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Gowers Review of Intellectual Property November 2006 £25 © Crown copyright 2006 Published with the permission of HM Treasury on behalf of the Controller of Her Majesty’s Stationery Office. The text in this document (excluding the Royal Coat of Arms and departmental logos) may be reproduced free of charge in any format or medium providing that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the document specified. Any enquiries relating to the copyright in this document should be sent to: HMSO Licensing Division St Clements House 2-16 Colegate Norwich NR3 1BQ Fax: 01603 723000 E-mail: [email protected] HM Treasury contacts This document can be found on the Treasury website at: hm-treasury.gov.uk For general enquiries about HM Treasury and its work, contact: Correspondence and Enquiry Unit HM Treasury 1 Horse Guards Road London SW1A 2HQ Tel: 020 7270 4558 Fax: 020 7270 4861 E-mail: [email protected] ISBN-10: X-XXXXX-XXX-X ISBN-13: XXX-X-XXXXX-XXX-X Printed by The Stationery Office 11/06 Printed on at least 75% recycled paper. When you have finished with it please recycle it again. PU021 C ONTENTS Page Foreword 1 Executive Summary 3 Chapter 1 Definition 11 Chapter 2 Challenges and Opportunities 23 Chapter 3 Performance 35 Chapter 4 Instruments 45 Chapter 5 Operations 77 Chapter 6 Governance 111 Chapter 7 Conclusion 119 Annex A Glossary 121 Annex B Call for evidence 129 F OREWORD For many citizens, Intellectual Property (IP) is an obscure and distant domain – its laws shrouded in jargon and technical mystery, its applications relevant only to a specialist audience. And yet IP is everywhere. Even a simple coffee jar relies on a range of IP rights – from patents to copyright, designs to trade marks. In the modern world, knowledge capital, more than physical capital, drives the UK economy. Against the backdrop of the increasing importance of ideas, IP rights, which protect their value, are more vital than ever. The ideal IP system creates incentives for innovation, without unduly limiting access for consumers and follow- on innovators. It must strike the right balance in a rapidly changing world so that innovators can see further by standing on the shoulders of giants. The Government’s decision to commission this Review was an explicit recognition both of the growing importance of IP and of the challenges brought by the changing economic environment. In commissioning the Review, the Chancellor and the Secretaries of State for Trade and Industry, and Culture, Media and Sport asked me to establish whether the system was fit for purpose in an era of globalisation, digitisation and increasing economic specialisation. The answer is a qualified ‘yes’. I do not think the system is in need of radical overhaul. However, taking a holistic view of the system, I believe there is scope for reform to serve better the interests of consumers and industry alike. There are three areas in which the Review concentrates its recommendations to improve the UK framework for innovation: • strengthening enforcement of IP rights, whether through clamping down on piracy or trade in counterfeit goods; • reducing costs of registering and litigating IP rights for businesses large and small; and • improving the balance and flexibility of IP rights to allow individuals, businesses and institutions to use content in ways consistent with the digital age. Much IP policy is framed by European, and indeed global, treaties and agreements. I recognise that not all the recommendations are within the direct purview of the UK Government. However, I have not shied away from making recommendations with European or broader international import when they seemed necessary. Indeed, with the European Commission currently reviewing both the copyright acquis and the question of a Community patent, this is a timely point at which to put forward the Review’s arguments. I would like to express my thanks to all those who assisted me in producing this Review. Many individuals and organisations gave generously of their time to contribute insights, and in particular the great diversity and depth of responses to the Call for Evidence were invaluable. I owe a special debt to the Review team, who have supported me throughout: Richard Sargeant, Steve Coles, Alastair Cowie, Suzy Kantor, Nicola Kay, Stephen Rowan and Nathan Sansom. I hope this Review provides sound recommendations on how the IP regime should respond to the challenges that it faces. Getting the balance right is vital to driving innovation, securing investment and stimulating competition. Lasting success will belong to those who get this right. Andrew Gowers The Gowers Review 1 2 The Gower Review E E XECUTIVE S UMMARY The changing E.1 Globalisation and technological advance are changing the shape of the world context economy. Increased international trade and investment flows and the emergence of economies such as China and India create great new opportunities for advanced economies such as the UK, but also great