HC Deb 14 July 2004 vol 423 cc1415-24
  1. 1. Section 106 of the 1977 Act (costs and expenses in proceedings before the Court under s.40) is amended as follows.
  2. 2. In subsection (1) (relevance of parties' financial position), for the words from "proceedings" to "the court)" there is substituted "proceedings to which this section applies".
  3. 3. After that subsection there is inserted—
    • "(1A) This section applies to proceedings before the court (including proceedings on an appeal to the court) which are—
    1. (a) proceedings under section 40;
    2. (b) proceedings for infringement;
    3. (c) proceedings under section 70; or
    4. (d) proceedings on an application for a declaration or declarator under section 71."
  4. 4. This section applies in relation to proceedings commenced on or after the commencement of this section.'—[Mr. Sutcliffe.]

Brought up, and read the First time.

12.41 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this it will be convenient to discuss Government amendment No. 2.

Mr. Sutcliffe

The intention behind the new clause and the amendment is to make a small additional improvement to the framework for enforcement of patent rights. We listened very carefully to the debate in Committee, and following further consideration I have identified one more improvement to the enforcement framework that could assist small and medium-sized enterprises in some circumstances I believe it appropriate for this provision on costs to be added to the Bill.

It might help if I begin by exploring some of the background that is relevant to the enforcement framework in general, and to the new clause and amendment in particular. Members will be aware that in Committee, we discussed a number of possible modifications relating to enforcement of patent rights. I know that we are all keen to have a framework for enforcement of rights that is accessible to all. The difficulty, however, is delivering a framework that is accessible to an SME patent holder, but which is also fair to a party against whom enforcement action may be taken. In this respect, it is important to remember that the other party may be another SME.

Moreover, patent disputes can involve—indeed, they probably often do involve—difficult technical and legal arguments, so the framework cannot favour a patent holder over another party. The other party may have perfectly valid arguments as to why there is no patent infringement, or why the patent is not in fact valid; that would mean that there is nothing that can be infringed.

Finding acceptable and workable ways that will really address the concerns raised in Committee is not easy, therefore. We explored various possibilities during the consultation process before the Bill was introduced. but some of them were not widely supported. Others received greater support, and we have pursued and developed them and made suitable provision in the Bill. We hope that the amendments and improvements to patent law that are relevant to the enforcement framework will provide some assistance on certain occasions.

I know that there could be some disagreement as to how useful the Bill's provisions might prove to be. However, I hope that the very full debates that we have had so far will help people to understand our reasons for including them, and how they might help. I accept that the provisions provide only some pieces of the jigsaw that is necessary to improve the enforcement framework. As I said, during our earlier deliberations Members proposed alternative or additional provisions. In addition, the noble Lords in the other place have also tabled some amendments with a view to improving the enforcement framework. Many of the amendments were inspired by the desire to address the enforcement concerns of small and medium-sized enterprises, with which we also sympathise. Unfortunately, most of the amendments would not, in our view, work as intended or deliver a system that is fair to all. I did promise in Committee, however, that we would continue to consult and consider whether any further adjustments to patent law to help SMEs in patent disputes might be possible in the Bill.

Since consideration of the Bill in Committee, we have consulted a number of stakeholders. My officials met the patent reform group, which was mentioned by some hon. Members in Committee. We also contacted several other individuals and groups, and the outcome of the consultation clearly showed the difficulty of finding a consensus on what more could be done to help SMEs. There has certainly been no widespread support for any of the proposals that were debated in Committee. Furthermore, it has not been possible to identify any additional provisions that could be added to the Bill that command support from all stakeholders.

The difficulty of finding a workable and fair way of modifying the enforcement framework is perhaps not surprising. Indeed, the issue of patent enforcement is one of the issues that the Intellectual Property Advisory Committee has explored. That independent committee, which generally chooses its own work programme, decided to investigate the perceived and actual problems associated with the enforcement of patent rights. The Committee was particularly concerned about the costs when a patent dispute goes to court and believed that those costs might compare unfavourably with costs in other jurisdictions.

It is perhaps regrettable that the Intellectual Property Advisory Committee was unable to report on the issue of enforcement of patent rights until November 2003.

