Review of the Hargreaves IP review

As blog posts go, this is a long one so brace yourself. Pour a cup of tea first. But the full Hargreaves is 130 pages, which is a couple of meals, so think yourself lucky I’ve gone through it all for you.

It was predictable that the Hargreaves IP review – actual title: Digital opportunity: a review of intellectual property and growth – would contain little of any comfort to inventors. Private inventors are used to being so far down the enterprise food chain that they don’t even register on it. (That will change when UIAUK gets fully into gear, but let’s not get too diverted right now.) This time though, inventors themselves may be at fault.


Inventors score own goal

To be fair to Hargreaves, there was a well-publicised call for evidence and abettermousetrap.co.uk encouraged inventors to let him know about their experience of the IP system. But it seems hardly any did. Hargreaves lists people and organisations he and his team met, or from whom they received evidence. Apart from us and Trevor Baylis Brands, no inventor organisations, businesses or clubs are listed. And though there may be inventors among those named individually, there are no familiar names. (I apologise if I’m wrong on this and will put the record straight if informed.) Yes, I was wrong – see the Comments below.

I don’t want to play the blame game, because I can fully understand that nobody wants to spend valuable time putting evidence together simply to see it ignored, which is the lesson learned from previous IP reviews. But one can’t criticise Hargreaves for ignoring the interests of private inventors if the evidence wasn’t there for him to ignore.

That dealt with, what does the Hargreaves review say that matters to inventors? It’s a lengthy report, mainly about copyright and with many supporting documents, so for brevity I’ll deal only with the sections on patents. That’s where the meat is for many inventors, and Hargreaves on copyright has had copious media coverage so it doesn’t need any more from me.

The numbers are the Hargreaves paragraph numbers, as are the cross-heads in italics. Omitted text is indicated by square brackets. Otherwise, all the text in blue is as Hargreaves wrote it.

2.4 […] much innovation – the commercialisation of new products, services and processes – happens without the use of formal IPRs. As shown in Figure 2.1 patents are less frequently used by innovating firms, large as well as small, than speed to market, secrecy or confidentiality agreements.

Many SMEs may have latched on to the limitations and high cost of patents. Hargreaves only gets to this much later.

2.5 Unfortunately, in much economic analysis work, patents are treated as an innovation output measure. This implies that more patents indicates more innovation, which is not necessarily true.

Good to see Hargreaves recognising this. Can one ever measure innovation precisely, and is it worth trying? Each sector will have a pretty good sense of how much innovation is going on and who is doing it. It’s upward or downward trends we should be looking at, not numbers, which can be very misleading.


Patent thickets

Throughout Hargreaves there is much mention of ‘patent thickets’ – mazes of overlapping patents that can make it difficult and expensive for SMEs to enter or compete in some markets. It demonstrates – though Hargreaves doesn’t spell this out – that the patent system is now less about technology disclosure and much more about building and defending technology fortresses.

6.3 The evidence and representations to the Review from its users suggest that the UK patent system is, on the whole, functioning reasonably well.

“Our view is that the patent system and indeed the broader intellectual property system, works substantially very well for innovative businesses. It is very far from being ‘broken’.” Chartered Institute of Patent Attorneys submission

 

Here the heart starts to sink and the blood boil. (Though two chapters later, there is more realism and less complacency.) Given that evidence from inventors was largely absent, Hargreaves can perhaps be forgiven for his conclusion. But CIPA should know better. Its members act for many private inventors, few of whom are likely to feel that the patent system ‘works substantially very well’ for them. Hargreaves and CIPA, please wake up. The patent system is for everyone, not just businesses.

However…

6.4 […] some aspects of the way the system is currently working are a source of concern, because they appear to be causing barriers rather than incentives to innovation.

This sounds more promising than it is. The ‘some aspects’ are (a) the backlogs and delays arising from ‘the worldwide increase in the number of patent applications’, and (b) the problem of ‘thickets’ again. More inventor-relevant territory comes later.

Influencing Patenting Behaviour through Patent Office Fees

6.33 To optimise the IP framework for innovation and growth, there is a strong case for setting patent fees in pursuit of these goals, rather than simply meeting the relatively arbitrary cost level of a patent office. The people best qualified to judge which are the least useful and so most dispensable patents in the system are those who own them. This suggests that patent fees might be set in a way that encourages every patent holder to self screen their patents for value. This would encourage the surrender of less valuable patents, reducing the density of thickets in a way consistent with achieving the maximum net economic benefit.

Which means: bang up the fees to price out weaker patents. This would disadvantage some inventors enormously. For them, any consideration of strength or value will be eclipsed by worries about cost. By all means have more rigorous screening so that weaker patents don’t get granted in the first place, but don’t make an already financially punitive system even more expensive. And note the seeming assumption that every patent holder has more than one patent!

