Oral evidence: The Digital Economy, HC 571Tuesday 15 December2015
Oral evidence, 15 December 2015.
Witnesses
Dominic Young, Chief Executive Officer, the Copyright Hub Foundation, and Richard Mollet, Chair, Alliance for Intellectual Property, gave evidence.
Chair
Good morning, gentlemen. For the purposes of the record, could you say who you are and where you come from?
Dominic Young
I am Dominic Young, and I am the CEO of the Copyright Hub Foundation.
Richard Mollet
Richard Mollet, chair of the Alliance for Intellectual Property but also Chief Executive of the Publishers Association.
Chair
Richard, I start with you, but I think this is something for Dominic as well. How can IP and copyright keep up with digitisation and globalisation?
Richard Mollet
It is important to have a framework of laws and rules that are sufficiently flexible that, whatever technology comes along, they are able to cope with it. That is broadly what we have. It is a regular criticism of the IP framework by people who are anti‑copyright to say, “The last legislation was 1988 and look what has come along since then. It must be out of date,” to which I think the response is, “Yes, and yet it has coped with and has brought to the market Spotify and Kindle and Netflix,” and a number of the services you were talking about with the previous panel. We have that flexibility within copyright law to say it almost is technology neutral. If you are a creator and you have the ability and the exclusive right to determine how your work is reproduced and distributed and made available, and you can authorise somebody else to do that for you, be that a record company or a music publisher or a games publisher, it really does not matter if it ends up as a physical book on a shelf, or as a stream, or as any number of things, some of which we probably cannot even envisage yet. The framework is there and it allows copyright to work, and it allows the creative industries to work. Conversely, the threat to that is perhaps when legislators in the European Union, as you discussed just now, might come along and say, “We need to cope with the 21st century and digital. Therefore, we had better sweep away the old laws and bring in some new ones,” ignoring the fact that actually the current laws are doing a good job.
Chair
But do you not worry that value is leaching away from you, given technology and given the skills? Whereas 30 years ago, I could tape the top 40 from Radio 1 on a cassette, now I can copy Adele and send it to millions of people. You must worry about that across various sectors.
Richard Mollet
Absolutely, we do worry. I said the IP framework should be flexible. The other bit I would add is it also needs to be robust. Within the framework there need to be ways of rights holders acting against people who infringe their copyright. That could either be bringing criminal cases where people are making money out of that sort of activity, or just having the ability to, for instance, go to the High Court and block infringing websites, or have the ability to use technical methods like notice and takedown, which was discussed earlier. Absolutely, the copyright infringement is a threat, but I would say it has always been a threat. Since Gutenberg people have been knocking off printed copies. People have been using photocopiers to infringe copyright. In the digital age, people are using internet services to knock off works and to deprive creators and companies of money. Provided we have got the framework that is flexible and robust, we will be able to act. I am sure we will come on to discuss ways Government, and industry indeed, can be doing more to tackle infringement.
Dominic Young
The founding thought behind what the Copyright Hub is doing is not that legislation has failed to meet the challenge of technology but technology has failed to meet the challenge of technology. The technology has improved to make copying easier, but the underlying process that copyright law demands, which is that you get permission first, has not sufficiently updated to meet the very large-scale and automatic method by which that happens. Everybody here who creates something has the freedom that copyright gives them to decide what happens to their work. If we can develop a technology that can be given away to everybody to whom copyright is given, and if the technology exists such that they can actually use that freedom in a way that benefits them, however they might choose, we will have created a foundation on which a lot of the current difficulties and failures that we see in the market, but by no means all of them, can begin to be addressed. The Copyright Hub technology is really focused on a very small thing, which is allowing someone who discovers content to discover who owns the content and to be able to get the permission or not in a way that is as simple, cheap and automatic as the discovery of the content itself. The ways that can be applied, which I am sure we will talk to more, do address, at scale, lots of the challenges that we have heard about in the previous panel and that we all think about a lot.
Chair
May I move to Europe and the digital single market? Richard, I was struck by your evidence talking about clarity and the UK Government’s position. Could you tell us what clarity looks like in order to make sure that content providers are adequately protected? What are the asks that you require from the Government?
Richard Mollet
We have been on a bit of a journey with the British Government on this, and I am happy to say now we are in a place where the creative industries are broadly aligned with what the Government is doing. You have to go back—what is it, 18 months?—to when the Commission first said it was going to have a strategy on the digital single market. It did not really say precisely what it meant other than this will be a good thing and it will benefit all of us. You think, “That is a good ambition.” We can all sign up to that. Certainly, British creative industries definitely sign up to it. We are all digital and we are all international. As we have got further down that process and we have seen more statutory language from the Commission, it has become clearer that they are not very precise. Last week, on the issue of portability—the ability of a Sky subscriber to go to France and still be able to access their Sky subscription while abroad—the Commission said, “We are going to make that mandatory for people who are temporarily in another member state,” without saying what they meant by temporarily. We might understand by that a two‑week holiday or an overnight business trip, but it could mean working in Brussels for three years. It is that sort of thing: when you say temporary, what do you mean? In the field of text mining of academic content, when you want public interest research organisations to be able to do that, it is great if you just mean universities, and that is permitted under UK law and it works very well, but is a large pharma company a public interest research organisation? It might be. Again, we need the clarity of what is being intended. It could either be something that is very beneficial, both universities and publishers and researchers, or something that would just take money from the publishing sector and put it into big pharma. Our message to Government at the moment, now we have got down to these quite detailed proposals, is: “Please press through the Commission and all avenues we have to find out what this language is.”
Chair
Is the UK Government doing enough in Brussels in order to push creative industries’ case?
Richard Mollet
I think it is. As I said, in the past there were sometimes disjointed messages. Indeed, people from a predecessor Committee to this and in the last Parliament went over to Brussels with the Alliance for Intellectual Property. We met with officials over there who were giving a slightly different message, or a very different message in some cases, to the one that the UK Government was giving back home. I know you are hearing from the Minister next. I am happy to say that disjuncture seems to have gone. Now when we do go to Brussels, as we do regularly, there is a consistent voice coming from the British Government. It is one that says the British creative industries are important. In the same way that the Treasury does not have any problem going over to Brussels and fighting for the British financial services sector against various regulations—and so it should—we have been keen to say, “You should have the same point of view for the creative industries.” We are worth £77 billion to the economy. I think we are now getting that strong message.
