Clause 13 - Offence of unauthorised copying etc. of design in course of business

Intellectual Property Bill [Lords] – in a Public Bill Committee at 11:30 am on 30th January 2014.

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Photo of David Willetts David Willetts Minister of State (Universities and Science) 11:30 am, 30th January 2014

I beg to move amendment 6, in clause 13, page 11, line 22, after ‘person’ insert ‘intentionally’.

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

With this it will be convenient to discuss the following:

Government amendment 7.

Amendment 25, in clause 13, page 11, line 27, leave out ‘and’ and insert—

‘(ia) knowing that, or being reckless as to whether, making the product is an infringement of the registered design, and’.

Government amendments 8 and 9.

Amendment 26, in clause 13, page 11, line 35, leave out ‘uses’ and insert ‘sells’.

Amendment 27, in clause 13, page 11, line 39, after ‘so’, insert ‘deliberately’.

Government amendments 10 and 11.

Amendment 28, in clause 13, page 11, line 42, at end insert—

‘(ia) the person does so knowing that, or being reckless as to whether offering putting on the market, importing, exporting or selling of the product is an infringement of the registered design.’.

Amendment 29, in clause 13, page 12, leave out line 6 and insert—

‘(a) reasonably believed that the registered design was not infringed.’.

Amendment 30, in clause 13, page 12, leave out line 7.

Government amendments 12, 13 and 14.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

Thank you, Mr Havard, for opening our proceedings by quoting from Gramsci’s “Prison Notebooks”. I am sure that is how the parliamentary Labour party still conducts its affairs.

This debate is about probably the most significant feature of the Bill: the only new criminal sanction that we are introducing to intellectual property law. I appreciate your advice, Mr Havard, so I will try to bring together all the different amendments to this significant provision. Clause 13 makes it a criminal offence to intentionally copy a UK or EU registered design in the course of business without the consent of its owner. It will also be an offence to try to profit from the use of the copy in the course of business.

After Second Reading and after discussion and debates in the other place and meetings that my colleague Lord Younger and I had with stakeholders, I recognise that the introduction of a new criminal sanction raises strong feelings, both for and against. The Government believe that this policy is the right one. Designs should be protected by a criminal offence in the same way as other forms of intellectual property, but it is important to get the balance absolutely right. Since the Bill was discussed in the other place, industry representatives have raised concerns with me and Viscount Younger that the scope of clause 13 could be interpreted more widely than was intended. Members of the judiciary have recently supported their viewpoint.

While the Government believe that the offence, when considered in its entirety, will capture only intentional copying, it is important to recognise the concerns of those who will be affected by the practical application of the sanctions. We in the Department for Business, Innovation and Skills, a pro-business Department, believe that it is important to give business the certainty it needs about the scope and meaning of the new offence. The Government want to ensure that we do not deter anyone who legitimately innovates around an existing design. That is the purpose not just of our amendments; I think it is also the purpose behind the amendments tabled by the hon. Member for Hartlepool.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

I very much appreciate what the Minister is saying. There need to be some criminal sanctions for people breaking copyright and taking other people’s ideas. I do not want to be too specific about which country, but countries in the far east have a propensity to steal intellectual property. Are we mindful of that? It is not just people in this country stealing intellectual property, but people stealing from a long way away. People are very concerned about that.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

The legislation covers offences committed in this country. If the offence is in this country, the exact, ultimate ownership or location of the headquarters of the company is not the issue. The criminal sanction will apply where copying takes place within the UK or where the copied products are offered, put on the market, imported, exported or used within the UK. The offence has to happen in the UK, but the perpetrator could have his or her original purpose anywhere in the world.

Photo of David Lammy David Lammy Labour, Tottenham

The Minister will appreciate, as I did when I was Minister with responsibility for IP, that there are organised networks. I saw examples of such networks in China that work  with counterfeiters in this country. In relation to design, the legislation would tackle the problem to which the hon. Member for Tiverton and Honiton refers; indeed, if it did not, we would need to revisit it, because the problem is significant and the police need assistance.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

Yes, and the purpose of the legislation and this clause in particular is to create a new criminal offence of copying a design. That is a clear strengthening of a weak legal framework. As I said on Second Reading, we believe in supporting our design industry—both small and large businesses.

With these amendments we are tackling specific concerns raised in intensive discussions with IP experts and industry representatives, such as BAE Systems, Nokia, Dyson and others—the creators of design IP in this country. The Government amendments ensure that the law is as clear as possible and that it fully achieves the Government’s aim of tackling only the blatant copying of design. Our amendments address two points. Government amendments 6, 8, 10, 13 and 14 make it clear that the copying must have been intentional. The insertion of the word “intentionally” is not intended to make the sanction more difficult to prove—the clause was always aimed at situations where there was an intention—but to allay the concerns of stakeholders that unconscious copying could be caught by the offence, which is not the purpose of the clause. We were happy to table the amendment to make the legislation clearly reflect the Government’s stated policy of ensuring that only considered acts of copying are captured. That is what the addition of “intentionally” does.

Amendment 27, in the name of the hon. Member for Hartlepool, would insert “deliberately” into the clause. I am not sure whether that is his intention—whether he is doing it “deliberately”. [Interruption.]

