Amendment 1

Advanced Research and Invention Agency Bill - Report – in the House of Lords at 5:36 pm on 14th December 2021.

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Lord Browne of Ladyton:

Moved by Lord Browne of Ladyton

1: Clause 2, page 2, line 6, at end insert— “(ba) financial support provided by ARIA may be treated as convertible to equity interest in the business entity which has received such support; (bb) for a period of ten years after ARIA has provided financial support, or made property available, the business entity which has received such support must obtain the consent of ARIA before—(i) transferring specified intellectual property rights from the United Kingdom to any territory outside the United Kingdom, or(ii) selling or otherwise transferring a controlling interest in that entity to another entity not resident in the United Kingdom;”Member’s explanatory statementThis amendment would enable ARIA to make it a condition of the provision of financial support to a business that it is convertible into an equity interest in the business and that, for 10 years after ARIA has provided financial support, or made property available, the business requires the consent of ARIA either to transfer abroad intellectual property rights or to sell or transfer a controlling interest in that business to another business not resident in the United Kingdom.

Photo of Lord Browne of Ladyton Lord Browne of Ladyton Labour

My Lords, Amendment 1 would enable ARIA to make it a condition of the provision of financial support to a business that it is convertible to an equity interest in the business and that for 10 years after ARIA has provided that financial support, or made property available, the business requires the consent of ARIA either to transfer abroad intellectual property rights or to sell or transfer a controlling interest in that business to another business not resident in the United Kingdom. I am grateful for the support from my noble friend Lady Chapman of Darlington and the noble Lords, Lord Morse and Lord Clement-Jones, who have added their names as supporters of the amendment. I am especially grateful to the noble Lord, Lord Morse, who prepared the first draft of the amendment—although, anticipating that its drafting may be criticised, I make it clear that I take full responsibility for its revised form.

In moving Amendment 1, I support the other five amendments in the group in the name of the noble Lord, Lord Lansley, and have added my name to Amendments 2 and 8. I am pleased that these amendments have been grouped, as they are a response to the same concern. The House will be pleased to hear that I do not intend to rehearse the arguments that I advanced in Committee. I am grateful for the support that I received then from the noble Lords, Lord Fox, Lord Lansley and Lord Broers, and my noble friends Lady Chapman and Lord Stansgate.

Yesterday, I and other noble Lords received a letter from the Minister, which I will come back to later. First, I will explain exactly what the amendment would do, because it is relevant to the letter, which was extremely welcome; it covers the issues that have been raised and shows that those who have amendments in this group have common concerns with the Government —we are broadly on the same page. The degree to which we differ is marginal now, and much less than it was at the beginning of these issues being raised in Committee. So that is progress, but I do not think we are yet where we want to be.

This amendment is to Clause 2, headed “ARIA’s functions”. It would amend Clause 2(4) to add to the conditions that in particular, in exercising its functions, ARIA may attach to financial support or making property available to other parties. It would do this in the context of a clause which has six subsections, five of which are permissive, including that being amended. They are permissive to the extent that they set out what ARIA may do and are designed to give ARIA the flexibility needed for it to carry out the challenging function it is charged with.

However, Clause 2(6) is instructive. It requires ARIA to have regard in exercising its functions to the desirability of doing so in a way which, as the Minister summarises it in his letter, ensures that

“public investment in research and innovation should drive long-term socioeconomic benefit and deliver overall value to UK taxpayers”.

That is a very good summary of what is required, and it is demanded of ARIA by this section of the Bill.

By going to the permissive elements of ARIA’s function, these amendments go beyond willing the end; they help ARIA by willing the means, specifically in relation to intellectual property. This amendment would do so by ensuring that the successes of ARIA stay for a sufficiently long time in the hands of those who have the UK’s best interests at heart.

I thank the Minister for his letter, and I welcome the invitation to a meeting with the Minister for Science, Research and Innovation, George Freeman, and himself to discuss further the concerns that underlie these amendments. I accept, as the letter says, that these concerns are broader than just this Bill, but we only have this Bill to deal with today and they are very significant in the context of what we are asking ARIA to do.

I thank the Minister not only for that invitation but for the all-Peers session that he arranged on 1 December to brief noble Lords on the devolved Administration agreement and ARIA’s governance. Those who attended were delighted that George Freeman turned up unexpectedly and generously shared with us, candidly, his views about several matters relevant to the establishment of ARIA and the policy implications of setting it up.

I was very pleased that, in response to a question about ownership of intellectual property posed by the noble Lord, Lord Lansley, the Science Minister shared his concern about the risk that publicly funded research and innovation may lead to foreign, as opposed to British, private or public gain—the issue at the heart of these amendments and mine in particular. We all now know that the Science Minister shares the concern that lies behind this problem. In fact, he shares it so much that he deflected the specific question about intellectual property and said, “I am much more worried about a very successful ARIA development falling into the hands of foreigners”.

In Committee, I pointed out that twice before the Committee stage I had tried to engage the Minister on this very issue—what is happening in the United Kingdom and has been happening for some time to some of our best and brightest businesses, and the effect it is having on our ability to apply these developments to the benefit of the United Kingdom. I even quoted on one occasion the concerns of the Bank of England about the way in which those businesses are funded and the damage this leveraged debt might do to the UK economy in the long term, but I could not engage the Minister on these issues. I was repeatedly told that we are an open economy that welcomes this investment, when in fact, in most cases, it is not investment at all

Since receiving the letter yesterday, I began to wonder what had caused this apparent change of tack by the Government and this Minister in particular: the debate that we had in Committee, or the Science Minister who is responsible for this Bill expressing the view at that meeting that he shares the objective we have set ourselves by tabling these amendments, and that it is a matter of concern that needs to be addressed.

