Promoting Innovation And Protecting Rightsholders - The Impact Of The Gowers Review Of The UK IP System On U.S. Businesses

Thursday, February 1, 2007 - 01:00

The American Chamber of Commerce to the EU (AmCham EU) estimates that U.S. firms invest over $964 billion and support over 3.6 million jobs in Europe.1 However, it expresses concern that the EU does not represent an " innovation-friendly marketplace " for many U.S. businesses, due in part to the lack of effective enforcement measures and harmonisation in the IP framework across the EU. The main criticisms and concerns appear to be:

i. The inadequate level of public funding for research and development programmes;

ii. Excessive bureaucracy and regulation;

iii. The lack of a cost-effective and simplified patent prosecution and litigation framework across the EU2 ; and

iv. A significant increase in recent years in piracy and counterfeiting.3

AmCham EU speculates that if these issues are not addressed satisfactorily then U.S. businesses are likely to explore other avenues for investment such as emerging markets like China and India.

The Gowers Review

In the face of these concerns, U.S. businesses should be aware that a comprehensive review commissioned by the UK government on the effectiveness of the UK intellectual property (IP) system has just been published. The " Gowers Review of Intellectual Property "4 makes a series of recommendations to ensure the continued effectiveness of that system in the face of increasing globalisation, digitisation and economic specialisation. This article takes a look at the key recommendations made by The Review and the potential impact these may have on U.S. businesses operating in the UK and the wider EU, where further review and refinement of the IP framework is currently taking place.

The Review concludes that the UK system does not require radical overhaul but highlights three areas where reform is necessary to improve the framework for innovation:


strengthening the enforcement of IP rights;


reducing the costs of registering and litigating IP rights; and


improving the balance and flexibility of IP rights between rightsholders and users of content.

The Review's main recommendations of interest to U.S. businesses under these categories are as follows:

Enforcement


Giving law enforcement agencies statutory powers to take action against copyright infringers and, in particular, counterfeiters.


Bringing the penalties available for IP infringement in the physical and digital world into line.


Ensuring an effective system of damages awards in civil IP cases.


Supporting the establishment of a single EU court to adjudicate cross-border IP disputes by promoting the European Patent Litigation Agreement.

Reducing Costs for Businesses


Introduction of an accelerated grant process for patents.


Introduction of "fast-track" trade mark registration.


The use of cheaper, streamlined fast-track litigation in civil IP cases.


Encouraging work sharing arrangements between UK, European, U.S. and Japanese patent offices.


Introduction of a European Community Patent (COMPAT) and support for the ratification of the "London Agreement" as an interim step towards this goal.

Balanced and Flexible Rights


Clarifying the research exceptions, so as providing more scope for universities and businesses to use patent protected material and allowing private copying (but not distribution) of copyright protected material for research to cover all forms of content.

Recommendations Addressing The Concerns Of U.S. Businesses:

Promoting Innovation

(a) Clarifying research exceptions to facilitate experimentation, innovation and education

The Review found the scope of the current research exceptions in UK patent law unclear. This may discourage research and development (R&D) in both business and academia for fear of infringing patent rights. Apparently one in six scientific research projects in the U.S. are never started or are discarded on these grounds and evidence suggests that exorbitant licence fees and royalties have been demanded by patent holders in order to allow access to research material.

The Review also notes that the requirement that the research be "private" and "non-commercial" is problematic because universities often conduct research in collaboration with business organisations.

All this stifles and presents barriers to follow-on innovation and The Review concludes that the research exception should be clearer and more specific to enable researchers to learn from and improve upon inventions. The Review recommends the adoption of the broader exemption provided under Swiss law which it hopes will clarify what is permitted.5

Broader and clearer research exceptions should lead U.S. companies to feel more at ease in investing in R&D programmes without falling foul of IP rights or having to pay excessive fees for access to research material. The scope of patented material available for use by researchers should be widened as a result. Such increased freedom can only encourage further investment in R&D particularly in the pharmaceutical and related industries.

(b) Introduction of a single Community Patent

The Review highlights the problems with the existing system whereby patents granted centrally by the European Patent Office (EPO) lead to a bundle of national patents. Infringement and revocation actions must be pursued within the national courts of the Member States which leads to parallel litigation (with the risk of conflicting decisions), renewal fees are payable in each state and substantial translation costs can be incurred.

On these grounds the introduction of a Community Patent is recommended as it will eliminate such a disjointed and complicated procedure.

The Review also supports the enactment of the London Agreement which requires that a patent granted in one of the official languages of the European Patent Convention (EPC) (French, German, English) will not require translation into any other language.6

(c) Accelerated grant process for patents and fast-track trade mark registration

Currently it can take between six to nine months to secure a trademark registration and many years for a patent to be granted. This is out of step with the real world where products are brought to market with increasing speed. An accelerated patent grant process (which would complement the existing accelerated examination and search procedures) combined with the introduction of a fast-track trademark registration system (aimed at examining and accepting applications within 10 days), both of which The Review recommends are introduced, should go some way to addressing this issue.

