HC Deb 24 July 2000 vol 354 cc873-80

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Allen.]

10.23 pm
Mr. Austin Mitchell (Great Grimsby)

I must express my pleasure at being able to address this enthusiastic and crowded House on the important issue of brands. That subject is much neglected, but brands are very important to the British economy. They account for £50 billion of gross production, and 400, 000 jobs depend on them.

Brands are even more important to Grimsby, which is now designated Europe's food town. It has the biggest concentration of food production and cold storage in Europe, and we are home to household names such as Captain Birds Eye, Bluecrest, Youngs Seafood—masters of the sea—and Baxters soups, with all their wonderful and delicious brands. We are the home of Lean Cuisine, Linda McCartney's menu and Harry Ramsden's batter on Ross Seafood. What is more, we have branded Grimsby fish, because fish sold in Grimsby traditionally has a quality that is very different from that of fish sold in other ports across the estuary, which shall remain nameless. Brands are extremely important, especially in the food industry. Other local brands include McCain oven-ready chips further up the coast and KitKat in York.

Brands are important to a range of consumer products and, therefore, to business competitiveness and competition. They encourage and sustain innovation, because companies are willing to invest if that investment will be protected by a brand name. Brands allow continuous improvement of products, because businesses want to maintain their bond with the consumer. Brands are about trust: the consumer comes to trust a brand that is advertised and promoted and an identity builds up between the two.

Brands both protect innovation and act as a catalyst for it. A 1998 study showed that branded businesses in the consumer products sector innovate twice as much as those that have no brands; they spend more on research and development as a percentage of sales to stimulate and develop the brand; and they extract more value from innovation in branded products. Brands are associated with market growth and profits. As shown by the market strategy report of 1998, brands provide an assurance to the consumer and a guarantee of investment.

Brands form an essential part of the modern business practice of reputation management: a business depends on its brands for its reputation. Anything that undermines a brand—for example, copycat products—undermines a company's investment, leeches off the innovation of the brand owner and weakens its competitive position. Brands are crucial to the operation of a modern economy. They are essential to advertising, which encourages demand, which boosts production, which leads to economies of scale, which reduces the price of the product and encourages and protects investment. Brands are an essential element of a competitive economy.

However, unlike patents and trademarks, brands confer inadequate protection on the investment and expertise, and on the bond with the consumer that they help to build. That protection is especially inadequate in this country compared with other European countries. To protect itself and to pursue competitors and producers of copycat products, a business has to act under the law of tort, using passing-off law dating from the 18th and 19th centuries. That law is vague and the standards of proof are perversely high. The company attempting to protect its brand has to persuade a consumer to say, "I, the consumer, am daft. In my simple-minded way, I was deceived by product Y, which I took to be brand X, and bought it by mistake." It is difficult to persuade consumers to come forward and criticise themselves.

Therefore, to protect brands under the law of tort by attacking the competitor on the grounds that it is passing-off a product as a branded product is an expensive and unsatisfying exercise that offers little prospect of success. That is why so few actions are brought. There have been some conflicts, such as between Ireland's Dunn supermarket with its St. Bernard brand and Marks & Spencer with its St. Michael brand. There was also an argument over Penguin biscuits and Puffin biscuits, which were Asda's competing version. The argument resulted in a very expensive court battle, at the end of which nothing was effectively decided. Both sides claimed victory. The headlines from Asda said, "Puffins Rule the Roost", whereas United Biscuits said "United Biscuits Wins the Battle". All that happened was that the look-alike product was given publicity.

It is particularly important that we act now to give brands better protection. We should do so, first, because of the globalisation of brands and trade. Brands are now sold on a world market and their reputation internationally is traded on. Indeed, they are traded as commodities. Secondly, better protection is important because of the increasing emphasis on intellectual property, of which brands are a part.

Thirdly, we should act now because of the coming explosion of e-commerce. More and more sales will be made on the internet. Consumers are more at risk when they do not have the opportunity to evaluate the product, and are likely to turn in e-commerce to brands that they know and trust. People want to buy in the established framework of established trust and know what they are getting. For those three reasons, brands are becoming more important and we should act now to protect them.

Action is not being taken; indeed, the matter is being shuffled around. I remember when trademark legislation was agreed by the House in 1994 that there was an attempt to include brands, which in fact are a form of trademark. The then Government said, "No, not in this Bill; the question is one of competition legislation." Yet when the Competition Bill came before the House a couple of years ago, the defenders of brands were told, "No, it is a trademark matter." So, it was dismissed on both counts and the Government had it both ways. Now, the consumer White Paper makes no mention of brands even though they are a basic tool of competition for consumer loyalties. We are therefore missing an opportunity to put the matter right, to put brands on a firmer basis and to give companies weapons to enforce brand reputation and loyalty.

