Digital Opportunity A Review of Intellectual Property and Growth An Independent Report by Professor Ian Hargreaves May 2011 Contents Page Foreword by Ian Hargreaves 01 Executive Summary 03 Chapter 1 Intellectual Property and Growth 10 Chapter 2 The Evidence Base 16 Chapter 3 The International Context 21 Chapter 4 Copyright Licensing: a Moment of Opportunity 26 Chapter 5 Copyright: Exceptions for the Digital Age 41 Chapter 6 Patents 53 Chapter 7 Designs 64 Chapter 8 Enforcement and Disputes 67 Chapter 9 SMEs and the IP Framework 86 Chapter 10 An Adaptive IP Framework 91 Chapter 11 Impact 97 Annex A Terms of Reference 101 Annex B Stakeholders Met during Review of IP and Growth 102 Annex C Call for Evidence Submissions 105 Annex D List of Supporting Documents 109 Foreword When the Prime Minister commissioned this review in November 2010, he did so in terms which some considered provocative. The Review was needed, the PM said, because of the risk that the current intellectual property framework might not be sufficiently well designed to promote innovation and growth in the UK economy. In the five months we have had to compile the Review, we have sought never to lose sight of David Cameron’s “exam question”. Could it be true that laws designed more than three centuries ago with the express purpose of creating economic incentives for innovation by protecting creators’ rights are today obstructing innovation and economic growth? The short answer is: yes. We have found that the UK’s intellectual property framework, especially with regard to copyright, is falling behind what is needed. Copyright, once the exclusive concern of authors and their publishers, is today preventing medical researchers studying data and text in pursuit of new treatments. Copying has become basic to numerous industrial processes, as well as to a burgeoning service economy based upon the internet. The UK cannot afford to let a legal framework designed around artists impede vigorous participation in these emerging business sectors. This does not mean, however, that we must put our hugely important creative industries at risk. Indeed, these businesses too need change, in the form of more open, contestable and effective global markets in digital content and a setting in which enforcement of copyright becomes effective once more. The Review sets out how this can be achieved. We have focused upon the main issues, at the risk of ignoring important points of detail, and have tried to set out a clear, strategic argument, supported with just ten recommendations. We are also making available online a number of documents which explore the available evidence and submissions made to the Review. If the Review’s recommendations are followed, the result will be more innovation and more economic growth. Our intellectual property framework will face further significant pressure to adapt in the coming years, as we make our way into the third decade of the commercial internet. We urge Government to ensure that in future, policy on Intellectual Property issues is constructed on the basis of evidence, rather than weight of lobbying, and to ensure that the institutions upon which we depend to deliver intellectual property policy have clear mandates and adaptive capability. Without that, the pile of IP reviews on the Government’s doorstep – four in the last six years – will continue to accumulate. 1 Review of Intellectual Property and Growth I would like to conclude by thanking the team, based in the Intellectual Property Office, which has worked with me to deliver this independent review. Because it is independent, I bear responsibility for its content, but I have relied very heavily upon the expertise and unstinting hard work of the IPO team. I also owe a debt to the group of five experts who agreed to serve as the Review’s advisory panel: Roger Burt, James Boyle, Mark Schankerman, David Gann and Tom Loosemore. As individuals with strong views and great expertise, they did so on the basis that they would not necessarily be bound by the Review’s conclusions. Their advice has been generous and of the highest quality. I also thank the almost 300 individuals and organisations who gave written evidence to the Review. It was from these submissions that I learned the most. Ian Hargreaves, May, 2011. 2 Review of Intellectual Property and Growth Executive Summary Intellectual Property is important to growth... In advanced economies like the UK’s, innovation is crucial to competitive edge. That makes Intellectual Property (IP) policy an increasingly important tool for stimulating economic growth. Every year in the last decade, investment by UK business in intangible assets has outstripped investment in tangible assets: by £137 billion to £104 billion in 2008. Global trade in IP licences alone is worth more than £600 billion a year: five per cent of world trade and rising. Small and young innovative firms are of crucial importance in terms of growth and jobs but proliferating use of IP rights can push up IP transaction costs and block these new players from entering markets. The IP framework is falling behind and must adapt... IP law must adapt to change. Digital communications technology involves routine copying of text, images and data, meaning that copyright law has started to act as a regulatory barrier to the creation of certain kinds of new, internet based businesses. With two thirds of the world’s population yet to achieve direct connection to the internet, this digital revolution has by no means run its course (Chapter 1). The Prime Minister asked the Review to consider whether our IP framework needs to adapt in the interests of encouraging innovation and growth. The Review’s conclusion is that such adaptation is required. The UK’s current IP system is falling behind what is needed, especially in the area of copyright. Evidence should drive policy... Throughout the Review, we have sought to base our judgments on economic evidence and we advise Government to frame its policy decisions on that basis (Chapter 2). This is especially important at the international level, where large interests collide, making progress towards international agreement on IP issues frustratingly slow. The UK has a great deal to gain from such agreements, which will support a further strong growth in the global trade in intangibles. The Review supports a number of international initiatives and identifies the achievement of a unified EU patent court and EU patent system as the top priority (Chapter 3). A digital copyright exchange will facilitate copyright licensing and realise the growth potential of creative industries... In copyright, the interests of the UK’s creative industries are of great national importance. Digital creative industries exports rank third, behind only advanced engineering and financial and professional services. In order to grow these creative businesses further globally, they need efficient, open and effective digital markets at home, where rights can be speedily licensed and effectively protected. 3 Review of Intellectual Property and Growth Numerous responses to the Review’s Call for Evidence drew attention to defects in licensing procedures, among them those of the CBI, News Corporation, Pearson, Reed Elsevier, an alliance of UK photographers and the European Publishers Council. Having studied these and several other proposals, including the Google Books Agreement recently struck down by the courts in the United States, the Review proposes that Government brings together rights holders and other business interests to create in the UK the world’s first Digital Copyright Exchange. This will make it easier for rights owners, small and large, to sell licences in their work and for others to buy them. It will make market transactions faster, more automated and cheaper. The result will be a UK market in digital copyright which is better informed and more readily capable of resolving disputes without costly litigation. The prize is to build on the UK’s current competitive advantage in creative content to become a leader in providing the services global players use to license their content for world content markets. Further steps to modernise copyright licensing... Supported by other moves to achieve easier cross border licensing in the EU, bulk licensing of large digital collections and a common code of practice for copyright collecting societies, the UK can aspire to be the leading service support centre for IP matters in the European time zone. At the same time, Government should take long overdue action to update copyright law in ways designed to increase consumer confidence in the way the law works. It should begin by legislating to release for use the vast treasure trove of copyright works which are effectively unavailable – “orphan works” – to which access is in practice barred because the copyright holder cannot be traced. This is a move with no economic downside (Chapter 4). Copying should be lawful where it is for private purposes, or does not damage the underlying aims of copyright... The UK has chosen not to exercise all of its rights under EU law to permit individuals to shift the format of a piece of music or video for personal use and to make use of copyright material in parody. Nor does the UK allow its great libraries to archive all digital copyright material, with the result that much of it is rotting away. Taking advantage of these EU sanctioned exceptions will bring important cultural as well as economic benefits to the UK. Together, they will help to make copyright law better understood and more acceptable to the public. In addition, there should be a change in rules to enable scientific and other researchers to use modern text and data mining techniques, which copyright prohibits. 4 Review of Intellectual Property and Growth Building future proofing into the legislative and regulatory framework..