challenges. The UK’s comparative advantage in the changing global economy is increasingly likely to come through high value added, knowledge intensive goods and services. The Intellectual Property (IP) system provides an essential framework both to promote and protect the innovation and creativity of industry and artists. Increasing E.2 The increasing importance of knowledge capital is seen in its contribution to the importance of value of firms. In 1984 the top ten firms listed on the London Stock Exchange had a combined intangible assets market value of £40 billion and net assets of the same value. Advance twenty years and the asset stock of the largest firms has doubled while their market value has increased nearly ten times.1 The difference in value is accounted for by intangible assets: goodwill, reputation and, most importantly, knowledge capital. Knowledge based industries have become central to the UK economy – in 2004 the Creative Industries contributed 7.3 per cent of UK Gross Value Added, and from 1997 to 2004 they grew significantly quicker than the average rate across the whole economy.2 The pharmaceutical industry accounted for almost a quarter of the UK’s total R&D expenditure in 2004. Innovative ideas create value, whether they are improved products, new brands or creative expressions. As a result, IP rights – the means by which these assets are owned – have become a cornerstone of economic activity. Opportunities E.3 Global and technological changes have brought undoubted opportunities for businesses and consumers. The erosion of global trade barriers has enabled companies to reach ever larger markets and gives consumers a wider range of products to choose from. Technological changes have enabled more ‘open’ models of innovation, with greater cross- fertilisation across firms and the ability to harness the creativity of consumers. Challenges E.4 However, while global and technical changes have given IP a greater prominence in developed economies, they have also brought challenges. Ideas are expensive to make, but cheap to copy. Ideas are becoming even cheaper to copy and distribute as digital technology and the Internet reduce the marginal cost of reproduction and distribution towards zero. As a result, the UK’s music and film industries lose around twenty per cent of their annual turnover through pirated CDs and illegal online file sharing. Furthermore, global markets must contend with rights that remain largely national in scope. Terms of E.5 In response to the profound global changes affecting the IP system, the Chancellor of reference the Exchequer commissioned this Review in the 2005 Pre-Budget Report. The Review was charged with examining all the elements of the IP system, to ensure that it delivers incentives while minimising inefficiency. Its terms of reference were to consider: • the way in which Government administers the awarding of IP rights and its support to consumers and business; • how well businesses are able to negotiate the complexity and expense of the copyright and patent system, including copyright and patent licensing arrangements, litigation and enforcement; and 1 Wealth Creation in the Knowledge Economy, Potter D., accessed at: http://www.number-10.gov.uk/output/Page3051.asp. 2 DCMS Creative Industries Economic Estimates, DCMS, 2006. The Gowers Review 3 E E XECUTIVE S UMMARY • whether the current technical and legal IP infringement framework reflects the digital environment, and whether provisions for ‘fair use’ by citizens are reasonable. E.6 The Review found the current system to be broadly performing satisfactorily. However, there are a number of areas where reform is necessary to improve the system for all its users. The Review therefore sets out a range of pragmatic recommendations, which can be grouped around three themes: first, stronger enforcement of rights; second, lower costs for business; and finally, balanced and flexible rights. Stronger E.7 Counterfeit goods and piracy are damaging the UK’s creative industries, as well as enforcement of threatening jobs. The Review recommends: rights • consulting to ensure that an effective and dissuasive system of damages exists for civil IP cases. This will provide an effective deterrent to IP infringement; • matching penalties in the physical and digital world for IP infringement. This will remove the current unjustifiable anomaly whereby infringement in the digital world carries softer penalties than infringement in the physical world. This is particularly important given that so much infringement now occurs via digital media; and • giving Trading Standards the power and duty to enforce copyright infringement. This will ensure that preventing the sale of copyright infringing goods, for example counterfeit CDs, will become a duty of Trading Standards agencies throughout the country. Lower costs for E.8 It is expensive to obtain and defend IP rights in the UK, and costs spiral when business securing rights internationally.
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