6.36 Renewal fees [present] greater possibilities for more effective self screening of patents […]

6.37 However, [a] unilateral attempt to increase renewal fees by the UK would risk a disproportionate impact on UK patent holders compared to the potential gain. This is therefore an area for the UK to explore in the context of international efforts to thin out patent thickets worldwide.

So IPO should get together with other patent offices to increase renewal fees. (Wouldn’t that be a cartel?) Renewal fees are difficult to justify morally and for many inventors and small businesses they’re already a massive financial burden and a disincentive to innovation. And no matter how high the fee, the actual protection given by a patent is nil if the patent holder can’t afford enforcement – see later.

6.38 Given their importance to innovation it would be logical to explore the potential for differentiating the patent fee structure in favour of smaller companies. The current UK patent framework includes a provision for a reduction in renewal fees for patents endorsed with a Licence of Right (which means anyone may obtain a licence at a reasonable rate). These provisions could be built upon as an additional means to reduce renewal costs […]

That’s a bit more like it – except that if it’s going to be in a future context of significantly higher renewal fees, it might simply be a matter of giving with one hand and taking back with the other. Making renewal fees payable only after (say) ten years would be a much more meaningful contribution to SME and inventor innovation. But then, patent offices wouldn’t have all that lovely renewal fee income, would they?

Cost of Dispute Resolution and Access to Justice

“Costs can be prohibitive, particularly for small firms. A firm challenging a patent can expect to pay £750,000 for a simple case, largely due to the costs of the adversarial system.” Gowers Review of Intellectual Property, 2006

8.60 For micro businesses and SMEs in particular, [the costs of litigation] can be considerable. The situation is exacerbated by the relative weaknesses of a smaller business’s negotiating position […] compared to a large firm with which the smaller enterprise may be in contention. This can result in smaller businesses being less able to obtain a favourable settlement short of court action.

8.61 Evidence suggests that smaller businesses who have their “day in court” are not relatively disadvantaged but the question then remains as to whether smaller businesses are more likely to be forced into unfavourable earlier settlement. Submissions to the Review highlighted many examples of smaller businesses saying they were unable to enforce their rights.

The Patents County Court

8.62 The Government has recently taken steps to address access to lower cost IP litigation with reforms to the Patents County Court (PCC) [involving] streamlined procedures, a fixed scale of recoverable costs capped at £50,000 and a damages cap of £500,000. The costs cap in particular is designed to provide certainty to SMEs worried about a large costs award against them should they lose against a well funded opponent. Streamlined procedures aim to keep all costs down.

8.63 Although some submissions to the Review express scepticism as to whether the PCC reforms will benefit SMEs as intended, there is a strong case for seeing how these reforms work in practice – they are still being implemented – before considering further changes.

8.64 However, one issue not currently addressed by these reforms […] is a “small claims” track for low value IP claims. These are cases where the claimant is sometimes more concerned with discouraging future infringement than with the monetary value of the present claim.

All this is good stuff. It’s interesting though that Hargreaves is much readier to accept that patent enforcement costs are a problem than he is to accept that the cost of getting and maintaining a patent is a problem too. Litigation may never happen; renewal fees are inescapable.

9.1 Young and innovative firms are crucial to the UK’s economic prospects. This review has sought to identify in every aspect of its work opportunities to improve the way the IP framework operates for the benefit of SMEs. These include:

• The need for a single European patent and patent court.

• Greater certainty and ease of access in licensing copyright.

• A clearer regime of copyright exceptions.

• Steps to ensure patent thickets do not hamper SME innovation.

• A better rights framework for the design sector.

• An approach to rights enforcement which fully recognises the needs of smaller companies.

No mention of getting costs down. And yet:

9.11 The Review has heard on many occasions and from a wide range of sources that the costs of IP management to SMEs are felt by many to be prohibitively high – both in terms of registering and maintaining IPR, but also in conducting (or entertaining the risk of being involved in) disputes.

“Members in the field of IP and patents […] noted that the biggest problem for SMEs concerning IP is the cost of obtaining registerable IP rights.” Federation of Small Businesses

 

This is the real McCoy, and good for the FSB.  But if cost is indeed such a concern, why is it not addressed head-on? Is this just the lip service section?

9.12 […] The average cost to an SME of applying for, maintaining and protecting a patent, was reported to be £20,700; the equivalent figure for a trade mark or design is £4,800. The mean fee paid for external advice on applying for, maintaining and protecting a patent was estimated to be £13,800; the comparable figure for a trade mark or design was £6,300.