On the content of the letter, as the noble Lord, Lord Lansley, pointed out when he responded to it, there is a lot in common between those who support these amendments and the Government. The concerns have been identified; we know that they are serious; we know that they sit in a broader set of circumstances that will need to be addressed. But we still think it important that they be addressed in this particular case and that, in meeting the objective which the Government have set for ARIA in exercising its functions and later, in Schedule 1, in the supplementary powers it is given, it is advised and helped by us, protecting its ability, if necessary, to take equity in businesses in which it invests and to insist that, over a period of time, those businesses stay in the hands of those who have the UK’s economy in their interests.

That is essentially what the letter sets out. However, it does not go as far—nobody would expect it to—as we seek to do in this Bill, for reasons which are articulated. The first of them is that the Minister does not

“think it is appropriate to mandate a particular ‘one size fits all’ approach through the Bill”— that is why I explained what Clause 2 did in the first place. In this particular subsection, nothing is mandated; it only facilitates ARIA including these conditions if it thinks that is appropriate—a power which the Government, as they set out in the letter, are willing to give ARIA and wish it to have.

Secondly, the letter states:

“The type of obligations referenced in the amendment should not be applied inconsistently. The approach taken by ARIA to IP ownership must reflect the approach taken by other public R&D funding bodies in equivalent situations, or it would create an unlevel playing field. If funding from ARIA comes with strings attached, or fewer IP rights compared to funding from IUK— that is, Innovate UK

“or elsewhere, it would act as a further disincentive to the most innovative businesses choosing to participate in ARIA programmes. This discussion should therefore encompass our wider public R&D funding system.”

I agree that there may be a problem in the wider R&D funding system, but we are dealing with this Bill. The Bill cannot keep a level playing field for this reason. It is interesting that Innovate UK was the example the Minister chose to put in the letter. If this Bill is passed in its present form, there will be an unlevel playing field for this reason.

Innovate UK helpfully publishes on its website a brochure for those whom it wishes to engage. It states on page 3 that

“we do not take any equity in the business or make any claim on the intellectual property created in the innovation”.

That is its stated position. Therefore, to get a level playing field, according to the Government’s ambitions, it will mandate ARIA not to hold equity or intellectual property, because otherwise, there cannot be a level playing field. If the Government get their way, there will not be a level playing field.

We recognise that that level playing field does not exist; we recognise that ARIA needs these powers to prevent what has happened to far too many British businesses happening to the businesses it supports during their developmental stage or when they begin to produce significant profits. It has happened to too many British businesses; the Government were slow to wake up to it. Substantial potential income for the United Kingdom based on government R&D has gone abroad, and this should not happen to ARIA.

The Minister, I think, wrote in the hope that I might accept the generous offer of a meeting instead of taking this amendment to a vote. This is my position: I gratefully accept, as I am sure other Members will, the invitation to have a meeting with the Science Minister so that these concerns can be addressed. I do not accept, however, that in accepting that offer, I give up the right to ask your Lordships’ House to vote on this amendment. Clearly, the Science Minister wishes to explain how he is going to deal with these concerns in the way set out in the letter. He ought, of course, to do that for us. But much more importantly, he ought to do it from the Dispatch Box in the House of Commons, and I hope that this House will give him the opportunity to do so by agreeing to this amendment.

Photo of Lord Lansley Lord Lansley Conservative 5:45 pm, 14th December 2021

My Lords, as the noble Lord, Lord Browne of Ladyton, said, there are six amendments in this group, five of which have my name. I am grateful to noble Lords who have also put their names to those amendments, including the noble Lords, Lord Browne, Lord Ravensdale and Lord Broers, and the noble Viscount, Lord Stansgate. I am particularly grateful to the noble Lord, Lord Broers, not least because of the impetus I derive from his contributions in our Committee debates—about the centrality of the acquisition, use and deployment of intellectual property to ARIA’s activities being central to its task. If I may be so presumptuous, I am looking forward to hearing some of the noble Lord’s arguments again, if he has the opportunity, because I am sure he will convey the arguments behind a number of my amendments better than I could. If it is not impertinent on my part, let me say that we will miss his counsel and advice when he retires from the House at the end of this week, and I am glad that we have the opportunity of hearing his advice today before that happens.

I draw noble Lords’ attention to one simple fact: at present, nothing at any place in the Bill refers to intellectual property. It refers to property and rights, and I suppose Ministers might say, entirely correctly, that they are within that thought. But intellectual property is the essence of what ARIA will be doing. As the noble Lord, Lord Browne of Ladyton, said, the Minister most helpfully sent us a letter explaining the centrality of intellectual property activities. Ministers wish for ARIA to devise its own strategy for the intellectual property it creates. For that to happen, as the noble Lord, Lord Browne, said, we want the Bill to make it clear to ARIA, in law, what its powers and responsibilities are. The powers it needs in relation to intellectual property need to be specified.

There are other ways in which Ministers have decided to say that ARIA can set conditions for its financial support, but it does not refer to the conditions relating to intellectual property. Ministers can attach conditions to the grants and funding they give to ARIA, but those do not refer to intellectual property; listed in the schedule are the supplementary powers that will be available to ARIA to do various things, including create partnerships and join ventures and companies, but they do not refer to intellectual property.

The purpose of five amendments in this group is to fill those gaps; Amendments 2 and 3 propose that when ARIA is providing financial support to its research projects, among the conditions it can apply are those relating to the acquisition, disposal, retention and assignment of intellectual property. It clearly ought to be able to do those things. Ministers may say that of course it can because it has the necessary powers. So why are other things specified but not this, since it is central to its activity?

