to disputes is set out in clause 14, which lays down the circumstances in which a party is required to provide a security for any costs that they may be required to pay at the end of the proceedings in the Patent Office. In that respect, it brings the law on patents into line with the more recent law on trade marks contained in the Trade Marks Act 1994, and will also ensure that the rules are consistent with those governing civil procedures in the courts.
The second part of the Bill also provides for a group of changes to the 1977 Act to improve the service offered by the Patent Office to users in practical and useful ways. Clause 8 gives users more flexibility when paying the fees to renew their patents. The deadline for paying such a fee will be changed to the last day of the relevant month in which the fee is due. That has two advantages. First, it simplifies the record keeping required to manage a UK patent portfolio. Secondly, it brings the UK into line with practice in the other countries in the European patent system.
If a patent is held or owned by more than one person, clause 9 makes clear the relationship between the co-owners in situations in which they have made no agreement or contract between themselves on how to act.
Clause 7 limits the occasions when a UK resident who wishes to apply for the patent in another country must seek permission from the UK Patent Office to do so. In future, only the small proportion of UK residents who apply for a patent that relates to military technology or to an invention that raises national security or public safety concerns will need to ask for or seek such permission.If the application relates to any other subject, the applicant will be free to file it abroad. However, a criminal offence will still apply to a deliberate or reckless failure to seek permission, when required.
Schedule 2 completes the group of changes and contains some more minor improvements. For example, it will be possible for the Patent Office to agree to a request from an inventor who wishes to keep his name and address confidential. It will also be easier for the Patent Office to change and update the application forms it uses, following feedback from customers. The schedule also deals with consequential amendments to the 1977 Act.
Although hon. Members may find the topic of patents technical and difficult to follow, we must all appreciate the importance to the UK economy of useful and effective legislation in the sector. Although the Bill is, thankfully, small, it is important. It is essential if we are to fulfil the undertaking that the UK gave in November 2000 to ratify the revised European patent convention. In doing so, we will be making clear our commitment, as its third largest user, to the development of the European patent system. At the same time, the Bill provides important improvements to patent disputes. It will permit UK business to make best possible use of its most important asset—its intellectual capital and knowledge resources. I commend the Bill to the House.
I largely agree with what the Minister just said and I hope that he does, because I would love to give him an exam on what he has just told us. There are some Bills that grab the attention of the British people and change the course of British history or even that of the world, but this is not one of them.
My right hon. Friend may be right in the narrow sense of the Bill, but he is certainly not right in the wider sense of the importance of patents, many of which have transformed British history.
My hon. Friend is way ahead of me, as always. However, the Bill does not change the law of patents very much. It is one of those Bills that tidies things up a little and brings things into line; there is nothing radical or far-reaching about it. There is, however, one very important matter that we need to clear up from the beginning: is it "pa-tent" or "pay-tent"? The Minister covered the ground adequately by using both pronunciations, but we need to work out which it is to be.
I took advice on this matter. The pronunciation depends on which part of the country people come from, so I thought it important to use both, so that I did not upset or offend anybody.
We have probably used up all the nanoseconds that we might have saved so far in the debate, so I had better move on.
The Bill attempts to improve an area that, as my hon. Friend Mr. Taylor said, is of huge importance to the British economy—that of innovation and invention. It is therefore an important Bill in spite of its generally uncontroversial nature. I should like to express my gratitude and appreciation for the work that has been done by my noble Friend Earl Attlee and many others in another place. The Bill comes to us in pretty good shape because of that. I also thank the Minister for encouraging his Bill team to brief me, and I thank the team for its useful and clear information. I thank, too, several other professionals and professional bodies who have helped me with this very technical Bill.
The Minister explained that the Bill's purpose was to bring British law into line with the minor changes recently made to the European patent convention and to take the opportunity to make a few further minor changes to our patent law. I agree with his explanation.
Before I go into the detail of the Bill, I should consider the backdrop against which it stands. Patents are one method of protecting our intellectual property. I am delighted to say that the first known cause of letters patent being granted in England was in 1449 to John of Utynam for a method of making stained glass windows in Eton college. The whole purpose of patents is the protection of new and improved products and processes that are capable of industrial application. They allow the patent holder, in return for making public his idea—a very important concept—the benefit of a monopoly of exploitation of that idea for up to 20 years. For that reason, they are crucial to what we regard as one of the unique selling points of the British economy: our high-tech, highly skilled businesses.
Increasingly, businesses send offshore activities that can be done abroad equally well, less expensively and, I might add, with less Government interference and bureaucracy. If we are to compete we will have to do so in those areas where our skills and inventiveness make the difference, as the Minister said—I was listening to him. Patents are one way of protecting that inventiveness. The alternative is usually thought to be to keep the invention secret, but that deprives us of the knowledge of an invention that might spur further thought, inventiveness and innovation. Secrecy is antipathetic to the knowledge economy and bad for science.
At the Lisbon summit in 2000, the European Council of Ministers rightly expressed the wish for the EU to become
"the most competitive and dynamic knowledge-based economy in the world by 2010".
That is why we need a thriving patent culture in this country. Unfortunately, we do not have one. In an article in the Financial Times of
"Bottom of the pile for patent enthusiasm was the UK, where only 23 per cent. had used the system. In contrast, more than half the Spanish SMEs were using patents."
Britain is falling behind within Europe, but there is also a widespread lack of patent use in Europe as a whole compared with the USA and Japan. There seem to be several reasons for that, one of which is that, in the USA, it is possible to take out patents for processes that, in Europe, are not patentable—for example, business methods. Of course, that leads to more patents being taken out in the USA. The Opposition do not suggest that the UK should go down that road, however, as the USA has run into considerable difficulties.
Other reasons why the USA and Japan have more patents than we do are more germane to the Bill. The first is costs. To obtain a patent in the USA costs about £10,000; in Japan, it costs about £16,000; but in Europe, it costs £50,000. Little wonder that Europe is falling behind in the use of the patent system. A large part of the European cost—about £12,600, according to the House of Commons Library—relates to translation, but renewal fees and agents' fees in Europe are far greater than in the USA or Japan. There seems to be a similar discrepancy in the time required to take out a patent: one inventor told me that whereas it takes three years to obtain a patent in the UK, the same process can sometimes be completed in much less than one year in the USA.
The cost of translation is one of the greatest costs that fall on someone taking out a patent. In his winding-up speech, will the Minister say where we stand on that issue? In another place, Lord Sainsbury said:
"The cost of translation of patents is stupendous and we need to have one language for them all."—[Hansard, House of Lords, 26 January 2004; Vol. 657, c. 42.]
We agree with him, especially if that one language turns out to be the one most spoken in the developed world—English. Am I right in thinking that the prospect of reaching agreement on a single language has now receded? What has caused that breakdown and how are the negotiations to get back on track? What are the Government doing about a matter that causes inconvenience and expense not only to Britain, but to all the signatories to the European patent convention? How can Europe expect to compete with Asia and the Indian subcontinent if we cannot agree even on that?
The system in the USA is three times quicker and five times cheaper than the one in Europe. A survey last month by the Swiss business school IMD showed that the most competitive economy in the world was that of the USA and that the UK had fallen a further three places to 22nd. Not only are we not meeting the goal of the Lisbon summit, we are going fast in the opposite direction. To see at least the symptoms of that decline, we need look no further than the way in which we run our patent system. Yet here we have a Bill that deals with none of that—it is a steady-as-we-go Bill, but we are not very steady at all. The costs and the time taken could be shaved a little, which we welcome, but we need to see a step change, and we are not seeing one.