This is highly misleading. At 6.31 the total of £20,700 is arrived at by totting up the costs of patenting in just three countries – UK, Germany and USA. The 20-year average cost of effective international patenting (that is, in perhaps many additional countries) will be very much higher. The figure for ‘external advice’ is thus also likely to be much higher. But whatever the cost, the figure does show up the huge disparity between patent and other IPR costs.

9.13 Among surveyed SMEs who had withdrawn, or considered but not launched, an application for registered rights, cost was given as the reason by three in ten (28 per cent). That the costs of obtaining or maintaining IP protection are a significant issue is also acknowledged by practitioners. In its submission to the Call for Evidence, the Chartered Institute of Patent Attorneys notes that “many practitioners have experience of … businesses not being able to continue with [patent] protection because of shortage of funding”.

That’s a lot of SMEs who can’t afford to protect their IP. If private inventors were included in the survey, the toll might be much higher. That’s a poor state of affairs in an economy that needs to accelerate its rate of innovation and SME formation. The outlook will get even worse if Hargreaves’ enthusiasm for higher patent renewal fees comes to pass. And CIPA’s recognition of the cost problem tends to knock a large hole in its assertion at 6.3 that there isn’t much wrong with the patent system.

Possible Action

9.14 The picture painted by this evidence is not one which amounts to a crisis, but there is clear scope for improvement. During the course of the Review we have heard a number of ideas as to how this might be achieved. These include:

• encouraging larger firms with IP competence to buddy smaller ones;

• action by the IPO to provide paid for advice as a commercial service, and/or to accredit lower cost providers of integrated IP business advice, following models elsewhere in the legal world, where paralegal services are offered by individuals less qualified than full scale patent attorneys;

• adjustments to the Government’s broader business support offering better to meet IP needs, including in the devolved administrations;

• overhaul of the IPO’s online engagement.

None of this does more than scratch at the surface. Get costs out of the patent system. And get them out in a big way. Until that happens, nothing will change.


Finale

 

And that’s it. My overall impression is that the review is too dominated by the input of large companies, academics and professional bodies. One longs to hear the authentic voices of individuals and small firms with their futures on the line because they’re lumbered with a patent system that works pretty well for itself, but hardly at all for them.

In terms of patents (remember, most of the review focuses on copyright) it’s difficult to see where anything goes from here. Hargreaves says nothing that will rock the patent system to its core, so apart from a few minor tweaks it’s most likely to carry on in its own sweet, expensive and ineffective way.

And if it’s meant to encourage innovation and enterprise, and strengthen the position of inventive individuals and very small companies, forget it. With few exceptions, patents only work for big companies who can afford them. Until someone comes along with much more radical solutions to the problems of SMEs and inventors, that’s the way it will stay.

 

2 Comments

  • 23 May 2011 | Permalink |

    I was a voice (OK as my Business Name MAS Design Products Ltd.) And I’m a bit annoyed that my evidence was not mentioned. I talked about experiences of having ‘fully paid up Patent’s’ yet products are still being ripped off by Chinese, (state sponsored ?) companies, I stressed the excessive costs and all the noses in the trough, feeding off inventors, and even giving poor / self serving advice.

    I strongly plugged your accurate and realistic “Patenting Your Invention – the Ugly Truth” .. was telephone interviewed at length .. and really tried my best to make clear and well evidenced case.

    But: alas little / non of my messages [which mirror yours] made it into the final cut.

    Apart from this I was too totally underwhelmed by the report (I did read it all) .. they guy seems to be a total jobsworth, without an ounce of spine, creativity or vision .. “re-arranging the deck chairs” is being generous ! It just read like a typical academic paper – read by no-one, with the only justification being to make up the ‘published papers numbers’ to continue to get [our] education funding.

    Thanks for the summary Graham – would have saved me a lengthy read – you picked up the few morsels that would apply to inventors / designers and all SME’s

    best
    mark sanders
    mas-design.com

  • 27 May 2011 | Permalink |

    Hi Graham

    First my SME evidence is listed (Allvoice) but several submissions that the SME Innovation Alliance produced are not. We also want to know how he can survey SMEs in innovation when Government has told us that no such list exists (under an FOI request). Letters are currently flying to and from Government about these points given that we now represent a good many SMEs working in innovation.

    I, like you, found nothing to cheer in Hargreaves but then wasn’t expecting anything as SMEs were also excluded from the panel which, according to an email I have from Baroness Wilcox, were appointed to “support” the team of ten UKIPO officers “independently” reviewing themselves. I’ll be posting some more points over time on our web-site but the Daily Telegraph has already picked up on one of our complaints.

    http://www.telegraph.co.uk/finance/businessclub/8530589/UK-IPO-in-no-place-to-offer-paid-for-advisory-service.html

    Keep posting
    John Mitchell
    Chairman – SME Innovation Alliance