New Clause 1 - Compulsory binding technical arbitration for new and existing patents

Patents Bill – in a Public Bill Committee am 3:00 pm ar 15 Mehefin 2004.

Danfonwch hysbysiad imi am ddadleuon fel hyn

'(1) In section 14(2) of the 1977 Act, after paragraph (c) there is inserted—

''(d) an agreement that in the event of a dispute arising regarding infringement after any grant the matter shall be referred to technical arbitration before an independent expert or panel of experts from the appropriate field of invention approved by the comptroller;''

(2) In section 61(1) of that Act, after ''this Act'' there is inserted ''infringement must be determined by technical arbitration by an independent expert or panel of experts from the appropriate field of invention approved by the comptroller as defined in section 14(2)(d) and a determination report will be made available for public inspection; and should an alleged infringer fail to participate in technical arbitration as defined, then infringement will automatically be determined in favour of the proprietor of the patent and any subsequent civil court procedures are subject to section 106 (1); following the determination of infringement or otherwise by technical arbitration,''.

(3) In section 61(1) of that Act, after ''a patent'' there is inserted ''subject to section 106(1) below.''.

(4) In section 61(5) of that Act, after ''dtermined by'' there is inserted ''technical arbitration as defined in section 14(2)(d) he may decline to deal with it and the independent expert or panel of experts from the appropriate field of invention approved by the comptroller'' and ''the court, he may decline to deal with it and the court'' is omitted.

(5) In section 70(1) of that Act, after ''(4) below,'' there is inserted ''have the question of infringement determined by an independent expert or panel of experts from the appropriate field of invention approved by the comptroller,'' and ''bring proceedings in the court against the person making the threats,'' is omitted.

(6) In section 70(2) of that Act, after ''satisfies the'', there is inserted ''independent expert or panel of experts'' and ''court'' is omitted.

(7) In section 71(1) of that Act, after ''be made by the'', there is inserted ''independent expert or panel of experts from the appropriate field of invention approved by'' and ''court or'' is omitted.

(8) In section 71(2) of that Act after ''made by the'', there is inserted ''independent expert or panel of experts'' and ''comptroller'' is omitted.'.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

I take this opportunity to contribute, although my hon. Friend the Member for Weston-super-Mare has been leading the debate very well and will join the Committee a little later.

The clause is important because it focuses on the problems of small businesses and the costs associated with acquiring patents. General representations that I have received suggest that, as it stands, the Bill does not address the concerns of business. Many businesses have said to me that the theory that one can get a patent is limited in practice because the cost is prohibitive. For small inventors, a patent is of limited value. The biggest hurdle is the cost of the patent and the litigation associated with it.

The Patent Office says that only 20 patent infringement cases are brought in the UK each year, but representations that I have received suggest that that may be because small businesses are too scared to enforce their patent rights and of the costs associated with them. We should protect small firms. They are often the most inventive and creative ones, and we should be encouraging them to believe that when they come up with an invention, their rights will be properly protected.

In October 2001, the chief executive of the Small Business Service, David Irwin, commented, when speaking to the European Forum:

''Since the second world war 95 per cent. of all the radical new inventions came from businesses employing less than five people.''

That is an interesting statistic. If it is true—I doubt whether things have changed radically in less than three years—it justifies asking the Government to include something about the concerns of small businesses.

Under the current system, legal bills of between £800,000 and £1 million are not uncommon for a patent holder attempting to protect their invention. In February, under the heading, ''Inventors up in Arms'', The Daily Telegraph reported:

''Patent enforcers say new law fails to give enough protection.''

For a business employing fewer than five people, a cost of £750,000 to £1 million is completely out of its range and means that it cannot enforce its patent rights even if it can register them.

Mandy Haberman invented the Anywayup children's cup, which is very prominent in my household and is still consistently better than all imitations that attempt to undermine her patent. Perhaps good design has ultimately triumphed more than the patent. She said:

''It is not uncommon for combined costs in similar litigations to amount to between £750,000 and £lm. My insurance cover was woefully inadequate, enough to pay for the first few meetings with a solicitor and a cup of tea.''

That is a good example of the problems encountered.

The patent county court was established in 1988 to provide a cheaper and more user-friendly legal recourse—something similar to the small claims court—specifically for small businesses to defend their patents. The worry is that that court does not meet their needs. In a case brought last year—Warheit v. Olympia Tools—the Court of Appeal expressed the view that the costs incurred in the patents county court

and at appeal were excessive. In one case, brought before the patents county court in November 2003 and involving a short, easily comprehensible patent that dealt with comparatively simple chemistry, the total costs incurred by the parties up to and including the last day of the trial exceeded £850,000. Of that, the claimant's costs were more than £500,000. It is therefore far from certain that the patents county court provides the cheaper and more accessible route to justice that small businesses wishing to enforce their patents are supposed to have.