Chair
Dominic, can I pass to you? In terms of the Copyright Hub, it is relatively early days in terms of your set up, but what impact are you having? What lessons can be learned in terms of how this can be disseminated further to ensure that copyright and making sure that people have permission is considered the norm rather than the exception?
Dominic Young
The Copyright Hub has got past its first really critical milestone, which is proving that the idea of this capability to automate the process of copyright is realistic. Working with the Digital Catapult, and thanks to the money that the Government has put into the Digital Catapult, we have reached the point of having technology that works. We have already launched seven real services based on this—six of them based on photography, one based on audio‑visual—where people who discover content online can immediately link back to licensing permission and other information about it. That has been proved to work. The big challenge for the Copyright Hub is building critical mass. It is getting more implementations such that, for any ordinary user, it is relevant. That requires it to grow at much larger scale. Our big challenge right now is having sufficient resource, both from the industry and from public sources, to help get more of those use cases out into the market and making money. As soon as they are making money and producing other forms of benefit for rights owners, because this technology will be open source, we will start to see other service providers helping build that critical mass. In fact, we already have. There are already three service providers in the market helping people to implement the Copyright Hub, so we are seeing the ball starting to roll now. We really need much more momentum. We need to regard the Copyright Hub as a form of digital public infrastructure; it is something that is for everybody and that benefits the whole economy, all creators and actually all disruptive innovators, too. Disruptive innovators can take the output of creators and, in a very low‑friction way, put them to work to help them make better products that people like more, which is really what media companies have always done. They have taken the output of creators, made them into products that people like, and when those products are popular, they are successful. If we can translate some of those learnings into the digital space and create incentives for people to work together, we will start to see a really positive and value‑creating form of disruption happening.
Chair
You mentioned support from industry and support from the Government. Are you getting adequate support from both?
Dominic Young
In this current foundation phase of the Hub, we have had about £0.75 million of support from industry, at the riskiest time, when the Copyright Hub was just an idea and was yet to turn into reality. We have had about £1.2 million of expenditure from the Digital Catapult in that time, and countless more in kind from the industry. The industry contribution is now shifting towards implementation and we want that to happen. We want them to put more of their resource into actually implementing Copyright Hub use cases. We have made a proposal to the Government that some more public money could be contributed. They have contributed a small amount now and they are working on a business case, after which they will make a decision on possibly contributing more. We have had good support from the industry and the Government and it has been a good partnership, but the challenge now is to really accelerate, and that is an immediate challenge that we are focusing all our energies on.
Paul Blomfield
I really wanted to pursue a little further the point you were making, Chair, in terms of the support from the Government. You describe very well, Dominic, what needs to be done, but is there more that the Government could do? You say you are getting a bit of funding but, in terms of engagement with the objectives you were describing a moment ago, is the funding sufficient? Are there other ways in which the Government can be supportive?
Dominic Young
I would love to have more funding available. This has come as a surprise to me given that my background is purely commercial, but I am a real believer in this being looked at as a public good and a piece of public infrastructure. When the basic capabilities that underpin an entire sector are closed, proprietary and belong to a single owner, that does not lead to the best outcomes for the market or does not necessarily lead to the best outcomes for the market. Creating a plural competitive market is made a lot easier if there is a level playing field, everything is interoperable and the basic technology is something that can be implemented widely. I would love to have more resource for a short time to help us build that critical mass more quickly. The message of the Copyright Hub is very well received wherever we go, including in other countries. It is widely acknowledged to be one of the most innovative programmes that has happened in this area. Lots of legislators hear a lot from people about what is wrong with copyright and the way it works, and this is something that the UK is saying is a practical way of addressing that that we can give to the market and give the market both an opportunity and a challenge. We hear from colleagues in Europe and from colleagues in places like WIPO in other countries as well that they would very much like this to grow to the point where it can be adopted globally. We are right on that cusp, so more resource from the industry, from the Government and from other Governments is something that we would absolutely like and the sooner, the better, but I would not want to say that the Government have been unsupportive. Without the Government and without the Hargreaves review, which this came from, this would not exist. The UK should pat itself on the back for doing something really practical and meaningful in this area, which can benefit the global economy and the British economy in particular, because we punch above our weight in the creative industries globally.
Paul Blomfield
Richard, you are nodding. Is there something you want to say to supplement that?
Richard Mollett
Totally, and it is nodding because I agree entirely with what Dominic has said, but I would also say that the Copyright Hub is just one bit of what the Government can and are doing to support copyright more broadly. Other parts of the jigsaw are the investment it is putting into tackling infringement through the Police Intellectual Property Crime Unit, the money it is putting into researching infringement online through Ofcom, and the money it has put into the BPI, the British record industry, and the Motion Picture campaign of Creative Content UK, which is around education around copyright. We would always want more and our key message to Government is to maintain the level of investment engagement and, if you can, dial it up a bit, but there are a lot of things going on.
Paul Blomfield
Are there any tricks that Government are missing? Are there areas where it is not so much about just more money but there is potential for initiatives that would be supportive?
Richard Mollett
None spring to mind, which is probably a failure of my imagination. Certainly, when we discuss the Alliance with our European colleagues, I am always quite surprised that we do, in the UK, seem to be quite a way ahead in a lot of these things. As Dominic said, the Copyright Hub is unique in the world and the work with PIPCU is close to unique in Europe. There is nothing exactly like it. As far as we can, there is a lot going on. The one area where the Government have said they are going to do something but are failing to live up to it is around search. This was something you discussed with the panel earlier. More pressure does need to be brought to bear on search engines, so that it is not so easy to find infringing content on the front page of major search engines or it is not so easy to be guided to it by suggested search terms. This is something that the Conservative party had in its manifesto; it said it was going to do something about it. There are working groups and panels convened to talk about it but, as yet, we have not seen anything concrete. That would be one area where a trick is not being fully done.
