Patents Bill [H.L.]

HL Deb 08 March 2004 vol 658 cc345-86GC

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Baroness Fookes) in the Chair.]

The Deputy Chairman of Committees (Baroness Fookes)

Before I put the Question that the Title be postponed, may I remind your Lordships of two points of procedure? Members of the Committee will speak standing; and the House has agreed that there shall be no Divisions in the Grand Committee. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.

Title postponed.

Clause 1 agreed to.

Clause 2[Amendment of. patents after grant]:

Earl Attlee moved Amendment No. 1: Page 1, line 22, leave out subsection (1).

The noble Earl said: The amendment is tabled in my name and that of my noble friend Lord Lyell. It is customary for Amendment No. 1 in a Committee of your Lordships' House to take a very long time indeed, but I do not think that that will be the case today.

I am worried about the phrase "any relevant principles" in the proposed new subsection. It broadens the scope of amending patents after being granted quite considerably. Concerns have been expressed to me that the phrase is particularly woolly and might impart meanings that are not intended.

As I understand it, UK courts will not allow an amendment to a patent if the owner appears to have acted improperly. A common example of a case in which an amendment can be refused is when the patentee has asserted the unamended claims against an infringer, knowing the claim to be invalid and in need of amendment. My understanding is that the European Patent Office does not work on that principle. Following the enactment of the Patents Act 1977, it was possible for a patentee to obtain post-grant amendments in a third jurisdiction; namely, the EPO. That would occur in post-grant opposition proceedings, which might continue for many years after the grant of the patent.

In such cases, a patentee can in practice obtain almost any amendment, provided that it meets certain legal requirements. In other words, there is either no discretionary element or it is exercised very liberally. In the light of that practice, our reports began to hold that the discretion to refuse amendments had, in effect, been abolished. However, the Court of Appeal in Kimberly Clark decided that that was wrong, and that discretion to refuse amendments still survived.

Proposed new Section 27(6) of the 1977 Act, requiring the court and comptroller to take account of the practice of the EPO, is plainly intended to have some liberalising effect on the discretion without removing it altogether. However, it is a rather vague requirement in an area where what is required is rather more precision.

If we agree to the change proposed, how bad will a patentee's conduct have to be before he will be refused an amendment? Is it bad faith or something less and, if so, what? I beg to move.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

Clause 2 is concerned with ensuring that consistent standards are applied to the amendment of patents which are in force in the UK. It ensures that the same standards are applied to all amendments made in the UK. It also ensures consistency between the standards that apply to amendments made in the UK, and those made at the European Patent Office.

In order to achieve that, Clause 2(1) ensures that regard will be had to the principles under the revised European Patent Convention when voluntary amendments are applied for in the UK. Voluntary amendments are those which are made at the patent-holder's instigation and outside of any legal proceedings. Subsection (5), on the other hand. ensures that regard will be had to those same principles when amendments are made during legal proceedings in the UK—for example, during proceedings concerning the validity of the patent.

If we were to delete subsection (1), it would mean treating those voluntary amendments differently from amendments made during legal proceedings. It would mean that the court or comptroller could have regard to the principles under the EPC for only those amendments made during legal proceedings. For other amendments, the UK would continue to operate its own standards.

We consulted on that point and users of the patents system were clearly opposed to such an arrangement. They desired a common standard for all amendments. With that explanation, I hope that the noble Earl will withdraw his amendment.

Lord Lyell

I thank my noble friend for presenting his amendment so succinctly. The Minister has suggested—indeed, the suggestion is in the Bill—that we might consult the Patents Act 1977. I am very interested in Section 27. Has that been amended? Have I missed something? Is there subsequent legislation? I do not see any necessity for relevance in Section 27, which gives a general power to amend the specification. Perhaps the Minister or the noble Lord assisting him might be able to advise me; suddenly, the happy word "relevant" sends a shiver down my spine.

The Minister has satisfied me partially, but I wish for clarity. In particular, when inventors or possible patentees are presenting their case there should be absolute clarity. I understand that there could be some difficulty or doubt in that case. I can see that the Minister has a look of not smugness but satisfaction on his face. Perhaps he can alleviate my fears at this stage.

Lord Sainsbury of Turville

That was an expression of deep thought as to how best to put the case. The point arises because of the need to bring things in line with the European Patent Office and the patent convention. The question of "relevant principles" is that, under the revised European Patent Convention, they will be equivalent to those already considered by the courts and the comptroller in the UK.

For example, the amendment will be liable only if the claims of a patent, as amended, meet the substantive legal requirements, and the amendment must result in a valid patent. It will not be allowed if it extends the scope of the patent protection or adds new matter that was not present in the patent application as filed. Already, there is a congruence between the principles involved.

Earl Attlee

I entirely agree with the Minister's point that we want to have consistency with the EPO. In addition, I can accept his point that we want to operate the same standard for all amendments, whether they are being litigated or not. Even Amendment No. 1 challenges my understanding of these matters. Therefore, I shall study very carefully what the Minister said and take advice. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Relief for partially valid patent]:

Earl Attlee moved Amendment No. 2: Page 2, line 32, leave out "to its or his satisfaction

The noble Earl said: In speaking to Amendment No. 2, I shall speak also to Amendment No. 3. Both are probing amendments and question what the term "satisfactory" means in the context of Clause 3. It is not a controversial part of the Bill, but one where woolly wording comes into play again. Can the Minister explain what criteria will be used to decide whether things are satisfactory? If there is a criterion to be used, should it he set out in a schedule to the Bill? Who will decide the criteria?

I have tabled those amendments to ask whose standards will be satisfactory for the UK Patent Office or the European Patent Office. I beg to move.

Lord Lyell

In the Bill there are, quite rightly, continual references to what I call "the bible"—that is, the 1977 Act. Perhaps the Minister will be able to explain today—or perhaps at a later stage, because it might be unfair to expect him to do so today—a difficulty that I have with the word "satisfaction". Starting at Section 60 of the 1977 Act and ending at Section 75, I read through every provision dealing with infringements—an issue which forms an important part of the measures being introduced by the Bill—and only in Section 63(3) does the word "satisfaction" appear. It appears only once in that whole part of the 1977 Act.

I wonder why the words "to its or his satisfaction" and "to its satisfaction" occur in the proposed new subsections to Section 63 of the 1977 Act, which deals with relief for infringement of partially valid patent. Does the word "satisfaction" have something to do with the scale or size of the enterprise that might be protesting about an infringement of its patent—in other words, the small man against the giant corporation? Why does the word "satisfaction" appear in Section 63(3)? It is incorporated in the proposed new subsections, but what is the reason for it?

Have I been remiss? I probably have been, in that, as the Minister said, I have probably missed out something that is in the European Patent Convention 2000. It is 27 years ago since the 1977 Act was introduced, but I am curious why the word "satisfaction" appears only once.

It may also appear in Section 58 of that Act, but I had better not go back. I have probably said enough. Perhaps the Minister will assist me.

Lord Sainsbury of Turville

This situation arises where the court or the comptroller finds that a patent is infringed but is partially invalid at present. In those circumstances, damages for infringement may be awarded on the condition that the patent is amended to cure the partial invalidity. In the case of a European patent, Clause 3 gives the patent holder the option of curing the partial invalidity by amending the patent using the new central limitation procedure at the EPO.

Clause 3 is designed to recognise the new procedure available at the European Patent Office for limiting the scope of a patent. This new procedure will be an optional way for the holder of a European patent to overcome a finding during an infringement or Crown use proceedings in the UK that his patent is partially invalid. It is important that the comptroller or the court here in the UK can consider the effect of that limitation on those proceedings.

However, the proposed amendments to Clause 3 would seem to undermine the ability of the court or comptroller to be sure that the central limitation of the patent has cured the defect identified during the proceedings in the UK. After all, central limitation may have taken place for any number of different reasons not connected with the UK proceedings. It seems wrong if the court or comptroller is not able to be satisfied that the partial invalidity identified in UK proceedings has been cured by the central limitation. Furthermore, the proposed amendments would introduce an inconsistency with existing Sections 58(9) and 63(3) of the 1977 Act, in which the courts or the comptroller are able to satisfy themselves that an amendment done in the UK cures the partial invalidity.

So I hope that it is clear that when we refer to "satisfaction" we mean the satisfaction that the comptroller may have that the use of the European Patent Office limitation cures the invalidity. In that sense, I do not believe there is any confusion as to what "satisfaction" means. In the light of that explanation I hope that noble Lords opposite will feel able to withdraw their amendments to Clause 3.

3.45 p.m.

Lord Lyell

The Minister has been extremely kind. He mentioned the new concept of central limitation—did I hear it right? Under Sections 58(9) and 63(3) of the 1977 Act, which have existed for a good number of years, why, in the case of partially valid patents, is it taken for granted or understood—as we used to do our Latin 50 years ago or more—that the Patent Office will be satisfied in all cases? I was mildly suspicious—in the nicest possible way—about why satisfaction occurred in the case of partial validity and not elsewhere in the other sections. Is it something to do with central limitation?

Lord Sainsbury of Turville

That arises because of the ability now to make certain that a change in a patent operates across Europe using this mechanism. If that mechanism is used, it is important that in the UK the comptroller can satisfy himself that that limitation, which may have been done for other reasons, remedies an invalidity of the UK position. The issue arises because of that ability to make a change apply across Europe. It is necessary in those circumstances for the comptroller here to make certain that that correction applies to the situation that he is considering.

Lord Lyell

I am very grateful and shall read with care and devotion what the Minister has said.

Earl Attlee

I am extremely grateful to my noble friend Lord Lyell, who has the advantage of knowing the 1977 Act intimately because he was in my position all those years ago. Fortunately for me, we are giving the legislation a 27-year service rather than starting from scratch. I am grateful for the Minister's explanation, which I shall read carefully. Subject to the usual caveats, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 3 not moved.]