When we look, for example, at the supplementary powers in the schedule given to ARIA, various things are mentioned. It can

“borrow money … acquire and dispose of land … accept gifts … form and participate in partnerships … and … form companies;” but the schedule does not refer to the ability to acquire, retain, assign, license or dispose of intellectual property and related rights. Indeed, even where it refers to acquisition and disposal of land, as we discussed in Committee, it does not refer to land or other property. These, it seems to me, are all the ways we should better define, in legislation, what ARIA’s powers are.

I have left out one amendment. Amendment 8 relates to the Secretary of State providing grant funding to ARIA. Clause 4 says that this may be subject to conditions, and the only condition which is then referenced is the provision under which sums paid by the Secretary of State to ARIA may be repaid with or without payment of interest.

We have not been provided with, is the framework document that will establish the relationship between the Treasury and ARIA as a publicly funded body. That being the case, if we regard something as important enough, should we put it in the legislation so that it has to be addressed in the framework document? When ARIA, as a result of its funding, has rights relating to intellectual property, can it retain the revenue derived from that investment, or does it have to give that revenue back to the Secretary of State? The frame- work document will, I suspect, provide a reference to this; we know this is important.

In my former constituency, the Laboratory of Molecular Biology, which the Medical Research Council provided funding to, had major research projects, including with highly talented individuals who created immense value. They were enabled to participate in those projects and retain some rights in that intellectual property, and the LMB itself retained revenues which then, by way of negotiation, served to enhance and sometimes substitute for the grant funding received from the Government. If ARIA is to have a strategy for the funding it receives from the Government, it needs to know in advance whether it can retain revenue derived from investment. Can it retain it, or does it have to give it back to the Government? All Amendment 8 does, essentially, is require the Government, when they provide such grants, to set out under what circumstances that revenue can be retained by ARIA for further investment in additional projects to meet its functions or whether it has to pay it back to the Government.

That is where I want the most specific assurances from my noble friend that the Government will provide that opportunity to ARIA. In the absence of that, at a later stage, when we reach Clause 4, depending on the nature of the assurances I receive from my noble friend, I may wish to test the opinion of the House. But we will leave that for a later moment.

For the moment, I am very glad to express my support for what the noble Lord, Lord Browne, said. There is a wider issue, of course there is, but we do not really know the extent, for example, to which the National Security and Investment Act is enabling Ministers to intervene and to protect intellectual property in this country. In any case, that is in relation only to national security issues, and the intellectual property that we are concerned about here will inevitably go much wider.

Finally, I hope that, in this context, my friend, the noble Lord, Lord Broers, will be able to amplify the question of adding technological advance into the benefits that ARIA should be aiming for. At the moment, we have a reference in the Bill to “scientific innovation and invention”, but by its nature what we are looking for is often wide-ranging technological advances that will be derived from the nature of the scientific research that is undertaken. At the moment, the interpretations in the Bill define scientific research but not scientific innovation, and they do not specifically reference technological advances as a benefit that ARIA should be aiming for.

I hope that explains these five amendments, and that we will take this opportunity to put intellectual property right at the heart of ARIA’s functions and the Bill, as it should be.

Photo of Lord Broers Lord Broers Crossbench 6:00 pm, 14th December 2021

My Lords, I thank the noble Lord, Lord Lansley, for his kind remarks. I have spent most of my life in this environment working on very complicated projects, and I feel very strongly about this issue. I therefore support Amendments 2, 3, 21 and 22, which would secure ARIA’s rights to retain and exploit the intellectual property generated by its research and to obtain intellectual property from elsewhere in order to advance its projects. As I have mentioned before, the projects that ARIA will be working on will draw upon knowledge from all over the world. It is unlikely—almost impossible—that it can generate all its own intellectual property. The world has changed; that is not the way high technology develops today.

It is also of prime importance to the creative engineers and scientists working on ARIA projects that they feel that their creativity is recognised. There are various ways in which this recognition can be granted, but the most straightforward is for them to receive financial benefit, usually through shared ownership of the intellectual property. High-technology companies and universities have found it effective to have a fraction of the income from patents and other intellectual property go to those who create the intellectual property. This creates a sense of fairness and generates loyalty. The result is highly motivated employees who are not tempted to keep their ideas to themselves and go elsewhere where they can be more fairly treated. This is essential. There is massive competition for the top technological brains in this country. We will not get them into ARIA if they think that they will be entangled in a whole lot of bureaucratic government regulations that prevent them from getting the benefits of being entrepreneurs who are free in the world.

I notice that Amendment 17 seems designed to deal with such errant behaviour—how dare they consider doing such things?—but this sort of thing has its dangers, in that its very existence shows that the organisation does not trust its employees, even encouraging them to take their talents elsewhere. It happens with everybody. When you are working on a project, you suddenly have a brilliant idea. You know that you have cracked the nut and really opened up a way for progress, and your first thought is, “My God, I could be rich if I took this off and formed my own company”.

This happens with big companies. I spent a lot of time in IBM, which had to be terribly careful because it provided huge resources for people to make immense progress, but at the same time we did not want people, when they made that progress, to be immediately motivated to leave and exercise that somewhere else, and make more money; I am afraid that money is a motivation. In IBM, in essence you got points towards quite a lot of money when you invented something. You also got a very large award if you did something that opened new pathways in a technology, over and above your salary.