The Bill brings us into line with the revised European patent convention. Unless that happens, we cannot remain a signatory to the convention. That would be a bad thing for all manner of reasons that I shall not go into, but principally for the reason of commercial convenience. When an inventor takes out a patent in the European patent office, he takes out a bundle of national patents in different countries to protect his invention. If we ceased to be a signatory to the convention, the alternative would be for the inventor to take out lots of individual patents in those different countries or to forgo the protection that a patent would grant.
It might be worth our while to consider why the European patent convention needed changing at all in 2000. The changes were both substantive and procedural, but will the Minister explain why they were necessary? We accept, of course, that they have now happened, but was there some glaring lacuna in the previous convention that was holding Europe back? What was the commercial demand for the changes that were made at Munich in November 2000? Might it be said that, while the Munich convention dealt with some of those issues, it left a great deal still to be dealt with, including the issues of a single language, computer programmes—currently the subject of a review—and biotechnology?
If there is still much to be done, what is the prospect of a new patents Bill being introduced in the near future to put into effect any further changes to the European patent convention that might be needed? The Minister will be pleased to hear that it was agreed at the meeting in Munich in 2000 that there should be a meeting of patent Ministers every five years to review the convention. I know that the Minister will look forward to those meetings, as do I. It surely follows from that that we can now expect a patents Bill every five years, if only to allow this country to remain a signatory to the convention. Will the Minister confirm that he expects that to be the new pattern? After all, we have had only three Patents Acts since the 1940s.
One important aspect of patents that is barely covered by the Bill is enforcement. The enforcement of patents is extremely expensive. It involves the examination of technical processes and the use of expensive litigators, and cases can—and often do—go on for years at a cost of millions. It has been suggested to me—I stress that I do not know whether it is true—that large companies frequently steal the technical know-how of small and medium-sized enterprises, relying on the relative poverty of the SMEs and the huge enforcement costs in time and money involved in fighting off any patent action. The Minister might suggest that there is no evidence for that, but will he tell us what surveys he has conducted to find out whether it is true? What evidence would he expect there to be? If SMEs are so daunted by the costs of enforcement that they simply do nothing, how does he propose to find evidence of that nothing?
The patent reform group is a pressure group that has come into being to take action on this issue and it described one of the most important reasons for there being fewer patents granted in the UK. In the normal course of a patent action, the patent holder first tries to communicate with the alleged infringer, and those communications are largely ignored. The patent holder then begins an action. The alleged infringer responds that the patent has not been infringed and that it is anyway invalid. Then, if the patent holder is an SME, the alleged infringer applies for security for costs, which could amount to hundreds of thousands of pounds. The patent holder is then precluded from applying for exemplary damages because he is suing for breach of patent, not breach of copyright. Finally, to add insult to injury, according to the patent reform group, any damages achieved by a successful patent action are subject to tax, while the infringer can get tax relief on the legal costs of even an unsuccessful defence. That may be so and I will be interested to hear the Minister's reaction.
One of the proposals of the patent reform group has been that a fighting fund should be set up to help small businesses finance infringement court cases. The Opposition are not sure whether such a fund could in practice do much more than scratch the surface of the problem. It could also be argued that such a fund, which would have to be paid for by all those who apply for patents, would be yet another burden on those applicants, who have enough to cope with already. Nevertheless, we recognise that for some businesses it is a problem of great seriousness and we intend to probe the Government's thinking in Committee. It is a huge issue and the Minister may tell us that this is too small a Bill and that it is too early to deal with so large a point, but let him take care not to fiddle while the patent system burns.
The patent reform group dismisses the effectiveness of the new patent county court, which was introduced by the Copyright, Designs and Patents Act 1988. It is true that it has taken a while to find its feet. In another place, Lord Sainsbury said that it had had a slow start. In recent months, however, it has been working well and perhaps ought for the time being to be given the benefit of the doubt.
The Government have taken the opportunity of this Bill to tidy up aspects of the law that consultations suggested required it. It seems to me that those tidying-up aspects are of considerably greater significance than those bringing UK law into line with the European patent convention.
One important issue addressed in another place as a result of amendments tabled by the Liberal Democrats and supported by the Conservatives was inventor confidentiality. Those working in bioscience have an understandable desire to keep their names secret, in view of the attacks that have sometimes been made on them, their families and their businesses. As a result, the Government amended the Bill, after initially refusing, as a result of the consultation, to do so, to allow the Patent Office to keep the inventor's name secret. But there is a new difficulty, which has been raised with me by the BioIndustry Association. It is concerned that, if inventors' names are kept confidential, the ability to search for, and challenge, UK patents will be restricted. How do the Government expect this to work? The BIA suggests that it would be preferable to withhold simply the inventor's home address. I do not know whether that is the right answer, but it may be.
In practice, how do the Government expect this to work within the jurisdictions of the other signatories to the EPC? Clearly, there is little point in concealing something in the UK Patent Office if it is readily available elsewhere, perhaps even readily available on a website that is accessible from the UK. Do the other countries have similar problems with the safety of bioscientists? Does the Minister believe that they would be prepared to adapt their rules to allow a confidentiality that does not currently exist?
On employee inventions, clause 10 amends the law to state that, when an employee has made an invention that belongs to the employer, and there is as a result an outstanding benefit to the employer, the employee shall be entitled to compensation. The amendment relates to the Government's view that that compensation should arise not just when the existence of the patent is of outstanding benefit to the employer but when the making of the invention—or a combination of the two—is of outstanding benefit to the employer. It may be that that is not a distinction of huge importance. In most cases, it probably will not be. Nevertheless, I am afraid that the Opposition simply do not understand it; at least I do not—my hon. Friend Mr. Taylor understands all about these things, so he will probably be able to explain it to me. I would be grateful if the Minister could explain what is the thinking behind this change and why it is necessary. The whole rationale behind the employee compensation provisions in the Patents Act 1977 seems questionable and this extension appears to require some justification that we have not heard so far.
Let me present two cases to the Minister. In one, an employee has produced an invention for which the employer decides to apply for a patent. In the other, the employer decides not to apply for a patent. Am I not right in thinking that the compensation provisions apply in the first case but not in the second? If so, that strikes me as a silly anomaly. It may exist under current law, but it seems odd to extend the chances of its applying.
Most good employers already provide for such compensation in their workplace schemes because it is commercially sensible to do so. That may be why there has never been a successful case relating to it. I put that the other way round from the way in which the Minister put it, just to prove once again that I was listening to what he said. It seems odd to us that there should be a role for the law to play in what ought to be a very subjective area of the relationship between employer and employee.
Clause 13 introduces a new procedure, involving an opinion from the Patent Office on the validity or infringement of a patent. As the Minister explained, the new procedure will be non-binding. It has been the subject of much comment: indeed, in the Hen and Chicken in Froyle they talk of little else. Perhaps most people's reaction has been, "If it is not binding, who cares?" Some have said that the proposal is not as bad as it might have been, others that the Government had to think of something to help small businesses and this, unfortunately, was the best that they could come up with. It has been extensively damned with faint praise.
We think that that is a little unkind. The aim behind the proposal, taken with the new provisions on threats of infringement proceedings, was to provide some mechanism through which people in dispute over a patent could engage in some form of negotiation rather than heading straight for the courts. It remains to be seen whether these provisions will achieve that.
If the proposal constituted an excuse for the Government to fail to take proper and effective action to help small and medium-sized enterprises we would wish to hold them to account for that, but for the time being we are prepared to give the proposal the benefit of the doubt. Likewise, we are prepared to give the whole Bill the benefit of the doubt. I shall not be inviting my Conservative colleagues—either of them—to divide on it, because the thrust of the Bill, modest as it is, is largely benign. Our general approach will be to examine the Bill in Committee and improve it wherever possible. It is modest, however. It does not do much, although it may do a bit of good. It is workmanlike and, no doubt, useful but if I were the Minister, I would want a better epitaph than that.