Clause 3 agreed to.

Clauses 4 to 6 agreed to.

Schedule 1 agreed to.

Lord Triesman moved Amendment No. 4: After Clause 6, insert the following new clause— "RESTRICTIONS ON APPLICATIONS ABROAD BY UNITED KINGDOM RESIDENTS (1) In section 23 of the 1977 Act (restrictions on applications abroad by United Kingdom residents), in subsection (1), after "an invention" there is inserted "if subsection (1A) below applies to that application,". (2) After that subsection there is inserted— (1A) This subsection applies to an application if—

1. (a) the application contains information which relates to military technology or for any other reason publication of the information might be prejudicial to national security; or
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2. (b) the application contains information the publication of which might be prejudicial to the safety of the public."

(3) After subsection (3) of that section there is inserted— (3A) A person is liable under subsection (3) above only if—

1. (a) he knows that filing the application, or causing it to be filed, would contravene this section, or
2. (b) he is reckless as to whether filing the application, or causing it to be filed, would contravene this section.""

The noble Lord said: Initially, this group of' amendments may look complicated, but the idea behind them is, I hope, very simple. Essentially, the amendments bring about some helpful deregulation of the provisions of the 1977 Act relating to patent applications involving sensitive matters.

The 1977 Act places certain restrictions on patent applications that contain information that may be prejudicial to the defence of the realm or to the safety of the public. However, the restrictions place an unnecessary burden on many people who may wish to file an application in another country. Of the 25,000 or more applications made to the Patent Office each year, only 100 or so relate to such sensitive information. In brief, it is not a high proportion, but none the less it is an extremely important group. Moreover, experience shows that that small number of applications originates from a small number of highly specialised applicants who fully understand the sensitivities of the information with which they are dealing. Indeed, those applications are invariably dealt with by a select group of professional agents who also understand the need for restrictions on disclosure of information in the applications.

Section 23 of the 1977 Act requires a UK resident who would like to file an application for a patent abroad to first file an application in the UK and then wait for six weeks or obtain the permission of the comptroller to file overseas. That causes the greatest burden on professional agents or representatives who are based in the UK but who have foreign clients. For example, highly respected UK patent agents must have regard to that restriction when acting for United States or Japanese clients wishing to file a patent application at the European Patent Office.

Given the small number of patent applications that might contain sensitive matter, it is only right that the present restriction is limited to where it is really necessary and a sensible precaution. The new clause would amend Section 23 to ensure that the need to file first at the UK Patent Office or get the comptroller's permission applied only to applications that contain sensitive subject matter. In all other cases, no restrictions will be placed on UK residents filing applications in other countries.

We understand that there may be concern about how to identify applications that contain sensitive subject matter. However, anyone in doubt can continue first to file at the UK Patent Office or to seek the comptroller's permission. Moreover, further protection is provided by limiting the application of the criminal offence presently found in Section 23(3). The offence would apply only to those people who have filed abroad knowing that they are contravening the section as amended or who do so recklessly.

I move the amendment in that light. It is linked to the other amendments grouped in the Marshalled List. It deals with what industry in general—the industries most affected in particular—has found to be unreasonable and over-burdensome restriction. It is a way of ensuring that sensitive material is protected without extending the restriction unnecessarily. I beg to move.

Lord Lyell

I thank the noble Lord, Lord Triesman, who has spelled everything out clearly. I entirely agree that patents or ideas may relate to military technology. I think that he said that the content of such patents may be scrutinised only by a select band of people; we understand that. I suspect that there have been only a handful of such cases—if that—even since 1977. What about Japanese and United States inventors who may for some reason want to file a patent at the European Patent Office? No doubt they would be represented by an excellent British patent agent, who would advise the client on whether the patent or idea might contain military technology. Biotechnology could be put to a bad use—anthrax, or something similar.

Can the Minister reassure me that there is a method by which the foreign would-be patentee would receive the same protection as a British patentee, assuming that they are both using a British patent agent, in passing through those hoops? I presume that the patent would be presented to the Patent Office here and the European Patent Office. Would the same protection be afforded a foreign patentee as a British one, given the provision of new Section 23(3) about knowingly or recklessly filing? If someone knows that he is on slippery ground but for some reason wants to file a European patent, can he be warned off?

However, I should not want foreign inventors or businesses who for good reason wanted to file a patent and used British agents to be in any way disadvantaged. I doubt that they would be; even in my fertile imagination I do not suspect that there would be more than one or two such cases. Indeed, I wonder whether Section 23 has in fact been used; or is that confidential and not to be disclosed? I suspect that it is very much a long stop, but I want to ensure that it will not be unduly restrictive and help British agents, above all.

Lord Triesman

The noble Lord, Lord Lyell, has given a cogent description of the circumstances in which we are trying to assist all those seeking patents in sensitive areas to operate. Foreign patentees using British agents are subject to the restrictions, and that is why we want to make sure they are regulated in appropriate areas and that they are deregulated where appropriate.

I should add to the point I made just a few moments ago about those wishing to test the sensitivity question being perfectly free to submit it for the judgment of the comptroller in the sense that has already been covered. However, it is also true to say that these areas, which often involve defence contractors, are in any case covered by the Official Secrets Act 1989. In that sense, therefore, there is a further fallback position into the realm of security. I think that I can confirm the point about which I have been asked.

Earl Attlee

My Lords, I am grateful to the Minister for fully explaining the purpose of these amendments. We have no problem with their substance. Practically any deregulation is welcome. However, can the Minister illustrate the difference between the words "prejudicial to national security" and, prejudicial to the safety of the public"? Those phrases are very similar and further clarification would be helpful.

The Minister's explanation was so comprehensive that half of my speech is now redundant.

Lord Triesman

I believe that the intention of using these two phrases, ones commonly employed in legislation of this kind, is to cover every possible eventuality and to make sure that it is a comprehensive description. National security issues are obviously those areas where—to use the expression I used in my first submission to this Grand Committee today—the interests of the realm are at stake. The security of the public is a closely associated concept, but addresses abnormal danger to members of the public from the use of dangerous materials and so forth. The noble Lord, Lord Lyell, posed one of his questions in those terms. However, I confirm that the two expressions most certainly are closely related.

Earl Attlee

I am grateful for the Minister's explanation. Did the words "safety of the public" already appear in the legislation or is this an addition? While I am grateful for the deregulatory aspects of the amendments, is this a new provision or was it set out in the 1977 Act?

Lord Triesman

The words were chosen to ensure complete parity with Section 22.

Lord Skelmersdale

Before my noble friends decide what to do with this amendment, I want to raise a point. Government Amendment No. 23, the amendment to Schedule 2, is grouped with it, and makes a change in the heading of Section 22 of the 1977 Act from "defence of the realm" to "national security". Of course, to an extent the expressions mean the same thing, but over recent weeks we have been reading in the press about the Government's desire, in certain areas of the law, to remove any reference to Her Majesty the Queen, to royalty and the like. I wonder whether this alteration is part of the progression of that aspect of government thinking.

Lord Triesman

No, that is not the case. I recall this issue arising in various forms during debates in your Lordships' House. I think that I can say with complete confidence that we are trying to use phraseology that has been used both in past legislation and, in the contemporary sense, in current legislation to refer to the kinds of security of the realm with which we are all familiar.

On Question, amendment agreed to.

4 p.m.

Lord Razzall moved Amendment No. 5: After Clause 6, insert the following new clause "INVENTOR CONFIDENTIALITY In section 13 of the 1977 Act (mention of inventor), after subsection (1) there is inserted-— (1A) When the applicant for a patent is not the inventor or joint inventor of the invention, the inventor or joint inventor shall have a right not to have their names and addresses mentioned on any patent granted for the invention and shall also have a right not to be so mentioned if possible in any published application for a patent for the invention and, if not so mentioned, a right not to be so mentioned in accordance with rules in a prescribed document."

The noble Lord said: The discussion so far has been pretty technical, relating to amendments moved by noble Lords on the Conservative Benches and by the Government. This is the first amendment that, although, in theory, rather dry, touches on matters that go outside the scope of the Patents Act 1977.

When the UK Patent Office implemented its extensive consultation process, it asked whether an amendment along the lines of the one that I have tabled should be made to the Bill, to bring the UK into line with the provisions of the European Patent Convention. From the Patent Office's report, it seems that there was a mixed response to the consultation. Quite a number of respondents thought that it was a good idea, and I shall come to the reasons why. The arguments against related to the loss by IP professionals of a useful tool for searching patent applications, and it was thought that that would cause severe problems with investigating entitlement matters.

The Minister will be as aware as I am that, in certain areas of science, there are organisations that wish to behave in a vindictive and possibly violent manner towards inventors. I will be interested to hear the Minister's response, for I am not certain why individuals should be put at risk simply to make searching patent applications or investigating entitlement matters more convenient, if they do not wish to be put at risk.

I think that Her Majesty's Government will suggest that regulations can be made so that an individual's address can be deleted, leaving only the name on the application. With a name such as mine, I must say that it would not take Sherlock Holmes to discover who I or, indeed, the noble Earl, Lord Attlee, were and where we lived, should either of us make an invention in this area. For Sainsbury, there would be a lot of outlets to search.

I am not sure that the Government should, for such reasons, deny inventors—even if it is a limited number—the protection that I seek. It would be possible to deal with overriding confidentiality in an inventorship entitlement or employee compensation dispute. I am sure that regulations could be made to deal with that. The fundamental point is that, given the climate in which we operate and the particularly violent way in which some organizations—in a restricted but none the less important field—operate, an inventor should have the protection of anonymity, if he so chooses. I beg to move.