Paul Blomfield
Is there more that can be done with illegal sites, as we were hearing in the earlier session, re‑establishing themselves with different URLs?
Richard Mollett
That is a huge problem indeed. As was said earlier, whilst you can take down the URL to one infringing bit of content, the whole domain is still there blurting out other URLs. One of the ways around that—it is a very expensive way—is for rights holders to go the High Court and have those websites blocked. A number of the Alliance members—the Premier League, Motion Picture, BPI and the Publishers Association—have gone to the High Court and got those orders. There are now over 100 websites that have been blocked to UK ISPs, but that is a very expensive way of going about it. We would rather see, when you have those domains that have been called out by the High Court, that search engine saying, “We take that from the High Court and therefore we will not return those on our natural search results, or at least demote them, so that they are not on the front three pages.” That would be a huge help; but, unfortunately, that idea meets resistance from the search engines. They say, “If you want us to block them, take us to the High Court,” which would be an expensive thing to do.
Dominic Young
I might add that the Copyright Hub is very much about licensing legitimate use, but one of the consequences of the Copyright Hub implemented at scale is that it is very easy for a machine, any system including a search engine, to discover whether a particular use of content is or is not licensed. Once that capability is widespread, it might change the flavour of that discussion and debate around illegal content and around safe harbour, and it might open up the possibility of continuing to limit the risk service providers might be subject to from unknowing infringement, but make it much easier for them to know and therefore narrow the need for such a broad acceptance. We can make a contribution to the smooth functioning of the machinery and the policy can be looked at, in that regard, once we have reached scale.
Chair
Just following on from what Paul was saying, Richard, you mentioned the Government’s manifesto commitment, and there was an excellent Culture, Media and Sport Select Committee report, in the last Parliament, about the creative industries, talking about search engines and being much more proactive. That manifesto commitment is ensuring that search engines do not link to the worst offending sites. There is a voluntary roundtable, or gentlemen’s agreement, for want of a better term, at the moment. Is that good enough? What else do you need to see?
Richard Mollett
As I just said to Mr Blomfield, I am not sure it is good enough, unfortunately. I do not want to paint Google to be the unalloyed bad guys in this. They have come a very long way in the last five years and they have made some differences to the way they return search results. It is not as bad as it was, yet this problem does remain. Those working group conversations are ongoing. The Government have said in the past that it will move to legislation if needs be. Now, that is probably worth an inquiry all of its own as to what that legislation would look like.
Chair
You think the time is now.
Richard Mollett
I would rather see a gentlemen’s agreement, as you say. Let us see a memorandum of understanding or something between the search engines and rights holders, such that you did not need legislation, because it can be a clunky tool. As I said in my first response, it is much better to have a flexible bit of legislation that copes with anything, rather than something that goes very specifically to one problem. I think a good analogy here is with the internet service providers. Back in 2010, when the Digital Economy Act was going through, it was the ISPs that were under pressure. We were saying to Government as rights holders, “We need some way of getting ISPs to tell their subscribers not to infringe.” The Digital Economy Act came in, but was never given full effect. Now there is a voluntary agreement going on, again between the BPI, the MPA and the major ISPs, such that there will be a system of voluntary notifications to ISP subscribers who are caught to be on infringing sites. We have come to a voluntary solution there and it would be great if search engines could do something similar.
Chair
Could I turn to copyright exceptions and the wider IP Act of 2014? Are they bedding in well? Is the industry happy with them?
Richard Mollett
Jane on the previous panel could have given you a direct answer to one of those, because part of the exceptions that came in was a new law on private copying of music, which was subsequently found to be illegal. UK Music brought a judicial review against the Government and won, so one of those changes has not bedded in at all; in fact, it has been thrown out. Another of the major changes was around data and text mining, which affects academic publishers. We said at the time that you do not need an exception, because the market is doing this already; people are being granted these permissions within licences. It has been difficult to see the effect of the legislation, because what it was giving effect to was happening anyway. Elsewhere, around parody and education, they were quite minimal changes, so it would have been surprising to see a huge blip up in activity or a blip down. They had been absorbed into the everyday working life of the sector.
Chair
I do not want to put words in your mouth but, in the main, the IP Act does not really contribute to the existing framework. I am trying to get a sense from both of you of whether the current regime we have in this country is a) world class and b) fit for purpose in the modern age.
Richard Mollett
I do not know if it is world class but, broadly speaking, it is fit for purpose. What came in, in the Act last year, following from the Government review, were some necessary tweaks. It was a bit daft that a teacher was not infringing copyright if they wrote with chalk on an old‑fashioned blackboard, but was infringing copyright if they put that on a whiteboard. That was just silly, and that tweak was made and life goes on. It is that flexibility I was talking about that has allowed that to happen. World class, I do not know, but there is certainly no appetite and desire from any of our members in the Alliance to see a grand review of IP. There is no idea that we need to change everything to cope with digital. We need tougher enforcement, but not new rules.
Chair
Dominic, are we world class?
Dominic Young
My personal observation is that copyright has done a fantastically good job of incentivising creators and creativity. The UK has done a fantastically good job of turning that into really meaningful growth businesses so, on that front, IP has done a very good job. The UK has, almost uniquely, started to think about the mechanisms as well as the law and has started to do really positive things to change that, which are capable of having an impact globally. That can turn the entirety of the IP regime, both the law and the practice of it, into something that is a considerably bigger asset for the UK and is absolutely world leading and world class. I went to an event where somebody from WIPO said that they thought the future of IP law globally was as much about partnerships as it was about treaties and laws. I think that is right. The UK, by working in collaboration with the industry in the way that it has done, is going to have a much bigger and more immediate impact than simply reviewing the laws the whole time. I would agree that the framework, by and large, has done a pretty good job and there are no major flaws in it that I think need to be addressed.
Chair
Could we be doing more in making sure that that leadership in IP is translated into negotiations for the digital single market? Should the UK be leading the EU on this?