It is a rare privilege for us parliamentarians to discuss a patents Bill. As they appear only every 25 years or so, an MP can experience a whole parliamentary career without having such an opportunity. While there will not be dancing in the streets of Newport, I believe that the whole city will be suffused with a pleasant glow at the news that the Bill has been given a Second Reading.
The Minister was magnanimous in his conclusions, but a little curmudgeonly in his opening remarks. He failed to see the romance of the whole business of patents, which stirs such passions in the inventor class. All human life is in the patents business. Fortunes are made, fortunes are lost, fortunes are missed out on. Humankind's genius and creativity are expressed at their most prolific and productive. The nations of the United Kingdom are especially adept at being innovative, but unfortunately we have not been so good at applying that.
A rather sad story, brought to my attention by Jeremy Philpott of the Patent Office, illustrates the near-tragedies of the patent business. It involved a man called Bill Frost of Tenby, who applied for a patent for a flying machine in 1894. He went to his death swearing blind that his design for an inflatable dirigible with wings had flown, but there was no record of it. If it were true, he would have beaten the Wright brothers, who flew in 1903. If we had had a Patent Office in Newport—put there by a benign, sensible and far-sighted Labour Government of the time—a Welshman might have been recorded in 1894 as the first person to make a powered flight. These dramas take place repeatedly on the journey down the M4 to Newport, with people having similar ideas simultaneously. There is often a rush to get the initial application in first.
We need a patent policy that is liberated and makes the most of our innovations. Patent protection is one of the cornerstones of our economy. The Bill is modest, but adds zest and a reviving stimulus to the situation described by Mr. Arbuthnot, whose remarks on the various patents provided a snapshot of what is happening. Sadly, there has always been a large difference between the number of patents registered in the UK and in Japan and the United States. That says more about our lack of ability to use the applications of science in a practical form than about the ability of our inventors to produce the goods and genuine innovations.
I rejoice in the fact that the Patent Office is situated in Newport, West. It was located there in 1991 and it has a 1,000-strong work force. It deals with three areas: intellectual property; processing patents and trademarks; and design applications. Of the 1,000 employees, 208 are patent examiners, whose job is to process the 30,000 applications every year for inventions as diverse as a robot lawnmower to a ladder for helping trapped spiders out of the bath. The patent examiners are the intellectual aristocrats of the world of knowledge. In 1991, they all moved from south-east England to Newport, some very reluctantly. They are highly skilled and are the world experts in sometimes very narrow fields. They are people of great ability who are suitably rewarded for it.
It is encouraging that a number of local people have been recruited over the years and have developed the necessary skills. Some of my constituents are now patent examiners. The office has drawn its work force from a wide area and science graduates come from all over the UK, bringing their valuable expertise. That ensures that the Patent Office continues to be a habitat that blends rigorous scholarship with intellectual stimulation. It has been a huge success.
The world is very little understood, as hon. Members have pointed out, but it defines and chronicles all the ferment of activity and creativity in our country—all the original ideas, new notions, brainwaves and certain improvements and refinements to existing patents that are shaped into practical inventions and registered.
I was pleased to hear that one division of the Patent Office in Newport deals with intellectual property. Does my hon. Friend agree that if we do as the Bill suggests and comply with the revised European patent convention, there is a risk that software patents will become the rule in Europe, as they are in Japan and the United States? There are real risks to that, in that such matters are not the subject of intellectual creation; they are just different ways of doing things and obvious ways of using new technology. If we go down that path, we will chill innovation, damage our competitiveness and open programmers and the companies that employ them to legal challenge at every turn. To declare an interest, I speak as a former software developer.
My hon. Friend is right to draw attention to the harm that has been done by the tyranny of one or two large companies in monopolising ideas and certain practices to the detriment of the worldwide development of patents and other advances in that field. We certainly do not want to see any change that would put such an obstacle in the way of those developments. I am sure that my hon. Friend will understand what is being said on that.
In a typical year, the Patent Office receives 30,000 patent applications and it is fascinating to look back into the past and see that in 1897 the number of applications was exactly the same. At that time, however, the dominant subject of patent applications was improvements to bicycles. The office now deals with telecommunications, nanotechnology and biotechnology, fields in which we all find great excitement. Nanotechnology, in particular, is the sort of field that will excite the wonder of our grandchildren.
The Government deserve congratulations on providing constructive legislation designed to encourage and assist parties to settle disputes over patent rights. I feel sure that small and medium-sized enterprises, in particular, will find that part of the Bill helpful. The work of small and medium-sized enterprises has been referred to, and we all recognise that they are the core of the economy, which will keep the economy healthy and provide the seedcorn for bigger enterprises. The Bill makes useful provision in that regard, and it is right to recognise that it is the nature of the SMEs themselves that has been inhibiting, rather than the activity of the patent business. Among the useful provisions are ones that will sharpen industry's incentive to innovate through an effective, flexible and up-to-date regime for patenting.
I have seen the Patent Office develop, and one of its characteristics is that when it first moved to Newport, it used a filing system that looked archaic, even in '91. It was quite rightly reluctant to move straight into a high-tech, sophisticated system, which many other Government offices have done disastrously. Having a passport office in the town, we are reminded of the problems that were caused there. The Patent Office moved with great caution from its old filing system to one that depended entirely on software, with all its problems.
Can my hon. Friend reassure the House that, as far as he is aware, future modernisation and use of technology in the Newport Patent Office will not incorporate the damaging concept of the private finance initiative and will not use the disastrous firm Capita?
Another interesting point is that the Patent Office is one of the few Government agencies or offices that has actually done some insourcing, rather than outsourcing. I should like to see it do a great deal more because in a number of fields, work is being done very expensively by patent agents and trade mark agents, at great cost to British industry. That work could be taken in-house by the Patent Office, and done more efficiently and at less cost to the customers. However, it has not gone that way because of Treasury rules. If we were looking to turn the Patent Office into an institution that was not rigidly tied in to Treasury rules but had a freedom to innovate and compete in the private sector, there could be major insourcing, as it took in those jobs. Already, a small number of Newport jobs that were outsourced have been drawn back in again.
While my hon. Friend is rightly complimenting the Patent Office, he may note that it has Investors in People accreditation and has achieved the international charter mark standards that it sought. It is certainly one of the best patent offices in the world.
Indeed. I was complimenting it on its caution in not rushing headlong into new technology in 1991, despite the attractions. It took a measured pace, while other patent offices ran into serious difficulties after plunging into the bewildering world of high tech.
We all want to see continued innovation. In my constituency, as in many others, sunset industries that resisted change have not developed, and we have a task in competing with the emerging economies in the far east. Industries that are more likely to succeed in the global marketplace are those that depend on and invest heavily in that mysterious, intangible, elusive product called knowledge. I understand that the European patent system is not a European Union system, but it is none the less a crucial European framework that benefits the UK's innovative businesses.
By delivering full compliance with the European patent system, I hope that the Bill will allow the UK to continue to be a top league player in future developments of that system. That is essential if we are to secure the most beneficial outcome for UK businesses. That is the core of the prosperity that is growing in my constituency, which, like many others, has gone through the trauma of losing sunset industries, which have been replaced by the dawning industries of high tech that have moved in.
The Bill's enforcement provisions will be especially helpful in surmounting the problems, but equally welcome are the modernisation and updating of patents legislation to respond to customer needs. The service is in intimate daily contact with its various customers. We think of it as dealing with individual inventors, but these days it often deals with huge corporations, often registering patents by the dozen. I understand that the Bill will allow the Patent Office to adapt its services the more easily to meet its customers' requirements. It already runs highly efficient and responsible services with full regard to its stakeholders' needs, but I have every confidence that its operations will benefit further from the regulatory provisions. This is a most welcome deregulatory measure, and one would have expected a warmer welcome for it from the Opposition.