That is the way a company such as IBM in the great days, and Bell Labs subsequently, kept their brilliant people working there. ARPA has that reputation. You will be treated fairly, do well and get paid a lot if you work in ARPA or DARPA; they are prestigious places to work. I imagine that ARIA will be just like that; it will be a prestigious place to work and there will be lots of reasons for that. At times, there has been concern in the UK about the brain drain out of the country. Of course, this has been largely because the incomes offered to creative engineers and scientists have been higher elsewhere, but it is also because it has been perceived that their creativity will receive more recognition.

Those are my remarks on intellectual property for the noble Lord, Lord Lansley. That is the core of what we are doing; it is the intellectual output. It is a very familiar feeling among academics.

I also support Amendment 1, because I believe that it should help to arrest the flow of technology businesses that originate in ARIA being acquired by overseas businesses, which is a concern that everybody has. I just wonder whether 10 years is sufficient time for this to be effective. There are two very important examples of our losing, or potentially losing, outstandingly successful companies originating entirely in the UK.

The first is Arm, which designs the microelectronic chips for the majority of the world’s portable information and communications equipment. Founded in 1990, it went public in 1998, and was then acquired financially by Japan’s SoftBank for about $32 billion in 2016, 26 years after it was founded. If conditions similar to those in this amendment had been in place in the UK, it would have had little or no effect, and its effect would have been even smaller today in preventing the threatened takeover by the US company Nvidia, which began in 2020. Fortunately—as an aside—the American Federal Trade Commission looks as though it may prevent that takeover anyway because of the threat it presents to world competition in the semiconductor business.

The second company is Solexa, which was based on the fundamental research of Balasubramanian and Klenerman in Cambridge that enables the high-speed decoding of DNA. They obtained their initial seed funding to form Solexa in 1998, and in 2000 Solexa’s corporate facilities were established. Solexa was then acquired by Illumina in early 2007, and now generates billions of dollars of revenue. The conditions of this amendment might have slowed if not stopped this takeover. The amendment would help to retain businesses emerging from ARIA in the UK, but it is also important to enhance the activities of the Competition and Markets Authority, which is looking at that, to solve this problem much more widely in the UK. The loss of Solexa was a laughable mistake— one of the most exciting companies in the most exciting scientific field being pursued, and we just wave it goodbye.

We have to fix these problems. I will vote for these amendments if they are put to a Division.

Photo of Viscount Stansgate Viscount Stansgate Labour

My Lords, I rise to speak in support of Amendment 2, to which I have added my name, and the other amendments in this initial grouping. I begin by paying tribute to my noble friend Lord Broers, who, as the House now knows, will leave this House at the end of this week. He is president of the Parliamentary and Scientific Committee and, as noble Lords can see for themselves, he has carried on, to the very end, making excellent arguments for science. I thank the Minister very much for the letter and the offer of further discussions and a meeting with the Minister for Science, which I welcome.

In view of the points that others have made, I will be very brief. As has been said more than once in its passage through your Lordships’ House, the Bill is more about an idea or experiment than it is about anything concrete—at least at this stage. No one, including the Government, can be entirely sure what will happen after we establish ARIA and it sets out to fulfil its mission. We can probably all agree that this is what makes it an exciting venture. But one thing that we can be sure of is that, if it all goes well, ARIA will amass a great deal of intellectual property over the next 10 years, and it will certainly be dealing with successful ideas about which we know nothing as yet.

So these amendments—Amendment 2 in particular—are essential to enable ARIA to benefit from the intellectual property that it creates, and we must ensure that, whatever it comes up with, its intellectual property cannot be sold off or acquired by others without its agreement. Not to agree this amendment would run a risk that I do not think we should run.

Photo of Lord Morse Lord Morse Crossbench

I too will speak to support the amendment advanced by the noble Lord, Lord Browne, who has explained it very clearly. It is worth getting back to basics on it—if I may use that expression—for a second. The ARIA scheme is about driving our national research frontiers forward by publicly funded risk taking, if I can summarise it as simply as that. It is a good idea that is widely supported.

But this is the reverse of what will happen if foreign-owned companies are allowed to acquire companies that own intellectual property derived from ARIA or to take that intellectual property offshore. If this happens, the reverse of the objective of the scheme will be achieved. This possibility is not far-fetched. I spent 10 years as Comptroller and Auditor-General at the National Audit Office, and, during that time, I saw cases relating to a series of companies where exchange of control provisions in the hands of government were not exercised properly or the scheme was administered rather feebly. As a result, these things became faits accomplis and the property went offshore. Sometimes, you would be told, “Well, we believe in the market operations, so we really don’t like to interfere with this sort of thing”.

Actually, we need strong, clear decision-making about this now. We need to make it clear in this amendment that we are not prepared to see intellectual property that has been paid for by British taxpayers go offshore. It makes mugs of British taxpayers.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe Chair, Built Environment Committee, Chair, Built Environment Committee

My Lords, I rise to cast some doubt on Amendment 1. It is very well intentioned, but I fear that it may be mistaken. The background to my concern is my regret that ARIA is modest: some £200 million a year is being provided, which is a pinprick compared with the vast sums spent on other things, such as Covid and bailing out the banks.

The Bill is meant to set up an agency that can take risks free from bureaucracy and the day-to-day constraint of politics—a latter-day Manhattan Project, if you like. Bureaucratic and other constraints are being applied to the R&D budgets of many billions in the hands of UKRI. That is fine, but I do not think that they have a place in ARIA, which should be run leanly and efficiently and not encumbered by expensive experts—on IP, for example—and large legal departments. It should be able to think and act outside the box.

So I object to the provision in paragraph (bb)(ii) in Amendment 1, and I am slightly surprised that the noble Lord, Lord Clement-Jones, has signed the amendment, because we generally agree on these IP issues. However, I agree with my noble friend Lord Lansley that we need to know whether ARIA can keep the income that it receives from IP and rights. To answer his question, I see IP and rights as being in the same box—but no doubt the Minister will clarify that when he speaks.

