Industry Committee on June 12th, 2012

[The Chair, Conservative, David Sweet]

Good morning, ladies and gentlemen. Bonjour à tous.

Welcome to the 36th meeting of the Standing Committee on Industry, Science and Technology.

We have a two-part meeting today. We have a video conference from the United Kingdom with Mr. Hargreaves. Ian Hargreaves is a professor of digital economy at Cardiff University. We'll do that from 8:45 till 9:15. Then after that I will introduce other witnesses, two of whom are seated with us already, and we'll go into their introductions and then questions on separate rounds.

First, Mr. Hargreaves, thank you very much for taking the time to join us. You have eight to nine minutes for your opening comments and then we'll go into questions.

Please begin.

[Professor Ian Hargreaves, Professor, Digital Economy, Cardiff University, As an Individual]

Thank you.

Thank you for giving me this opportunity to speak with you today.

I will speak, I think, for a little less than eight or nine minutes, simply to give you the background and key points in the review on IP issues that I conducted for the U.K. government. That review was commissioned in October 2010. It reported in May 2011, so just over one year ago. The government broadly accepted the ten policy recommendations of the review, and has subsequently been engaged in detailed pre-legislative consultation, which is not yet complete. The parliamentary aspect of the carrying forward of the review's recommendations remains before us, and therefore subject to the usual uncertainty of that process.

The review itself was commissioned by Prime Minister Cameron, who said that he wanted a review of IP issues that specifically addressed the interface between IP law and its effects on innovation and growth in the economy. So it was a relatively tightly focused review, which we were given six months to complete.

The main points arising from the review were at the cross-cutting level, as it were: the observation that a good deal of decision-making on IP matters in the U.K. has, in my judgment, not been based upon the best evidence available for those decisions and to urge government in the future to avoid that being the case.

There were recommendations in the review on the unitary European patent. That is making very laboured progress through the system in Europe. There were recommendations on the access of smaller firms to IP law advice and systems to support their effective podification in the IP-based economy, and there are some recommendations around the issue of design rights, which the review suggests, in the U.K. context at least, has been a relatively neglected area in IP. But the aspects of the review that have caused most public discussion, because these are the aspects of the review where the conclusions are strongest, are that, in my judgment, U.K. law on copyright no longer fits the purpose, it last having been redrafted prior to the Internet era and therefore, not suprisingly, now showing significant signs of unfitness for purpose in what remains a very boisterous digital age.

The specific sets of recommendations around copyright involve urging the U.K. government to take more advantage than it has in the past been inclined to in terms of activating exceptions to copyright coverage available in the framework of European law within which U.K. law sits. That's one set of recommendations, a set of recommendations designed to release the very substantial buried treasure of orphaned works in different media and various ideas at different levels of legislative difficulty in terms of seeking to find ways of both making copyright law in practice more readily adaptable to further technological change, but also seeking to ensure that copyright law itself is able to be actioned satisfactorily by rights holders whose rights are being infringed through breach of copyright.

The argument that I used on the latter score is that I don't think we are going to get to a position again where copyright infringement ceases to be a major problem, unless and until we also address the respective working of markets in digital content, and to that end, I suggested a major change in approach that actually doesn't require any legislative action, which I called the creation of a digital copyright exchange.

That idea is simply to build upon the very considerable amount of work that is already being done to ensure that in the world of digital content across different media there are interoperable databases that will make it easier, quicker, and lower cost to find out who owns rights, and on what terms they may be licensable, and then to move from that to a database-based trading system. That already exists in some parts of these markets, but it would be to seek to accomplish this on a thorough and cross-media market basis.

The argument of the review is that if these changes are carried forward there will be measurable benefits for the U.K. economy. The economic impact assessment that was done at the time of the review by a small group of economists who were invited to do that estimated that the effect on the U.K.'s gross domestic product will be to add between 0.3% and 0.6% per year of growth to the British economy. This is a set of figures that of course has been much debated. It's a range. It's based on economists' assumptions. But I don't think there has been any serious challenge to the idea that reform of this kind would be economically positive if successfully carried through.