I fully agree with the Minister's sentiments about innovation generally. He is right to tell us of the undesirable effect if the knowledge arising from innovation and creativity is not properly protected. It is tremendously important to have patent protection, so that businesses have the incentive to make the necessary investment in finding new and improved products and processes for the benefit of all.
The Bill will permit the Patent Office to provide non-binding options on whether certain activities or products infringe a patent and/or whether certain information indicates the lack of validity of a patent. I certainly hope that such opinions can form the basis for negotiated settlements of disputes. That may take a change in the current culture, where litigation is seen as a quick fix for disputes—sadly, it is rarely that: in this complex area, apart from the translators, whom we heard about, the only people who benefit in the long term from long court actions are the lawyers. The Patent Office is dedicated to delivering high standards in all its services, but I have no doubt that it will use its vast experience to deliver first-class opinions on questions that can be so important to the inexpensive resolution of disputes. No one else is in the position to give such advice, and it seems rational to tap into that expertise in order to offer the customer a low-cost, specialist service of this type.
The Bill will also adjust the impact of provisions applying to unjustified threats of patent infringement. I listened to what the Minister said on this issue and I support his sentiment. It is crucial that the disincentive to settling disputes that the existing provision certainly creates be removed, and it is clear that we should support changes that encourage negotiation and lead to the early settlement of disputes. If we can do that while retaining the appropriate and necessary safeguards against the threat of litigation from retailers, the Bill will indeed provide a wormhole through which the interminable wasted space of litigation can be penetrated.
The Patent Office is an outstanding Executive agency that has done some excellent work, and I am delighted that the Bill will proceed through the House today without opposition—
Well, one hopes that it will proceed with the support of the whole House.
The Patent Office's relocation to Newport was recently highlighted in the Lyons report as the ideal example of a relocation of company based in the south-east of England, and there are plans to relocate other civil service jobs outside the overheated south-east. As the Welsh proverb states:
"Hawdd cynnau tân arhen aelwyd", which means, "It is easy to kindle a fire on an old hearth." The Office for National Statistics, the UK Passport Service and most recently the Patent Office have all found a very suitable habitat for their staff in Newport. The Patent Office immediately saved very large sums in rent, and its turnover was reduced to about one tenth of the original figure. Virtually all the staff who moved to south Wales have stayed there; indeed, many of those who are now retired have stayed in the area. It has been a huge success story.
I cannot restrain myself from pointing out that I had not realised that the previous Conservative Government had given such a blessing to Newport, West. Having visited the Patent Office when I was a Minister, I am delighted to see that things have worked out so well for the hon. Gentleman.
Yes, they have. I should point out that the previous Labour Government provided for other high technology relocations, such as the former British technological board. This is an ongoing process, and despite a certain political antagonism against the city, our magnetic attraction is such that it overcomes any such objections. I am very happy to thank Administrations of both colours for wisely relocating such agencies to Newport, West.
The Patent Office has achieved its fourth successive charter mark, and in order to maintain this award it has developed the dynamic approach that I mentioned. That approach not only builds on existing services; it also uses technology to offer new and more targeted services, including widening the consultation base to enable it offer a more personalised service.
Another example of achievement is the Patent Office's accreditation to the ISO 9001:2000. That accolade constitutes international recognition as a centre of excellence, and recognition of its patenting processes and the way in which it manages its business. Such recognition reflects the quality of services that the Patent Office is able to provide for customers, the development of its staff, and its reputation and influence. I am fortunate to have such an organisation in my constituency, and I have every confidence that it will meet the challenge of delivering the new opinions provided for in clause 13 to a very high standard. It also has a remarkably good record of dealing with a wide range of staff, including some who have problems with mobility, and some who have not attained high qualifications. It has been a good servant of the town, and a model employer.
Britain has a patent tradition that stretches over six centuries, and the Bill should set the framework for that tradition to continue. As we have already heard from the Minister, its origins can be traced back to the 15th century, when the Crown started making specific grants of privilege to manufacturers and traders. The Patent Office came into being on
The current Act has been in existence for more than 25 years, but things have by no means stood still since 1977. Although the Act has been modified many times by minor legislative changes, the patents rules are still the means by which many of the formal requirements and other details are set out. The current rules date from 1995—although those too, have been amended several times.
The only aspect of the patent system that seems to have remained constant throughout the past six centuries is the need for legislative change, with pressure for reform and improvement often coming from users of the system, who have been able to see its flaws all too clearly. The need for continuous reform is ever present, and the Bill follows in the worthy footsteps of many earlier legislative initiatives.Perhaps when it achieves Royal Assent, the patent system will finally, 400 years after the Statute of Monopolies of 1623, be a model of perfection—but possibly not. Perhaps in 20 years' time other MPs will come along to improve the system further.
Finally, in a spirit of rejoicing, I would like to quote a large advert that appeared last month in the glossy bits of all the Sunday newspapers, placed by a leading car manufacturer, Honda, which recognised the importance of intellectual property by focusing on the Patent Office. It drove home its slogan as follows:
"There is a place where dreamers go. Where crazy flights of fancy are valued above all else. Where the only good idea is an idea that's new born. Where dreams can become real. It's called The Patent Office, Concept House, the City of Newport — M4, junction 28, first roundabout, and fourth exit. Do you believe in the power of dreams?"
That dream has become a vibrant living reality for the city of Newport, and the Bill will give it new strength, order and opportunity.
In introducing the Bill, the Minister rightly pointed out that the future strength of the UK economy increasingly depends on our ability to exploit our knowledge resources and promote innovation. Patently, it has also been established that we can pronounce "patent" whichever way we like. I am glad of that, in case I make a mistake; both sides of the House seem to have agreed that if I do, it will not be seen as such.
Patents are an important part of safeguarding the home-grown innovation from which we want UK businesses to benefit. The Bill is therefore welcome for its first aim—to update UK laws and ensure compliance with revised international agreements, so that British businesses can continue to exploit their new products throughout the globe.
However, in terms of the Bill's second objective, the proposed legislation seems to fall far short of achieving the Government's desired aim. Mr. Arbuthnot made some references to that.
In the Department of Trade and Industry press release announcing the Bill on
In his report "Making Patents Useful to Small Firms", Professor William Kingston of Trinity college, Dublin, considered the value of the current patent system to small and medium-sized enterprises across the European Union, noting that in quite a number of cases use of the patent system left SMEs worse off than they would have been if it had not existed. He concluded that
"for every instance where it did provide benefit, there seemed to be several where it caused actual harm."
Professor Kingston further identified three specific groups of individuals and businesses that use the current patent system. By examining each group in turn, it is easy to highlight that system's failings.
The smallest group of patent applications identified by Professor Kingston are those of individuals and small businesses that are actually successful in securing a patent and going on to make money out of it. That group is by far the minority.
The second, largest, group is made up of those who make a patent application for reasons of vanity. They are mainly individuals who like the romantic idea of being an inventor or of being considered the next Einstein. Unsurprisingly, most such patents are never exploited commercially, often because they are unexploitable. None the less, that has not prevented the UK Patent Office from endorsing some of the more dubious inventions, and that raises some concern about how it operates.
The Minister spoke earlier about depending on the clear experience of the Patent Office in the past. Yet, in the 1960s and 1970s, a retired patent officer examiner, Arthur Pedrick, attempted to show how absurd the patent system was by taking out patents on a range of bizarre inventions. Shockingly, the Patent Office endorsed 162 of his madcap schemes, including UK patent number 1047735, which was his plan to get snowballs of 10 ft in diameter to run down mountains in Antarctica, attaining speeds of about 500 mph, then being piped to Australia where they could be used to solve the world's famine problems.