ARIA should be able to choose what to do about the IP that it creates. It should not have to be involved in monitoring et cetera for another 10 years, as the amendment implies. Sometimes it will want to hold on to the IP; on other occasions, it will want to grant all IP rights, or a share of them, up front, to provide a greater incentive to a supplier, especially perhaps a small supplier. Having been IP Minister, I know that practice will vary from sector to sector, and of course we do not know where ARIA will place its firepower. That is the whole point: it is meant to be able to look ahead independently. So we want to avoid a situation where the possible loss of, or constraint on, IP rights acts as a dampener on the involvement in ARIA’s work of the most innovative partners, businesses or suppliers.

Some noble Lords will know that I have been both an IP Minister and a Business Minister, and of course I served on the board of some creative companies, such as ITV and Tesco. I have two brief tales of woe that illustrate my concern. First, I came across a firm providing fancy and efficient legal systems and software to the Ministry of Justice. It wanted to provide consultancy doing a similar thing in export markets around the world. However, it had been required to agree to a contract some years earlier, under which the MoJ owned all the IP. So it was frustrated and UK plc suffered because it could not establish an export trade.

Secondly, when I was on the board of ITV, we invested through our Studios business in the United States. We found that the treatment of IP and rights was different in some of the vehicles that we wanted to buy: the broadcasting company owned the IP and did not share it with the creative supplier of original programmes. So, in time, the latter could fail, having insufficient income from past hits to keep going independently. In the UK, the creators shared or even owned the IP rights completely, so a vibrant and creative film and programme industry built up in our country. Strangely, this helped our creative companies, some of which are quite small. The result was that the many companies that have become the backbone of our success grew and flourished. I do not know what the situation is now, but I am doubtful about the proposed amendment, because I fear that it would have a perverse effect, and without evidence to the contrary—which I have not heard—we should be very careful about agreeing to it.

On equity sales, which are also the subject of Amendment 1, I doubt whether we should have special arrangements for ARIA. We now have a new law dealing with sales of sensitive businesses overseas—the National Security and Investment Act—and perhaps the Minister could confirm that it applies to ARIA and would deal with the risk, which the noble Lord, Lord Browne of Ladyton, mentioned, of ARIA falling into the hands of foreign players. I believe that the Arm deal, which I opposed at the time because of its effect on IP, would have been caught by the Bill—and I am not sure that we need to duplicate that.

So, finally, I agree with what was said by the noble Viscount, Lord Stansgate, about the record of the noble Lord, Lord Broers. We will miss him from today and on future occasions.

Photo of Lord Bethell Lord Bethell Conservative 6:15 pm, 14th December 2021

My Lords, I will speak to the centrality of intellectual property to the Bill and, in particular, on two themes, very briefly. First, on the protection of intellectual property, the noble Lord, Lord Browne, spoke very movingly and interestingly about the concerns that were brought up by George Freeman in the meeting that we had. It was reassuring to hear George Freeman speak so clearly and emphatically. That is why Amendment 2 is very interesting and worth a really good look.

I am very concerned that, in our efforts to build Britain into a science and research superpower, all that we will be is a laboratory for others to borrow from and that we will simply supply the unicorns of the future from overseas. Somehow, we have to capture that value here in the UK.

The second point, which the noble Lord, Lord Broers, spoke so movingly about and selected such a good example of, is about how we encourage the breed of entrepreneurs that I hope will come out of ARIA. We must encourage this. We should not have something like Amendment 17, which somehow suppresses the entrepreneurialism of our researchers and scientists. I have been to Kendall Square on the MIT campus, next to the Harvard campus, which is buzzing with excitement, with start-ups and major new enterprises feeding off the intellectual energy of those great universities. That is what we need to have here in the UK.

On Clause 1, I am torn between my noble friends Lord Lansley and Lady Neville-Rolfe, who both put their arguments so well. I would like to split the difference and agree with the noble Lord, Lord Browne, that these are things that I would like to hear about from George Freeman from the Dispatch Box. That argument has merit.

Photo of Lord Clement-Jones Lord Clement-Jones Liberal Democrat Lords Spokesperson (Digital)

My Lords, I am largely going to speak to and support Amendment 1. I commend the noble Lord, Lord Browne, for raising these important issues on the question of ARIA’s ability to impose investment conditions. Unlike the noble Baroness, Lady Neville-Rolfe, I do not see those as bureaucratic constraints.

One key issue in delivering technology into the market in this country is the commercialisation and translation of that technology. We have seen report after report telling us about that. The UK is a top nation for the global impact of its R&D but not so effective at innovation, where it ranks 11th in the world for knowledge diffusion and 27th for knowledge absorption, according to an October 2021 report by our own BEIS department. The greater risk averseness of the VC and private equity market for technology start-ups in the UK compared to that of the US is common ground in the investment community itself; we need to hang on to our unicorns. As a result, outside fintech, we have seen too many high-technology companies sold to overseas companies at too early a stage. We have heard examples from the noble Lords, Lord Broers and Lord Morse—and, in Committee, the noble Lord, Lord Browne, took the risk of quoting the Daily Telegraph.

The National Security and Investment Act will impact on that to some extent, but in a limited number of sectors involving national security. Without this kind of scale-up support we cannot become—to coin the phrase so often used by this Government—a science and tech superpower by 2030. This excellent amendment will, I hope, ensure that those making decisions about future financing at least have some friction in the system to ensure that they have to think twice about where and how to raise capital for the future; at the same time, it gives ARIA skin in the game to help it do so. The Minister has said in correspondence that he shares the objectives of this amendment, so I hope that he will agree at the last stage to accept it.