By that time, following a public consultation that I have already mentioned, we were already well advanced in formulating and developing the contents of the Patents Bill. That consultation was conducted a year earlier, over the winter of 2002–03. Indeed, the Government's intentions for the Patents Bill were published a little before the Committee produced its position paper. Nevertheless, we found the Committee's report extremely useful in helping us to assess again whether the provisions in the Bill were right and whether more might be done.

We have carefully considered the recommendations made by the Intellectual Property Advisory Committee. Its recommendations on re-examination were helpful and our discussions with some members of the Committee informed our development of the Bill's provisions on non-binding opinions. The Committee also identified the useful development of the new streamlined procedure by the patents county court and the need to make sure that it is actively promoted. We are very happy to endorse that and we will be monitoring developments at the patents county court to see that that and other reforms make a difference.

It is interesting to note that the Intellectual Property Advisory Committee has not proposed provisions of the sort that would have been provided by various amendments that we considered in Committee. That perhaps illustrates again how difficult it is to identify measures that would have a wide degree of support and would actually work to give the desired result—that is, to help SMEs in trying to enforce their patent rights while being fair to all.

There have been some calls for a general review of the patent system and enforcement of patent rights in order to find a consensus for a way forward. Those calls have, I believe, generally come from people who have already dismissed the enforcement provisions in the Bill as insufficient or irrelevant. The additional amendments that we have identified and propose today have not, I understand, made any difference to those calls for a wide-ranging review. Not everyone to whom we have spoken in the past few weeks agrees that the proposed amendments on costs are worth making.

I am not so pessimistic, but we are not saying that what is in the Bill, either with or without the additional amendments, is a sufficient and complete answer to concerns about enforcement. Recent developments at the patents county court—I have already said that we shall follow them closely—are also important, and our continued exploration of the patent enforcement project is another useful work stream. Those examples demonstrate our continued commitment actively to engage with the enforcement agenda. Given the various strands of activity that are already under way, which may collectively deliver appreciable improvements to the enforcement environment, we do not believe that it would make sense to undertake a more general review now.

I would like to assure hon. Members again that we have listened to the concerns raised during debates on the Bill, and that we have explored with a number of people over the past few weeks whether anything more could usefully be added to the Bill to deliver further legislative change at this point in time.

I have already mentioned that the Intellectual Property Advisory Committee pointed out that the costs of litigation in the UK courts are a serious problem for those with limited means. That concern has partly inspired our further consideration of the enforcement framework. I am very pleased that we have been able to identify a further small amendment to the Patents Act 1977 in the past few weeks, specifically on the issue of costs of litigation before the courts.

The new clause and the amendment will, we hope, help SMEs in appropriate circumstances where they face litigation in the courts. However, we hope that the messages delivered by this amendment will also support the desire, which many of us share, to encourage parties to settle cases more cheaply by negotiation and mediation rather then litigation.

In more detail, the new clause will amend section 106 of the Patents Act 1977 to allow the courts to take into account the financial position of the parties as one of the factors when deciding on costs in different types of patent dispute. Section 106(1) currently states that the court, in determining whether to award costs or expenses to any party and what costs or expenses to award, shall have regard to all relevant circumstances, including the financial position of the parties". However, this applies only to proceedings brought before the court under section 40 of the 1977 Act. As some of us may recall from our earlier consideration of clause 10 of the Bill, section 40 deals with employee compensation and, in particular, with compensation for an employee who has made an invention that belongs to his employer, the patent for which has proved to be of outstanding benefit.

The new clause would amend the current section 106(1) and insert a new section 106(1A) to extend the range of patent disputes in which regard must be had to all the relevant circumstances, including the financial position of the parties before the court makes an award of costs. Section 106(1) includes disputes concerning infringement, threats of infringement proceedings under section 70 and declarations of non-infringement under section 71, in addition to those concerning compensation for employees under section 40.

Government amendment No. 2 makes a consequential amendment to remove the specific reference to section 40 from the title of the section, as the new provision will no longer be limited to court proceedings under section 40. Thus, this new power would apply to all disputes where a decision has to be made regarding infringement. For example, when deciding a case concerning a groundless threat of infringement proceedings under section 70, it is first necessary for the court to determine whether any infringement has taken place. Similarly, in proceedings under section 71, the courts are asked to confirm that infringement did not, or would not, occur. However, the provision would perhaps be of most use to a patent holder who is an SME bringing proceedings for an infringement.