I could rest my case, but I will not. Patent number 1426698 was a plan for an automatic defence deterrent to solve the cold war problem. The United Nations would place nuclear bombs on three earth-orbiting satellites. If those satellites detected that one of the superpowers had been nuked, the bombs would automatically drop on Washington, Moscow and Peking, thus ensuring mutual destruction of all three. I am glad to see that London was not included; perhaps the gentleman lived here.
Those are examples of the folly of the Patent Office, if I may say so in the presence of Paul Flynn. It has wasted a lot of time by taking on such things. I must not leave out Mr. Pedrick's vision of a chromatically selective cat flap, which would restrict entry to his home to just his ginger cat, not black, white or grey cats, by somehow barring those with differently coloured fur.
I am fascinated by all of this, but I wonder whether it is the duty of the Patent Office to decide whether or not an applicant is mad. If the Patent Office takes the fee, it is making a profit, which could benefit the constituents of Newport, West. If someone is mad enough to apply to patent such inventions, surely it is not the job of the Patent Office to reject them.
The hon. Gentleman makes a useful point so far as constituents are concerned, but there should be a certain level of examination of patents. The right hon. Member for North-East Hampshire said from a sedentary position that the idea of doors with the ability to detect colours was valuable, so I wonder whether, when the Conservative party opens its new offices in Victoria street, the door could detect whether the people coming through it were light blue, dark blue or not blue at all. The door might be slammed in certain people's faces, but I shall not go any further on that matter.
Fascinated as we are by the hon. Gentleman's examples—I welcome them—I believe that the Patent Office can take decisions only on whether the patent applied for is original and not covered by other existing patents. It cannot make a judgment on practicality.
As the hon. Gentleman says, examples are important and I could provide more, but I still believe that it is a bizarre way for an organisation to operate. All sorts of suggestions could clog up the system. I could think of two or three as I stand in my place, but I would not want to try your patience, Mr. Deputy Speaker, by rehearsing them now.
Before we go any further, it does not seem unfair to conclude that the current patents system can sometimes reach the point of being somewhat ridiculous—far from the image of an official department, spearheading the development of the latest cutting-edge technology.
The failings of the current patents system are no laughing matter when we turn to the last group of users identified by Professor Kingston. The last group is made up of individuals and small businesses that have been granted a patent for good and workable inventions. However, they are often prevented from enforcing their patents because they lack the resources to challenge larger companies that determinedly seek to infringe them. Just obtaining a patent in the first place can be costly enough for a small business, as the right hon. Member for North-East Hampshire mentioned. Official estimates suggest that it can cost as much as €50,000 to obtain a patent in the EU.
A small firm would first have to pay the Patent Office hundreds of pounds to endorse the invention. As already mentioned, one of the big issues is the length of time that it takes to establish a patent, which can be all of three years. If a small firm is successful in gaining a patent, it will probably have to pay a patent lawyer thousands to draft a patent for it professionally and to translate it into all of the relevant European languages. Then, after all that money has been spent protecting a small firm's product, a larger company often comes along to exploit the idea illegitimately. These are not flights of fancy; I am referring to the work carried out by Professor Kingston.
The small firm then has the option of issuing a licence to the larger company or politely requesting that licence fees are paid, following the infringement of its idea. At best, the large firm will usually ignore such a request. At worst, it will issue a lawsuit, questioning the validity of the patent, as, the inventor of the "anyway-up" children's drinking cup was dismayed to learn. If the small business loses such a case, it may be liable to pay the other side's costs. Unsurprisingly, most small businesses abandon their attempts to defend their patents in court.
One disgruntled small business owner recently summed up the frustration surrounding the current system, by saying that the Patent Office
"will grant you a patent at enormous expense, if you are clever enough to be able to beat the whole of the rest of the world technically. But if someone steals your patent, then the PO will do . . . absolutely nothing. If someone steals your car, then you call the police"— there is no guarantee that they will get it back for you, but they try and they exist to do something about it—but,
"if someone steals your invention, then you have to go to the court to recover it. If you do, then the Inland Revenue will tax the patent holder his winnings and give tax relief to the thief. Patents do not do 'what it says on the box' and are essentially fraudulently sold to UK industry."
The Minister said earlier—it is on the record, I am sure—that patents were designed to give a 20-year monopoly to firms. I have to inform him that that is not the case. There have been previous attempts to reduce costly litigation and streamline the legal process to make it more accessible to small businesses, but many small firms claim that so far those have had little effect.
The patent county court was established in 1988 to provide a cheaper and more friendly legal recourse for small businesses to defend their patents. Yet in November 2003, the patent county court judge, Justice Laddie, complained that the case on which he was working, which dealt with a relatively simple issue, had been
"allowed to grow into a four day trial costing over £850,000".
"That cannot be an appropriate way of conducting litigation".
I know that my noble Friend Lord Razzall was given an assurance that the work of the patent county court would be kept under review, but I would again press the Government to ensure that they return to look again at the problem of enforcement, if the changes outlined in the Bill do not have the desired effect of helping to reduce legal costs for small and medium-sized enterprises. That is what I would maintain. It is imperative because, although the Government have recognised that costly litigation makes it impossible for small businesses to enforce their patent rights, some people believe that the system in the Bill will be of little more use to small firms than previous initiatives.
The Government claim that they will make it easier for firms to enforce their patent rights under clause 13, which provides a new procedure under which the Patent Office would issue, on request, an opinion on certain matters that might be relevant to a patent dispute. The system would allow a patent holder to bring arguments before the Patent Office rather than the courts, the idea being that it could obviate the need for costly litigation in settling an infringement dispute between companies. However, it could be that in offering a non-binding opinion, the Government are offering a solution with no teeth.
Even if the small business owner chose to take advantage of the process and the Patent Office found in its favour, all that the business would have is a piece of paper suggesting that its larger rival ought to pay licence fees. A big company could be just as likely to refuse to pay up and go to court anyway, particularly given that the courts are under no obligation to take the view of an arbitrator on board. According to Noel Akers, partner at the intellectual property law firm, Howrey, Simon Arnold and White,
"the non-binding opinion is not going to stop a large company that says, 'we've got deeper pockets, we can take the other side as far as we need to break them'."
In addition, concern has been raised that the Patent Office will have neither the time nor the expertise to make judgment on cases of alleged infringement, particularly as it seems that it is so often busy endorsing madcap inventions such as the cat flap idea. Explaining its rationale for contracting out a number of patent examinations to Denmark back in March 2002, the Patent Office admitted that the decision was
"part of wider efforts to deal with the rising input of patent work, which has so far not been matched by our ability to recruit and retain examining staff."
I am prepared for the Minister to say that that was the position in March 2002 and that it has subsequently changed, but I hope that he can give me that reassurance on a firm basis of fact.
How can a patent holder be confident that the Patent Office will have the resources to come to measured judgments in cases of infringement? As the patent reform group pointed out, in order to reach a reasoned judgment as to whether a patent has been infringed, the Patent Office will need the co-operation of the infringer. How likely is it that a defendant will readily hand over the product or technology for examination? What additional powers will the Patent Office have to ensure that an alleged infringer provides all the relevant material to the case? Why have the Government rejected the idea of binding and technical arbitration—that has teeth and is based on technical assessment—to settle infringement disputes and make it easier for small businesses to protect their patents? What evidence do the Government have for their proposal that the use of a non-binding opinion would provide a practical alternative to costly litigation for SMEs, when the procedure is already available from the World Intellectual Property Office—WIPO—but is rarely taken up because of its non-binding nature?