As regards the other amendments by the noble Lord, Lord Lansley, in this group, I agree in principle with many of the issues that he has raised and the support for intellectual property rights that should be retained by ARIA in certain circumstances. He had powerful support from the noble Lord, Lord Broers, whose expertise we are certainly going to miss when he retires from the House.

As the noble Lord, Lord Browne, says, we have only this Bill today. We cannot solve all the problems relating to the taking of stakes by companies or our research institutions, but we can put this into ARIA’s terms; I very much hope that we will do so today.

Photo of Baroness Chapman of Darlington Baroness Chapman of Darlington Shadow Minister for the Cabinet Office, Opposition Whip (Lords), Shadow Spokesperson (Business, Energy and Industrial Strategy and International Trade) , Shadow Spokesperson (Justice)

My Lords, I find myself listening to some excellent speeches and frantically scratching sections from my own contribution as I do not see the point in repeating the points that have already been made. I put on record my thanks to my noble friend Lord Browne, in particular, for his generosity with his expertise and time in working so collaboratively on this issue, which has support on all sides. The principle is very simple: the state is taking a big risk by granting funds to speculative research projects. In cases where that risk pays off—we hope that is not an infrequent event, but we understand that this is about high-risk ventures—ARIA should have the ability to protect the potentially significant benefits that will arise from initial taxpayer support. It seems equally appropriate that ARIA has a say in potential takeovers or transfers of intellectual property. We know that there is a big market for speculative purchases of new technology. While ARIA may decide that there is no public interest in preventing certain events from taking place, there might be other investments that should be safeguarded.

It is clear from the debates that we have had in Committee and this evening that there is a shared desire on all sides—including, to be fair, from the Minister—to deal with this issue. He has correctly observed previously that the problem we are trying to fix is not limited to ARIA; that is understood and agreed with. However, while the amendment by the noble Lord, Lord Browne, does not fix everything, that does not mean we should not try to fix the thing that is in front of us now. It moves us in the right direction and is appropriate given the specific activity of ARIA; the Opposition are solidly in support of Amendment 1.

Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy)

I thank noble Lords for what has been an excellent and very well thought-through debate. While the noble Baroness, Lady Chapman, was lucky enough to be scratching bits from her contribution, I found that I was adding lots more to mine to take account of some of the excellent contributions. The debate showed the House at its finest, even if I do not necessarily agree with all the points raised, as I will outline.

Amendment 1, introduced by the noble Lord, Lord Browne, imposes a number of conditions on ARIA’s financial support. He made his case well, raising a number of important issues regarding the UK’s approach to capturing value from public investment in R&D, the role of public IP retention within that, the Government’s powers to intervene in acquisitions and our approach in so doing. I have listened carefully to all the contributions made by noble Lords on this matter, and I think that there is some measure of common agreement. We are all agreed that public investment in R&D should indeed drive long-term socioeconomic benefit and ultimately drive value to UK taxpayers who are funding it. We are clear across this House that exploitation of IP will play an integral role in creating these benefits, and that our paramount concern should therefore be generating the maximum public value from that exploitation; I will return to that specific issue shortly.

The debate that we have had today on the benefits derived from public investment in R&D speaks to a much wider issue, which extends beyond intellectual property, ARIA and this piece of legislation. I respectfully say that I do not think that Report on the Bill is the most effective forum for setting precedents to this very expansive and wide-ranging area of government policy. While I will do my best to address the range of points raised this evening, the Government’s approach to foreign investment and how IP rights are treated within the public funding disbursed across the entirety of our considerable R&D system are indeed extensive areas of policy.

I recognise that there is some common ground, as the noble Lord, Lord Browne, has set out—although perhaps not as much as he might have indicated. As he said, I offered to facilitate a meeting with the Minister for Science, Research and Innovation, who came along to our all-Peers meetings to discuss these issues in the round. I still believe that this is the correct forum to discuss this issue in sufficient breadth—something that I do not think could be provided through this amendment to the proposed arrangements for ARIA alone. I suspect that the noble Lord will not be satisfied with my offer but nevertheless I repeat it here.

I have welcomed the insightful contributions of noble Lords in the scrutiny of the Bill so far, and I recognise the importance of Amendment 1 in providing a vehicle for this debate, but I hope that the noble Lord, Lord Browne, will recognise that this represents an unusual and strong restriction and we would have serious concerns as to its proposed workability.

To respond directly to the noble Lord’s amendment, let me set out the Government’s current position. The UK is a premier destination for foreign direct investment. I recognise the concerns the noble Lord has expressed about the current context and the issue of leveraged loans highlighted by the Bank of England, but, in general, I think we all have to recognise that this investment brings tangible economic benefits and the Government are rightly cautious about introducing wider powers to act on the grounds of public or economic interest, as such an approach could destabilise investment into the UK, reduce economic growth and ultimately, therefore, risk jobs and prosperity.

Of course, it is worth saying that, where necessary, the Government have statutory grounds for making interventions. The Enterprise Act 2002 enables the Government to intervene in mergers or acquisitions on media plurality and financial stability grounds and, recently, in relation to public health emergency. I say to my noble friends Lady Neville-Rolfe and Lord Lansley, for the sake of clarity, that the National Security and Investment Act 2021, shortly to commence on 4 January, gives further powers to scrutinise and to intervene in acquisitions of control of entities and assets that may pose a risk to national security. This includes areas of emerging technologies, such as quantum and artificial intelligence, which draw on significant previous public investment. I add, again for clarification, that the powers and provisions of the NSI Act will apply to ARIA and that it does cover intangible property.