Dominic Young
The copyright hub is not a lobbying organisation, but we do go to Europe and we do brief the Commission and MEPs on what we are doing. In any review of copyright, where there is an attempt to address a problem through the legislative framework, it is very useful to know the actual capabilities that are emerging in the market and that, if the market succeeds in adopting them, will make that problem one that is less urgently required to be addressed through legislation. In that context, although we simply went to Europe a couple of times to show people things, the recent communication mentioned hubs and identifiers as being something that the European Commission wants to support and wants to see adopted more widely. I certainly think we are succeeding in making them aware of the extent to which we are hoping to and trying to change the landscape for the better.
Richard Mollett
I would agree with that. The UK is in a funny place in that it is one of the leading creative economies in Europe, in many cases the leading economy, together with Germany, France, Spain and a couple of others. We really are the drivers of this and that does give us, I sense, though it is difficult to be precise, a much stronger voice around the table, but of course we are one of 28 member states. There is of course other stuff going on in Europe. The Government have sometimes been quite direct with us, and gratifyingly direct, and said, “Look, we are out there fighting for you on the digital single market and creative economy, but do not forget that we have this raft of other issues as well, from agriculture to finance.” When push comes to shove, trading goes on. At this current stage, we are supportive and think we are working well with Government on this, but of course the picture becomes messier the further into it one goes.
Chair
Gentlemen, I am getting a strong sense from you that the current regime is flexible enough and adequate enough to cope with the digital economy and disruptive technology that we do not yet know. What about enforcement? Richard, you have touched upon enforcement a number of times. Are we doing enough in respect of enforcement on this?
Richard Mollett
I would say only just, and it is a skin‑of‑the‑teeth job. We are very grateful that the IPO put funding into the City of London police to set up the IP Crime Unit back in 2013, and it has pledged funding through to 2017, with a sum of £5.6 million by the end of it, which is great. We do not know what happens after 2017. We hope that there will be continued funding, but that unit has been a fantastic way of bringing the online fraud detection capabilities of the City of London police to bear on IP fraud. It has had a number of successes around both websites with digital material but also websites dealing in physical material—in other words, buying counterfeit goods. That has been great, but it would be even better if we knew that there was long‑term sustainable funding there and even better if there was more funding. Again, the Government have been supportive when it comes to the IP Crime Group, which brings together different parts of government to talk with the industry. It would be great if the Home Office took a more active part in that and if we regularly had the Home Office at that table, so that we were not just getting the IPOs’ view but law enforcement’s as well. I think our message is that what is going on is great, but we need a continued commitment to that engagement and investment. Of course, at a time when every pound of Government spending is rightly under scrutiny, we think there is a very strong case for Government to maintain that. First of all, it is the first duty of the state to uphold the laws, and when copyright infringement happens, some law is being broken. Also, it is good for the economy: if you stop creative industries having their rights infringed, it is better for the economy as well.
Chair
How can IP move forwards in the face of unknown technological challenges? Is it incorporating technology to deal with technology, or is it more regulation, Dominic?
Dominic Young
The Copyright Hub aims to make legitimate activity easier and lower friction. As that becomes more the norm, it shines a spotlight and creates a greater contrast with activity that is illegitimate and that damages the market, and that should be an ongoing area for scrutiny by the Government. There is a particular issue about the law as it stands; there is a provision within the law that makes it illegal to remove rights management information from content, in which I would include identifiers, which is what the Copyright Hub seeks to put on content. A very large number of very large platforms and other processes currently remove them, so the ability of content to retain its connection to its owner is wiped by the process. Now, that is something which, in the much shorter term, if it could be addressed in a more practical way as the Copyright Hub builds, will make the major platforms not just enablers of this environment but participants, too, because they will then be part of a value chain in which they can increase and add value, and participate in that value. In the very short term, there is a specific issue around the removal of identifiers that needs a bit more focus, now that we are putting them out there in much larger numbers. As the legitimate marketplace grows, there needs to be an increasing focus on the remains of the illegitimate marketplace and trying to manage that.
Richard Mollett
One other leg that we have not really touched on in this is education. Traditionally in the IP sector, you say that there are three ways of dealing with infringement: you need the hard enforcement, you need the legal services of the sort that Copyright Hub is going to promote, but you also need education about the importance of IP. Again, this is an area where the Government are starting to do more. There is the Cracking Ideas website, which the IPO has launched, which is a fantastic way of making IP accessible. We are developing a hub of copyright resources or intellectual property resources, so if teachers in schools want to teach about IP in a way that is accessible but have not quite got the material, there is a hub that the IPO is hosting, so that they can go and get film‑based or literary‑based content to teach their students about IP. There is a lot that the industry is doing as well, with the Industry Trust in film and what the Publishers Association do with World Book Day and many other things. The more we can get people to understand that infringement is wrong, harms creators and deprives you of future job opportunities if you want to work in these sectors, the more successful we will be. Ofcom does a regular study on this, and actually only 6% of UK internet users exclusively get illegal content from illegal sites; 18% of internet users will routinely get some illegal and some legal, so this is a huge problem but, just to put it back into scale, those are manageable numbers that we can keep working on through those three arms.
Chair
Richard, I think this is a question for you, rather than for Dominic. The previous panel talked about concentration of market power and a monopolistic situation. Do you worry about that in respect of IP?
Richard Mollett
Yes, definitely. You heard from the previous panel the two most egregious cases of that with Amazon in the publishing sector where, as was said, there was a DG Competition inquiry, and also with regard to YouTube and music where, as Jane Dyball said, there is a lot of pressure on music companies to license to YouTube, because there is no other show in town. That distorts the market. They are the only way on to the internet; you have to take the deal or you are not on there. It is similar with Amazon. There seems to be a tendency, at least in those two sectors, for market concentration to work against certainly the interest of the smaller companies. Larger publishers, larger record companies and music labels might have the wherewithal to stand up to that sort of market power; the smaller guys certainly do not.
Chair
What can government, UK Government and at European level, do about this?
Richard Mollett
They have to do what they are doing, certainly in the case of publishing, which is to have a proper inquiry. There is a full‑on investigation going with the due legal process. That is all we can expect the authorities to do. If they find that there is something wrong, they have powers at their disposal to correct it. If there is nothing going wrong, fine, but at least we will know.