The Patents Reform Group suggested that the Government could be in breach of article 41 of TRIPS, the agreement on trade-related aspects of intellectual property rights. The article deals with the enforcement of intellectual property rights, and article 41.2 specifically states:

''Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.''

We contend that small firms need further assistance to enable them to enforce their intellectual property rights. The Government will argue that clause 13 will allow an opinion to be issued on request on certain matters that might be relevant to a patent dispute. That system will allow a patent holder to bring arguments before the Patent Office, rather than the courts. The idea is that that will obviate the need for costly litigation in settling an infringement dispute between companies.

The concern expressed by many companies is that the Government's proposals have no teeth. Richard Kempner, head of intellectual property at the law firm Addleshaw Goddard, says that many small firms think of intellectual property as a luxury that they cannot afford. He says that part of the problem is that

''those that do have intellectual property rights are unable to enforce them properly simply because of litigation costs.''

There is a catalogue of problems to do with cost. He goes on to say that non-binding opinions—what the Government are proposing—are

''a particularly futile and useless development'' and that the Bill does not address the fundamental issues. It is important that they be addressed, and that is not my opinion, but the view of people who deal with such problems daily.

Our new clause asks the Government to consider a system of compulsory technical and binding arbitration, which has been suggested by the Patent Reform Group and other patent experts. The idea is that a team of independent experts with knowledge in a particular area would use that expertise to resolve the patent dispute. There are a number of cases in which judges have extremely difficult technical matters in front of them, but is it reasonable to expect any judge to be an expert in biotechnology, software, electronics, pharmaceuticals, engineering or a variety of other specialist areas that often arise in disputes? The contention is that it would be better to use a team of outside experts to make judgments on the basis of their expert knowledge.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

The hon. Gentleman raises an important point. I wonder whether he can help me along. Where will these technical people, covering the range of issues he mentions, come from?

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

As I understand it, the system would be a bit like a peer group assessment. Basically, if the patent in question is a pharmaceutical patent, one gets independent pharmaceutical experts. If it is a software patent, one gets independent software experts. The argument is that experts with an objective view and expert knowledge would be more informed. The problem for a judge is that very often the information will be completely outside his area of experience or beyond his competence to evaluate. That is no criticism of the judges. After all, what they are evaluating is the intellectual property in a patent. Only people who have a concept and understanding of the particular intellectual property arguments in dispute can really do that. The counter-question to the Minister is this: if one does not bring in that expertise, how on earth can the matter be resolved fairly and objectively?

Of course, the proposal is that the procedures be compulsory. That would force the parties to communicate and even up the balance between big and small companies. That could lead to more out-of-court settlements, which the Government are keen to have. That would be in everybody's interests and would reduce the costs of enforcing the law.

Photo of Ian Liddell-Grainger Ian Liddell-Grainger Ceidwadwyr, Bridgwater

The hon. Gentleman makes a valid point, but he may remember that Microsoft took on the American Government and won. We will not get people who have the capability to look at such cases in an arbitrary way. One manufacturer took on IBM, and IBM's entire aim was to bankrupt that person. We will not get people who are far enough away from any one concern to undertake that employment.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

The hon. Gentleman raises a legitimate point of concern, but I counter it by saying that if no attempt is made to do what I suggest, that gives Microsoft or IBM a completely free rein. I do not believe that there are not people—probably ex-employees of the likes of Microsoft and IBM—who are in a position to make an independent judgment.

The hon. Gentleman offers a poor argument for not trying. The counter to it is that it would, effectively, concede that the big guys always win because they have the ability to bankroll the litigation to the point where the small guy has to back up and go away. That is the concern. As 95 per cent. of useful inventions come from small businesses—to repeat a statistic—this is not a fringe issue, but central to what patents are all about.

A binding opinion would give smaller firms greater certainty. If an alleged infringer still decided to go to court even after expert opinion had found against them, the patent holder would have the comfort of knowing that the judge could take that expert opinion into account. The judge will, of course, make his own independent evaluation, but at least he has an expert view to draw on. An alleged infringer who did not have

a real case, but who had the resources to question the validity of a rival's patent, would be deterred from going to court in the first place if an independent judgment suggested that he would lose. The alleged infringer would not automatically be guaranteed to win simply because they had the resources to take things to the nth degree. That point might be relevant to the hon. Gentleman's intervention.