That concludes the remarks I wanted to make before inviting questions from your committee, sir.

[The Chair, Conservative, David Sweet]

Thank you very much, Professor Hargreaves.

For the committee, we'll go on to our regular seven-minute rounds, and that will be for this witness exclusively. You may want to share your time, and I'll let you do that as the time ticks off.

I'll begin with the Conservative Party, as usual. Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair.

Thank you very much, Professor Hargreaves, for being with us today. I greatly appreciated your presentation.

I wanted to begin by asking for a little bit of background on the panel you were part of. I presume Prime Minister Cameron asked you to lead this review. Were you part of a panel of various individuals? What sectors of the U.K. economy and what stakeholders did the panellists represent?

[Prof. Ian Hargreaves]

I was advised by a panel rather than being a member of a panel. The review is under single authorship, under my name. I take responsibility for all of its conclusions.

I was advised by a panel of experts who ranged from an academic based in North America to the former head of patent activity at IBM. It included other academics, people with an industrial background, people with more of a policy background.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

So you were taking a very much global view of the IP framework around the world to make recommendations to the U.K. government. Is that a fair and accurate statement?

[Prof. Ian Hargreaves]

That's a fair and accurate statement.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Great. You mentioned that the U.K. government is now in pre-legislative consultations. Could you elaborate on potential directions this legislation may go in?

[Prof. Ian Hargreaves]

I'm not in a position to speak authoritatively about that. That's clearly a matter for ministers, and at this stage the government has not declared the precise legislative approach it intends to take. So it would be inappropriate for me to seek to guess at that.

In terms of the possibilities of an informed observer on that process, various legislative methods or vehicles could be used to make the legal changes that are recommended in the review. Some changes proposed in the review don't require any legislative change at all; one of them I referred to is the creation of a digital copyright exchange. That is proposed in the review as an essentially voluntary or incentivized activity on behalf of rights owners themselves. And subsequent to the completion of the review, as recommended by me in my own report, Richard Hooper, a former deputy chairman of Ofcom, the U.K. communications regulator, was appointed to conduct a feasibility study of that concept. He's completed the first of two phases of that feasibility work and published a report essentially confirming the value of the exercise. He is now engaged in the second task, which is to make specific recommendations on how, in practice, it can be set up.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Great.

In taking this global view that was the approach of the panel, are there any particular jurisdictions internationally that stand out that have particularly strong IP frameworks and do a better job than many other jurisdictions in terms of enhancing IP and making that important linkage between IP and fostering innovation?

[Prof. Ian Hargreaves]

I think even if one were tempted to see this as a global beauty parade of regimes and pick the winner and seek to copy it, it would not necessarily be the route you would try to go down. It is true that there are examples, and Israel would be one, where there has been a very substantial wholesale shift of regime.

In the U.K. review, the one I was responsible for, in kicking it off the Prime Minister himself made some comments about the copyright regime of the United States, which includes, as you will very well know, the fair use defence in the area of copyright. In announcing the review the Prime Minister said he had been told by Google that there were very substantial benefits to be had from a regime of that kind in terms of the pursuit of innovation and growth.

My own judgment in assessing that question was that even if one had been attracted to the American regime, proposing that it be installed in the United Kingdom, sitting within a framework of European law would have guaranteed inaction on copyright reform for another generation.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

I want to change gears a little. Could you speak a little about the challenges that patent thickets present and ways around some of those challenges?

[Prof. Ian Hargreaves]

Yes. There is certainly evidence that some use of patents is designed primarily not in the pursuit of invention and innovation but designed in defence of existing marketplace positions of one kind or another, some of them more distantly related to innovation and substance than others.