Earl Attlee

I have put my name to the amendment, which the noble Lord, Lord Razzall, has moved far better than I could. My contribution on the amendment may be short, but the Minister should not underestimate my support for it. The Government should address the issue.

Lord Lyell

I shall follow in an inquisitorial role. At Second Reading, the Minister's reply was extraordinarily good. However, I would like him to clear up his last sentence. I think he said: Moreover, we intend to change the patent rules to prevent an inventor who is not the patent applicant keeping his address confidential. Thus it is not necessary or appropriate to include anything in the Bill".—[Official Report, 26/1/04; col. 45.] Would the patent applicant be the firm or the individual? The Minister, who obviously thinks that the inventor who is not the patent applicant should be able to keep his address confidential, chose his words carefully. Would I be right in thinking that the inventor would be the firm and the patent applicant may be an individual or team of individuals? Perhaps the Minister would clarify that small point when he replies to the excellent proposition advanced by the noble Lord, Lord Razzall.

Lord Sainsbury of Turville

I fully understand the intention behind the amendment and welcome the opportunity to set the record straight, because my comments at Second Reading may have been misleading. The Official Report states that we will amend the patent rules "to prevent" an inventor keeping his address confidential. That was not at all the sense of what I said. What I hope that I said was that we of course intend to make amendments to the rules to permit this. So I take this opportunity to correct that mistake—which may have been mine when I said it; but the official record certainly got it wrong.

That is a point that we have considered in detail ourselves, as part of the development of the Bill. Under the European Patent Convention, an inventor may, if he is not also the patent applicant, request that his details are kept confidential. As part of our consultation on implementing the revised EPC, we sought to assess users' enthusiasm for such a provision in our law.

The noble Lord, Lord Razzall, said at Second Reading and again today that a number of those who responded to the consultation were in favour of our proposal. That is true, but the more salient point is that the majority of respondents were not in favour of the possibility that an inventor's name might be kept confidential. They were less concerned about other details being kept confidential—notably, the address.

Respondents argued that for a variety of reasons it would not be appropriate to keep the inventor's name a secret. The noble Lord mentioned some of those reasons. For example, those who search patent databases or provide patent-watching services would lose a key piece of data. Others who evaluate inventions for commercial reasons would lose useful information that helps them to place inventions in context and relate patent applications to other published research. A lack of an inventor's name would also create substantial difficulties in the event of a dispute over the ownership of an invention or a patent.

Respondents also pointed out the rather insignificant advantage of the UK pressing ahead alone with such provision when other countries still require that information to be published. Indeed, under United States law, the patent application must be filed by the inventor himself.

I shall make one final point. As I mentioned at Second Reading, we understand that there are concerns among scientists and others who are involved in the development of controversial technologies. As the Minister with responsibility for science, I am extremely aware of that and of the activities of animal rights extremists. However, I must say that that concern focuses not on patents but on the whole question of animal experiments. I am unaware of any great focus by such groups on patents, although that may arise later.

On patent applications, inventors have always had—and will retain—the ability to give their employer's address instead of their home address. Furthermore, as I said a few moments ago, we intend to make changes to the patent rules, so that an inventor who is not a patent applicant can keep his address confidential. I believe that that is the appropriate response in the light of the consultation responses.

The general public has a fundamental right to know. That is part of the deal when the state bestows a right in the form of a patent. That process should be as open as possible hut, again, as with animal experiments, we want to protect people. On the other hand, it is right that a certain amount of information is made available.

Lord Razzall

I shall obviously think about what the Minister has said. At the moment, I am unpersuaded. On the consultation argument, of course the overwhelming majority of those consulted would have given the answer that the Minister said. Very few people think that they will make the sort of invention that we are concerned about today. So far as I am aware, there was no major consultation exercise with animal scientists, nor was there a major consultation with other limited technological groups. The overwhelming majority of people who have been patent agents or professionals working in the industry would not have wanted this to go in, for all the reasons that they have given. This would limit their ability to search, and so forth.

Finally, the Minister is being a little disingenuous on his point about other jurisdictions, particularly the United States, in the consultation exercise. According to the papers, that point was made by one person; no one else made it. According to the UK Patent Office document, one person made the point about other jurisdictions.

I think that this is a straight trade-off between protecting the rights of a limited number of individuals against the benefit to a wider group of people who are patent agents and those operating in the industry. To follow on from a point made by the noble Lord, Lord Lyell, I am not suggesting that applicants must keep their details secret. The applicant might be GlaxoSmithKline or whoever. It is only the actual inventors who should have the right to remain anonymous, if they so desire. I am not certain why, if GlaxoSmithKline should make an application, it seriously matters to those trying to search the area. That is probably a bad example—it is probably not in the sort of area with which I am concerned. I am just using it as a multi-national example. I am not entirely certain why it matters to professionals who the actual inventor was. Surely, they need to know who the applicant was.

Obviously, I shall withdraw the amendment: in any event, I have no choice in the Moses Room. But I should like to think further on it.

Earl Attlee

The Minister raised the difficulty of patent professionals researching. Perhaps that could be addressed by having an alias or reference number for the inventor so that the ability to search databases would still exist; for example, a particular inventor would continue to come up under GlaxoSmith Kline. There would be no loss of searching ability, except that it would not be possible to identify an individual, because it is very easy to work out someone's home address.

Lord Razzall

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 agreed to.

Clause 8 agreed to.

Clause 9 [Compensation of employees for certain intentions]:

Earl Attlee moved Amendment No. 6: Page 4, line 45, after "circumstances" insert "and following consultation with employee representatives with a view to reaching agreement

The noble Lord said: In speaking to Amendment No. 6, I shall speak also to Amendment No. 7. Amendment No. 7 is a rather less drastic tool than a clause stand part amendment, but my noble friend Lord Lyell will speak on the Question whether Clause 9 shall stand part.

While Section 40 and the Bill's intention of rewarding employees is laudable, this is a more complex area than might at first appear. Serious concerns and even outright opposition have been expressed by employers, trade unions and patent practitioners. Section 40 is not often mitigated, but that does not mean that it is of no use. It is always there in the background, but the new provisions in the Bill will create uncertainty while not actually changing the outcome for many inventors.

Amendment No. 6 would bring employee representatives into the equation. If I suggested that all employers and trade unions must have agreements in place to cover inventions of outstanding benefit to the employer, I would rightly be accused of seeking to introduce more unnecessary bureaucracy. Only certain types of organisations are likely to become involved with Section 40. If my amendment is agreed to, those employers would be wise to have in place suitable detailed agreements in advance of these problems. Not only should the agreements cover inventions and patents, but other ideas and suggestions as well. It is not only the inventor who should be rewarded, but the whole team when a successful project is of "outstanding benefit" to the employer.

The effects of the proposals in Clause 9 are unpredictable. I think that Amendment No. 7 is a new type of opposition amendment, but I fear that it is not patentable. It allows the clause to have effect, but only for six years after the Act comes into force. After five years, the Minister can make an order under the affirmative procedure to extend the provision indefinitely. However, if it is discovered that the provision is undesirable, such as, for instance, the Dangerous Dogs Act 1989, it could be quietly dropped without any action being taken by the Minister of the day. I beg to move.

4.15 p.m.

Lord Lyell

I follow and support to some degree my noble friend Lord Attlee. The Minister suggested that there might be some difficulty with what he either said or was purported to have said at Second Reading. Perhaps the Minister and other noble Lords are aware that I also said something along these lines, although an entire paragraph of my speech was missed out. It may have been relevant to what we are discussing and what I may come to discuss when we consider whether Clause 9 should stand part of the Bill. I may have one or two passing comments to make on that.

The Minister was kind enough to confirm what I hoisted as a hopeful lob to him. In the particular cases arising under Section 40 or Clause 9, there tends to be a team of people present. The Minister and my noble friend who has presented these two amendments are conscious that in almost all cases there will be watertight and solid agreements, if not necessarily legal agreements, for employees coming to work in a particular industry. The two types of industry referred to by the Minister at the conclusion of his speech at Second Reading were the pharmaceutical and aerospace industries. Those industries are highly specialised, scientific operations. Where a major breakthrough is made, in almost all cases there will be some form of meaningful and helpful agreement so that the employee or group of employees dealing with a particular patentable device will be rewarded or, at the least, will feel that they have been rewarded. I pointed out that, among the pharmaceutical firms I have heard of, if a firm did not reward its employees adequately, the wicked word so beloved of the noble Lord, "competition", would come into play, and the entire team might go elsewhere with their ideas—and not necessarily elsewhere in this country.

We are probably cantering along the same course, but if the Minister could reassure both my noble friend, who has presented his case so persuasively, and me we would much look forward to that.

Lord Sainsbury of Turville

I shall speak to Amendments Nos. 6 and 7. Perhaps I may say first that the purpose of Clause 9 is simply to expand in a limited way what an employee can propose as evidence of outstanding benefit. The employee bears the onus to prove that his invention, which is being successfully exploited by his employer, has been of outstanding benefit and that he is entitled to fair compensation. The slight adjustment proposed would allow the employee to include benefits flowing from the invention as well as those flowing from the patent. The benefits of the invention must accrue when the pa tent for the invention is in force, and it does not alter in any way the requirement to show that the benefit in question was outstanding. We have no intention of changing that threshold. The noble Lord, Lord Lyell, raised the question of teams of people. That important consideration exists now and nothing in the Bill changes the difficulty of being clear who was involved in an invention.

Section 40 of the 1977 Act describes the circumstances under which an employee can make a claim for compensation from his employer who has gained outstanding benefit from the exploitation of the invention made by the employee. Section 41 lays down how to calculate the level of compensation for such a claim. It states that all the circumstances must be taken into account so that, for example, the contribution of others, such as those responsible for marketing and sales or product development, can be taken into account before deciding the contribution made by, and appropriate compensation for, the employee. For example, where the success of a product in the marketplace that incorporates the invention is due to skilful marketing, that would have to be discounted when assessing the benefit from the invention.