The new clause would help to even the balance. We think that it is worthy of serious consideration, and that is what we are asking the Government to do. I am not going to force a Division, and I do not think that the Minister would expect me to, but he should accept that this is a serious proposition. Also, if the patent enforcement project has validity, the Government should at least consider its recommendations. It is a problem that we are considering the Bill before the consultation has reported. I do not wish to detain the Committee, but it might have been more desirable had we dealt with the Bill after the consultation. Nevertheless, the Government can, perhaps, take that it into account, so that small firms are in a better position as a result.

Another option has been suggested. Instead of setting up the compulsory binding expert arbitration, a fighting fund might be provided for small and medium-sized enterprises. If they were able to draw down on such funds, that would even up the imbalance. In his report ''Making Patents Useful to Small Firms'', Professor William Kingston of Trinity college, Dublin suggests that an obvious source of funding would be the subsidy paid to the national offices by the European Patent Office, which he claims is currently running at Euros 250 million. I am not sure whether he is being facetious, but I am less attracted than him to that proposition because all it would do is set up a fund that small businesses can draw on to even up the balance.

The proposal that there should be expert binding arbitration is a move in the right direction. We should ask, ''How good is the intellectual property?'' rather than, ''Who has the deepest pockets?'' That is the crux of the argument. Can we not ensure that the Bill allows justice and fairness and does not give the spoils to the bigger operators, so that they can put the small guy out of business?

Photo of James Arbuthnot James Arbuthnot Shadow Secretary of State (Trade and Industry) 3:15, 15 Mehefin 2004

The hon. Member for Gordon (Malcolm Bruce) has given an interesting expose of an important argument. The aim behind the non-binding opinion proposal is to encourage people not to go straight to court because they have an alternative method of resolving patent disputes, by negotiation if possible. That is a laudable aim, and we would like it to come true. However, I am not quite sure how it will be achieved—perhaps the Minister can set that out in his response.

I do not know whether compulsory binding technical arbitration is the answer, but it may be. It is easy to pick holes in new clause 1, but if we do not go down that route, how does the Minister intend to support small and medium-sized enterprises that find

the cost of litigation completely unaffordable? It is not surprising that it costs £1 million to take a patent enforcement action, because it deals with highly technical issues of great difficulty and involves expensive scientists and lawyers—and I declare an interest as an expensive lawyer. It is necessary to find small and medium-sized enterprises a small degree of relief. If the Minister intends to pick holes in the new clause, it will be interesting to hear what he is going to do instead.

The Minister, as graciously as ever, said that he supports the patent enforcement project, yet somehow it always seems to be just over horizon; it is about to report—but not yet. I would love to know when it will report and whether, when it does so, it will produce anything to help small and medium-sized enterprises. The Minister asked the hon. Member for Gordon where the technical experts were to come from. In a sense, his intervention contained an implication of despair—namely, that technical issues in patents cases have to be decided by the ignorant. That is not necessarily true.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I am not suggesting that things are hopeless, or that all this is about people who have no knowledge of the matter. The right hon. Gentleman knows that the patents county court, which I will mention on winding up, has a user group comprised of technical people. Mandy Haberman, one of the people to whom the hon. Member for Gordon referred, is a member of the patents county court user group. There are experts, but they operate in a particular framework.

Photo of James Arbuthnot James Arbuthnot Shadow Secretary of State (Trade and Industry)

Yes, and that is fine as long as we do not have biotechnologists examining the difficulties of computer software. That is the sort of issue that we should consider. Many countries make greater use of court-appointed experts, but the leaders in their fields do not necessarily go in for that sort of work. If the Minister does not like this, what is he going to do instead?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

As ever, we have had a useful debate on issues affecting many of the people involved with patents, including small and large companies. It has always been the intention of the Secretary of State, of the Department of Trade and Industry and of Ministers to do whatever we can to support small businesses. The Small Business Service considers regulation issues to ensure that there is an impact on small businesses. Hon. Members should consider the Bill in the wider context of the DTI's and the Government's motivation and their concern with small businesses.

We keep returning to why the Bill is being introduced now, why we do not wait until the enforcement project reports and why we are not considering other issues as we progress. There was a great deal of debate on Second Reading about things that were not in the Bill, but which should have been. I acknowledge that some hon. Members have concerns about that. The reason that I gave for the Bill's being

processed now, and why it was urgent to do so, was that we had to bring UK patent law in line with the European patent convention. However, that does not mean that Europe has forced us into it. We are key players in the convention.