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

Order. We are getting messages from the other side—I think we are back in the fourth dimension. We will try to discover what that noise is and stop it.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

I have had a range of experiences in Committees in this House, but I have not had knocking from the fireplace before, although there is a first time for everything.

I think the hon. Member for Hartlepool probably intends to achieve the same purpose with amendment 27 as we intend to achieve with our Government amendments. I shall explain to him why we consider “intentionally” to do the job better than his proposed word, “deliberately”. We chose “intentionally” because it is more familiar to the courts in terms of framing the mental element of a criminal offence and so less likely to provoke legal debate than “deliberately”. I understand that intention is already recognised by the courts within the framework of IP legislation.

There is a second problem with amendment 27, which is that it appears to be directed to the part of the offence that sets out liability when a person knows or has reason to believe that the design in question has been copied. The legal test of knowing or having reason to believe is established and well understood. Qualifying it in clause 13 with the word “deliberately” does not seem to take matters further forward. We believe that the concerns of industry about unconscious copying are  dealt with effectively by the Government’s amendments, so the hon. Gentleman’s proposal in amendment 27 is unnecessary.

Photo of Duncan Hames Duncan Hames Liberal Democrat, Chippenham

I thank the Minister for that explanation. If we were to make this change, would it still be possible to bring a civil action in cases where the Crown Prosecution Service was not persuaded that intention could be proven?

Photo of David Willetts David Willetts Minister of State (Universities and Science)

Yes; my understanding is that a civil action would be possible. When we are talking about criminal sanctions, the view is that intent is an important element in the legislation. As I have said, we have always intended that intention should be part of the offence, and we are now making that explicit. The civil remedy would still available.

Let me turn to Government amendments 7, 9, 11 and 12, which relate to assessments of whether a product has been copied. The amendments will remove the word “substantially”, so that the clause instead refers to designs

“with features that differ only in immaterial details”.

We are proposing this change because industry has expressed concerns that the term “substantially” is not clearly defined in registered design law or criminal IP law, and there could therefore be uncertainty as to its meaning. The revised wording is more familiar to industry and reflects existing language used in the Registered Designs Act 1949, in the context of whether a design is new. Our amendments provide users with a familiar term and the courts with a more precise test than “substantially”. I do not detect anything in the Opposition’s proposed amendments that suggests that they have any difficulty with that clarification. Indeed, I hope that both the clarifications in our amendments—representing, as they do, the clear view of industry—will command the Opposition’s support.

Let me also comment briefly on amendments 25 and 28, which would introduce the idea of “being reckless” as to design infringement. The amendments would have two effects. First, they would introduce design infringement as a basis for the criminal sanction. However, infringement is different from copying. The new offence has been drafted so that the criminal sanction will be narrower and more focused than the civil test for infringement. The legal test for civil infringement refers to the concept of “overall impression” of a design on an “informed user”—a much less precise concept than the boundaries that we set out in the Bill for the proposed criminal sanction. For those reasons, including as a part of the offence a test based on civil design infringement is potentially confusing and would lead to greater uncertainty, which we fear could lead to a freezing effect on follow-on design.

Amendments 25 and 28 would also introduce the concept of “constructive knowledge or intention”. That would effectively require the court to conclude that a defendant had paid no regard to the probability or possibility of harmful consequences in conducting a course of action.

Photo of Mike Weatherley Mike Weatherley Conservative, Hove

On inserting the word “intentional”, would it therefore not be possible to include unregistered designs? I understand the argument  that registered designs are easily available and can be tested against, but if the word “intentional” is added to the Bill, could a consequence be that the provisions can be extended to include unregistered designs?

Photo of David Willetts David Willetts Minister of State (Universities and Science) 11:45 am, 30th January 2014

We will come to this matter when we debate the new clauses. The trouble is that proving intent is so much harder when it comes to unregistered designs, because people do not have access to clear information about what the IP is, so we are wary of trying to introduce the concepts to unregistered designs as well as to registered ones. However, we will debate that issue when we come to amendment 31, when my hon. Friend may wish to intervene again.

Amendments 25 and 28 would introduce the concept of constructive knowledge or intention, which would effectively require a court to conclude that a defendant had paid no regard to the probability or possibility of harmful consequences in conducting a course of action. Culpable criminal behaviour of that sort is already adequately covered by the clause. Knowing or having reason to believe that the design is registered—that is, owned by another person—is already a feature of the offence. Amendments 25 and 28 would therefore add an extra, unnecessary layer of complexity to the clause, which we fear would make the offence unworkable in the courts and highly uncertain for design businesses.

The Government amendments will clarify the purpose of the clause, reflecting the concerns that industry has put to us. We understand that the Opposition are also trying to tackle those concerns, but we believe that our proposals, which draw on well recognised terminology in IP law, provide the best way of doing that. I therefore hope the Committee will support our amendments and that the hon. Member for Hartlepool will not press his.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I wish you and the Committee a very good morning, Mr Havard. I thank the Minister for the non-grumpy way in which he set out his amendments and responded to my amendments. He was right to say that this part of the Bill is “significant”, although I would use the word “contentious”. I rise to speak to my amendments, but I also want to respond to the Minister’s points.