So there's no doubt that there are some real issues there. I would have to say, however, that the various tracks that our review went down in seeking potential ways of dealing with that problem did not lead to dramatic proposals so to do.

We had a very hard look at the patent pricing system. We had a hard look at the research and the evidence around the effects of different pricing strategies, either for registering patents or continuing to hold patents. We had a look at the rules that apply whether or not it might, for example, be sensible to charge a lower price for patent registration to smaller companies. That was something that was advocated to the review strongly from some quarters.

[The Chair, Conservative, David Sweet]

Professor Hargreaves, I'm sorry, but we're always battling with time, and we're overtime in that round, so I'll have to cut you off at that point in your answer. Thank you.

Mr. Stewart, you have seven minutes.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you, Mr. Chair.

Thank you for your presentation, Professor Hargreaves.

I have a broader question about patenting in the U.K. or IP innovation. In terms of patents, in Canada it seems that a lot of inventors or innovators go to the U.S. and get their patent first, come back to Canada, and then establish themselves here in their home country.

I was just wondering if you could paint a picture of what happens in the U.K. in terms of patenting generally.

[Prof. Ian Hargreaves]

The debate in the U.K., or the practice in the U.K.... The U.K. is a very significant registration point for patents. It has, I think it would be fair to say, a well-regarded patent administration system run through the Intellectual Property Office of the United Kingdom.

What are the issues and the sources of debate and complaint? The issues and the sources of debate and complaint are around actionability of patent defence and the problems that arise for smaller companies where they run into the difficulty of facing very expensive legal support questions in defending their patent rights.

There's always a debate internationally about the relative quality of patent award systems in different countries. Against that there is a lively debate, which the review added to, I think, by urging greater international collaboration, because there's no doubt quite a lot of duplication of effort in the global patent system as well in terms of examining the criteria for the award of patents.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you.

In terms of the market exchange mechanism that you've proposed for the U.K., would there be any limits on foreign purchase of patents, or is it really just open to global bidding?

[Prof. Ian Hargreaves]

The exchange that I proposed did not concern patents but copyright, a digital content right called the digital copyright exchange. Copyright, of course, unlike patent, is an unregistered right in Europe.

The idea here is to get a better quality of data into the marketplace, essentially so that markets in digital content work better, so that prices can be struck and deals can be made more readily. I would certainly see that as being an international phenomenon. There's work going on in a number of countries that I'm aware of on projects that bear some similarity to the idea that I've advanced in the review for the U.K.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you.

I just want to turn to IP and universities. Did any part of your report concern how universities interact with the current IP laws and how things might be changed?

[Prof. Ian Hargreaves]

That wasn't a matter the review considered in detail. We did look at it. We published some thoughts, as it were, as a supplementary document. We published a number of supplementary documents to the review, one of which touched on those issues.

Those issues are certainly very lively in the U.K. The U.K. government is currently pursuing a pretty strong open public data policy. In terms of the relationship between universities and business or the market on IP, there have been a number of pieces of work done on that in recent years in the U.K., which there was no attraction to replicating in this most recent review.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Did you have any recommendations, even in the supplemental report? Did you just encapsulate what's already been studied, or did you find something that might be of interest to us?

[Prof. Ian Hargreaves]

It depends on what the question is. One set of questions around universities and IP involves the relationship between the rights attached to academic published work—the copyright coverage and the nature of the copyright coverage that is involved—and the extent to which you want to pursue an open rights system versus a more traditional closed rights system. That's one debate that exists.

In terms of how universities play their part in working through spinoff companies or transferring IP into the private sector, my review really didn't look at that. The most recent state of the art on the policy discussion in the U.K. about that made recommendations about contractual forms and so on, which are quite particular. I'm not sure they would be of very wide relevance internationally.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you.

How much time do I have left?

[The Chair, Conservative, David Sweet]

You have one minute.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

One minute.

Perhaps we could go back to your market exchange, in terms of copyright, and how you see that moving forward within the U.K.