It would be wrong to delay the Bill until the results of the research of the patent enforcement project are known. Failure to bring UK law into line with the EPC provisions would mean that the UK was outside, and we would have to leave the convention. We discussed earlier how disastrous that would be. Nobody has introduced that as a possibility—it would be detrimental to all UK stakeholders.

Photo of James Arbuthnot James Arbuthnot Shadow Secretary of State (Trade and Industry)

It would have been wrong to delay the Bill. I was not suggesting that; I was just saying that the patent enforcement project was being delayed.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

The right hon. Gentleman will know, from his years of experience, that it is important to get these things right. He would not want us to rush into making decisions that were wrong. The patent enforcement project report will be here in the summer, although I know that the definition of ''summer'' varies depending on which Department people talk to.

Within the project, there is an issue around the fighting fund, which, if we introduce it, might mean that we do not have to rely on primary legislation. That could still flow from this, and I know that discussions will take place. People accept that delaying the Bill would have caused problems that nobody wanted.

I should have welcomed the hon. Member for Gordon this afternoon; as usual, it is a delight to see him. He has argued for his new clause, following the strong contributions from the hon. Member for Weston-super-Mare this morning.

The right to control who is allowed to exploit an invention covered by a patent is legally enforceable and resides with the patent holder. That right is challenged if a third party does something that the patent holder believes is covered by the patent. For example, a third party might produce competing goods, using a process that the patent holder believes falls within the scope of his patent. At that point, the patent holder would have to decide how best to deal with that challenge. He would want to stop the third party from carrying out what he believed was an infringement, because that would reduce his ability to gain commercially from the patent.

That is the purpose of the whole exercise. The patent holder takes out the patent to recoup the investment that he made, having come up with the invention in the first place. A third party should not be able to piggyback on the work of the patent holder without paying him. The third party could agree to pay him a licence fee for the use of the patent, or agree to stop any infringing behaviour and reimburse him financially for any unfair use.

However, the third party may argue that what he is doing is not covered by the patent, and is therefore not an infringement, and that he is merely providing a

product that competes with the patent holder's, using an alternative process, which, although it may bear some similarity to the patented process, does not fall within the scope of the patent.That is the key issue. There has to be a balance between giving the patent holder the exclusive right to prevent others from exploiting his invention without his permission, so that he gains commercially from his efforts, and making sure that such exclusive rights do not inhibit others from entering the market and providing fair competition, so that the public can have access to a wide range of products at an affordable price. For that reason it is important, as we said during consideration of clause 13, that the patent for an invention that is the subject of such a dispute, which would provide the basis for an exclusive right, should be valid.

In new clause 1, subsection (2) would put in place a new ''technical arbitration'' procedure, which would have to be used to decide whether infringement of a patent had taken place before any infringement proceedings could be brought before a court. It appears to follow from subsection (4) of the new clause that the comptroller would continue to have jurisdiction under section 61(3) of the 1977 Act, although he might decline jurisdiction in favour of a technical arbitration.

Subsections (5) to (8) would make corresponding changes to other provisions of the 1977 Act, giving jurisdiction to the comptroller or the courts. Technical arbitration would have to be used in the context of threats actions under section 70 and declarations of non-infringement under section 71, although it appears that, in the latter case, the provision would still be intended to be without prejudice to the jurisdiction of the courts under common law.

The proposal appears to raise more questions than it answers, although I do not mean that as an attack on the hon. Member for Gordon. For example, arbitration usually requires the agreement of two parties in dispute to enter the process and to be bound by the result. However, under subsection (1) of the new clause, such agreement would be a compulsory ingredient of every patent application; it is currently one of a range of available alternatives. The new clause would not provide anything not already available. Indeed, infringement proceedings before the comptroller under section 61(3) can be regarded as a kind of arbitration by technically skilled experts at the Patent Office, as the parties have to agree to the dispute being decided before the comptroller.

Perhaps the only novelty of the proposed procedure is that it removes any element of choice. Is it appropriate to compel people to use a process in this way? Is it appropriate to have only one forum to decide such issues? Presumably it is intended that some kind of appeal should be available to alleged infringers who lose their case before the arbitrators, although, as the new clause is drafted, it is difficult to see how that appeal mechanism would arise.