Two key issues about clause 13 were raised on Second Reading, which the amendments reflect. The first is whether criminal sanctions, with the possibility of up to 10 years’ imprisonment, should be applied to designs, and what legislative blocks and thresholds are in place to ensure that inadvertent, unintentional or accidental copying is not punished with hefty prison sentences. Secondly, if one accepts the concept of criminal sanctions to be applied to registered rights, surely it is logical that all design rights, whether registered or unregistered, should be included. We will debate that issue when we come to the next group.

On Second Reading, I said that Britain is fantastic at creativity and innovation, and I quoted the CBI’s recent report on the created industries, which states:

“Our culture and creativity is at the forefront of the UK’s global appeal.”

That does not happen by chance or accident, and it does not happen immediately. Our traditionally strong IP framework has evolved and been built up over time to ensure that the UK is a global leader in creativity and innovation. We should not do anything to jeopardise that, which is why our consideration of clause 13 is vital for industry in this country. I also made the point on Second Reading that IP is a property right, and that creators, inventers and designers should have protection in law against the exploitation of their ideas. If composers and writers are protected in law, why not designers? That seems a powerful argument, so I understand the Government’s thinking.

However, I understand that trademarks and copyright are not determined by prior art in the way that the scope and validity of a registered design are. “Prior art” has been defined as

“the total body of knowledge, which teaches or otherwise relates directly to an invention.”

Prior art references include documentary sources, such as patents and publications from anywhere in the world, and non-documentary sources, such as things known or used publicly. Given the intense difficulty of establishing prior art, it is possible that someone inadvertently designed something in good faith, and for relevant prior art to come to light later. That is particularly important when we are introducing a criminal sanction, especially one with a penalty of up to 10 years. There is a risk for registered designs that prior art may come to light after the person has been convicted and imprisoned. How will the Minister respond to that?

An interesting court case related to that issue is Apple v. Samsung, which I will refer to at length. Paragraph 57 of the judge’s ruling, which I was reading last night—

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I was swotting up, and I hope my hon. Friend takes that back to the Chief Whip. Paragraph 57 demonstrates the difficulties and subtleties of this field of law:

“The point of design protection must be to reward and encourage good product design by protecting the skill, creativity and labour of product designers. This effort is different from the work of artists. The difference between a work of art and a work of design is that design is concerned with both form and function. However design law is not seeking to reward advances in function. That is the sphere of patents. Function imposes constraints on a designer’s freedom which do not apply to an artist. Things which look the same because they do the same thing are not examples of infringement of design right.”

The last sentence is significant. If such cases are moved into the criminal courts, with the possibility of 10 years’ imprisonment, juries might convict on the basis of things doing the same thing and consequently looking the same, but that, as we have heard, is not an infringement of design right. The Government need to be absolutely sure of their footing, based on strong evidence. I have tabled our amendments to test the Minister on that point.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

I congratulate the hon. Gentleman on so assiduously studying Apple v. Samsung, which was a civil case about infringement. We are applying the higher  test of intentionality in this criminal sanction. The provisions in clause 13 raise rather different issues from Apple v. Samsung.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I understand what the Minister is saying. He has had discussions with industry bodies, legal experts and companies, some of which he has mentioned. The one thing we want to avoid is disbarring innovation and creativity, and ultimately prosperity, in this country. He will be aware of the many concerns that remain. The IP Federation has stated that the proposals

“create a sledgehammer for the purposes of cracking a specific problematic nut. The trouble is that, in cracking the problem nut, many other valuable nuts will also get cracked or severely damaged as a consequence.”

There is a risk that criminal sanctions will deter innovation and invention in this country. The IP Federation continues:

“If there is a risk that knowledge of a registered design, combined with actual infringement, could give rise to a criminal penalty, IP advisors will advise their clients not to take that risk. Products which would otherwise have been brought to market as a result of healthy competition will be withheld. This will reduce choice for consumers.”

I have had a meeting with the International Chamber of Commerce—as has the Minister—which has said:

“Whilst it is acknowledged that the proposed criminal offence would contain defences against unintentional infringements, there remains considerable nervousness within industry that criminal sanctions may still be employed in cases where there has been no deliberate copying of a registered design…Senior executives have advised us that even a very small risk of criminal action could significantly delay decisions on product launches—particularly where a company chooses to escalate concerns to board level. In a best case scenario, this would likely entail additional costs for businesses (such as for external legal advice); however, it is possible to envisage circumstances in which executives may choose not to launch (perfectly legitimate) products in the UK market-with possible knock-on effects for employment and consumer choice.”

Will the Minister directly address the point that innovation in this country might suffer as a result of clause 13? Neither the original impact assessment nor the revised impact assessment makes that case clear; they merely state that no evidence was produced. Should there not be more rigour for something as important as possibly sending inventors to prison for 10 years?

Amendment 25 would ensure that the Bill contained a clear and acknowledged difference between copying and infringement, to which the Minister has referred. As the Bill is currently drafted, a person will be committing an offence and be subject to criminal sanctions if they copy

“a registered design so as to make a product exactly or substantially to that design”.