Of course, where a patent holder has commenced infringement proceedings against another party, it is common for that other party to raise concerns about the validity of the patent holder's patent. As well as deciding whether a particular activity falls within the scope of the patent claims, and so infringes the patent, the court is therefore often also determining in the same proceedings whether the patent is valid. As long as infringement is one of the issues being determined in the proceedings, the new provision on costs would apply. That is, the court will take into account the financial position of the parties with regard to an award of costs for the proceedings as a whole, even if a significant—or even the most significant—part of the proceedings concerns issues other than infringement, such as the validity of the patent.

The wording of the amendment makes it clear that "all the relevant circumstances" have to be taken into account, and that the financial position of the parties is only one of the relevant circumstances that must be taken into account.

Malcolm Bruce (Gordon) (LD)

I understand that the Minister is describing how costs might be apportioned at the end of proceedings, but is not part of the problem the fact that large companies effectively can prevent small companies from completing the action and getting to the costs stage? Is there anything in the amendment that supplies balance to the situation? In many cases, small businesses will say that they cannot afford to contest or defend their patent, because of the costs that their opponents can afford.

Mr. Sutcliffe

I acknowledge the point that the hon. Gentleman makes, and the amendment is an attempt to supply the balance that he seeks. I am perfectly willing to listen to what hon. Members have to say about what we are trying to achieve. I recognise that these are difficult matters, for the reasons that I set out earlier. We want to arrive at general agreement between all the stakeholders involved.

The amendment will not prevent other relevant circumstances from being taken into account. Accordingly, it is fully consistent with the existing duty of the courts, under the civil procedure rules, which requires them to have regard to "all the circumstances" in making orders about costs.

According to section 130(1) of the Patents Act 1977 and section 62(1) of the Supreme Court Act 1981, the courts in England and Wales that deal with patent disputes are that part of the chancery division of the High Court that is known as the patents court, and the patents county court. In Scotland, the Court of Session deals with patents, and in Northern Ireland the responsibility lies with the High Court. In each of the three different civil jurisdictions, the courts have the power to take into account a number of factors when deciding on the issue of costs.

For example, in England and Wales, the civil procedure rules lay down the rules for all civil litigation in the High Court or a county court. Hence, they apply equally to patent disputes, which are a form of civil litigation, whether they take place in the patents court or in the patents county court. Thus, the proposed amendment to section 106(1) of the 1977 Act must be consistent with the general rules on costs laid down in the civil procedure rules.

The main principle behind those rules is that the court must take into account all the relevant circumstances when deciding whether to award any costs and, if so, what amount of costs. For example, the court can take into account the behaviour of the parties concerned in conducting the litigation, and whether it was reasonable to pursue particular allegations. That can then be reflected in the extent of the costs award.

The proposed amendment to section 106 makes it clear that, in certain patent disputes, the court must have regard to the financial position of the parties in addition to all the other factors that it takes into account when deciding on costs. That is a factor that the court may already regard as relevant in some circumstances. As a result of this amendment, however, it will always be deemed to be a relevant factor.

Accordingly, the amendment offers those embarking on a patent dispute an assurance that that will be one of the factors that the court will consider. Parties will know in advance that there is a statutory obligation on the court to take both parties' financial position into account when awarding costs, and so both parties are able to consider what that might mean for them. That, in turn, might influence how they deal with a patent dispute.

The amendment will not alter the fact that the losing party will in any event normally have to meet its own costs, such as the costs of its legal advisers. Its main impact will be that, if the court thinks it appropriate after considering the relative financial position of the two parties, a less-well-off party may not be ordered to pay all the costs of a better financed party, even if the less-well-off party loses the case. I think that that covers the point raised by the hon. Member for Gordon (Malcolm Bruce).

