On 6 December 2006, the long-awaited Gowers Review of intellectual property in the United Kingdom was finally published. In the review, which was commissioned by Her Majesty's Treasury as part of the Pre-Budget Report 2005, Andrew Gowers examined almost all aspects of the UK's intellectual property framework. The general conclusion of the report was that the current intellectual property structure in the UK is satisfactory, but there is room for improvement.

The Gowers Review broke down the UK's intellectual property framework into four areas: instruments (for example, patents, copyright and trade marks), operations (including the award and use of intellectual property), enforcement and governance.

While the areas covered were wide-ranging, the changes proposed amounted to the tweaking and oiling of an established machine. Areas cited as particularly requiring a 'tune-up' were instruments, in particular the exceptions to copyright, and enforcement. Patents were left largely untouched.

Patents

Gowers identified weaknesses in the current patent research exception. He noted that it is not entirely clear what uses fall within the scope of the experimental use exception and proposes that it be clarified to facilitate experimentation, innovation and education. He drew on the Swiss research exception example, namely: "The effects of a patent do not extend:

• to acts undertaken in the private sphere for non-commercial purposes;
• to acts undertaken for experimental and research purposes in order to obtain knowledge about the object of the invention, including its possible utilities; in particular all scientific research concerning the object of the invention is permitted;
• to acts necessary to obtain a marketing authorisation for a medicament according to the provisions of the law of 15th December 2000 on therapeutic products;
• to the use of the invention for the purpose of teaching in teaching establishments;
• to the use of biological material for the purposes of selection or the discovery and development of a plant variety;
• to biological material obtained in the field of agriculture which was due to chance or which was technically unavoidable."

Gowers acknowledged the concern that a 'one size fits all' patent system does not provide the right incentives to innovate in new areas of technology, such as software and genetics. In particular, Gowers cited the call for a 'utility patent' (offering a second tier of patent protection for inventions which can be obtained quickly and at a lower cost but with a shorter duration) as a method of addressing some of these concerns.

However, Gowers roundly rejected the idea of patent protection for computer software, genetics and business methods. He argued that the USA software industry grew exponentially without patent protection and that the success of software patents since their introduction in the USA was mixed (with them sometimes being used strategically to prevent competitors from developing in a similar field). Similar rebuttals greeted proposals for business method patents and gene patents.

Gowers argued that there is no correlation between a utility model patent and innovation, drawing analogies from Finland and Germany (with strong innovation systems) and Italy and Spain (with weak innovation systems) all of which have utility model patents. Further, Gowers noted that, while a utility model may have the advantage of reducing costs, it could, ultimately, increase costs and stunt innovation. He reasoned that a new layer of protection would limit the ability of future inventors to create new products and would increase boundary problems leading to an increase in litigation.

Copyright

The focus of the "instruments" recommendations was, as expected, copyright. Gowers did not heed to the intense lobbying of the UK's music business, concluding that the copyright period on sound recordings should not be extended from the current 50 years to 95 years. He also recommended that policymakers should adopt the principle that "the term and scope of protection for IP rights should not be altered retrospectively". The discussion and findings surrounding this have provided the Gowers Review's most controversial topic.

The arguments made for extending the term of protection (and Gower's rebuttal of them) were:

• To create purity with other countries (for example, the USA where sound recordings are protected by copyright for 95 years).

Gowers noted that at present there was parity with the European Union and that a like-for-like comparison with the US was not possible. In particular, Gowers noted that, in the UK, rights holders receive royalties for almost all public performances of their work but, in the US, with the Bar and Grill Exception, around 70% of eating and drinking establishments and 45% of shops do not have to pay royalties.

• Performers and composers should have equal protection (composers' works are protected by copyright for life plus 70 years as against performers and producers' works which are protected by 50 years).

The Review rebutted this on a number of grounds. First, it argued that whether performers and composers have equal protection is not the right question. Rather, the right question is whether the length of protection for copyright works offers a balance between the incentive to invest and restraining monopoly to the full extent possible. Second, the Review noted that extending the term to 70 or 95 years would not address the disparity in duration. Third, it drew attention to the fact that the net present value of a prospective change in term would be 1% and that this income would be highly skewed in favour of a very small minority of highly successful artists.

• Extension of the period of protection will increase the supply of music (as a longer period of protection would afford a greater period to recoup one's initial outlay).

The Gowers Review referred to an amicus brief to the US Supreme Court in the challenge to the Copyright Term Extension Act, which estimated that extension for new works created at most 1% value for a 20 year extension. This would, therefore, have a negligible effect on investment decisions (and the supply of music).

• To increase the number of works available (as rights holders would make works available for longer due to the financial incentives).
  Again Gowers rebutted this, drawing attention to the fact that an extension would mean that works not generating income for rights owners would still remain within copyright. He cited one study that found that parties without legal rights have made more historic US recordings available than have rights holders.
• The UK's trade balance would improve.

Gowers noted the assumptions upon which this assertion is based. First, increasing term is necessary to receive longer terms in other countries. Second, because the UK is a net exporter of music, more money will flow in from foreign markets. Gowers notes that the term of protection depends on where a recording is played, not on where it was produced. Therefore, UK copyright owners already benefit from the longer term offered in the US and Australia. Further, Gowers noted that the US market comprises 5% of international repertoire as against the UK market which comprises 43% international repertoire. Therefore, the UK is a substantial importer of sound recordings and, as such, the extra revenue from 43% of international sound recordings would be remitted overseas.

With regard to retrospective changes to sound recordings, Gowers noted:

"Copyright is a contract between creators and society; once the work has been created, altering the length of term of protection changes the terms of that contract. This is not fair for consumers …"

The Lawyer reported a damning response from the UK music industry in relation to Gowers' recommendations. It quoted the chairman of recording industry association IFPI John Kennedy as saying it was "illogical and discriminatory" and calling upon the UK Government to "firmly reject Gowers' recommendation".