The Minister has tabled amendment 7 and other amendments—to which I shall respond in due course—to address that situation to some extent. However, the purpose of amendment 25 is clear. It would make a distinction in the Bill between copying and infringement. I realise what the Minister said about Apple v.Samsung, but this was touched on then. This is an important point for the Committee to consider. What is the nature of innovation? I referred to this on Second Reading. Is it giant leaps forward or leaping from tree to tree, gradually and incrementally? Is innovation evolution or revolution?

In the commercial sphere, it seems entirely reasonable and legitimate for firms to want to build on existing products, retaining the features that consumers like and  discarding those that they do not. That is an accepted part of design law—it is called the design corpus—and it happens in every commercial field. Cars may have new features; other companies may develop and expand on them, taking them a step further. To what extent is that copying or innovating to give the consumer greater choice and a better standard of products? I am interested in the Minister’s views. I know he takes innovation seriously, and we do not want to do anything that deters it in this country.

The Apple v. Samsung case is fascinating. Samsung applied to the High Court for a declaration that its Galaxy tablets were not too similar to Apple’s products. Apple countersued, but Samsung won the case here in the UK, although there were different rulings in other jurisdictions. An appeal found in favour of the previous ruling, meaning that Apple was required to publish a disclaimer on its own website and in the media stating that Samsung did not copy the iPad. The judge ruled:

“This case illustrates the importance of properly taking into account the informed user’s knowledge and experience of the design corpus”.

I will come to the phrase, “informed user”. He continued:

“The degree to which a feature is common in the design corpus is a relevant consideration. At one extreme will be a unique feature not in the prior art at all, at the other extreme will be a banal feature found in every example of the type. In between there will be features which are fairly common but not ubiquitous or quite rare but not unheard of.”

The judge went further:

“When I first saw the Samsung products in this case I was struck by how similar they look to the Apple design when they are resting on a table. They look similar because they both have the same front screen. It stands out. However to the informed user (which at that stage I was not) these screens do not stand out to anything like the same extent. The front view of the Apple design takes its place amongst its kindred prior art.”

In bringing forward criminal sanctions, how does the Minister intend to ensure that such considerations about informed users, the design corpus and prior art will be taken into account?

Ministers have stated that the same type of arrangements are being put in place as exist in Germany. Indeed, the updated impact assessment states that

“the UK’s and Germany’s designs laws are governed by the same European legal framework, as well as each country retaining its own national system of registration”.

That is true; however, although it is true that unauthorised use of a German registered design can be punishable by criminal sanctions, the infringement must be wilful or reckless to attract those sanctions. That is why amendment 25 would add those words to the Bill and ensure that a further safeguard was in place.

Amendment 28 would make a similar change after proposed new section 35ZA(3)(c)(ii) of the 1949 Act to clarify that when a person commits the offence, they do so knowing that, or being reckless as to whether offering, putting on the market, importing, exporting or selling of the product is an infringement of the registered design, rather than the vague and imprecise definition of “copying”. In a similar vein, amendment 29 is designed to show that it is a defence for a person charged with an offence to reasonably believe that the registered design was not infringed.

Amendment 27 would tighten up the definition and provide a greater legal lock, and make it very clear.  I understand what the Minister was saying about acceptance of the words “intentional within IP law”, but we think the amendment would tighten that further. I should be grateful if he would respond to that; I will say more about it in a moment.

Amendment 26 is a probing amendment to clarify two aspects of clause 13 and the impact on business. The amendment would leave out the word “uses” and insert the word “sells” in its place. I have tabled the amendment for two reasons. First, the clause as it stands does not take into account the complex and collaborative nature of processes within commerce and industry. If a firm uses something in its production process, does the Minister think that that firm is copying? If so, would it be subject to the criminal sanctions in this clause? Clarification of that would be helpful. I propose that the Bill would be clearer if it used the word “sells” rather than “uses”.

My second consideration when tabling amendment 26 may seem perverse and contrary: to probe the Government’s thinking on third parties being liable for criminal sanctions under the clause as part of their normal business operations. The Apple v. Samsung case prompted me to think about that, but that consideration will apply to an infinite variety of products, a large number of retailers, other distribution and business-to-business companies. Will the Minister clarify whether firms that sell products—in the case of Apple or Samsung products, shops such as Carphone Warehouse—are subject to the clause? As the clause is currently drafted, I think they would be, as proposed new section 35ZA(3) states:

“A person commits an offence if…in the course of a business, the person offers…or”— this is the key point—

“puts on the market”.

To my mind, that means that the directors of Carphone Warehouse and other similar retailers will be liable for criminal sanctions. Surely that will prevent competition and consumer choice. Apple could have sued Samsung and then put pressure on retailers by saying, “Look, a court case is going on in which criminal sanctions and imprisonment of up to 10 years apply, so stop stocking Samsung products.” Surely that would be a real hindrance to competition. Can the Minister confirm that that would not be the case? If that risk were there, would not retailers be reluctant to stock products, which, in turn, would restrict consumer choice and, ultimately, product development and innovation? I hope he will reassure me on that. I appreciate that amendment 26 would not insert the precise wording to which I have referred, but I hope I have explained our intention in tabling it.