Chair
That is excellent. Thank you very much, gentlemen. We appreciate your time. Examination of Witnesses
Witnesses
Baroness Neville-Rolfe DBE CMG, Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills, and Minister for Intellectual Property, and John Alty, Chief Executive Officer, Intellectual Property Office, gave evidence.
Chair
Minister, thank you very much for joining us. For the purposes of the record, could you introduce yourself and maybe introduce John as well?
Baroness Neville-Rolfe
Thank you, Mr Chairman. It is a privilege to appear before you for the very first time. I am the Minister for Intellectual Property and for the single market. I also represent the UK in the Competitiveness Council. Since May, I have also been a Minister at DCMS as well as BIS, so I lead on BIS and DCMS issues in the House of Lords, which include, for example, the third reading of the Enterprise Bill this afternoon, which I hope will be coming safely your way, shortly.
John Alty
I am John Alty. I am the Chief Executive of the Intellectual Property Office.
Chair
Minister, it is a pleasure to have you here for the first time. Welcome. I hope it is the first of many—not too many, but many. I read your speech in the East India Club last week and it is an excellent speech. I was particularly struck by a specific phrase and, given your experience in business, I would like you to talk a little bit about it. You said, “My quite extensive experience of business is that they often”—“they” being companies—“struggle with dealing fast enough with their legacy businesses hurt by new technology.” Could you explain what businesses could do more of in order to embrace the digital age?
Baroness Neville-Rolfe
There is a whole range of things that businesses can do to cope with the digital age, not particularly in the area of IP, but in thinking how this great opportunity of the internet provides new sources of customers, new locations where you can sell and new opportunities to do things in the digital world—streaming and so on. Obviously, it is very big in the creative industries; however, what I was saying in that comment was that there are quite a lot of start‑ups, scale‑ups and even existing big businesses in the areas that I have dealt with—professional services, retail and media companies—that are quite good at getting on with that sort of commercial opportunity, but sometimes, the passion for new growth means they do not spend enough time on thinking about how to adjust the legacy business. You can see this in supermarkets where there has been a change in retail and more of a move to the internet and other changes in terms of smaller convenience stores coming through. You can see that in media companies, where you have the classic sale of films and so on, and then now there is more streaming. There has been a total change in the music industry away from tapes and CDs, and now on to iTunes and the equivalents. That changes the world. The comment I was making was that to be successful in business you need to look at both.
Chair
What is the role of Government? Is this just a matter of the market? Successful businesses will adapt to changing times, and companies that fail have failed to adapt. Should the Government intervene to try to help as much as possible?
Baroness Neville-Rolfe
I am always a little bit wary of regulation, particularly in fast‑moving areas, because sometimes you can get it wrong, have perverse effects and slow down the innovation that is good for the consumer. If you take the area that we are talking about today, intellectual property, obviously the change in the internet world has been a huge force for us to reconsider things. You will know from our note that, in 2011, we initiated a review under Professor Hargreaves to look at copyright, but also other parts of IP, in the changing world. One of the biggest drivers for that was obviously digital, and then, as a result, we have come along and, over the last three or four years, have changed a number of things in copyright law. The next chapter is the digital single market, where Brussels has made proposals, which we will obviously be engaging in over the next couple of years. I hope that answers your question.
Chair
The Committee might want to talk a little bit about the digital single market in a moment, but we have heard that the IP regime is more or less fit for purpose. What is your assessment of whether intellectual property, as it currently stands, can withstand unknown technological and digital challenges?
Baroness Neville-Rolfe
We hope it is fit for purpose. We have spent a lot of time trying to make it anticipate technological change and make it flexible, in all of the areas that we deal with, so that is patents, designs, brands, copyright, commercial secrets, and brands and trademarks; one is the reciprocal of the other. I think the work that has been done to change the regime in the UK has been good—for example, exemptions for research and more digitalisation of process, which I am sure Mr Alty can talk about. I believe that we need to take advantage of the single market and that we do not yet have a single market for digital in quite the same way that we do for goods. My feeling is, having worked on that single market—the single market for goods—that it brought a lot of economic and other benefits to the UK, and indeed to the community as a whole, so there is work to do there. Broadly speaking, we are fit for purpose where we have got to, as a result of the good reforms and stakeholder engagement, but there is an opportunity at EU level, which we will have to engage in, in the usual way.
Chair
Let me just press you before I move on. In that East India speech last week, you said that “the IP framework will need to be reviewed and refreshed from time to time”. Will industry groan at that and say, “Not another review that causes uncertainty.”?
Baroness Neville-Rolfe
Industry is ambivalent, because sometimes they do not want change; they want certainty. Being an ex‑businessperson, I emphasise with that. Equally, if there is a regulatory regime that is holding up their ability to make progress and compete with Asia, the United States and so on, they are up for it.
Chair
Could you give us an example of that?
Baroness Neville-Rolfe
If you took the digital single market, there is a proposal about portability. This is to allow you to take content that you have subscribed to, say Netflix or Sky, on holiday with you. You go on holiday to Spain; you can take that with you. That allows you an opportunity across the market that we cannot achieve voluntarily, although voluntary options are always ones that one should look at. That makes it easier for the EU to compete with China and with the US, where they have very big market opportunities. If you are in business, the scale of market opportunity can enable you to build good, powerful businesses. Obviously, we have a very strong creative industry. I know that is dealt with by another Committee, but it is a very important part of business in this country. It is growing very strongly. It is actually a totemic success for Britain and we want to make sure that the regulatory regime does not cut across that.
Richard Fuller
Mr Alty, in the evidence that you have provided, you have talked a little about the protections in the UK and the IP Crime Unit. The statistics, you said, are that they seized £3 million worth of fake goods, arrested 50 people and suspended over 6,000 websites. Should we read that as there being a significant amount of crime that needs policing, or is it not that significant but we are doing a good job?
John Alty
It was a new unit set up just a couple of years ago, so it did respond to a feeling that not enough was being done in this area and that this was a priority. We do need to work across the piece. The IP Crime Unit in the City of London police is very important, but we need to work across the country. We work with trading standards, and that unit itself, with us, needs to engage across the country, not just in London. I think that these are still relatively early days. It has been pretty successful, but there is a significant problem to get to grips with and that is why we set it up.