However, I stress that the amendment does not mean that a smaller less-well-off party can behave irresponsibly and launch patent infringement cases with impunity, safe in the knowledge that his small financial size means that he would not have to pay the costs of the other party even if he lost. It is true that this amendment means that the financial position of the less-well-off patent holder, relative to that of the alleged infringer whom he is pursuing, will be taken into account when an award of costs is being considered if that patent holder is not successful. However, the financial position is just one of the factors to be considered. The court could decide that the behaviour of this less-well-off party was irresponsible, and that that was also relevant to how costs should be awarded. In such circumstances, the financial position may not be the most important factor. The courts would be entitled, if they considered it appropriate, to make a large costs award against the less-well-off party who has behaved in an irresponsible manner.

Moreover, even where a less-well-off party has behaved responsibly, but has lost the case, he may still have to pay at least some of the costs of the other party. Therefore, the amendment does not provide SME patent holders with a licence to litigate against wealthier parties without fear of paying any of the other side's costs, whatever the outcome. Yet the SME can be certain that its financial position will be carefully considered, along with other relevant factors, when the court decides how to award costs.

Perhaps the main value of the amendment will be as a marker or sign. It will encourage parties to take a sensible attitude when considering the prospect of litigation. It acts as a warning to a party that has financial superiority and chooses to run up large costs in a dispute, that it will not necessarily get all those costs back even if it wins. We hope that that will encourage all parties to consider more carefully whether a dispute can be settled more cheaply, perhaps by mediation or voluntary binding arbitration. When appropriate, both parties might agree to infringement proceedings being undertaken at the Patent Office, where costs are likely to be less for all than when the proceedings take place before the courts.

There may be very good reasons why none of these options is appropriate for a particular case, and the amendment does not in any way preclude a patent dispute from being heard by the patents county court or patents court. Nevertheless, we hope that it will encourage both parties to consider all the options before a case is taken to the courts.

As I have already indicated, not all of those whom we have consulted about the amendment have supported it. Some have argued that it is irrelevant: as SMEs cannot even afford the expense of taking a case to the courts, it is pointless to make any provision on costs that could help. However, others have supported the amendment and agree that the proposed change would provide a useful signal to SMEs that their financial position can be taken into account by the courts.

If the amendment also has the effect that I have indicated of encouraging parties to agree to resolve an infringement dispute in a less confrontational and expensive manner, it could have a much wider impact. It could help some SMEs that are not able to afford to bring a case to the courts in the first place, and in that way begin to address the concerns of those who say that it is irrelevant.

By itself, the amendment may not have much effect. However, given the other changes in the Bill and the other improvements to the enforcement framework I have discussed, I believe that it is worth making. I hope that the House will agree with me, and that we can put in place today another small piece in the jigsaw to improve the enforcement framework for SMEs involved in a patent infringement dispute.

1 pm

Mr. James Arbuthnot (North-East Hampshire) (Con)

The Minister frequently used the word "small", and we heard today how small his ambitions are and how difficult everything is. The purpose of the new clause is to help small and medium-sized enterprises that cannot afford the massive costs of taking patent cases, with all their legal and technical complexities, through the courts. The Minister anticipated my question as to whether the new clause will achieve that.

How will the new provisions provide any certainty for small and medium–sized enterprises? When deciding whether to take a case to court, they will still face the risk that the court will not exercise the new discretion and increase an award of costs in their favour. SMEs will not be able to budget in advance for that and will therefore still face the same risks, threats and uncertainties that they face at present.

My second question is whether the Government will issue guidance to the courts on how to exercise the discretion. What criteria will the courts be expected to use? If nobody knows, how will the provisions help anybody? The new clause amends section 106 of the Patents Act 1977, which relates to section 40 of that Act, so that it applies to several different cases. However, there has never been a successful case under section 40 in the many years of its existence, so there is no current precedent. The third question is how the new clause differs from the current powers of the court. In practice, the courts already take into account the circumstances of the litigants.

The Minister talked about consultation. What representations were made by those in favour of this change? How many people said that they favoured this change, and who made them say it? I worry about the new clause—not hugely, because it is a tiny Bill—because it is another action designed to reassure, or perhaps confuse, people into thinking that the Government are doing something important to help small businesses. There is little in the new clause. It is so watery that there is little to vote against, but the Minister still has some persuading to do.