The Minister spoke to Government amendments 6, 8 and 10, which would insert the word “intentionally” at various points in the Bill. I appreciate that he is trying to provide greater clarity and safeguarding to prevent the possibility of accidental or inadvertent copying infringements. However, as I have said, I think that our amendment 25 would work better and provide greater clarity. I know he probably will not accept it, but given what he said, will be consider taking a look at it? Knowing the Minister and given his remarks—and his  non-grumpiness—I suspect that he will not look at it, but will he go away and look at the wording of section 92 of the Trade Marks Act 1994 to see whether that could apply in this area? The wording is used several times in section 92, which states:

“A person commits an offence who with a view to gain for himself or another, or with intent to cause loss to another, and without the consent of the proprietor”.

That seems to be a good and consistent means by which the bar for criminal sanctions could be set sufficiently high.

Government amendment 7 would leave out the phrase

“exactly or substantially to that design” and insert instead

“exactly to that design, or…with features that differ only in immaterial details from that design”.

Government amendment 9 and, to an extent, Government amendment 11 are similar to that. I am concerned about those. Does not the wording of those amendments merely deal with counterfeits, rather than infringement or deliberate copying? Should not that precise wording be looked at again? The Alliance for Intellectual Property has suggested a form of words that is consistent with article 10 of the Community design regulation. We are willing to look at that again and, if necessary, return to it on Report. I hope that the Minister will pledge to do the same, to ensure that his intention is right.

This is an important part of the Bill. We have a shared aim to ensure that innovation and creativity is established and reinforced, and our amendments would help do that. I hope the Minister agrees.

Photo of David Lammy David Lammy Labour, Tottenham 12:00 pm, 30th January 2014

I want to probe the Minister further on the significant introduction of intentionality, which adds a state of mind to the issues we are considering. He is right to explain that it is a well established legal concept, but the potential problem is that, in adding that state of mine, we can get into a legal hinterland with a lot of litigation attached.

There are concerns, frankly, that we should simply allow the Bill to apply to deliberate infringement of unregistered designs, which would bring it into parity with existing trade mark and copyright law. In a sense, introducing an extra state of mind, which is what mens rea does, is unnecessary. Does the Minister foresee a lot of litigation on this issue? The Committee will be taking an important step if it moves in the direction of intentionality in such a way. Are we, as it were, copper-plating the legislation?

This measure is different to copyright law as set out in section 107 of the Copyright, Designs and Patents Act 1988 and section 92 of the Trade Marks Act 1994, under which simply the intent to act is sufficient—the actus reus—as is established in criminal proceedings. I want to probe the Minister further on the introduction of intentionality and to put on record the concerns of those in Anti-Copying in Design that the Bill will make it far harder to land on those who seek to copy in such a way.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

The two lines of criticism that we face are interesting. We have just heard from the right hon. Gentleman, who was himself a BIS Minister with responsibility for IP, about his concern that adding intention is too tight a requirement. He is worried that  we are making the hurdle too high. The purpose of the argument of the hon. Member for Hartlepool, the Opposition spokesman, however, seemed to be to raise the hurdle even higher. The fact that the two Opposition contributions have taken different lines of attack on our provisions suggests that, in the delicate balance we have had to strike on exactly how high the hurdle should be, we have got it about right. We have found a middle way between the two wings of the Labour party represented in the Committee Room.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

I look forward to hearing from the third wing.

Photo of Jim Dowd Jim Dowd Labour, Lewisham West and Penge

I am attempting to test the Minister’s thesis. Does he believe that if no one agrees with him, he must be right?

Photo of David Willetts David Willetts Minister of State (Universities and Science)

That is not, of course, an experience I have ever had, certainly in this Committee. It depends where the lines of attack are coming from, and the two we have heard are very different.

I have to say to the hon. Member for Hartlepool, the Opposition spokesman, that we thought that there was cross-party agreement on it being right to have a criminal sanction for design that matches criminal sanctions in other parts of IP. My expert legal advice is that by the time he had introduced—were he able to—all the different amendments that he is proposing today, they would be hard to enforce in the courts. He would have put in so many extra tests and requirements, that in practice those hundreds of thousands of designers to whom we are trying to offer protection with this legislation would not have the protection to which we believe they are entitled.

We should not forget the ultimate reason for the Bill and the clause. There are small and medium-sized enterprises up and down the country in the design business that are being ripped off. Their designs do not have the protections that they require. It is right to introduce a criminal sanction, but we do not wish to do so in a way that deters legitimate business.

Let me turn to the points made by the right hon. Member for Tottenham. We believe that the use of the word “intentional” is a recognised way of handling the challenge of being absolutely clear that the action has to be intentional. That was always the intention of the clause. He referred to trademark law. Although trademark law and copyright law have provided a forerunner for introducing a new criminal sanction in design law, the rights involved are slightly different, and it is to be expected that different wording will be used. The word “intention” is recognised in other parts of the criminal law.

The Opposition spokesman, the hon. Member for Hartlepool, challenged me in several respects. First, let me make it clear that my understanding from meetings with the IP Federation and with leading British businesses is that the federation broadly accepts that we have got the balance right. I would be interested to know the date of some of the comments that the hon. Gentleman read out, because it was precisely in order to engage with the concerns of the IP Federation that we tabled the amendments we are discussing.