(d) Establishment of a single EU court to adjudicate cross-border IP disputes

The Review supports the establishment of a European Patent Court to adjudicate over patents in all states contracting to the EPC. This would have the benefit of increasing certainty as a single court would have jurisdiction over cross-border patent disputes.

(e) Work sharing between international patent offices

The Review encourages work sharing between (in particular) the UK, European, U.S. and Japanese patent offices to reduce duplicative work and therefore the time and cost involved in conducting searches and examinations in relation to identical applications. It is suggested that sharing search information and patent examiners' reports will quicken the application process and reduce costs.

Comment

These recommendations should address the concerns of U.S. companies with regard to the expense and bureaucracy involved in obtaining patents (and trademarks) in the EU. If the recommendations are accepted, they will go a long way to establishing a quicker, more simplified, efficient and cost-effective process across the EU. Whether the reality will actually reflect these admirable goals is another matter. It is also of note that The Review rejected the suggestion that patent protection should be extended to software, business methods and genes (so-called "utility patents"). Such protection is freely available in the U.S., although The Review concluded that in practice such patents have not enhanced innovation but rather have served to stifle it (for instance, where they are used strategically to prevent competitors from developing in a similar field).

Effective Enforcement

(a) Increasing criminal penalties for online copyright infringement and damages in civil cases

Currently the penalties for digital infringement (e.g. uploading files to P2P networks) are less severe than those for "physical" infringement (e.g. pirating CDs and DVDs), which is anomalous and absurd given the ubiquity and threats posed to the music and film industries by P2P and other infringing digital activities. Physical infringement carries a maximum criminal penalty of ten years as opposed to only two years for online infringement. The Review recommends addressing this disparity by bringing the latter into line with the former and it proposes further review of the damages recoverable in civil IP infringement actions: currently infringers may keep profits made from infringing activities and damages may be assessed only on a nominal licence fee basis.

Finally, The Review recommends a streamlined and more cost-efficient procedure for civil IP claims, by means of "fast-track" litigation with capped fees, limited disclosure (discovery) and limited trial length.

(b) Empowering law enforcement agencies

The Review observes that whilst law enforcement officers have significant powers to take criminal proceedings in respect of counterfeit trademark goods, by an anomaly in the legislation they do not have similar powers in respect of copyright infringement. This means that they cannot usually perform searches and seizures of pirated goods (for instance CDs and DVDs). The Review suggests rectifying this inconsistency by bringing relevant legislation into force, giving officials powers to make test purchases, enter premises, inspect and seize goods and use criminal sanctions to confiscate the proceeds of such crime.

Comment

All this is to be welcomed as such measures should provide an effective deterrent to those engaging in wholesale piracy on the Internet and provide a cheaper, faster legal framework for the protection of IP rights.

There already appears to be some collaboration to address these issues between the EU and U.S.7 with key proposals aimed at working more closely with rights holders to ensure use of the resources available to them to protect their IP rights. The recommendations of The Gowers Review on enforcement therefore demonstrate a recognition of the need to have in place effective systems for dealing with the problems faced by legitimate businesses through piracy and counterfeiting.

Conclusion

It must be borne in mind that The Gowers Review makes only recommendations to improve the current IP system, and although the UK government has adopted its findings, there is still a long way to go to improving the system at the EU level. The Review does go some way to addressing current concerns of U.S. businesses but it appears that more is needed. The Review makes many significant recommendations to improve enforcement of IP rights both in a civil and criminal context and, whilst suggesting improvements to the IP framework in the UK and wider EU, it does not go so far as to suggest protection for "utility patents" or make any recommendations to increase funds available for R&D purposes. This again demonstrates how the EU and U.S. models are out of step with each other although arguably such policy matters were beyond the remit of The Review and should be addressed at a governmental level if Europe is to continue being viewed by the U.S. as a "safe harbour" for R&D investment and an innovation-friendly market in the face of increasing competition from India and China.

Eversheds' IP team works with a huge range of clients to ensure that their ideas and brands are effectively managed, developed and protected wherever they are based. Through our network of offices we have established a reputation for developing innovative solutions to deal cost-effectively with the challenges facing clients in an ever-changing commercial landscape. Our clients span the pharmaceutical, chemicals, healthcare, technology, media, manufacturing, retail, financial services and biosciences industries.

Patrick Gardiner is a partner in Eversheds' IP and Media team and can be contacted at patrickgardiner@eversheds.com.

Please email the author at patrickgardiner@eversheds.com with questions about this article.