Richard Fuller
Just to probe you a bit more on that, would you say that this is an area of criminal activity that we are just getting started on identifying? Are these statistics the tip of a very large iceberg, or would you say that we now have the measure of it and know what it is?
John Alty
We are doing work to try to measure—for instance, in relation to advertising on infringing websites—what the scale of the problem is. We are tackling some of the worst areas, but I would not say that we have it completely under control, no. There is still work to be done.
Richard Fuller
In an earlier session, the newspapers were talking about scraping by Google and their content being taken. Is that a digital crime? Should it be a digital crime?
John Alty
At the moment, the regulatory regime allows the use of links to newspaper content and so forth. There is a debate about that and I suspect it will be looked at in the European debate that the Minister referred to. There is always a balance between enabling greater accessibility and enabling consumers to see things on a wider scale, and protecting the rights of creative industries. For that sort of thing, we will need to see where we get to in Europe.
Richard Fuller
Minister, Mr Alty just referenced that, on issues to do with that, we pass the buck up to the European Union, which sounds quite right. It is good to have a digital single market. Again, in an early session, there was some comment that the European Union comprises, in looking at this, both producers and consumers. The United Kingdom has a comparative advantage in digital products and, therefore, we are a little more pro the producers of that IP than the consumers of it. Are there risks for the United Kingdom from this review, at a European level?
Baroness Neville-Rolfe
Any European review has risks and opportunities. It is our job as the Government to try to make sure that the opportunities are realised, the risks are tackled and we build like‑minded states to make sure that we get the right results. I am very clear that the consumer benefits of the digital single market are extremely important. On the point that you were making about enforcement, we need to do both. We need to do enforcement in the UK, which is why we have given more money to PIPCU. We have something called the IP Crime Group, which does an annual report, which is much envied overseas, because we bring together everybody from customs to brand owners. They have a plan and they look at enforcement every year. One of the digital single market’s bits of package is to look at enforcement, so they are bringing out a proposal on that. I think the issue of principle is about legitimacy, because I have been focusing a lot on enforcement ever since I took over. It is all very well to have the right regime but, if it is not implemented, the regulations are not so useful. You have a problem about people being able to get hold of legitimate copyright content. Obviously, if you can encourage legitimacy, as we are doing, for example, through the Copyright Hub, that means that people will pay and then that money will get back to creators. You need to make that easy.
Richard Fuller
I understand the value, and you quite rightly talk about protection of IP creators. Going back again to this issue that, within the European Union, we seem to have a comparative advantage, are there any examples you can explain to the Committee of where you are going and batting for Britain in those discussions, so that the strong industries we have here are not subsumed in some European diktat?
Baroness Neville-Rolfe
There are 16 headings under the digital single market. A good example would be the work that we have been doing on VAT. The VAT rules are not helpful for the small company that wants to export to Denmark because, if you export to Denmark online, you have to register for VAT, even though in the UK you only have a turnover of, say, £40,000, so are below the VAT regime. That would be a concrete example of one of the things on our list, but our attitude—I have to say my attitude—is always to think about what the British interest is here. There is an overall British interest, because we are strong in creative industries and digital. If the market were more open, we would be able to benefit from that. You might say that the others can catch up, so they will get a benefit, which I think they will, but I have found in business that, often, when you are ahead on things, you can build on that success to do more.
Richard Fuller
Just so I can feel a sense of this, the implication that I am taking from what you are saying, Minister, is that the British Government’s position is that we should be looking for a minimalist regulatory regime within the European Union, when it comes to the digital market. One of the earlier session’s participants talked about the risks of the European Union getting too involved in regulation. You yourself have just spoken about the concerns you have of regulating a fast‑moving industry. Is it a fair characterisation to say that, if you are batting for Britain on this issue, the UK Government’s position is going to be to minimise and limit regulation at a European level?
Baroness Neville-Rolfe
It is to minimise and limit regulation, especially where it hurts consumers or hurts business, but where it opens up opportunities, we can see, back to the single market of the 1980s, that there could be opportunities. I am always keen on principle‑based and often sharing of good practice. For something like digital skills, which we really need to promote, is it right to have a regulation on digital skills? No. What we need to do, and what I argue in the Competitiveness Council, is to share the good things that we are doing—for example, putting ICT coding into the primary equipment—and get others to do that. You hear good examples from elsewhere. You may have different views on Europe but, with the internet being so international, we need to engage with Europe, but actually with China. John has just come back from China. I went to China last year. I am off to the States in January, because you actually have to do these things together and understand that there are now global companies, but there is also global opportunity for our SMEs, which I care about as well.
Chair
Richard makes an important point. When you are batting for Britain, what does Britain look like? There will be an inherent tension between, say, producers and consumers. Portability is a good case study for this. I am going to go on my two‑week break to Torremolinos and I want to take my subscription to Netflix with me. That seems perfectly reasonable, but the British film and video industries might say that, actually, individual negotiations help them to monetise this creative content. With regards to portability and the temporary aspect, which Richard in the previous panel was talking about, what do British interests look like here?
Baroness Neville-Rolfe
That is a good example. When this dossier started, admittedly informally in the corridors, rather than on paper, there was a wish to move straight to a digital single market for all aspects of film, television and travelling content. We worked to encourage the Commission to come forward with something, which we also discussed with the people who would be providing it, to allow travellers to take things abroad and open up new opportunities, even for the ITVs and BBCs, in due course, rather than banning territoriality. I am with the sentiment that we need our strong film industry and our strong television industry to be able to sell rights in different markets, so that especially the smaller creators have that opportunity to try out something that might be a hit format and then, when it becomes a hit format, to sell it right across the EU and around the world. That would be an example, I feel, of where we have turned a correct sentiment to try to open things up into something that is more manageable for Britain. I have done that in conversation with stakeholders right across the board, not only the big movie people, but also the smaller groups, the libraries, the BBC, consumer groups, etc. I suppose that one also ought to mention that territorial interest is important, and I have given some evidence to the Scottish committee on some of these issues. We try to make sure, in our IP work, that we are thinking about the creative base in Scotland, Wales and Northern Ireland as well.