Photo of David Lammy David Lammy Labour, Tottenham

The point is simply that this is an economic crime. The fact of copying ought to be sufficient, without having to get into someone’s mind and go into what they intended when they were going about it. It is quite different from criminal law, where one ought to get into whether, for example, someone intended to murder somebody or killed them accidentally. The truth is that this is an economic crime, and it is quite established that in economic crimes, the actus reus is sufficient. That is why the point has been put in that way.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

I do not completely follow the right hon. Gentleman’s argument. Theft is an economic crime, and we are talking about a type of theft. In many areas of criminal activity, having intention is a part of the criminal law. That is simply what we are trying to provide for in the Bill. Although I do not want to repeat myself, I think we have got the balance about right.

I will try to cover briskly, if I can, the comments made by the hon. Member for Hartlepool. He talked a little about the amendments he has tabled, which would introduce the concept of constructive knowledge or intention. We believe that culpable criminal behaviour of the sort he referred to is already adequately covered by the clause. He is worried that businesses would be pulling their products from the stores and that shops would be removing stock for fear of falling foul of criminal sanctions. That is why—this is also relevant to the intervention of the right hon. Member for Tottenham—clause 13 makes it clear that the criminal offence will apply only to businesses that knowingly use a copied design in the course of business activities to profit from that copying. If the business did not know that the design was copied, the offence would not apply. That is how we tackle the Opposition spokesman’s concern that there will somehow be a chilling effect on innovation—by saying that there has to be an intention. In turn, that is what the right hon. Member for Tottenham, from his alternative angle, disagrees with.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

The example I have provided was iPads from Apple, Galaxy tablets from Samsung and Carphone Warehouse. As the judge said in that case, the iPads and tablets look similar when they are sitting on the table, so would Carphone Warehouse and other retailers not say, “They look far too similar. I am going to be very risk averse in my business operations,” and thereby restrict choice? Surely there will be a reduction in innovation and consumer choice as a result of what the Minister is saying.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

Our view is that, if a company uses a product that is an intentional copy of a registered design, knows it is doing so and makes a profit into the bargain, it is right that it should be caught by the new offence. That is what we are dealing with.

I will now take the opportunity to respond to the hon. Gentleman’s arguments on his amendment 26, and try to offer the Committee a practical example. His amendment would require that someone “sells” the product, rather than simply uses it. Let me give a practical example of why the amendment, like so many of his amendments, is too restrictive. Imagine someone is running a successful and profitable coffee shop using  a coffee machine that they know is a copy of a genuine producer’s machine. They bought a cheapo copy of a serious coffee machine at a market and are using it as part of their business. They are selling not the coffee machine but coffee, and are knowingly using as part of the process of making that coffee a piece of equipment that is an illegitimate copy.

We think the act of using a product like that should be caught within the framework. But under the amendment, if people knowingly purchased copies of products or goods to use as part of a production process, unless they were directly selling the products themselves, they would not be caught. Again, it is a matter of striking a balance, but we think that in those circumstances people who are knowingly using designs that have not been properly paid for should be culpable.

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby 12:15 pm, 30th January 2014

As somebody who used to sell coffee machines, what is the burden on the supplier of coffee machines to make certain that he is selling a coffee machine that does not bring his customer into conflicts?

Photo of David Willetts David Willetts Minister of State (Universities and Science)

One of the great things about the House of Commons is that on any subject on which one speaks there is always in the Chamber or in Committee a real expert.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

Indeed. There has to be genuine intention at every stage. They have to know what they are doing. We are bringing in the amendments about intention precisely so that this crucial issue is covered. We have to be clear that it is intentional. We believe we have got the balance right.

Innovation matters. I should like to touch briefly on the argument advanced by the hon. Member for Hartlepool. He raised the issue of follow-on innovation. We understand that that is indeed part of the innovation process and we need to protect follow-on innovation. That is why we have clarified in clause 13, where the criminal sanction bites in particular, that the copy must be exact or differ only in immaterial details. That is a well understood test. Again, that is the reason why we are bringing in that clarification. It protects follow-on innovation that has extra features that mean it no longer differs only in immaterial detail.

I hope I have explained that we have struck a balance here. We do not want to make the test so rigorous and bring in so many extra requirements as to make the protection for designers unenforceable. Nor do we want to catch people who unintentionally find themselves using a product or a service where they could not reasonably be expected to have known what they were doing. We believe we have got the balance right. We have listened to the IP Federation and to British business. I hope that the Committee will support the amendments.

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

Before I put the Question, could I explain that I have to go through a series of procedural activities where I have to put each of these things individually? Mr Wright has indicated that he wants some of these things to be on the record, so I cannot group them together.

Amendment 6 agreed to.

Amendment made: 7, in clause 13, page 11, line 23, leave out ‘exactly or substantially to that design’ and insert ‘—

(i) exactly to that design, or

(ii) with features that differ only in immaterial details from that design’.—(Mr Willetts.)