I emphasise that I am not talking about brands on the balance sheet. There is a difference between the Securities and Exchange Commission recommendation that brands cannot be valued, and our own Accounting Standards Board desire for some balance-sheet evaluation. I am not in favour of lumbering the balance sheet with more and more intangibles. I remember that Captain Bob Maxwell had his brands—The Sporting Life, Daily Mirror and Sunday Mirror—valued by Coopers and Lybrand, which then audited his accounts. It therefore reported on its own figures, which was a deplorable practice.

Nor am I talking about supermarkets' own brands. They are a vital part of competition and would not be threatened by any action to protect brands. Supermarket brands are sold on the reputation of the supermarket—Sainsbury's, Asda or whatever.

Nor, finally, am I talking about parallel imports. Indeed, in some ways, I am in favour of parallel imports. I do not see why the weight of European Union legislation should be invoked to protect high-priced sales of luxury items on the European market from cheaper imports of the same branded product from other markets.

As someone who has something of a sunglasses fetish, I was interested to see how cheaply big-name sunglasses such as Serengeti and Bausch and Lomb can be bought at Wal-Mart for £30, whereas in other shops they are sold for £100 or £80. I look forward to a collapse in the price of the products due to the importing of the same brand. That is a question of the pricing policy of luxury goods manufacturers, but I am not dealing with that.

I do not see why in our economy we should be suckered by high-priced products. I am speaking about protecting well-known brands, especially in mass market goods, where look-alike, copycat products can be a form of exploitation which undermines the quality of the brand and investment in the brand. Brands protect innovation, and their role is especially important for competition. We are obsessed with competition, and perhaps a little too obsessed with price competition.

We should protect brands by putting brand law into a form in which it can be effectively enforced. The Select Committee on Trade and Industry a couple of years ago recommended a voluntary code, but I do not think that that would work. We have been pressed by various international bodies—for example, the agreement on trade-related aspects of intellectual property rights in 1994. Article 10 bis of the Stockholm convention of 1967 stated that countries are bound to assure…effective protection against unfair competition…The following in particular shall be prohibited: all acts of such a nature as to create confusion by any means whatever… That is what copycat brands do.

The World Intellectual Property Organization in Geneva published a model law on brands in 1994, which some countries have already implemented, so brands are better protected in other European countries than in the United Kingdom. We should implement such a law. I hope that in his reply to this brief debate, my hon. Friend the Minister can give us some assurance, first, that the Government recognise the importance of brands, not only in serving the consumer but in stimulating and protecting innovation and competition; secondly, that the Government will act to give firmer protection to brands because of their importance to competitiveness; and thirdly, that the Government will give brand owners a means of redress against the debasement or the copying of their product.

That would enhance consumer confidence and, more important, it would give businesses the confidence to develop brands and invest in them, and to build up branded production, with all that that offers the consumer, as a stimulus to greater competitiveness, both nationally and internationally.

10.38 pm
The Minister for Competition and Consumer Affairs (Dr. Kim Howells)

I congratulate my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on bringing the debate to the House tonight. I did not know, and I am not sure whether anyone else in the Chamber knew, that Great Grimsby was the branding capital of the United Kingdom food industry. That is fascinating, but I am not sure that Great Grimsby will remain so, after my hon. Friend described companies such as Tesco, Sainsbury' s and Safeway, whose own products sometimes look a little like branded products, as leeches.

Mr. Mitchell

I did not express myself very well. Many of the supermarkets' own brands are also produced in Grimsby. They are not leeching on the production of the branded products. It is the copycat products that, like leeches, are exploiting the investment in the branded products.

Dr. Howells

I thank my hon. Friend for clarifying that; I am sure that those huge companies will be glad that he did so.

The Government recognise that brands are essential to building consumer confidence, act as a guarantee of quality, and prevent consumers from being confused as to who made the goods and where they come from. Brands are a key factor in promoting trade in the marketplace, and brand owners play a key role.

Brands are important to consumers because, as my hon. Friend said, they help to identify the origin and quality of goods, and their manufacturer. They also help consumers to identify genuine goods.

As my hon. Friend said, fake goods may be of poor quality, defective, or even dangerous or damaging. They offer no guarantees or service agreements. We are greatly involved in educating consumers about the long-term effects of buying fake goods, which affects legitimate industry's ability to invest in the creation and development of new products.

I know that the hon. Member for Montgomeryshire (Mr. Öpik) is worried about the effects of counterfeiters and others who try to sell the unsuspecting public products that can be dangerous, especially pharmaceuticals, household goods and associated products.

Mr. Lembit Öpik (Montgomeryshire)

Does the Minister agree that even when the quality of the lookalike products is not terrible, they stifle innovation? A turnover of £50 billion in branded products, and the ability to innovate, will be harmed if people always have to look over their shoulders. Having to compete with lookalike products reduces the opportunity for investment. Those products freeload on the reputation of branded products.

Dr. Howells

The hon. Gentleman put the point well. However, although I have great affection and respect for him, I do not entirely agree with him. Emulating products and their packaging sometimes promotes healthy competition. I am instinctively suspicious of the use of this place to build fortress walls round specific products. I acknowledge that adequate protection must exist and that adequate returns must be made on the original investment. I do not have much time, but I shall try to explain what I mean, and I hope that the hon. Gentleman will bear with me.