Craig Tracey
You have talked about enforcement quite a bit. A lot of the microbusinesses and SMEs particularly seem to really struggle. They are some of our most innovative companies, and one of the recurring themes I am getting from them is that they find it really difficult to protect their IP and understand how it works. One of the recurring themes is that, because technology moves so quickly, they utilise universities, and then overseas students who are working on their projects take the intellectual property with them. How do we enforce that, especially if it is going outside the EU? How do we work with them and encourage them to keep innovating?
Baroness Neville-Rolfe
That is an exceptionally interesting question, Mr Tracey. I am going to ask Mr Alty to comment on the specifics of education, but obviously helping small business has been one of the values that we have tried to encourage in the Intellectual Property Office and with the board that they have. We do SME audits. We try to encourage small entrepreneurs to understand the value of rights. You have seen the scandals in the music industry, where young singers have lost their rights because of charlatans and so on. We want to make sure in the work that we do—for example, in education in universities and in schools—that people understand about that.
Chair
Minister, the Charlatans are a great band. I do not think you should disparage the Charlatans.
Baroness Neville-Rolfe
That was certainly an unintended consequence of my comment. It just goes to show how careful you have to be. Mr Alty, do you want to talk a little bit about what we are doing with universities and in particular respond to this interesting question about what happens when people go back overseas? I think you are asking whether we keep the IP for UK plc.
Chair
Yes.
John Alty
I will answer that. Just to add to what you were saying about SMEs more generally, one of the major things that we have done is reform the court system for IP. We have this IP Enterprise Court, which has caps on costs and on damages awarded. Over the last two or three years, that has been increasingly used by small businesses, even, for instance, photographers who are concerned that people are stealing their photographs. That is one of the other things that we have tried to do to make it easier to enforce, particularly for SMEs, as you say. On universities and IP, generally speaking, particularly for students who are doing research, where there is a grant funding that, there would be an agreement about the IP and it would normally remain with the university. Obviously, people are free to agree different arrangements if that suits a particular case. I do not think we would regard that as a major issue. Obviously, if people break agreements and so forth, that would be a concern, but there is a framework in place that can govern IP.
Craig Tracey
I think that is the issue. It is when agreements are in place, whether for the company or the university. What is to stop the student and how do we enforce that? That issue is putting a lot of companies off actually innovating more.
John Alty
Yes. As the Minister said, we have a presence in some of the major overseas markets, like China and India, where clearly there are concerns about theft of IP. That is one of the things that we are very focused on understanding and we are trying change the systems in those countries. As I say, whether it is students or activities going on in those countries, we are concerned about it and taking steps to deal with it.
Baroness Neville-Rolfe
It is fair to say that one of the things we are looking at is how we optimise the value of our research. Obviously, we spend a lot of money on research in this country. We have a lot of ideas. We want those commercialised and we want, where possible, those to be commercialised with a UK interest. Mr Alty and his board are looking at making sure that the links with universities are optimum and that the Lambert toolkit, which I think you mentioned, which is how you do a deal in a university, is fit for purpose. It was fixed up some time ago. We should feed your example into that work, because it might throw an interesting light on some of the issues. I know, when I have been in China, that the Chinese were saying to me, “Should we give the IP to the individual students? Would that be a good incentive?” Obviously, that raises issues about team playing versus getting a great idea, going off and registering it. My interest is always in growth, innovation and success for the UK.
Paul Blomfield
Minister, a moment ago you mentioned the Intellectual Property Crime Unit. In your written evidence to us, you pointed out that they had arrested 52 people over the last two years. Do you think that 26 arrests a year reflects the extent of crime, or is it just the tip of the iceberg?
Baroness Neville-Rolfe
Mr Alty might comment.
John Alty
There is a range of different types of crime that that police unit is looking at. Some of it is about hard goods, so counterfeit goods, and that is where the arrests will often occur. My understanding is that there are some quite big criminal activities, and so targeting those is important. Obviously, there is a deterrent effect from those. There are other areas where activities are more about infringing websites and some of those are based outside the UK, but activity there has been more shutting down the connections to UK internet service providers and redirecting customers who go to view those. I suppose what I am saying is that the arrests are part of what they do, but they are only part of the activity to tackle IP crime.
Baroness Neville-Rolfe
I would add that I think big arrests with big fines or prison sentences can be totemic, and there have been some cases that we could let you have the details of, in Derbyshire, in Northamptonshire and Westminster, done by trading standards, which I thought were quite interesting when I was preparing for this. Word gets round. We are also looking, and this may come before Parliament in the fullness of time, to make sure that the penalties for online crime are at the same level. I think it is two years for online crime and 10 years for other crime, and that seemed to me to be an anomaly that we would like to do something about, once we get some parliamentary time. Mr Alty is right to emphasise the online side, because what you are seeing in crime, which I do not deal with now but used to be very interested in, is a huge switch. There is a market opportunity for the criminals as they move into online. That is why we set up PIPCU in the City of London, alongside other police forces dealing with the Mr Bigs of crime, to focus on where big money was being made. They have had some success—they were set up in only 2013—and they have also taken down 5,000 domain names. These are illegal sites. If you now go on, you get a banner saying “under investigation by PIPCU”. That seems to me a very good way of ensuring that people think this particular part of crime is perhaps less attractive than some other parts, though I agree that may not be helpful to the other areas. It is a very important area and, as the Chairman hinted, we are relatively new to really getting on top of IP crime and, frankly, it is growing fast, so we need to continue to focus on that area.
Paul Blomfield
Perhaps just following up briefly on that, both of your answers, in different ways, highlighted the need to do more. Mr Alty, you said that most of those arrests have been in relation to hard counterfeit goods.
John Alty
I would imagine so.
Paul Blomfield
Minister, you said there was probably a need for further legislation in relation to online crime. Are there other areas in which you think enforcement needs to be strengthened?