Ministers say that they want to help SMEs enforce their patent rights, but some small businesses claim that they have not been given the tools to do so. This week, the Patent Office will spend £250,000 launching the "Intellectual Property BOOM!"—an initiative to raise businesses' awareness of intellectual property rights. However, if the procedures in place are not sufficiently robust and relevant, the expenditure of that money is probably not justified.
I would also like more explanation from the Minister of why the Bill has been brought forward before the patent enforcement project has been completed. The project was due to report at the end of November, but that was moved to the end of March, then delayed until the end of April and now it will not report until the summer. The project was part of assessing the need for a Patents Bill. Even when it reports in the summer, a long consultation process will be necessary, possibly lasting a further three years. I suggest that the Minister should be concerned about that prospect.
Following publication of the DTI's innovation report last December, the Government concluded that the Patent Office should
"conduct a feasibility study of a proposed new institutional arrangement which would help SMEs protect their intellectual property."
The initiative is looking at the possibility of establishing a fighting fund to help SMEs finance legal action when their patents have been infringed. Why has the Bill been brought forward before the conclusions of that study are published in the summer, because it will be an important contribution to the efforts to help small firms?
I am aware of the announcement made by Lord Sainsbury in the other place in response to concerns raised by my noble Friend Lord Razzall about the system that the Government have chosen to help small firms enforce their patent rights. Nevertheless, it would be helpful for the Minister to repeat those arguments today, as some firms—such as those involved in the patent reform group—do not have confidence in the proposed system. A further comment by the Minister would help us to see why the Government have chosen to adopt that system.
It was said at the beginning of the debate that the Bill was nothing to be concerned about, but it does raise issues of great concern. For example, clause 1 would insert a new section 4A into the Patents Act 1977 to bring us into line with the European patent convention. According to the Government on Second Reading in the other place, clause 1 would make it clear that any method of medical treatment, such as a new surgical technique, cannot be patented, and that is welcome. It also provides a less complicated method of obtaining protection when a new use is found for a medically active substance that has a known use or uses. Those provisions mean that scientific discoveries that are for the public good or part of human knowledge cannot be tied up by patents to make them unavailable, in the same way that inventions can. That is also to be welcomed.
However, the patenting of substances or compositions using methods of treatment or diagnosis of human or animal bodies is allowed. That is an area for concern. Do current provisions provide sufficient protection against the potential monopolising of certain benefits that might stem from the human genome project? A report published by the Nuffield Council on Bioethics in July 2002 concluded that research into AIDS, cancer and malaria is being held up because patents on human genes are granted too readily to pharmaceutical companies. Although patents covering DNA sequences are often justified to reward innovative science, some experts feel that too many restrict research.
It is, therefore, possible that the patents system is not fulfilling its key system of encouraging developments that benefit the public. The Nuffield report expressed fears that companies were being granted exclusive rights over the use of genes in diagnosis, research and treatment, thus preventing other scientists from working on other aspects of the gene. Can the Minister clarify how the amended legislation will ensure that the tests are more rigorously applied to the granting of patents involving DNA sequences, so that knowledge and substances are not tied up by the granting of broad patents?
I hope that the Minister can also clarify the situation on the changes that will update section 22 of the 1977 Act. Section 22 concerns information in patent applications that might be prejudicial to the defence of the realm or the safety of the public. Schedule 2 to the Bill proposes to substitute the term "defence of the realm" with the phrase "national security". According to the Bill's explanatory notes, that update is designed so that
"the comptroller can make directions in any circumstance where there is a need to protect the national security interests of the United Kingdom."
Given that the phrase "national security" is much wider ranging than the term "defence of the realm", can the Minister clarify why the Government feel it necessary to make that change? How will the Government ensure that details of patents are not withheld without suitable justification?
In conclusion, the Liberal Democrats welcome the Bill as a vehicle for giving British inventors key intellectual property rights under revised international treaties, but we are concerned about some of the proposals to help small businesses enforce their patents rights. The Government must justify their actions further in Committee—and I look forward to that—and pledge to keep the issue under review, so that cost does not act as a barrier to the enforcement of rights by small firms.
We have had a most learned debate on this modest Bill. Indeed, the speech by Paul Flynn was learned and emotional in waxing lyrical about the decision of the then Conservative Government to provide his constituency with its glamorous offices and employment prospects back in 1991. I much enjoyed my visit to those offices in the dim and distant days when I was the Minister with responsibility for science and technology. I found much enthusiasm for the work being done with such expertise.
I am delighted to take part in this debate, although I must make a declaration of interest. I am involved with one or two companies that apply—often successfully—for patents, so I have business interests in the area, including with a merchant bank called Interregnum that encourages companies to exploit their intellectual property.
That experience, allied to my ministerial experience, has reinforced my view of the importance of patents, but they are not the sole solution in the need to advance intellectual property, many aspects of which are not even patentable. In this modern knowledge economy, businesses will have to find ways to increase their competitive advantage by identifying not only their intellectual property but the IP that they need to acquire from elsewhere. They often need to move speedily in doing that, which is not always the way that the patent process works.
When I was responsible for the research councils, we used to talk about ways in which both they and the university sector could exploit intellectual property. People often asked why universities did not hold more patents. The answer was often complicated and taught me that a good benchmark for showing whether a university was really exploiting its knowledge base and getting involved in technology transfer was not always that it had ratcheted up a high number of patent applications. I use that point as background, because although the discussion of patents is obviously the reason for our being here this afternoon, patents are not the only guideline for the exploitation of intellectual property. I certainly hope that companies do not assume that that is the only benchmark they should use either for their evaluation by the City or other possible investors or for the way in which they want to be seen by their peers. Ultimately, the benchmark is commercial success, which in many cases means rapid translation of a good idea into a good product that sells.
The difficulty with patents is that by the very process of application one often makes public the invention or the original process—a point that has already been mentioned. For many companies that is a disadvantage. Some of the Government's work—in the Department of Trade and Industry, the innovation report published at the turn of the year and the Lambert report commissioned by the Treasury to look into our university business links—shows that the danger of a patent is that it actually discloses an interest to possible competitors, which, for many companies, creates the problem of how to protect that knowledge. As I pointed out earlier, exploitation is often the best way to protect and take advantage of an invention.
Often, the public are not really worried about patents until they seem to be threatened by their existence. Brian Cotter pointed out that when there is debate about some of the pharmaceutical cases, such as whether DNA sequencing should be public or private, the public prick up their ears. Sometimes, however, such debate is dangerously misguided. In many cases, pharmaceutical companies take out patents to protect the terrific investment needed for new drugs to come to market. We are slightly in danger of assuming that the pharmaceutical companies are somehow an evil influence because they possess those patents. There is debate about whether one should move to generic products and whether we should forcibly reduce the length of patent coverage and try to abolish the taper at the end of the process. Those questions can be rather emotional when applied to continents such as Africa. I understand that, but the danger in that public debate is that the patent can be regarded as an obstacle whereas in fact the whole process of encouraging companies to invest in research and take out a patent to protect their commercial advantage is important.
That gives rise to another issue that has not been a focus for our debate: it is a mistake to believe that all patents are taken out by individuals or small companies. Some of the most important patents are in large companies and those companies can be very innovative. We should not believe that the whole process is about small companies in big battles to try to protect themselves. An analysis of the litigation shows that we are dealing with the exceptions; the problems tend to be at the margin. Most patent processes—applications and renewals—tend to go through smoothly and are not subject to great debate.