It is important that binding decisions on infringement, which have important economic repercussions for the alleged infringer, should not be made by a single forum without any possibility for

appeal or review. What if the decision were wrong, or some serious abuse or error had taken place? The reason why I asked where the technical experts will come from was that in some areas of technology things are growing and developing rapidly. We wonder whether enough technical experts will be available. The hon. Gentleman answered that by saying that experts from industry would be involved, but that creates its own problems. Will experts working in industry be suitable or will they be considered to have an interest in the outcome depending on which company they work for? Will experts in academia be suitable? Are they likely to be up to date or will they have a problem because of their perceived increasing dependence on funding from industry for their research? They might be funded by a company that has an interest in the outcome. Would the experts come from the Patent Office, or are they considered to be too closely involved in the granting of a patent that is under dispute?

That latter point suggests another problem with the procedure: it does not take it into account that in infringement disputes the alleged infringer often raises the defence that the patent is not valid. That issue then needs to be explored, because an invalid patent cannot be infringed.

Lastly, there is the problem that the procedure would appear to increase the number of litigation steps that would have to take place before the issue was finally decided. That would be a big step backwards, and I hope that the Committee accepts that. Technical arbitration could decide whether or not infringement had occurred, but separate civil proceedings would be required to decide the relief that would be provided to the patent holder if the allegation of infringement were upheld—hon. Members may refer to new clause 1(2). Separate revocation proceedings would seem to be the only way that an alleged infringer would be able to raise the defence of invalidity. As I have mentioned, some mechanism of appeal would have to be provided for, although it is not part of the current proposal.

Despite the allegation put forward by some that big companies are always blatantly infringing the patents of little companies and relying on their financial clout and on time-consuming procedures to avoid having to face any legal consequences of their actions, few infringement cases are so simple and easy to decide. Although disputes on infringement often require careful consideration of technical issues concerned with the products or processes that are being compared, they also involve consideration of legal issues, such as the weight and value to be put on certain statements and what is relevant material. To separate those two kinds of issues, as the proposed new clause implies, or even to reduce them merely to consideration of technical issues, is too simplistic an approach. In any case, the courts and the Patent Office both have the power to use advisers to assist them in their work should the need arise. That is shown, for example, in section 122(5) of the 1977 Act.

The hon. Gentleman will not be surprised if I conclude that the new clause causes more problems than it provides solutions for. It confuses the situation

and will do little to encourage patent disputes to be settled before expensive, time-consuming and financially draining litigation is undertaken. I do not see that the proposal would be any more helpful in resolving disputes between two small or medium-sized enterprises than the one in clause 13.

The system is in place in terms of the procedures that are proposed in the Bill. We should give the patents county court some opportunity to develop. It had a slow start, as I accepted on Second Reading. The users group is in place, as are the procedures, and I hope that with that explanation the hon. Gentleman will withdraw the new clause.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

I thank the Minister for that answer. Obviously, it does not surprise me that he would take that view. I do not wish to press the new clause to a Division, but I ask that he will continue to keep his mind open on some of those issues. We have established that the status quo is unsatisfactory and that there is a widespread belief that the Bill will not make a huge difference. The new clause was simply an attempt to see whether we could explore some other avenues that might help to secure a resolution.

If the issue of experts is a problem, presumably it will also be a problem for the courts. Therefore, it is a problem whatever happens. It is possible that making that an established part of the process will make it become less of a problem, because experts would become more available. It concerns me that what would otherwise happen is that when the dispute reaches court, it is the party that has been able to buy the most powerful expertise that wins, rather than there being an objective decision. I ask the Minister consider keeping the lines of communication open with the Patent Reform Group and others.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs) 3:30, 15 Mehefin 2004

The hon. Gentleman was not present earlier when I gave the commitment that discussions would continue to take place during the life of the Bill; important improvements could be made to it. This morning, I made the point that there has been lots of consultation on the Bill and the circumstances relating to it However, we will look at everything that is put to us during the lifetime of the Bill before Report.

Photo of Malcolm Bruce Malcolm Bruce Shadow Secretary of State for Business, Innovation and Skills, Shadow Secretary of State for Trade and Industry

I am grateful for those comments.As I said, we cannot judge the situation by the number of cases because the problem is that people fall away when they cannot maintain their actions. It is important that that is taken into account. People with big pockets are effectively winning by default against people who do not have the resources.

The Minister referred to the complexity of the issues, and I agree. Intellectual property is a complex matter by definition but, as in all legal matters, complexity plays into the hands of those with the deepest pockets. Therefore, we still have to find a simple and pragmatic way of resolving this by limiting the process and the costs. The new clause is an attempt to do that. It may not be the perfect answer but, if I

may say so, I do not think that the Bill is the perfect answer either. Keeping the consultation open, and seeing whether we can come up with a better compromise, would be a good outcome.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clauses 14 and 15 ordered to stand part of the Bill.