Amendment No. 6, tabled by the noble Earl, Lord Attlee, and the noble Lord, Lord Lyell, would add a further requirement to Section 41 by insisting that the assessment of the benefit from the invention, taking into account all the circumstances, can begin only after there has been consultation with employee representatives with a view to reaching agreement. I cannot imagine any circumstances where that would make sense. If consultations between the employer and/or the employee and employee representatives are likely to resolve what would be appropriate compensation, a claim under Section 40 would be surprising. I would expect that discussions between employee and employer over the employee's claim for compensation would have already taken place internally within the company and that there is a claim under Section 40 because these have broken down. It makes no sense to make a further such discussion a requirement if disagreement is the inevitable outcome—which, in such circumstances, I think it would be.

The provision in the 1977 Act is about dealing with situations when such negotiations cannot happen. I am pleased that the very few cases that have emerged since the coming into force of the 1977 provision seem to indicate the success of voluntary agreements regarding compensation. Indeed, I understand that those are already likely to cover outstanding benefit from the patented invention as well as the patent itself. In other words, companies have already taken on board that point and have got their own compensation arrangements. They probably cover the new point that is in the Bill. The Government are unable to support the amendment. I ask the noble Earl, Lord Attlee, and the noble Lord, Lord Lyell, to withdraw it.

The new clause proposed by the noble Earl, Lord Attlee, in Amendment No. 7 is intended to require a review of the effectiveness of our changes to Clause 9 after five years. We would revert to the present regime if the changes that we are considering today were not confirmed within six years. Such a provision could, of course, be applied to any legislation but I doubt that any of us would wish to start legislating routinely in this way. It is simply unfair to apply it only to a provision that might favour slightly one interest group.

In the Bill, we propose a small adjustment based on 26 years' experience of how the system is operated. Parliament should now decide whether that change should go ahead without any uncertainty about the future. Such uncertainty helps neither employees nor employers. Nobody would know whether the goalposts would change or not in a few years. Employees would not be able to decide whether or not to update their own corporate arrangements for rewarding staff who contribute to the success of the company. That will thus work against the principal advantage of the current provisions: that their existence has encouraged corporations to put in place their own internal schemes for rewarding employees who contribute to the success of the company.

I trust that the reassurance that I have given about the limited scope of our amendments to the employee compensation provisions is helpful. We should leave no doubt that the changes are the right ones to make. I therefore ask the noble Earl, Lord Attlee, to withdraw the amendment.

Earl Attlee

I believe that Section 40 is useful only as a backstop. The evidence for that, of course, is that we do not frequently litigate on it.

Knowledgeable outsiders are opposed to the proposed amendment of Section 40. The purpose of Amendment No. 6 is to make advance agreements more usual; to encourage employers to seek advance agreements. The Minister pointed out that in many cases this already occurs. He almost seemed to argue that Section 40 already works fairly well, as evidenced by the lack of litigation. That makes me think "Well, why change it?"

The Minister opposed Amendment No. 7, not surprisingly, but his arguments could be applied also to oppose secondary legislation. Secondary legislation can be changed, so obviously it is not appropriate to use the amendment on this clause. However, it is a useful opposition tool to express displeasure at an amendment when one does not want to oppose the amendment outright. I beg leave to withdraw the amendment, subject to the usual caveat.

Amendment, by leave, withdrawn.

On Question, Whether Clause 9 shall stand part of the Bill?

Lord Lyell

I understand that this is the only device I can use to ask for clarification of Clause 9, which is based on Section 40 of the 1977 Act. We had quite a good canter around the course on Second Reading and in the debate on my noble friend's Amendments Nos. 6 and 7. However, I am curious about one particular aspect of an inventor—one must be careful—a patentee, an employee working for a company. I am interested in the definition in Clause 9 of "inventions" as opposed to "patents".

One or two mild fears have been expressed to me about the slight broadening of the word "inventions" as opposed to "patents'', which has worked fairly well since 1977 and even before that. I have one query—and there is no reason for the Minister or the noble Lord, Lord Triesman, to answer today—and that is: what happens if an employee or a team in the course of their scientific experiments find, completely by chance, a different application for their patent from the one they set out to achieve?

I recall in 1977 the case of the non-stick frying pan. I believe that the surface for a non-stick frying pan was discovered totally by accident. However, I am not sure whether it was discovered as a result of people experimenting with cookware—the brown or white goods that go into stores—or because of another aspect, which unfortunately has left visible signs on me: that is, the winter sports ski industry. I should point out to the Minister and the noble Lord, Lord Triesman, that the fabrics, skills and technology used in a non-stick frying pan which ensure that food does not burn and eggs do not stick is exactly the same as that used by alpine and nordic ski manufacturers. I am told that the substance goes by the name of polytetrafluorethylene. I remember that we used to chant it at great length in 1977 and I have managed to get it out today.

The patent was filed completely by accident. The team was looking for one particular product and found another. Indeed, this second product was totally apart from the one intended by the company which was manufacturing the frying pans and it had no intention of heading off with it to the Alps and the ski industry. Indeed, there were translation problems, apart from with the Americans, and it was necessary to speak French, German and Italian. The invention has been of inestimable value and exists to this day.

Can the noble Lord advise me on the position of the team or the patentee when they come across an invention totally by accident? Will their employers be able to say, "You cannot take this invention and sell it to another firm"? Would the original employer be able to have some control over them and say, "You will be able to use it only in connection with all the facilities that we have given you"?

Perhaps this is a rather naughty speech. The Minister might be able to reply or give me some advice today, or perhaps at a later stage. He indicated that Section 40 is a backstop, as my noble friend said, and has not been used that often.

Lord Razzall

Ever.

4.30 p.m.

Lord Lyell

The noble Lord, Lord Razzall, is a proper student of the legal documents; I am afraid that I do not spend all my mornings with the Times law report or the other law reports. Research that has been presented to me no doubt would have included such cases.

As the Minister said at Second Reading, he is convinced—as am I—that in almost all sections of British industry, with its excellent science backing, arrangements are in place for employers and employees to have a reasonable, decent and biting agreement. It is for that reason that I ask, politely, that Clause 9 not stand part of the Bill.

Lord Sainsbury of Turville

I shall deal first with the main point of the noble Lord's speech. The number of inventions made by serendipity—when people who are looking for one thing discover another—is a very large part of what is behind most patents. The technical answer to his question is that the invention is that defined by the patent. The claims of the patent say what it is. If the new use for the frying pan falls within the scope of the claims, it is covered, otherwise it is not. That is true under current provisions and will be under the new ones. If people find a totally new use, presumably a new patent will cover that, and it can be put in by the company and the employees who discovered it.

I shall explain a bit more about Clause 9, as it should stand part of the Bill. The Patents Act 1977 recognised for the first time in statute that an employee should have a right to compensation in relation to inventions made by him but exploited by his employer. The working of the employee compensation provisions were reviewed as part of the consultation exercise conducted by my department in preparation for the Bill. The results of the consultation process showed that there was little support for significant changes to the provisions, despite the fact that since they came into force there has not yet been a successful claim for compensation.

That apparent lack of success in the courts does not mean that the provisions have not been helpful in improving the situation for employees. On the contrary, it is clear from the responses that we received to the consultation that the mere existence of the provisions has encouraged employers to make their own corporate arrangements for rewarding employees, where they make a significant contribution to the success of the company.

There was more support, however, for the least radical of the five options for change presented in the consultation. Thus, Clause 9 will allow a modest increase in the scope of what an employee can put forward to meet the high threshold of "outstanding benefit". He will be able to put forward evidence of benefits flowing from the invention itself, as well as those flowing from the patent for the invention. However, in doing so, the employee will have to be aware that the contribution of others to the benefit derived from the invention will also have to be taken into account when deciding the issue.

For example, if the invention has required significant development work to produce a commercially viable product, any resulting benefits cannot be regarded as flowing solely from the invention itself. Similarly, if the invention is successful because the company has a very skilful sales and marketing team, that contribution will also have to be taken into account before assessing the benefits which are attributable to the original inventor.

The effect of the changes to the employee compensation provisions is limited in other ways, too. Subsection (7) makes it clear that only those benefits from the invention or the patent which arise while the patent is still in force can be taken into account. That is not, therefore, an open-ended commitment that employers might have to meet. Also, subsection (8) outlines the transitional arrangements for the coming into effect of the amendments. The new provision does not apply to existing patents, or even existing patent applications. It will apply only to patent applications made after this part of the Bill has come into force. That will give employers time to update any voluntary agreements covering compensation, where that is appropriate, although we believe that many of the agreements already cover the substance of what would be provided by the Bill.

Given that the onus is on the employee to prove outstanding benefit, we believe that that modest change is appropriate. It should not upset the careful balance that must be struck between the right of the employee to "just compensation" on the one hand, and the right of the employer to carry out business without facing an unjust financial burden on the other.

Earl Attlee

I am grateful for the Minister's patient explanation of Clause 9, but how will be measure the effect of the clause?

Lord Sainsbury of Turville

We hope that the matter will be taken account of in the compensation arrangements by the relevant companies. If it is not, we will expect to see some cases come forward that use he Bill to get fair compensation for employees. We would make a judgment on that basis.

Lord Lyell

I hope that I shall not weary the Committee, but can the Minister put to bed my worry? Did he cover totally the subject of the patent and invention being widened slightly? Also, I am still curious about serendipity, a word he used. Let us take the example of the frying pan. Did I hear him right in saying that the employer of the team that comes with the polytetrafluorethylene could use preventive measures on them? If it had any sense, it might well go to the ski manufacturers and say, "Will this be of use to you?".