Paul Flynn (Newport, West) (Lab)

The right hon. Member for North-East Hampshire (Mr. Arbuthnot) has not taken a very positive line. The new clause is a genuine attempt to meet the objections from SMEs to the existing situation and what they perceived as deficiencies in the Bill. Certainty is too much to ask in litigation and there will always be some doubt about how legislation will work in practice. It would be generous of the right hon. Gentleman and the House to recognise the good will on the part of the Government that lies behind the new clause.

The right hon. Gentleman said that this is a small Bill. I assure him that it will be the major news item from this building today for the South Wales Argus, if not the rest of the press, which may be distracted by events of lesser importance. This is the first Patents Bill since 1977 and is a major event for many of my constituents. We should accept that behind the Bill lies a strong warning to SMEs that the worst possible way to attempt to solve a dispute is to go to litigation, which will always be the most expensive and long-winded approach. If the Government were to he more generous, it might encourage people to opt for litigation without trying the procedures that are already available through the Patent Office, where matters can be dealt with speedily.

Malcolm Bruce

I shall not be quite as churlish as the right hon. Member for North-East Hampshire (Mr. Arbuthnot), although I sympathise with his comments. The Minister said that he would consult further and table amendments if he felt that they would be helpful, and he has done so. However, as I suggested in an earlier intervention, the new clause does not go as far as the amendments I proposed, although it is a welcome gesture.

The difficulty for many small businesses is that the lack of clarity in the law creates greater uncertainty in litigation, which picks up on a point made by the hon. Member for Newport, West (Paul Flynn). That works to the advantage of the large company against the SME, simply because the larger company can afford to fund litigation and effectively squeeze out the smaller business to the point where it cannot challenge an infringement of patent or otherwise defend its patent. The new clause would be irrelevant in such a case because the company would never reach the stage at which costs were apportioned. Many of us hoped that the Bill would make the law on defence of patents clearer to give a signal to larger companies that using their power in a process of attrition against SMEs would not be tolerated.

Mr. Sutcliffe

I said that I would look again at the issue and I have tabled the new clause in that spirit. I do not want it to be irrelevant. It is a small step, as the right hon. Member for North-East Hampshire (Mr. Arbuthnot) said, but does the hon. Gentleman think that we would be better off without it?

Malcolm Bruce

No, I am not saying that and I do not think that anybody will oppose the new clause. I am trying to make the serious point that the new clause may make a genuine contribution to a settled case and the fair apportionment of costs, and that may affect the extent to which companies are prepared to litigate. However, as the right hon. Member for North-East Hampshire pointed out, there would still be uncertainty about the apportionment. The cost of reaching that point might also be too great for an SME to absorb. The new clause is fine as far as it goes, but issues remain unaddressed. I was lobbied very heavily about those issues, and the people who lobbied me will remain disappointed that the Bill has not been able to come up with a legislative framework that would address their concerns. The process of patent protection needs to be made more equal for different sizes of companies.

I do not wish to repeat the debates we had in Committee, where the arguments were well aired. I welcome the fact that the Minister has been courteous and consistent. He said that he would consult, he has done so and he has come back with a proposal. The problem is that he has consulted with both sides of the argument and therefore has to strike a balance. I welcome the new clause and shall not vote against it, but patent law still contains injustices that the new clause and the Bill have not addressed.

Mr. Sutcliffe

I appreciate the comments made by right hon. and hon. Members, if not all the points made by the right hon. Member for North-East Hampshire. The new clause is a genuine attempt to resolve a problem that was raised in Committee. Some of the amendments tabled were not workable and would not have delivered what was intended. I accept the point about how large companies operate, but we are trying to change behaviour by giving smaller companies an incentive and warning larger companies that costs could be considerable. We are trying to resolve disputes in the way that my hon. Friend the Member for Newport, West (Paul Flynn) suggested.

I was not being churlish when I asked whether we would be better off without the new clause. If hon. Members think that it would be pointless, I would be happy to withdraw it. It remains to be seen how it will work, but I think that it will help to change behaviour. We tried to accommodate the concerns of the patent reform group, and hon. Members will recall that it was represented in force watching our deliberations in Committee. We could not consult everybody, and we could not reach agreement on what we were trying to achieve. That is one of the difficulties that I set out and that is why expertise in the excellent Patent Office in my hon. Friend's constituency can be so valuable in resolving disputes. I ask hon. Members to support the new clause, despite their reservations.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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