The Government appreciate the damage that intellectual property crime does to legitimate business. We are committed to working to improve matters. Indeed, our legislative programme, which includes specific improvements to the criminal provisions in intellectual property law, the implementation of the e-commerce and, in due course, copyright directives, will help in the fight against counterfeiting and piracy. Other initiatives, such as raising consumer awareness, improving co-operation, and the co-ordination of enforcement effort, are also important. The Government are currently involved in much activity in that context.

My hon. Friend the Member for Great Grimsby and the hon. Member for Montgomeryshire asked why there is insufficient protection against copycat or look-alike products. The Government are not convinced of the need for a change in the law to extend brand owners' rights against those who sell products in so-called look-alike packaging. The Trade Marks Act 1994 introduced several new provisions, which extended trade mark protection to, for example, trade dress, three-dimensional shapes, colours, sounds and smells. The Trade and Industry Committee studied the subject carefully and concluded that brand owners were not using legal remedies such as passing-off. I support those conclusions, and I do not believe that the law is deficient.

We believe that United Kingdom law on intellectual property is compatible with all the international conventions to which we are signatories. They include the World Trade Organisation's trade-related aspects of intellectual property rights agreement, which deals with unfair competition, and incorporates, as my hon. Friend pointed out, article 10 bis. However, I believe that that was an article in the Paris convention.

Mr. Mitchell

Although my hon. Friend says that the power of brand owners to protect themselves exists in legislation, manufacturers do not believe that it is worth the effort. Cases are difficult to prove in law; they are long and tortuous, and the verdicts have not been satisfactory. It is difficult to get people to come forward and say, "I was daft enough to buy this product instead of that one. I was deceived." The burden of proof is the problem.

Dr. Howells

I have to tell my hon. Friend that, as Minister for Competition and Consumer Affairs, which is one of my little titles, I receive scores of letters of complaint about all sorts of things ranging from new and used cars to sunglasses, which he mentioned. However, no constituent has ever written, or been to see me, to complain about being confused by a look-alike product on a supermarket shelf.

Mr. David Taylor (North-West Leicestershire)


Dr. Howells

No, I will not give way because we have gone on for long enough on this one.

Indeed, were I to take home an own-brand packet of cornflakes instead of Kellogg's, my kids would throw it out of the window. They are not daft, nor are most consumers daft enough to fall for such a thing. When the British Brands Group lobbied me, as it has done several times, it came up with a ludicrous example: some zappy young executive might charge into a supermarket, mistakenly pull out a bottle of Tesco's look-alike Fairy Liquid instead of the genuine article, and be dreadfully disappointed on arriving home, which would upset her executive evening. I simply do not believe that such things occur. Most consumers are a lot sharper than that; they are capable of making decisions. If companies are not satisfied with the deal that they get from their main retailers—the supermarket chains—let them sue.

Mr. Öpik

Will the Minister give way?

Dr. Howells

For the last time.

Mr. Öpik

I thank the Minister for giving way again, but does he not accept that the problem is serious but less dramatic? Brands innovate and copycats copy the brand image, but not necessarily the brand performance. Over time, expensive innovations are undermined by cheaper copycats, which makes it more difficult for brands to innovate. That harms the whole economy, not just the brands.

Dr. Howells

I agree, but there is a fine line here and a difficult balance to strike. We could talk all night about parallel imports, which my hon. Friend the Member for Great Grimsby mentioned, but would not fencing in the big established brands create hurdles too high for competitors to cross? I acknowledge that I am an unashamed proponent of competition—fierce competition—which brings the best products to the market and provides most benefit to consumers. Having to compete in fierce but fair open markets allows the best companies to evolve. However, as my hon. Friend and the hon. Member for Montgomeryshire said, the rules must be fair. I believe that the rules in this country are fair. I am no more in favour of the balance swinging violently in favour of rights holders than I am of all the controls being removed.

Mr. Taylor

Will my hon. Friend give way?

Dr. Howells

I will, as my hon. Friend has been present since the start of the debate.

Mr. Taylor

Can my hon. Friend confirm whether the Government have a timetable for reviewing the law on branding and the protection that it offers, particularly to firms in my constituency, which contains major distribution warehouses for the goods to which my hon. Friend the Member for Great Grimsby (Mr. Mitchell) referred?

Dr. Howells

My hon. Friend will understand that we all have factories, shops and distribution centres that sell—[Interruption.] Yes, including food shops. We grow some food in Wales, and we process it and sell it. I hope that he realises that I cannot undertake to put legislation on the statute book. I am not even convinced that things are so askew in this country as to warrant such a review in the first place. However, I give him, my hon. Friend the Member for Great Grimsby and the hon. Member for Montgomeryshire an undertaking that we will continue to keep a sharp eye on this subject. If we do not, the paradigm of fierce open competition that I described will not occur. A fine balance must be struck. That is the secret of a good economy.

Question put and agreed to.

Adjourned accordingly at ten minutes to Eleven o' clock.