Is there a method whereby the team that has patented polytetrafluorethylene could benefit from their product in a totally different area? Is there a break from the original employer? That might be covered anyway in an agreement on Clause 9 or Section 40. I was a little curious about that. Other than that, the Minister has been very kind and has answered pretty well all my queries on Clause 9. I apologise, and after this I shall certainly not delay the Committee.

Lord Sainsbury of Turville

There is a rather technical point here about what is covered by a patent. If I may say so, the point that we are debating is on where the benefits flow from, and the answer is simply that the benefits that flow from the invention as well as the patent should be considered. The question of what is covered in a patent is a more technical one that is not relevant to this discussion.

Lord Lyell

The Minister raised the subject of salesmen. Every sales section of large firms in, for instance, the pharmaceutical or aerospace industry will have carefully noted what he said. I am a little worried, if not suspicious, that the salesmen would say, "Section 40 or Clause 9 is going to help us". That was probably not the intention of Clause 9, let alone Section 40. I had visions of people in laboratories or working in a particular line of scientific patent, but the Minister broadened the matter to sales. My slightly suspicious mind began to think that salesmen would say, "Here is the gravy train", and leave on it.

Lord Sainsbury of Turville

I would not want any salesman to be misled. Salesmen have whatever compensation arrangements they have. I was simply making the point that, in determining what is the outstanding benefit, one must take account of the fact that if a product sells extremely well due to a clever marketing campaign, that outstanding benefit does not return to the inventor. The inventor receives the benefit coming from his invention; if there is a brilliant sales campaign, that is not relevant to the outstanding benefit to be determined.

Earl Attlee

I was very impressed at the speed with which the Minister answered my question about measuring the success of Clause 9. I hope that he was not suggesting that the measure of success would be the amount of litigation under Section 40.

Lord Sainsbury of Turville

No, I was careful to make the point that it is about the incorporation of that into the arrangements of particular companies. If that takes place and there is no litigation, we shall be quite happy. If it is not incorporated and there is some litigation, that will show that the legislation is working.

Clause 9 agreed to.

[Amendment No. 7 not moved.]

The Deputy Chairman of Committees

I should point out that there is an incorrect printing in subsection (1) of Amendment No. 8. It should read, "In section 61", not "16".

Lord Razzall

I thank the noble Baroness; I was about to make the same point. I would not want the noble Lord, Lord Lyell, in particular, to think that I did not know the difference between Sections 16 and 61 of the 1977 Act.

Again, this is a small amendment raising a big point. It addresses the question of whether, especially to benefit small and medium enterprises, the jurisdiction of the comptroller should be widened so that proceedings can be brought before him by one party, whether or not the other party agrees.

I understand that when the Patent Office undertook the consultation exercise, the proposal was that Section 61 should be amended to remove that requirement. Although the wording of my amendment is undoubtedly inadequate, it reflects the original intention of the Patent Office and the Government, which they later abandoned when they received the results of consultation. It is a probing amendment to see how far the Minister is prepared to go.

I do not really expect the Government to change their mind on the substance of the issue; the principle that I am trying to explore is what undertaking the Minister may be prepared to give to keep that area under review—especially in the light of concerns expressed on behalf of SMEs that the current procedures are expensive.

The Minister will expand on this, but from reading the summary of the consultation exercise, there were two main areas where the proposals did not meet a favourable response. First, there was the argument that were we to give the comptroller power to hear proceedings where both parties had not consented, it would then be necessary to give him wider injunction powers than he has under current legislation. I understand that point.

Secondly, there was an objection that that might add an unnecessary further tier of litigation, because if the comptroller found against one of the parties, there would be nothing to stop that party going through the appeal mechanism, judicial review and so on. Again, I take that point, but the most fundamental point was that SMEs were intended to be helped by the establishment of the Patents County Court. It is perhaps early days to suggest that the Patents County Court is not providing SMEs with the necessary, cheap protection that they seek.

When I say that the amendment is probing, I wonder how far the Minister is prepared to go. Is he prepared to say that the operation of the Patents County Court in that area will be kept under review? If, in a year or two, SMEs make the same objection, will the Government consider further legislation to deal with that point? I beg to move.

4.45 p.m.

Lord Lyell

I have one or two grounds for supporting the noble Lord, Lord Razzall. He put the case admirably, and I have nothing to add. We are concerned that legitimate constraints should not inhibit proper and bona fide attempts to negotiate a settlement to disputes, especially with regard to Section 70. The noble Lord, Lord Razzall, made the case beautifully, and I support it.

Earl Attlee

I have an amendment in the group, Amendment No. 20. It is slightly different. It would replace Section 61(3) in such a way that the comptroller could either arbitrate or award claims under the whole of subsection (1) and/or the Secretary of State could by order under new subsection (3A) set up a panel of independent arbitrators. That would enable real experts in the art to be brought in and allow for the panel to be independent of the Patent Office, thus avoiding a situation in which it grants the patent and then judges infringement of it. That is possibly a more effective solution than the non-binding opinions of the Patent Office.

Lord Sainsbury of Turville

The main difference between hearing infringement cases before the courts and before the Comptroller-General of the Patent Office is that, in order to have a case heard before the Patent Office, the patent holder must secure the agreement of the other party. Although infringement proceedings before the comptroller have been possible since the 1977 Act came into force in 1978, no parties have ever agreed to such proceedings. For that reason, we consulted on making exactly the same change as that proposed in Amendment No. 8—to remove the consent requirement—so that, as for other proceedings, the claimant alone may choose to bring proceedings before the comptroller. However, the proposal did not meet with approval from those who responded. That case is a good example of a government listening to consultation and changing strategy in the light of it. For that reason, it should be cherished.

There was more than one reason for the response. One reason seems to have been the lack of awareness that infringement proceedings could be brought before the comptroller. We intend to address that lack of awareness and highlight the advantages of that low-cost forum for settling disputes in a binding way. Indeed, we need to draw people's attention to the success of binding arbitration entered into with the agreement of both parties in settling commercial disputes in some other areas. Section 61(3) is in effect similar to the provision of voluntary binding arbitration.

Another important reason for not adopting the idea on which we consulted is the desire not to undermine the extremely useful procedures provided by the Patents County Court, the point that the noble Lord, Lord Razzall, raised. Prompted by similar concerns about the difficulty that some patent proprietors experience when seeking to enforce their patents, the Patents County Court was set up in 1988 to provide a lower-cost, more user-friendly and more streamlined forum for the resolution of patent disputes. After a slow start, progress is being made towards meeting those objectives. Any proposal to provide another forum, essentially offering the same possibilities, to handle patent infringements disputes was seen as likely to cause confusion and undermine the good process that has been made.

A final point was that any decision of the comptroller under Section 61 can be appealed to the patents court. Appeals may be considerably more likely if a party has not consented to proceedings before the comptroller. Thus, any saving in time and cost that might be gained by using the Patent Office procedure could be lost in the cost and time required for dealing with such an appeal. Adding the cost of appeal is likely to create a higher overall cost than that for a case heard in the Patents County Court. It may be better to avoid what many would consider to be an extra layer of litigation and require parties to go straight to the courts with their better range of remedies, if parties have not agreed to use the Patent Office procedures.

Like that proposal, the amendment to Section 61 of the Patents Act 1977 proposed by the noble Earl, Lord Attlee, and the noble Lord, Lord Lyell—Amendment No. 20—also proposes to change current Section 61(3) to move the requirement for the consent of both parties. It would, moreover, extend the range of remedies available to the comptroller to include all those mentioned in Section 61(1). Although the amendment would address one of the concerns about Section 61(3) raised by some respondents to the consultation, it does nothing to address the issues of increased confusion and direct competition with the Patents County Court, or adding an extra layer to litigation in this area. Indeed, it would make the Patent Office proceedings even closer to those available in the Patents County Court.

Amendment No. 20 then goes on to propose the insertion of two new subsections (3A) and (3B) into Section 61, which would provide a general power under the affirmative resolution procedure to set up the necessary procedures in the Patent Office to handle such infringement cases. The setting up of a panel of independent arbitrators is specifically mentioned as a possibility.

This provision appears entirely unnecessary. The Patent Office is staffed with public officials who are independent of the parties and capable of hearing such disputes. In addition, under Section 123(2)(g) of the Patents Act 1977, the comptroller already has the power to appoint any adviser that he requires to assist him in any such proceeding.

The amendment proposed by the noble Earl, Lord Attlee, and the noble Lord, Lord Lyell, appears to be intended to create a procedure for binding arbitration of infringement disputes before the comptroller. Arbitration of a dispute between two parties is usually carried out either with the agreement of both parties to be bound by the decision, or by order of a higher authority, such as a court, that applies to both parties.

The proposed change to Section 61 will allow one party only, the claimant, to launch infringement proceedings before the comptroller. The comptroller will then decide the issue and order suitable relief. I doubt whether such a procedure, which does not place the same requirement on both parties to be involved either by agreement or compulsion, can be considered as arbitration. Indeed, as I have mentioned, one might consider that the existing Section 61(3) already provides for a procedure that is a form of binding arbitration, as it requires the consent of both parties.

We are hopeful that recent and ongoing changes at the Patents County Court will be successful in providing a lower cost forum. I should say to the noble Lord, Lord Razzall, that we will keep this under review and could revisit this area if the changes do not have the desired effect.

Thus, in the light of the difficulties identified with the proposed amendment to Section 61 by the noble Lord, Lord Razzall, the noble Earl, Lord Attlee, and the noble Lord, Lord Lyell, and given my assurance that we will keep the question of the Patents County Court under review, I ask noble Lords to withdraw their amendments.