Nevertheless, I recognise that individuals and inventors take out patents. I dealt with them as a Minister. It was sometimes difficult because they thought they had discovered the full benefits of alchemy and that the gold to be produced thereby should come to them; the manufacturing process for turning their invention into something worthwhile was of no concern to them. I do not of course include Trevor Baylis in that category; he used to phone me regularly on Sunday mornings to tell me his latest thoughts. He had great success with many products, not least the clockwork radio, and I fully compliment him. The difficulty often is to get individual inventors to work together, which is, as I am sure the Minister has discovered, not an easy task—to put it mildly. I pay tribute to inventors, but we should not be under the impression that they are the only people concerned with inventions—there are many others.
There is a challenge for the European Union. My right hon. Friend Mr. Arbuthnot mentioned the Lisbon agenda somewhere in his excellent speech. He pointed out that the need for us to make Europe the most competitive place in the world to do business was paramount. Of course we hope that Britain is the most competitive place within that wider European space. The Library has produced an excellent document from which I quote the definition of intellectual property given by Ian Harvey, the chief executive of the British Technology Group. He said:
"Intellectual property is one of the few ways that you can differentiate a product and enforce its uniqueness. Competing on price or first-move advantage are ephemeral in comparison."
That is a key point. However, Charles Oppenheim, professor of information science at Loughborough university said:
"If we want to improve European innovation and competitiveness, many more SMEs should be using patents and patent information than currently do."
That, too, is obviously important. The European patent convention has been a reasonably successful provider of broader patents for Europe; it has been effective in bundling together, over 27 countries, a national patent that has wider application.
The difficulty is that, in the spirit of the Lisbon agenda, we have not actually been able to convert the work of the European patent convention into the implementation of an EU patent. That is a continuing problem in the Council of Ministers. The process has been stalled by a variety of things. Language, which was mentioned by my right hon. Friend, is not only prohibitive but emotional. The fact that we in this country think the provisions should be in English—I share that belief—is not necessarily fully appreciated, not least by the French. There are also complications arising from justice systems in Europe. There is obviously a need for a court to enforce the patents, but that challenges each of the national courts.
Over the years, I have also detected resistance from national patent systems and national patent offices, many of which are profit-based and feel that they will be bypassed. In some countries they have an almost disproportionate influence on the Government. I hope, however, that, in the spirit of the quinquennial meeting of patents Ministers, the Minister will be able to get the scheme back on the road. It is absurd that the European single market has no court capable of implementing an EU-wide patent and relies only on the convention itself.
The point behind the Bill is to try to find new ways of clarifying some of the arguments. We have heard the detail, and I shall not bore the House by going back over that. The conflict between employees and their employer is genuine, and it is very difficult to determine. I hope that the Minister has got the draft of the Bill right. It has been tested in the Lords, and I am sure that it will be tested in Committee. Nevertheless, part of it relates to contract law and what an employee was doing under his or her contract. Was he or she expected to develop new ideas? Any sensible company would certainly wish to compensate someone who had come up with ideas that were capable of being patented. Many universities have wrestled with similar problems.
I return to an earlier point that I tried to make. The difficulty for an individual is that it is no good just having a patentable idea as though that was Mecca. Having a patentable idea is a means of enabling a good idea to be translated, through protection, into a public good, a consumable product, an advancement in science or whatever. The original idea may be laudable, but it is not the end product. An end product uses a patent in order to give the process time to provide competitive advantage, and many employers will not necessarily fully appreciate that the process of exploitation is as important as the idea itself.
When I was a Minister, I was involved with an award—I believe that it continues—that specifically related to bringing together the great ideas, although not necessarily patentable ideas, produced by small companies with the big companies that were capable of exploiting them. I remember the ultrasound technology that was applied to valves used in the North sea to ensure their accuracy and reliability over many years. That required huge engineering skills—of, I think, British Gas—to attain perfection in the manufacturing process even though the idea originated with an individual or a small group of individuals.
I will give the Minister the benefit of the doubt on another aspect of the Bill that I hope will work. I refer to the process of judging infringement and, although clause 13 has its merits, it will have to be tested in Committee. I shall not do that on the Floor of the House, but I mentioned the costs of protecting and renewing a patent. The issue of infringement is difficult. We live in a competitive world and people want to take advantage of ideas. Many companies often go through a parallel process that enables them to say that they have not technically infringed the existing patent, but merely provided something that was remarkably similar. That can involve subjective and objective judgments, and clause 13 may assist with the objective assessments.
I underline the need for the Bill to be effective when it is converted into law. In 2002, it was estimated that expenditure on research and development as a share of GDP in the European Union was 1.99 per cent. The only comparisons that I have are with Japan, where the figure was 2.98 per cent. in 2000, and with the United States, where it was 2.8 per cent. Those gaps are significant and continuing even though Treasury Ministers and the European Commission have set the target of improving total R and D spend in the EU to 3 per cent. of GDP. I am afraid that we are still a long way short of that. For those interested, in 2002 the share of R and D expenditure in the United Kingdom was 1.84 per cent. of GDP.
In the period between 1997 and 2001, however, the EU recorded a rate of European patents per unit of business R and D expenditure as equal to 0.6 per cent. It was followed by Japan, where the figure was 0.31 per cent., and the United States, where it was 0.26 per cent. Those figures are slightly more heartening bearing in mind my earlier point that patents by themselves are not the only benchmark for intellectual property exploitation.
The Bill has merit. I do not believe that the worries expressed by some professional organisations are necessarily well founded, but they should be aired in Committee, and I am sure that they will be. I certainly wish the Bill good speed. We should make sure that we comply with the European convention and constantly update patent law. We should also continue to try to bring down the costs of applying for patents and the time in which they are granted. Good ideas need to be out there in the marketplace very quickly. We live in an increasingly competitive world not only among companies in this country or within the European Union, but internationally. We cannot be left behind. The Bill had better make effective law.
With the leave of the House, I would like to respond to what has been an excellent debate. As Mr. Taylor said, it has been a learned and informed debate on issues that do not automatically appear in the constituency casework or postbag of most hon. Members. Nevertheless, it has been an interesting debate and contributions from both sides were excellent.
Mr. Arbuthnot said that it was not the most political Bill ever to come before the House, and I agree with him. However, it is important, as hon. Members said, that the "pa-tent" or "pay-tent" system—we have decided that we can call it either—is important for all the reasons that have been given.
We need a robust patent system, which is essential if we are to maintain and encourage a long-standing tradition of innovation—crackpot or otherwise—in the United Kingdom. As the hon. Member for Esher and Walton pointed out, when we talk about innovation, we are not just talking about having a bright idea but about having an innovation culture in which bright ideas are successfully exploited. Successful innovators—whether James Watt with his steam engines in the 18th century or Owen Maclaren and his light-weight folding pushchairs 200 years later—have always been able to take their bright ideas on to widespread success. We have heard other examples in the debate.
We all agree that, first, our patents system must be robust enough to protect properly the people and companies with the creativity and drive to make innovative technical advances. Those are the advances that—large or small—continually improve the quality of life for us all.
Secondly, the patents system must be accessible. All innovators must be able to protect and exploit their new products or processes—whether it is a multinational pharmaceutical giant, a new university spin-off company or a lone inventor who has hit upon a great new idea. Having a system that is, as far as possible, harmonised with international patent agreements will help our innovators protect their ideas abroad too. Thirdly, the patents system must be balanced enough to ensure that the public at large continue to benefit from new products and processes and can challenge patent rights when it is fair to do so.
I am pleased that this Government are introducing the important changes in the Bill. The major reforms made to the patents system by a previous Labour Government in 1977 have served the UK well over the past 27 years and we are now updating them. This will ensure that our legislation remains in tune with innovators' needs and with the international framework in which our patents system operates.