Aside from the guarded exchanges in relation to the length of protection afforded to sound recordings, a key message in relation to the existing instruments was one of "flexibility", in particular to the exceptions to copyright.

The Review identified orphaned works as a concern, noting that it is estimated that only 2% of all works that are protected by copyright are commercially available. Gowers implored the Government to work with member States at the European level to introduce provisions to create a solution to the problem.

In the meantime, he proposed that a voluntary register for copyright be establish by 2008. This voluntary register could, in part, have the additional advantage of creating greater transparency of the copyrights works owned and used by and of value to companies.

Gowers noted that the current fair dealing exceptions to copyright are narrow in the UK, as compared to other countries, and may be stilting innovation as well as normal, day-to-day, legitimate activities. He cited Google's response to the call for evidence which stated: "The existence of a general fair use exception that can adapt to new technical environments may explain why the search engines first developed in the USA, where users were able to rely on flexible exceptions, and not in the UK, considered an infringement".

Further, Gowers noted that format shifting music for personal use from CDs to other media is thought by many to be an entirely legitimate process. Therefore, Gowers recommended a limited private copying exception by 2008 for format shifting (for works published after that date). Another proposed exception of note was for parody and pastiche.

Trade marks

Citing the short timeframe in which products are now launched, Gowers supports stopping the practice of refusing trade mark applications on the (relative) grounds that the mark applied for conflicts with an earlier trade mark. This is done with a view to speeding up the application process. Indeed, Gowers proposes that for a fee the timeframe for examination and acceptance be "fast tracked" to 10 days from filing.

Enforcement

Gowers is clearly of the view that enforcement of intellectual property is a major issue. As an example, he noted the difference between the level of infringement of copyright within the film industry as against the level of enforcement (leading to colossal losses to the film industry in 2005 of approximately £719 million on industry box office, and video sales of £3.5 billion). He pinpoints a number of causes, including the cost and time of intellectual property litigation in the civil courts and that Trading Standards, the Police and the Serious Organised Crime Agency, while aware of the problem, have "many competing priorities".

Gowers' proposed solutions to address the cost of litigation were muted. He noted that most disputes are worth more than £15,000 and, therefore, do not benefit from the fast track system; making the Patents County Court not cost effective. However, he only proposed that the relevant government department consider the issue, suggesting that a solution would be to raise the £15,000 limit – as seen in personal injury cases – and to cap legal fees.

Gowers' proposals in relation to Trading Standards were more weighty. He noted that, currently, Trading Standards has powers and the duty to prevent only the sale of trade mark protected goods but not copyright goods. This means that Trading Standards have a limited ability to act in relation to counterfeit CDs and DVDs. He therefore recommends that this dichotomy be redressed, allowing Trading Standards to enforce copyright infringement.

Interestingly Gowers identified "copycat packaging" as an issue and that "passing off does not go far enough to protect many brands and designs from misappropriation". This may be the result of either the absence of goodwill in the brand itself or because it is difficult to establish confusion. He does not, however, go further than to recommend that the situation be monitored by the Government – failing to appease cries for a strengthening of the regime. The reluctance to go any further seems to be because of the unknown impact of the Unfair Commercial Practices Directive.

The Review highlights the fact that anyone who infringes intellectual property online on a commercial scale faces a penalty of up to two years in jail compared with traditional infringers who face up to 10 years in jail. Gowers recommends that an infringer, irrespective of his means of infringement, face a potential sentence of up to 10 years' imprisonment.

Governance

A number of recommendations were made by the Review in relation to the governance of the Patent Office, Ron Marchant, Chief Executive and Comptroller General, applauded the report and noted that, in line with the Report, it will revise its role in the following areas:

• advice for UK Businesses as they seek to obtain and protect their rights both domestically and in other countries;
• fast track rights processing;
• seeking to make progress on European and Community patent proposals;
• continuing to improve patent quality;
• working with other Patent Offices, particularly the US and Japan, to make multinational patent processing simpler;
• better match between fees and the costs of the services covered by them;
• raising public awareness of the wider impact of IP crime; and
• the renaming of the UK Patent Office as the "UK Intellectual Property Office".

The Gowers Review does note its concerns with policy development. Currently, this role has rested with the Intellectual property and Innovations Directorate in the Patent Office. The Review states that it has not been effective at taking a strategic view of intellectual property policy. In particular, the Patent office has not been effective at linking IP and other related matters such as trade, health and broader innovation policy.

In this vein, the Review recommended that a strong, independent body could make a real contribution to IP policy development with a clear and coherent remit to provide a strategic overview of policy and to challenge government policy-making, as well as advising on how the UK's interest should be pursued in international IP negotiations. The stakeholders should include academics, consumer groups and industry representatives.

Comment

The recommendations of the Report are far from radical and many of them have been high on the agenda of intellectual property practitioners and businesses for some time. We need no to wait and see how many of these recommendations result in positive action from the Government.

Of the 54 specific recommendations made, those that were actually highlighted in the Chancellor's Pre-Budget Report to the House of Commons and would require changes to UK law were:

• new powers and duties for Trading Standards Officers to take action against copyright infringement;
• tougher penalties for online copyright infringement – with a maximum 10 years' imprisonment;
• clarifying the exceptions to copyright infringement to make them fit for the digital age, so as to enable access to content for libraries and education establishments, to ensure that the UK's cultural heritage can be adequately stored for preservation and accessed for learning; and
• a 'private copying' exception to copyright infringement to enable users to format-shift content.

The last will be particularly welcomed by those who received MPs players from Father Christmas!

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For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.