Lord Razzall

So far as concerns Amendment No. 8, I agree with the Minister's comments in regard to consultation. After all, consultation is there to find out what people want, and one then adjusts one's policy accordingly. No doubt, the noble Lord, Lord Triesman, will confirm that that is what will happen with the Big Conversation. On that basis, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 10 [Enforcement of damages]:

Lord Triesman moved Amendment No. 9: Page 5, line 36, leave out "a recorded decree arbitral" and insert "an extract registered decree arbitral bearing a warrant for execution issued by the sheriff court of any sheriffdom in Scotland

The noble Lord said: Clause 10 provides an improved mechanism by which a patent holder can enforce an award of damages made by the comptroller of the Patent Office in infringement proceedings. However, we have recently discovered that the wording of proposed new Section 61(7)(b), as set out in Clause 10, is not consistent with changes made by the Debtors (Scotland) Act 1987. That was drawn to our attention relatively recently by the solicitors for the Advocate General for Scotland, and obviously we have had to take note of that advice. Amendment No. 9 therefore brings the wording of Clause 10 into alignment with the changes made by that Act to the wording of Sections 93 and 107 of the Patents Act.

Amendment No. 24 makes an equivalent correction to the wording in existing Section 41(10). That provision concerns the enforcement in Scotland of an award of compensation for an employee-inventor and also erroneously contains the pre-1987 wording. We are trying to ensure consistency across all of these pieces of legislation. In that light, I beg to move.

Lord Lyell

Before we accept the government amendment, did I hear the noble Lord right in saying 1987? I must go and check. I looked at Section 93 of the 1977 Act, which is about a "recorded decree arbitral". Did I hear that there was a Scottish Act in 1987? If he confirms that, I will of course agree with the amendment.

Lord Triesman

I would be the first to confess that I had not been an assiduous student of the Debtors (Scotland) Act 1987, but I am able to confirm that that is the right year.

On Question, amendment agreed to.

Clause 10, as amended, agreed to.

Clause 11 [Threats of infringement proceedings]:

Lord Razzall moved Amendment No. 10: Page 6, line 7, at end insert ", or (c) communications which a person intended as an effort in good faith to negotiate a settlement and which contain notice of detail of facts which support a reasonable apprehension of infringement occurring.

The noble Lord said: In moving the amendment, I shall speak also to Amendment No. 12, which goes to similar points. I am grateful for the help that I have had from the Law Society of Scotland on Amendment No. 10, which makes a very simple point. The law as it is, and as it will be in future, should not inhibit the opportunity of negotiated settlements in such disputes. I am not sure what the Minister will say on the amendment. He may well say that it is unnecessary; if so, it does not mean that it cannot go in the Bill. It is simply an intention to add to the Bill a statement that efforts to negotiate a settlement shall not be regarded as a groundless threat to institute proceedings.

The threat issue is difficult and brings me to Amendment No. 12. I am told by those who practise in the area that, quite often, an attempt is made in potential disputes to drive a wedge between the client and his, her or its adviser by suggesting that there is an infringement by the adviser. Amendment No. 12 attempts to bring English law into line with what I think is Section 132 of the relevant Australian patents legislation. The Government carried out consultation on the matter, and might even have been minded to take such a route. However, they declined to do so.

I shall be interested to hear what the Minister says. Some of the justification in the Patent Office's response—in particular that no similar protection is given to professions in libel actions, so it should not be given to professions in the area about which we are talking—was a little specious. Everyone is aware that the whole structure of the patent industry—science and protection of inventions—is very different from litigation over whether the noble Lord, Lord Sainsbury, is X, Y or Z. I look forward to his response. I beg to move.

5 p.m.

Earl Attlee

I have tabled Amendment No. 11 in this group. The new threats provisions are generally welcome, although I confess that when I started with the Bill I did not understand the need for the Section 70 threats provisions. Clause 11 provides for new subsections to Section 70 that provide a defence in threats proceedings when a person must resort to pursuing secondary infringers. The defence is that he has used his "best endeavours" to determine who was the primary infringer or importer.

Originally, when I read the clause, I thought that I knew the meaning of the term "best endeavours", and the drafting made sense to me. I now understand that the term means practically to leave no stone unturned. I do not believe that that is what the Minister intends, because it would be a very high hurdle to clear in order to avoid the risk of threats proceedings. In addition, it would hit SMEs hardest.

On the amendments tabled by the noble Lord, Lord Razzall, I am not worried about Amendment No. 10, but Amendment No. 12 worries me. Legal practitioners have the hide of a rhinoceros, and they can charge at anything. I do not think that a patentee or proprietor would be as uncouth or as unprofessional to make threats; he would use a professional. That would be fine for an SME quite properly to protect his IP rights. My fear is that Amendment No. 12 could be used as a loophole by an aggressive multinational.

Lord Lyell

I wish to give the reason that I think the noble Earl, Lord Attlee, has tabled the amendment. It very much finds favour with the Minister; indeed, he mentioned the case of Goliath versus David at Second Reading. The amendment seems to support small teams of inventors—those about whom I always think—such as biotech companies with four or five employees, against giant corporations. It is not that I always quote the Old Testament, but in this case my noble friend's amendment is more than practical. I wonder why the wording we have suggested in Amendment No.11 would not find favour with the Minister. What loopholes will it present regarding the effectiveness of the Bill? I look forward to hearing the Minister's response, particularly in the light of what he said at Second Reading.

Lord Triesman

I am afraid that it will have to be me rather than my noble friend from whom the Committee hears today. I shall start with a quick comment to situate what I want to say. We are trying to balance a sensible, prudent approach to the question of who the infringer is with the interests of those who, for financial reasons, do not want to get into a David and Goliath contest. Such concerns must be balanced; I hope that I will be able to express that. The best way of doing that is to try to set out how the Government see the provision, and why we believe that it, rather than the amendments, will work in this context.

The Government believe that patent-holders should, where possible, focus their attempts to resolve a dispute over infringement on the alleged primary infringers of their patent. That will generally mean approaching the person manufacturing or importing the products under dispute or using the process under dispute. That must surely be the first port of call. Where the dispute is over a product or process, the primary infringer is the source of the dispute, so it is right that reasonable attempts should be made to negotiate a settlement and direct those attempts at that primary source, where possible.

As I believe that that is generally the right approach, the Bill contains two important changes to the threats provisions that are consistent with the approach I have outlined. First, in subsection (2) of Clause 11 we attempt to ensure that, once the patent-holder has found the source of the dispute, there will be no barriers to his raising with that person any alleged infringing behaviour. The current situation is that the alleged acts of secondary infringement, such as selling the product, cannot be raised with the alleged primary infringer, thus making it more difficult for the patent-holder to approach that person. Our proposed change has been strongly welcomed by users, perhaps for self-evident reasons.

Secondly, Clause 11(4) is designed to enable a patent holder to approach a retailer or other secondary infringer only in rather limited circumstances. These limited circumstances are defined to be those where the patent holder has unsuccessfully used his best endeavours to locate the alleged primary infringer.

In the light of that background, which I hope expresses our approach to the matter, I turn first to Amendments Nos. 10 and 11. Amendment No. 10 would have the effect that an action for threats could not be brought in respect of a communication which is intended to be an effort in good faith to negotiate the settlement of an infringement dispute and which contains sufficient detail to support a "reasonable apprehension" of infringement. This would seem to allow the patent holder to approach a retailer or other alleged secondary infringer saying, "You are infringing my patent", even when the identity of the primary infringer is well known. It strikes me that it could not possibly be right that the retailer should generally be expected to deal with an infringement dispute over a product that they stock when the manufacturer or importer of that product is easily identifiable and contactable. That is the case whether or not there is some evidence that the patent has been infringed.

One question raised by the amendment is whether an approach to an alleged secondary infringer could be considered to be in good faith if no prior attempt had been made to approach the alleged primary infringer. Arguably it could not be, given that serious negotiations in good faith might be expected to begin with the manufacturer and not with the retailer. But that result is achieved in a much clearer and more direct way by the existing text of Clause 11, which has the effect of requiring the patent holder to focus his efforts on the alleged primary infringer, thus starting the process at source. It is a matter of good principle to try to resolve the matter as close to the source of the issue as can be achieved.

It may be that the noble Lord who moved the amendment and I are aiming for a similar outcome, and I hope that I have been able to reassure him that the current provisions in Clause 11 should achieve that outcome. That is certainly what they are intended to do. In the light of my remarks, I would ask him to withdraw the amendment.

Amendment No. 11 proposes to lower the "best endeavours" threshold to, "reasonable endeavours in all circumstances as an alternative threshold. However, in a case which concerned the duty under contract of a purchaser to obtain planning permission, the Court of Appeal stated that "best endeavours" was interpreted as meaning that of the purchasers, who are, bound to take all those steps in their power which are capable of producing the desired results … being steps which a prudent. determined and reasonable owner, acting in his own interests and desiring to achieve that result, would take". That is the test that is involved here. Thus "best endeavours" is not an unattainable threshold, nor is it one that is achievable only by those with deep pockets. It rightly maintains a high standard, but it also preserves the aspect of "reasonableness", since the definition given by the court requires that the determined and reasonable patent holder will take all steps within his power—not beyond that point—to find the alleged primary infringer. It does not ask the impossible of anyone.

On the other hand, I think there is a risk that, reasonable endeavours in all circumstances, the alternative wording, may mean that the patent holder has only to make less determined efforts to find the alleged primary infringer before being allowed to chase the retailers. Furthermore, as a standard of duty, it seems less clear than the arguably more precise requirement to make "best endeavours", one that the courts have defined as I have said.

It is important to maintain the correct balance between the rights of a patent holder to chase infringers and the need to provide alleged secondary infringers with protection from unjustified threats. Lowering the threshold from "best endeavours" may mean that retailers are too exposed to unjustified approaches from patent holders. I hope that I have been able to convince noble Lords that the amendment should be withdrawn on that point.