I want to say a few words about the development of this Bill. We carried out a thorough and wide-ranging consultation, starting in 2002. We heard from lone inventors, small and large businesses, patent professionals, lawyers and judges. That helped us to refine significantly the proposals for inclusion in the Bill. Throughout the process, we met representative groups from right across the spectrum of patent users and we continued to listen to their views. In another place, we heard arguments on measures in the Bill where it was felt that stakeholders' concerns had not fully been met and we amended the Bill accordingly. I hope that it is clear that the Bill, right from the outset, has been developed in a spirit of co-operation and constructive debate. I am grateful to the right hon. Member for North-East Hampshire for thanking the noble Lords in the other place for their contribution in sending the Bill to us. I also thank him for thanking the Bill team and others who contributed to the process.
We have to be effective in ensuring that the Bill develops. I look forward to participating in the Committee. Many concerns were raised and if I do not respond to them now, I shall write to hon. Members before the Committee starts. I hope that we will consider the issues in the spirit of co-operation demonstrated so far. If it appears that things need to be done differently, I will be prepared to consider doing that. I expect the hon. Member for Esher and Walton, who spent time as a Minister in the Department of Trade and Industry, to make a learned contribution. He was responsible for many innovations and I pay tribute to his work in the Department and to his well-balanced approach. He perhaps put the argument more cogently than I did—
I thank the hon. Gentleman for that.
The right hon. Member for North-East Hampshire explained that the European patent convention was revised in 2000 and asked whether a Bill will be necessary every five years; I hope not. We decided that it was time to modernise the EPC some 27 years after negotiations were completed. The European Community is considering accession to the provisions in the EPC, in which case future changes could be achieved under the European Communities Act 1972.
Negotiations are taking place in Brussels among EU states on a European Community regulation to establish a Community patent. That will be a single patent valid throughout the entire territory of the EU, in much the same way as existing Community trade marks and design rights are. At the most recent Competitiveness Council meeting in March 2004, agreement on the regulation again proved elusive. The negotiation stalled on the language regime for the translation of Community patents and the legal status that such translations should have. Beyond that, agreement has still to be reached on what form a centralised Community jurisdiction for dealing with patent disputes will take. We will continue to do whatever we can to get the stalled negotiations restarted.
The proposed Community patent should not be confused with a European patent granted under the 1973 European patent convention, which in effect is a bundle of national patents using a single one-stop granting procedure, administered by the European Patent Organisation. The right hon. Member for North-East Hampshire mentioned the USA and Japan. That worried me, given the Euroscepticism on the Conservative Benches. The USA and Japan are single nations that use only one language—English or Japanese—but the EU is a collection of nation states. I am sure that he is not suggesting that we make all EU states use one language. That would not give due recognition to each state's sovereignty, which I understand is important to the Conservatives—at least to some of them.
The right hon. Gentleman also mentioned the cost of patenting. We will be pleased when negotiations on the Community patent succeed because that will reduce costs. We also support the London agreement, which will significantly reduce translation costs for all users of the European patent system. We look forward to its implementation, preparations for which are under way in the UK.
Hon. Members mentioned small and medium-sized enterprises. We fully understand the difficulties encountered by SMEs. Finding out how to help them has been difficult, but we are building on research. Brian Cotter mentioned the patent enforcement project. That is a sign of our commitment to explore what we might be able to do in addition to the Bill.
The Minister will expect me to say this, but I remain concerned that the report was put off from November to March and then to April. It has now been put off until the summer, and even then the process will carry on. It is a grave concern that the report did not come out before the Bill.
The point is well made, but the hon. Gentleman will want us to get it right when we publish the research. The viability of a patent defence union that could help SMEs in particular to enforce their patents is being considered. The result of that will be available soon.
I was asked why we have decided not to provide for additional or punitive damages. I am aware that the difficult issue of flagrant infringement of a patent engenders strong feelings on both sides of the argument, but there is by no means unanimous support for a provision to allow such damages to be awarded in patent infringement disputes. Indeed, the Opposition in another place argued that the availability of such damages would do two things. First, every claim of infringement would include a claim for such damages, leading to more legal wrangling and raising litigation costs even further. Secondly, trying to show that the other party had behaved badly would make an amicable settlement even less likely. It is not the time to introduce additional or punitive damages into patent legislation. Moreover, other proposals in the Bill are designed to help patent holders, especially SMEs, in the enforcement of their patents.
The right hon. Member for North-East Hampshire asked about the employer-employee relationship and said that existing provisions are illogical. That is why the employee compensation provisions are being amended to cover outstanding benefit from patented inventions as well as from the patent itself. I am sure that we will return to that in more detail in Committee. I am pleased to note that most employers, for the reasons set out, are making payments. It is understandable that they would support their employees who contribute to the well-being and development of their businesses. The changes to employee compensation are intended to make the process simpler, not more complex. It will no longer be necessary to deal with the difficult and subtle distinction between benefits derived from the invention being patented and the benefits derived from the patent itself.
My hon. Friend David Taylor intervened on my hon. Friend Paul Flynn on software patents. It is worth saying that inventions that implement software have been patentable for decades, in both the UK and across Europe. The Bill makes no change in that respect. Software per se is not patentable and that will remain the case, although it is protected under copyright. I think that the hon. Member for Esher and Walton made the point that there are other benchmarks to consider, not just those relating to intellectual property. Novel software with an inventive stage that makes a technical contribution is already patentable and will remain so. The EU is considering a proposed directive on the patentability of computer-implemented inventions. One aim of the proposal is to clarify the status quo with respect to software patents, neither broadening nor narrowing the field of what may be patentable in relation to computer-implemented inventions.
My hon. Friend the Member for Newport, West made an emotional and well-thought-out contribution on behalf of the Patent Office, which is situated in his constituency. He made all the right points about the quality and skills in the office. It was the first to achieve the International Organisation for Standardisation 9001:2000 certification status. In combination with the way in which it operates, it is clear that the Patent Office develops its staff.
My hon. Friend was right to raise our aspirations. The right hon. Member for North-East Hampshire said that the Bill is workmanlike and devoid of emotion. My hon. Friend, in his inimitable way, talked about the power of dreams. No doubt his wonderful Welsh phrases delighted the Hansard Reporters. It is worth pointing out that we have 1 per cent. of the world's population and fund 4.5 per cent. of the world's science, produce 8 per cent. of the scientific papers and receive 9 per cent. of the citations. That is an excellent track record that shows how the UK innovates and has led in so many ways.
The Patent Office was careful when it changed its IT provisions and made its decisions on outsourcing. As an Executive agency and a trading fund, it has the ability to decide such changes for itself. The awards mentioned suggest that it is flexible in the way in which it operates.
Hon. Members raised many issues. The time that is left does not give me the opportunity to cover them all—
I would be delighted if the House wanted to sit until 10 pm to discuss these issues. I want to try to give hon. Members detailed responses to the points that they made and it is not always possible to do that on the Floor of the House. That is why we have a Committee stage for Bills. We can go through the detail in Committee and, if we cannot reach agreement, there are further opportunities for discussion when we return to the Floor for Third Reading. However, given the co-operation between this House and the other place, I am sure that we will be able to reach agreement.
The hon. Member for Weston-super-Mare mentioned patents for curious, obscure or, indeed, alarming inventions. As was pointed out, the job of the Patent Office is not to decide on the quality of applications but only to make sure that the process has been properly undergone. He also asked why the Patent Office grants patents for inventions that seem to have little practical value. The Patent Office was set up to provide a service to the public and its role is not to decide who should or should not apply for a patent, but merely whether an application meets the requirements that Parliament decided were necessary for the granting of a patent.
This has been an important debate on an important Bill. I look forward to the Standing Committee, where I think we will have a worthwhile discussion of many issues that affect UK science and innovation. I look forward, too, to working with the Members who have contributed to the debate today. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.