John Alty
There is a range of things we are doing, going from arrests to working on voluntary arrangements. It is the so‑called follow‑the‑money approach. In other words, we are starving infringing websites of funds, so talking to payment providers, which the police also do, and talking to advertisers. I run a group with the advertisers looking at how we can make sure that they are not sometimes inadvertently funding illegal websites. There is that aspect, which I think we are leading internationally but we certainly have not cracked. There is also the supply of counterfeits. China is the biggest source of counterfeit goods. We just launched a report last week, when I was in China, on the routes that those goods are taking, often through South East Asia. We are working not only with the Chinese but also with other countries in that area. We are doing some training—for instance, in Indonesia—and we need to work with the rest of the EU and the US. This is a global issue, so we need to work globally, as well as domestically.
Baroness Neville-Rolfe
I think you are right that it is an important strand of policy work. In working on the five‑year plan for the agency for the coming period, we have very much moved to a situation where enforcement has a higher priority and more resources. Some of it is co-ordination, because not all the powers are with the Intellectual Property Office. Last year, we had a very successful enforcement summit. I think 30 countries came from around the world and that kind of activity helps. It is this combination of having the right regulatory regimes and then making sure that the rules are enforced. Actually, that has a wider benefit, right across the business regulation areas.
Amanda Milling
Leading on from this, Minister, are there any countries that we should be looking at that are leading the way, whether it is in terms of infringement, enforcement or also education? Are there any lessons to be learned from any other countries that we should be considering?
Baroness Neville-Rolfe
I find that you can always learn from other countries, because even quite small things can be life changing. If you look at the indices, because we are very knowledge‑based in this country—I think 37% of our GDP is knowledge‑based—we have always been stronger on IP than some other countries. That is reflected in how people feel about what we are doing, both about the regulatory regime—I described the review that we started in 2011 and then brought in—and also in terms of IP crime. I think it is important to look to other regimes. I visited Singapore this year, and they are extremely helpful across South East Asia, which is a big source of counterfeits, in terms of having a good attitude to IP. They have hubs for their industry and for their financial services, which are very strong, so we have learned from them. I am off to the United States because—although the United States actually wants to hear from us about what we are doing on enforcement, because they think we have got it a bit better than they have—there are obviously going to be some excellent opportunities. I always find on the European side that talking to like‑minded countries like Denmark, Sweden and indeed Germany, particularly on enforcement, can be extremely helpful because again you get into the detail of what their companies think and what their consumers think, and you learn from that process.
John Alty
Can I add an example, picking up your point about Singapore? One of the things that we have been doing is looking at how you value IP because, if you are going to get finance for a company that does not have lots of physical assets but has IP, that can be challenging. We have worked with Singapore on that. They have done some quite interesting work. We also did a seminar earlier this year, which also involved Denmark and Malaysia, so it was quite wide ranging on that topic. The other thing that I would just mention on the US is that, as the Minister says, they take a lot of interest in what we do. We have a very shared agenda. For instance, one of the initiatives that we just took with the industry or the industry just took with us is on the Creative Content UK advertising campaign that has just begun. The US started looking at that before, so they reached an agreement between the ISPs and the creative industries probably nine months or so before we did. That was a source of interest. I certainly spoke to the US about that.
Baroness Neville-Rolfe
One other bit of good practice I would mention is our IP attachés. We have special attachés, paid for out of the IP budget, in key markets to help with our export effort. There is one in Singapore, one in China, one in Geneva, etc. The United States, to give them credit, started this.
John Alty
There is one in France.
Baroness Neville-Rolfe
I did not know that. Anyway, that would be a good example of us learning from that. If you look at their results, they actually ensure hundreds of millions of pounds of exports, by sorting out issues, for example, for our big brands trying to sell in China.
Chair
Minister, I am conscious of time, because we have BIS oral questions in the House. I have a number of quick questions. You mentioned IP attachés and you have mentioned the United States. The United States has an IP tsar championing this. Do you think we should have the same? Peter Kyle is an excellent Member of our Select Committee, and his predecessor as Hove MP was Mike Weatherley, who did so much. I wonder whether Mike would like to be IP tsar, but what is your view about whether we should have that?
Baroness Neville-Rolfe
I agree about Mike Weatherley bringing huge, terrific ideas to the feast. Obviously, he was a great mentor to me when I became a Minister last year. I am not sure we need an IP tsar. The Prime Minister asked me to be Intellectual Property Minister. I have not been moved on, as is often common with Intellectual Property Ministers. In fact, I have been given a seat in DCMS as well, and I feel passionate about campaigning for IP and making sure that it is spread right across business and that the opportunities are looked at. The US has a tsar, but it is very much on the enforcement side.
Chair
Do we not need that?
Baroness Neville-Rolfe
I do not think that we need that, but we clearly have to deliver.
Chair
Thank you. Mr Alty, in terms of the IPO’s first report supporting innovation and growth, it mentioned the importance of an industrial strategy and working in partnership between government and industry. Is the policy of the IPO still to support the importance of the industrial strategy?
John Alty
The policy of the IPO is to support BIS.
Chair
That is not what I asked.
Richard Fuller
That was a very good answer.
John Alty
You referred to our first report, which I think was done under the previous Parliament. You now have our up‑to‑date report, so that is probably the one that you should look at.
Baroness Neville-Rolfe
I would say that the industrial strategy has had a revival. The Chancellor mentioned it in his speech. As far as I am concerned, we are pushing forward on IP and other areas that I deal with in BIS.
Chair
Minister, the final question is to you. It is a big question in a small amount of time, if I may. Other panellists have mentioned the distortion of market power going down a particular route, particular platforms, which is not helping the digital economy. Do you have a view on that, in terms of making sure that we avoid monopolies when it comes to the digital economy?
Baroness Neville-Rolfe
I do, and I feel that it is very important that we have strong competition regulators, that they take their responsibilities seriously and look at these issues. We had a rather slower process in Brussels over the last five years than I would have liked. We now have Commissioner Vestager, who is a lot keener on getting ahead. She has taken the Google case to heart and is looking at that hard. She has initiated an e‑commerce study as well, and our own competition authorities are strong and well resourced. If there are issues, they should take a look at them.
Chair
Minister, Mr Alty, thank you very much for your time. We really appreciate it. Oral evidence: The Digital Economy, HC 571 20