Amendment proposed: 25, in clause 13, page 11, line 27, leave out ‘and’ and insert—

‘(ia) knowing that, or being reckless as to whether, making the product is an infringement of the registered design, and’.—(Mr Wright.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Division number 2 Decision Time — Clause 13 - Offence of unauthorised copying etc. of design in course of business

Aye: 7 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendments made: 8, in clause 13, page 11, line 31, after ‘been’ insert ‘intentionally’.

Amendment 9, in clause 13, page 11, line 31, leave out from ‘product’ to end of line 32 and insert ‘—

(a) exactly to the design, or

(b) with features that differ only in immaterial details from the design.’.—(Mr Willetts.)

Amendment proposed: 27, in clause 13, page 11, line 39, after ‘so’, insert ‘deliberately’.—(Mr Wright.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Division number 3 Decision Time — Clause 13 - Offence of unauthorised copying etc. of design in course of business

Aye: 7 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendments made: 10, in clause 13, page 11, line 40, after ‘been’ insert ‘intentionally’.

Amendment 11, in clause 13, page 11, line 42, leave out

‘or substantially to the design’

and insert

‘to the design or with features that differ only in immaterial details from the design’.—(Mr Willetts.)

Amendment proposed: 28, in clause 13, page 11, line 42, at end insert—

‘(ia) the person does so knowing that, or being reckless as to whether offering putting on the market, importing, exporting or selling of the product is an infringement of the registered design.’.—(Mr Wright.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Division number 4 Decision Time — Clause 13 - Offence of unauthorised copying etc. of design in course of business

Aye: 7 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Photo of Gordon Birtwistle Gordon Birtwistle Liberal Democrat, Burnley

On a point of order, Mr Havard. We do not appear to have dealt with amendment 26, unless I missed that.

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

Mr Wright indicated earlier that that was a probing amendment and he did not want to press it. Thank you for that—we need to make sure that we have got the record correct and that I have not omitted something.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I beg to move amendment 31, in clause 13, page 12, line 13, at end insert—

‘(7A) In this section “design right” includes an unregistered community design and a reference to the owner of the design right is also to be read as a reference to the owner of a community design right in a design.’.

The amendment would deal with extending criminal sanctions to unregistered designs. I do not understand the Government’s logic on this issue, so the amendment is to probe the Minister on the inconsistency in handling between registered and unregistered designs in the clause. As I have mentioned, about 4,000 designs are registered in the UK each year, with a similar number registered through the European regime. However, between 18,000 and 25,000 unregistered designs are lodged with Anti-Copying In Design’s database.

Given the huge contribution of design to the economy, it seems reasonable to assume, as the evidence suggests, that the vast majority of designs in the UK are unregistered. That has a valuable place for designers in the IP framework. The Minister in the other place confirmed as much when he said in Committee that

“SMEs…do not tend to register their designs”.—[Official Report, House of Lords, 13 June 2013; Vol. 745, c. GC395.]

He also said:

“The introduction of criminal sanctions for unregistered rights could lead to a negative effect on business and innovation.”—[Official Report, House of Lords, 13 June 2013; Vol. 745, c. GC409.]

My simple question, which is the reason for the amendment, is this: if that is the case for unregistered rights, why not for registered rights? How is that a consistent position?

The Minister may recall that on Second Reading I mentioned the risk that unscrupulous companies might identify unregistered designs, register them for themselves and then say to the original designer, “You’ve infringed our registered design. We will make sure that a criminal case is brought against you for deliberately copying our registered design and you may go to prison for 10 years. You can avoid that by paying us a large fee, or by assigning us the rights of that design for us to exploit commercially.” How does the clause protect small and micro-firms or help to promote innovation? The amendment would at least provide some consistency and might prevent that scenario from happening.

If the Government are intent on providing criminal sanctions for registered designs—we discussed during the previous debate how that is quite a controversial “if”—with the intention being to protect designers to the fullest extent of the law in a manner consistent with trade marks, surely they should extend those measures to unregistered designs. The purpose of the amendment is to ascertain why the Government do not propose such a consistent approach between registered and unregistered designs, given that one purpose of the Bill is to simplify the IP regime. I am interested in hearing what the Minister has to say on that.

Photo of David Lammy David Lammy Labour, Tottenham

To support what my hon. Friend said, we are living in an age that is driven by social media and the internet, which provides more and more opportunity for young people, particularly given the nature of the economy, to sit at home and apply what they have learnt through design courses and other things and innovate, but they may not choose to register at that stage. They require protection and it is surprising that, in a Bill that seeks to address the world as we see it today, unregistered designs do not seem to be recognised by the Department. It is important that the Minister speaks to that element of innovation in IP design.

Photo of David Willetts David Willetts Minister of State (Universities and Science) 12:30 pm, 30th January 2014

I am impressed that the Opposition have a united front on one issue before the Committee. The former Minister and the Opposition spokesman have both raised the issue.

We disagree with the Opposition. Clause 13 pertains to a criminal offence, and it would be hard to extend it from registered to unregistered design rights because it is difficult to establish ownership of a design protected under unregistered design rights without the accessibility and certainty of a public register. There are also technical problems with the drafting of the amendment, and it is not totally clear how it would work. It could cover both EU unregistered designs and UK unregistered designs, or only EU unregistered designs. Nevertheless, I understand that the hon. Gentleman’s purpose is to extend criminal sanctions to unregistered designs.