Today, as outlined by the noble Lord, Lord Clement-Jones, and in Committee, we have heard desire to increase the scale of investment available to our most innovative businesses from within the UK to support their growth in this country. This is not an issue that the Bill alone can solve, and I do not believe that acting in isolation to curtail the access of these businesses to investment from elsewhere would be to our long-term advantage. I hope the noble Lord will recognise that this is a genuine concern.

I return to the issues of intellectual property more closely connected to the Bill. It is a clear ambition of the Government to become world-class at securing economic and social benefits from the research. I thank my noble friend Lady Neville-Rolfe for her contributions and I agree with many of the points she made. In the case of ARIA, we wish to equip it to take a case-by-case view of the most appropriate IP arrangements for individual programmes by varying its contracting and granting arrangements. I think we have some common ground across the House for this approach.

Depending on the route to market for the innovation or technology in question, on some occasions ARIA may retain IP generated through its programmes to reap the greatest public value. For example, if a programme is fully funded by ARIA and creates IP with commercial application but strategic importance from a security perspective, it may be appropriate for the IP to be retained directly by ARIA. In such circumstances, ARIA would draw on the new strategy outlined in the Mackintosh report as part of a concerted government effort to identify how to get greater value from public sector knowledge assets. ARIA would be responsible for developing its own knowledge assets strategy, taking into account the draft guidance in that report. It would also be able to utilise specialist support of the new government office for technology transfer to get advice on the best way to protect or to exploit public sector IP.

However, most often, we expect that the businesses or universities that ARIA has funded or contracted to conduct research will be best placed to exploit the IP generated. ARIA, seeking to take a greater role, would likely then disincentivise the very people that we most want to draw in to participate. For many SMEs, ownership of IP is critical to their businesses. Restricting their IP access and ownership would likely deter them from engaging in any collaborative ARIA programmes. ARIA acting as a powerful convener of multiple, disparate collaborators in pursuit of a single, ambitious, programme-level objective is an integral feature of the agency’s design.

As attested to by the noble Lord, Lord Broers, in Grand Committee, when he spoke about DARPA’s development of GPS, ARPA-like agencies play an important convening and co-ordinating role in drawing in technologies and IP. Done effectively, these agencies can drive progress and can pull through a novel idea to a prototype or to the market.

Let me take a moment at this stage to pay tribute to the noble Lord, Lord Broers, for the contribution he has made to this House in scrutinising this Bill and many others, and in sharing his immense expertise. I totally associate myself with the remarks of my noble friend Lord Lansley and others—he will be greatly missed and we will be poorer for not having his contribution to many of these debates. I place that on record.

Any restriction on ARIA’s IP arrangements that would deter broad participation in its activities would be detrimental to its collaboration and ultimately to ARIA’s potential achievements. More broadly, I would also argue that we should be very cautious about introducing additional obligations on ARIA’s IP arrangements which would place it at a disadvantage to other R&D funders. As the noble Lord, Lord Browne, reminded us, Innovate UK, for example, generally does not retain IP generated through grants and loans, on the grounds that the business closest to the innovation and the research will be best placed to exploit it and to generate value from it, which will, in the end, of course, benefit the public finances.

Our exact concern is that if funding from ARIA has additional conditions attached, or if the agency can make available fewer IP rights compared to funding from Innovate UK or others, there is a risk that the most innovative businesses will be disincentivised from participating in ARIA’s programmes. Where IP generated through ARIA programmes was vested in private entities, there would remain a variety of mechanisms to ensure that public value was generated as a result. I have previously highlighted existing initiatives aimed at retaining public investment in R&D within the UK, such as the patent box tax, which supports the retention and exploitation of IP rights by UK businesses by allowing them to pay a reduced rate of tax on profits arising from exploiting patents and other qualifying products. In addition, we expect that ARIA may use clauses that enable it to claw back funding provided to entities that do not then exploit the outputs of projects in the UK, as Innovate UK routinely does.

I believe that these points lead on well to Amendment 2, in the name of my noble friend Lord Lansley, which seeks to explicitly include in the Bill ARIA’s ability to retain IP rights and specify that rights held by beneficiaries should not be sold or assigned without ARIA’s approval. As I have just outlined, these things are important but they are not unique. There are many other conditions that ARIA may need to attach to the funding it provides: they cannot, and should not, all be listed in the Bill.

As I have stressed previously, the legislation as drafted already enables ARIA to acquire, retain, share, license or dispose of IP. ARIA can, and will, use this full suite of IP options. No amendment is needed for it to negotiate and tailor its IP arrangements to suit each project or programme.

The noble Lord, Lord Browne, has suggested that his amendment is not intended to impose a particular approach on ARIA but rather signal what it may do. If that is the case, I can assure him that ARIA may already attach conditions on its funding through its contractual arrangements, if that is agreeable to its research partners and helps it to achieve its objectives. I believe that the decisions ARIA takes on IP should ultimately be a matter determined and detailed in its contracting and granting arrangements within individual programmes, not in its founding legislation. As drafted, the Bill enables ARIA to have the greatest flexibility in its IP arrangements.

Amendments 21 and 22, in the name of my noble friend Lord Lansley, would add explicit reference to ARIA’s ability to own, acquire, retain, assign, license and dispose of intellectual property into its supplementary powers. I thank my noble friend for his consistent engagement and challenge on this issue but, as I have assured him, we have discussed this drafting very closely with lawyers. We are in clear agreement that IP will be a central consideration for all of ARIA’s activities, and IP arrangements and rights will be considered, tailored and embedded in the contractual arrangements for every project that ARIA funds. I am certain that the activities covered in these two amendments are entirely possible through the Bill as currently drafted, and that adding these references in ARIA’s supplementary powers would not enable the agency to do anything that it cannot already do currently. It is my view, therefore, that such legislative changes are unnecessary, but I thank my noble friend for continuing to champion the centrality of IP and the integral role it will play in ARIA fulfilling its functions.