Finally, Amendment No. 12 proposes exempting a legal practitioner or a registered patent attorney from the threats provisions if they are acting on behalf of a client. Making an unjustified threat of patent infringement is a tortious act. Generally, when an agent commits a tort on behalf of a client, both the agent and the client are liable. That does not seem an unreasonable principle as applied in general terms. I am not convinced that it is right to create a statutory exemption to this general principle when it comes to unjustified threats over patent infringement.

I should add that the changes we are making to the threats provisions will bring greater certainty to the legal adviser who makes an approach to an alleged infringer on behalf of the client. The changes to subsection (4) of Section 70 will clarify what can be said to an alleged primary infringer. Changes to subsection (5) clarify what communications cannot be regarded as threats at all. The new subsection (6) would provide a defence where the primary infringer cannot be identified. Those changes, therefore, make it possible for a legal adviser to get involved in sensible pre-litigation discussions without fear of a threats action being launched against him or his client and so reduce the need for advisers to have special protection from threats actions.

We are aware that the Australians have made a provision exempting professional advisers from being sued for making unjustifiable threats. The noble Lord, Lord Razzall, asked, "Why not us as well"? We are aware of the provision in Australian law. The amendments that we have proposed to the provision on threats does, as I hope that I have explained, give professional advisers, as well as their clients, greater scope for dealing with alleged infringements without the risk of having a threats action launched against them. An unqualified exemption for professional advisers, as proposed by the amendment, is therefore hard to justify. It goes beyond what could be justified.

However, in the light of the argument, we are certainly prepared to consider whether we might be able to make a more limited amendment regarding professional advisers. We will look at that. Therefore, I ask the noble Lord, Lord Razzall, to withdraw his amendment.

I apologise for the length of the response, but this is a complex set of matters. In conclusion, the changes made by Clause 11 address concerns about the inability of patent holders to make genuine attempts to settle disputes while maintaining reasonable protection for retailers and others who should normally not be exposed to unjustified threats. The changes are strongly supported by business. I hope that noble Lords opposite will feel that they are able to do the same on this occasion.

Earl Attlee

I am grateful for the Minister's response to Amendment No. 11. We did not have the benefit of the noble Lord, Lord Grabiner. However, we do have our noble friend Lord Kingsland. I shall consult my noble friend very carefully about "best endeavours". Despite the example quoted by the Minister, I am not convinced. We shall look at this matter very carefully and, possibly, will come back at a later stage.

Lord Razzall

I am grateful for the Minister's comment with regard to Amendment No. 12. I look forward to seeing the limited amendment that he proposes to bring forward. I am not persuaded by his arguments regarding Amendment No. 10. If I understand him correctly, in substance he said that basic conduct and contact with a retailer is extremely limited and, therefore, the purpose of my amendment goes wider than any contact contemplated with the retailer. Under Clause 11(3) there would be three new circumstances under which it is contemplated there will be direct contact by someone who alleges that there has been an infringement. Under Clause 11(4), there would be three defences that could be used where contact has been made in those circumstances. Therefore, under Clause 11, six new contact provisions are proposed to amend Section 70 of the Act.

I am perfectly happy to accept that the wording may be imprecise and limited but, in the context of those six types of contact, are we really suggesting that no discussions will take place to avoid potential litigation? My amendment seeks to ensure that if someone engages in that sort of communication to negotiate a settlement, they are not subject to the threats provisions.

I take the Minister's general point but not his specific point in regard to this suggestion. I shall of course withdraw the amendment.

5.15 p.m.

Lord Lyell

Before the noble Lord does so, I was very impressed by what the noble Lord, Lord Triesman, said. Indeed, he offered considerably more than a scratch; he offered a reasonable concession that he would look to see whether he could meet halfway the concerns of my noble friend Lord Attlee and myself.

The noble Lord spoke about the retailer—I am thinking about the small corner shop—obtaining a small invention. I believe that in some of the literature we have read an American lady had a cup that could not be upset. He may be thinking about something like that. However, I recall that her invention was not stolen but removed and used by manufacturers in, I think, Taiwan.

What would happen if an inventor or someone who produced a particular product finds that a retailer—a small corner shop—has a supply of infringing articles? Is the first stop for a fairly small inventor, who has registered his patent or is registering his patent, with the retailer or the wholesaler, who I presume would be the importer into the United Kingdom? What are the reasonable steps and who would take them? If the case was beautifully presented, my small corner shop would use the wise words of the judgment on planning permission in the Court of Appeal, but I am sure that that is over the head of every small retailer of the kind where we go every morning to buy our newspapers.

Can the noble Lord explain the practicalities of the patentee going first of all to the retailer or the wholesaler to obtain some satisfaction? Is there something in Clause 11 that I have missed?

Earl Attlee

Perversely, I have more sympathy for Amendment No. 10 than I do for Amendment No. 12.

Lord Razzall

I am obviously happy to withdraw Amendment No. 10.

Amendment, by leave, withdrawn.

[Amendments Nos. 11 and 12 not moved.]

Clause 11 agreed to.

Clause 12 [Opinions by Patent Office as to validity or infringement]:

Earl Attlee moved Amendment No. 13: Page 6, line 37, leave out "or infringement

The noble Earl said: In moving Amendment No. 13, I shall speak also to Amendments Nos. 14, 18 and 19. The amendments seek to take out anything relating to infringement in Clause 12. We understand why Clause 12 has been introduced but we do not believe that it is the best way of dealing with the problem.

Various organisations have expressed the view that they do not believe that the Patent Office has the competence to decide on infringements, especially in complex areas such as biotechnology. Many have also expressed the view that the inventive step does not get enough analysis at the Patent Office at the time of grant, which further compromises its ability to decide on infringement. The fact that subsection (4) of proposed new Section 74A states, An opinion under this section shall not be binding for any purposes", means that big businesses and infringers will not be deterred. Moreover, if the parties adhere to a nonbinding opinion, they ought to be able to resolve their difficulties themselves without needing to go to the Patent Office. The only possible use of the Patent Office opinion is to tell a patentee that his case is hopeless. An honest patent professional should be able to do that. I beg to move.

Lord Lyell

I support my noble friend's plea. I am a trifle worried about biotechnology and science moving ahead quickly. I wonder whether the provision as drafted will be adequate in the circumstances. My noble friend presented a good case; I look forward to hearing what the Minister has to say.

Lord Razzall

I support the amendments, for which we are again grateful for the assistance we have received from the Law Society of Scotland. Let us not delude ourselves that an opinion given by the office—which is not binding but is merely an expression of view—would not be extremely material in a dispute. The concern is that a well funded and well informed company will make a pre-emptive strike when it sees trouble ahead and will initiate an uncontested proceeding in order to obtain an authoritative opinion from an organ of the state. In most cases, that would undoubtedly have the purpose of disadvantaging a prospective adversary.

I should be letting down the Law Society of Scotland if I were not to use the Latin proposition and ask whether this means that audi alteram parte need not apply in the first instance?

Lord Sainsbury of Turville

I shall speak to Amendments Nos. 13 to 19. The purpose of Clause 12 is to provide an interested party with a reliable and realistic assessment of the validity and/or infringement issues that could arise in a possible dispute. We hope that access to an opinion may prove useful in settling disputes.

An opinion may provide an independent view of certain facts that will help inform a negotiated settlement. Sometimes an opinion may be useful even where there is no current dispute. For example, an opinion might provide a person with an assessment of certain facts relevant to the risks of undertaking an activity that might infringe a patent. That could be useful before the person decides whether to invest in that activity. However, opinions are not binding: no one has to seek one; and no one will be prevented from seeking to have his dispute settled under existing procedures provided by the 1977 Act, either before the courts or before the Patent Office.

We will not be forcing people to settle their patent disputes by that new procedure. However, that additional procedure could play a useful role in helping business to assess matters relating to patent rights. It must be viewed in that context: it will be an option that people will have to get an opinion. I do not see that getting an opinion would give one an enormously strong position. It would depend on the circumstances and what was the opinion. That is why we see no need for everyone to agree for it to occur.

In many cases, validity and infringement issues arise in the same dispute. One party could request an opinion on whether a particular patent owned by a second party was valid. The second party might then want to know whether the activity proposed or being carried out by the first party was an infringement of his patent. Permitting opinions to be sought on both issues is not only fair but more likely to enable both parties to make a decision about what to do based on an assessment of all the relevant facts.

Removing the ability of the Patent Office to issue opinions on infringement issues would significantly weaken the value of the opinion procedure. Its effectiveness will depend on its ability to offer a rapid and reliable assessment of all the possible issues that might arise in the dispute so that the parties can make a realistic assessment of their chances of success and whether a negotiated settlement might be the best option.

I believe that the reason behind Amendments Nos. 13 and 14 is a concern that the Patent Office does not have the expertise to consider issues of infringement. However, let me reassure noble Lords that the Patent Office has experience in dealing with issues of infringement. In this context, I do not see why biotech should be treated any differently, as it is as much part of what the Patent Office does as other technologies. Patent Office staff deal with such issues when considering applications under Section 71 of the 1977 Act for a declaration of non-infringement. Such declarations are legally binding and indicate that the activity they relate to does not infringe a particular patent. Furthermore, the commercial services provided by the Patent Office, through its search and advisory service, include infringement searching. In 2003, for example, 21 such searches were carried out for commercial customers. Demand for that service continues to grow.

Moreover, we envisage that the opinion procedure will be essentially paper-based, with the activity that might infringe a patent presented either in a description and/or drawings. Assessing whether what is disclosed in such written evidence is within the scope of the patent claims, which would be necessary in order to provide an opinion on infringement, is in many respects analogous to assessments that patent examiners make during the pre-grant search and examination process.

As I have already explained, the purpose of Clause 12 is to provide an interested party with an early assessment of the validity and/or infringement issues that could arise in a possible dispute. That is what the opinion procedure adds to the existing remedies available for settling patent disputes, where the outcome is binding. The procedure is totally new for people to use if they want, and we believe that it is possible to make the procedure attractive, because the outcome is not binding.