The Government strongly oppose the amendment because the unregistered right comes into being automatically once a design has been recorded in a  design document or an article has been made. It does not require any registration or other process of defining that right. Due to the nature of the unregistered design right and the informal way in which it arises, it is not desirable to create a criminal sanction for a number of practical reasons.

Perhaps it will help the Committee if I give another practical example. This is from the sofa industry. I am sure I will discover that there is an hon. Member here who made his career in the sofa business and can correct me, but I will live dangerously and offer the example of sofa design.

Photo of Dai Havard Dai Havard Labour, Merthyr Tydfil and Rhymney

If it helps you, Mr Willetts, I make chairs.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

Then, Mr Havard, you may find this even more interesting than the rest of our proceedings.

The design of a sofa could include unregistered design rights covering, for example, the legs, the base, the body or the arms. If a case about an unregistered design in a sofa were brought to a criminal court, it would need to establish whether the right actually exists—for example, which parts of the design are original—who, if anybody, owned the right in any of the protected elements, and whether there were different time scales left to run. That would be hard to do in the absence of a register. That is before I turn to the problem of whether the amendment would apply to designs protected across the whole of the EU and whether it would be necessary to track owners in different countries, which would be very complicated indeed. Essentially, we would be trying to introduce a criminal sanction in an area in which it is simply not reasonable to expect people to know whether they are infringing a right.

Photo of David Lammy David Lammy Labour, Tottenham

I follow the Minister’s point, but will he assure the Committee that, if somebody labours away to make a chair with a blade and a saw and puts it on an internet site for people to admire and casually buy it, some big multinational will not be allowed to steal and register the design, then pick on the small man? That is the point that the Minister ought to address, but perhaps he is too close to his friends in big business.

Photo of David Willetts David Willetts Minister of State (Universities and Science)

The purpose of the clause is the opposite. When Mr Havard makes a leg for a chair or puts a pattern of cane work on the seat, he cannot be expected to know whether there is an unregistered design that covers part of what he is doing. The Government, unlike the Opposition, are trying to ensure that Mr Havard does not find himself facing criminal sanctions.

We are talking about a criminal sanction, and we want to ensure that we have a reasonable test. The point about unregistered design rights is that they are not on a register, if that is not too circular. If they are not on a register, the force of a criminal sanction would be very severe. There are, of course, civil remedies for unregistered rights. The question is whether a person should be able to use the power of criminal law in a place in which it is not reasonable to expect people to know whether they are infringing a right. That is the central disagreement between the Government and the Opposition. I believe that on this matter, as on the matter we have just discussed, we have got the balance right.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

I mentioned earlier that there are about 4,000 registered designs every year and about 18,000 to 25,000 unregistered designs that ACID alone knows about. One of the reasons why there are so few registered designs is that there is a cost. It costs around £60 for a simple design to be registered. Does the Minister think that behaviour will alter as a result of clause 13? Is one of the purposes behind clause 13, in not having unregistered designs as part of the criminal sanctions, to push people away from unregistered on to registered and provide a revenue stream for the IPO?

Photo of David Willetts David Willetts Minister of State (Universities and Science)

That really is not the purpose. That is a very unfair allegation. What we are trying to do is very simple and reflects the advice we have had in Hargreaves and since: we are trying to provide better protection for designers. We think it is reasonable to apply criminal sanctions for the first time to protect designers but we are saying that it has to be a registered design. We think that that is reasonable. While no database is totally comprehensive, we understand that the UK and the EU’s publicly accessible, formal registers contain approximately 728,000 design registrations which are in force in the UK. So there is a lot of registered design out there.

There are the private databases too, such as ACID, which the hon. Gentleman mentioned. It is an example of an industry successfully helping itself. It is a way of bringing out more clearly the identity of unregistered designs. However, it is not a comprehensive list. It is only open to members. It has an annual cost and it is not representative of the numbers of unregistered design rights that are created in the UK. We believe that we have got the balance right. As I began by saying, we are talking here about a criminal sanction. This clause is about criminal sanctions going beyond civil sanctions. Applying criminal sanctions to an unregistered design which people cannot reasonably be expected to be aware of is to get the balance wrong.

Photo of Iain Wright Iain Wright Shadow Minister (Business, Innovation and Skills)

The Government have an entirely inconsistent position on this. I do not think the Minister has properly explained this and nor did the Minister in the other place. If we accept the need for criminal sanctions and we want to protect designers in this country, in order to have consistency, it should be for registered and unregistered designs. I am concerned that the small designer with very few resources will be picked on by the large companies here. I do not think that the Minister has offered an adequate explanation. We will come back to this at a later stage. I should like to reflect on what the Minister has said. I am unconvinced by his argument. I still maintain it is inconsistent and illogical but I do not want to delay progress. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 12, in clause 13, page 13, line 1, leave out

‘or substantially to a registered design’

and insert

‘to a registered design, or with features that differ only in immaterial details from a registered design,’.

Amendment 13, in clause 13, page 13, line 2, at end insert “intentionally”.

Amendment 14, in clause 13, page 13, line 4, at end insert ‘intentionally’.—(Mr Willetts.)

Clause 13, as amended, ordered to stand part of the Bill.