Moving to Amendment 8 to Clause 4 from my noble friend Lord Lansley, this extends the arrangements in place for where ARIA retains IP and relates to ARIA’s ability to retain income generated through the exploitation of intellectual property. On the point made by my noble friend Lord Lansley, the framework document is a governance document between BEIS and ARIA and does not primarily involve the Treasury, although obviously Her Majesty’s Treasury will review it and will be required to approve it. The power in Clause 4 to attach conditions to grants reflects the usual process for allocating budgets to public bodies. Such conditions are usually attached through letters of allocation and delegation and would usually set requirements for resources to be managed in line with the principles of Her Majesty’s Treasury’s Managing Public Money.

I assure my noble friend that the Bill as drafted and the provisions of Clause 4 are already entirely compatible with ARIA retaining income. However, as was set out in Committee by my noble friend Lady Bloomfield, these arrangements are not dealt with in legislation. The 2020-21 consolidated budgeting guidance states that income generated by the exploitation of IP would be retained within a public body as standard, but Her Majesty’s Treasury would need to consent to the precise arrangements for ARIA and the implications of retaining such income. This is a live matter of discussion between my department and Her Majesty’s Treasury and, while I very much appreciate my noble friend’s support on the matter, I do not believe that it would be appropriate to introduce a legislative commitment on this issue at this stage.

Finally, Amendment 3, from my noble friend Lord Lansley, would add reference to ARIA having regard to technological advances in the UK as one of the benefits which it should seek to promote. Similarly, I believe that this is perhaps more a difference of opinion on drafting than a difference in policy intent. Driving and promoting technological advancement in the UK is indeed intrinsic to ARIA exercising its functions. I hope this is already evident from the existing drafting of Clause 2, and again I do not think that the amendment adds to or clarifies ARIA’s purpose. For those reasons, I am unable to accept it.

I apologise for the length of my contribution, but it brings me to the end of this very important group. I hope that the detailed explanations of the Government’s approach, the further assurances on the robustness of the existing drafting in permitting the full suite of options that ARIA might need, and my offer of a meeting with the Science Minister for the noble Lord, Lord Browne, and others will be sufficient to enable the noble Lord to withdraw his amendment.

Photo of Lord Browne of Ladyton Lord Browne of Ladyton Labour 6:30 pm, 14th December 2021

My Lords, I thank the Minister for the care he has taken in responding to this debate and I thank all noble Lords who have contributed to it. I find myself in the position—other than in the Minister’s case—of saying that I agree with everything everyone else said, and I include in that the noble Baroness, Lady Neville-Rolfe. I agree with everything that she said, other than that she has, with respect to both her and the Minister, made the same mistake in that they characterise this amendment as imposing or mandating behaviour on the part of ARIA. With respect to both of them—I pointed this out in my opening remarks to the Minister—this is a misreading of the Bill.

The amendment is placed in a position which does not mandate or impose anything. It enables ARIA to choose what it wants to do but directs its attention to what all contributors to this debate have made clear is an issue of necessity as far as they are concerned if we are to achieve what this letter I have received from the Minister expresses as our common objective—that is, to generate the greatest public value from ARIA’s exploitation activities which will be publicly funded. There is a common understanding that if these exploitation activities fall into the hands of businesses that are based abroad, large amounts of money and great improvements in our society and our socioeconomic affairs will be denied to the people of the United Kingdom. There is no doubt about that.

With respect to the Minister, I think he is complacent about the degree and the extent to which that has been happening over the past decade. I repeat that it has been happening so much over the past decade that the Bank of England expressed concern about it because of the financing mechanism that is used, which is not investment. It is leveraged debt that is imposed on our economy to such an extent that it undermines our economic performance. I have in the past endeavoured, as have others, to have the Government engage on this. The success of these amendments, in this context, in this Bill, is that the Government have engaged more at the Dispatch Box and in debate than they ever have before, and I am delighted at the opportunity to have a meeting with others and with an important Minister in the Government who is now willing to discuss extensively how the Government intend to deal with this issue.

In thanking all noble Lords for their contributions, I repeat that my intention is to use this important amendment—it is not perfect in the sense that it does not solve this problem extensively, but it does here and it draws ARIA’s attention to the danger of this and concentrates its mind on it—to get the Minister, who shares the concerns we all have because we heard them in an earlier meeting with him, to share them where he should share them, which is at the Dispatch Box in the House of Commons.

Finally, I echo noble Lords’ words on the contribution that the noble Lord, Lord Broers, has made to your Lordships’ deliberations and the insight and wisdom he has brought to the House. I am proud—in fact, I am honoured—that one of his last acts in this House has been to support my amendment. If he could persuade the Government that perhaps they should draw to ARIA’s attention the opportunity it has to extend the period in which it can protect its intellectual property and its exploitation of it for the people of the United Kingdom, I would be happy that he did so. This amendment has not yet served its whole purpose, and it will not unless it is supported by your Lordships’ House. I wish to test the opinion of the House.

Ayes 166, Noes 153.

Division number 1 Advanced Research and Invention Agency Bill - Report — Amendment 1

Aye: 166 Members of the House of Lords

No: 153 Members of the House of Lords

Ayes: A-Z by last name

Nos: A-Z by last name

Amendment 1 agreed.

Amendments 2 and 3 not moved.