If the outcome were binding, as would be the case with Amendments Nos. 15 and 16, it is hard to see what it would add to the range of existing remedies. For example, a person who wants to obtain a binding decision about the validity of another person's patent can essentially seek that through the existing revocation procedures. I cannot envisage that a binding procedure would be particularly attractive for patent proprietors to use in respect of their own patents. Moreover, if the outcome is to be binding, parties will want to use the best representation that they can afford, put all their evidence on the table and seek cross-examination and discovery, just as they do in full-blown proceedings. I cannot, therefore, see how the amendments would help to provide a procedure that is a genuinely new departure.

Amendment No. 17 would also result in a procedure that does not give a rapid assessment of facts relevant to validity or infringement. If all parties can seek a hearing on whether the procedure should take place, there may be little chance of an opinion on the issues being produced in a timely fashion.

Amendments Nos. 18 and 19 would remove paragraphs (c) and (d) from Section 74B(2). Those paragraphs provide some essential flexibility in how a review process might work. In some cases, a review might involve a detailed assessment of all the relevant facts, where both the patent proprietor and the person who originally requested an opinion present detailed evidence and arguments. In such cases, being able to treat the review as proceedings which could, for example, lead to revocation of the patent, makes sense, as all the relevant issues will have been considered fully. The alternative, with paragraph (c) deleted—as proposed by Amendment No. 18—would be that all the arguments might have to be heard again in separate proceedings.

Removing paragraph (d), as proposed in Amendment No. 19, would ensure that the outcome of a review can always be appealed to the patents court. However, that will not be appropriate or necessary in all cases. For example, if a patent holder is successful at the review stage in overturning an adverse opinion with regard to the validity of his patent, he will have no need to appeal. If a third party who became involved in the review disagrees with the outcome, he can seek revocation of the patent under existing procedures. It is entirely appropriate that the circumstances in which such an appeal can be made may be prescribed, so as to rule out appeals that would serve no useful purpose.

In the light of those explanations, I strongly urge noble Lords opposite to withdraw all their amendments.

5.30 p.m.

Earl Attlee

The Minister came up with some very convincing arguments on previous amendments, but on this group I have to say that I am not as persuaded.

Under the proposals in Clause 12, a patentee can obtain an opinion from the Patent Office, but the office hears no liability if it gets it wrong. However, if a patentee obtains an opinion from counsel, there is some professional liability, although I admit that it can be difficult to exercise. However, good counsel ought to play the devil's advocate and look at both sides of the matter.

The noble Lord spoke of the experience of the Patent Office in determining infringement cases. On a previous amendment, the Minister pointed out that the Patent Office can bring in outside experts in the art, but what of the costs involved? How much would those opinions cost to obtain? Perhaps the Minister can give us some idea of how much a patentee might expect to have to pay for an opinion from the Patent Office. I shall resume my place if the Minister wants to respond.

Lord Sainsbury of Turville

I hope I made it clear that the general view is that this can be done using the resources within the Patent Office. Moreover, if it were carried out on the basis of the simplified procedure that I suggested, the cost of that would be significantly less, which would be most advantageous. However, the amendment seeks to explore the basic question of whether people should have the opportunity to go to the Patent Office and obtain a simple view on whether their patent is valid, and whether that view is helpful to them in taking the matter forward.

At Second Reading I suggested that opinions would cost a few hundred pounds, but we shall consult before details of the procedure are set out. It would not be an expensive procedure on that basis and it would enable people, before they went any further, to see what was the likelihood of progress on the basis of that decision.

Earl Attlee

I remain unconvinced because I am of the view that the only use would be as a sanity check. However, subject to the usual caveats, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 14 to 19 not moved.]

On Question, Whether Clause 12 shall stand part of the Bill?

Earl Attlee

Following on the arguments to leave out "infringement" from Clause 12, we come to the issue that there is already a procedure for assessment on validity. Why do we need to set it out again in another new clause? Is this just excessive legislation?

Once again, I highlight the fact that subsection (4) of the proposed new section 74A states that an opinion under this section, shall not be binding for any purposes". That means that big businesses and infringers will not be deterred. There is also a concern that the Patent Office could end up granting a patent on which it later gives an opinion that it is not valid. Can the Minister say how the Patent Office will be resourced to carry out these opinions—although to an extent he has done so in response to a previous amendment—and who will end up paying for them?

I agree with the sentiment behind the clause, but I would like to highlight the fact that the Patents County Court was developed to do exactly what this proposed section would do.

Groups such as the IPI have argued for a more radical approach to thinking in terms of enabling affordable litigation. Can the Minister comment on Section 74(2)(d)? This suggests that a person might not have a right of appeal, which could be contrary to TRIPS and perhaps Article 6 of the ECHR. If so, that is in itself a reason why Clause 12 should not stand part of the Bill.

There is a danger that we will swing too far towards the protection of small businesses if decisions are not appealable. I look forward to the Minister's comments, but I appreciate that he might have to write on one or two points.

Lord Sainsbury of Turville

Deciding the best way to exploit one's intellectual property assets, such as patents, is increasingly becoming a key objective for UK companies. One such decision that is becoming increasingly common is how best to enforce patents when faced with challenges to their validity or evidence of possible infringement emerges. In that situation, litigation is not always the best option, as it is time-consuming and expensive. Other solutions, such as agreeing licensing terms, may be more beneficial in the long run. The wrong decision at that time can have serious consequences for the future viability of the company, whatever its size.

In order to assist companies faced with such important decisions, Clause 12 provides for a new procedure whereby any person can request the Patent Office to provide an opinion on issues related to the infringement and/or validity of a patent. Such issues are those that are most likely to arise in patent disputes. We consider that a procedure such as that proposed will give interested parties a realistic assessment of their chances of success or failure in possible future litigation. Thus, it can be a very useful tool in helping a company to make sensible decisions about how best to exploit its intellectual property rights.

The outcome of the opinion would not be legally binding, but it would be an assessment based on a consideration of both sides of the argument that would be delivered in a timely and cost-effective manner. Opinions would therefore be available as aids to decision-making. They are not compulsory: if they are helpful, people will use them; if they are not, people will not. At the very least, the situation is no worse than without opinions. At best, people will have an additional tool to help with their decision-making.

The crux of the issue is that this is an alternative thing that people could do if they find it helpful. Its impact on others seems rather little. It would simply enable a person asking for an opinion to have some more helpful information before taking it forward. However, the possibility of seeking an opinion will not prevent any party who is determined to enter into litigation from doing so. An opinion would not be required before beginning litigation. It is an option only. It is designed to help resolve disputes and not to prolong them.

Provision is also made under Clause 12 for a review procedure so that patent proprietors who are not satisfied with the outcome of the opinion and who cannot make use of existing procedures under the 1977 Act can seek to have it overturned. I think that I have dealt with the issue of resources already. Of course, the basis is that use could be made of resources already within the Patent Office and there would not need to be a large number of extra resources.

Earl Attlee

I am grateful for the overview that the Minister has given of Clause 12. Touching on resources, my next amendment will suggest a better use of resources. I am still not convinced. I am sure that we will have to return to the matter. In the mean time, I look forward to the Minister moving his amendment.

Clause 12 agreed to.

[Amendment No. 20 not moved.]

Earl Attlee moved Amendment No. 21: After Clause 12, insert the following new clause— "PATENT LEVY After section 71 of the 1977 Act (declaration or declaration as to non-infringement) there is inserted— 71A PATENT LEVY (1) The Secretary of State may by order make a scheme for assisting proprietors of a United Kingdom patent when faced with the circumstances mentioned in subsection (4). (2) The order may make provision for a levy as part of the filing fee charged under section 14 of the 1977 Act (making of application), and the levy may not exceed 1.5% of the filing fees. (3) Any money raised by the levy under subsection (2) shall form a special litigation fund, and the comptroller may allocate sums from this fund or assist a party or parties in cases of contested infringement in the circumstances mentioned in subsection (4). (4) The circumstances referred to in subsections (1) and (3) are that—

1. (a) the proprietor's opponent has access to vastly greater financial resources than the proprietor;
2. (b) the proprietor has not recently acquired the rights to the patent;
3. (c) the proprietor has had a favourable opinion from the Patent Office under section 74A of this Act;
GC 380
4. (d) the party to whom the comptroller proposes to allocate funds or assistance has a case which is likely to succeed but for the patentee's lack of financial resources;
5. (e) the case is one of general public importance to the United Kingdom; and
6. (f) the proprietor is alleging infringement of a United Kingdom or foreign patent that the Patent Office recognises.

(5) No order may be made under subsection (1) unless a draft of the order has been laid before and approved by both Houses of Parliament."

The noble Earl said: While studying the background to the Bill, I gave some thought to what was to be done about predatory infringers. At Second Reading, I referred to the Bill promoted by Mr Liddell-Grainger, but that solution has its difficulties. That Bill sought to make exemplary damages available against flagrant infringers. But there are two main difficulties. First, every claim would include for exemplary damages. Secondly, and even worse, it would be necessary to show that the other party had acted improperly or badly. It seems that divorce lawyers try to do that all the time, but it makes amicable agreements almost impossible to secure.

In the patent world, it would be easy for one side to suddenly see the technical strength of his opponent's case. However, no one would admit that they had behaved badly during proceedings. It often happens that an SME is faced with an opponent with vastly superior financial reserves, perhaps a multi-billion dollar conglomerate with few scruples. On top of the cost of legal advisers, it is often necessary to pay very considerable sums into court as security for costs. An examination of the SM E's accounts would readily reveal his financial ability to do that. The amendment would insert a new clause to allow the Secretary of State to set up a special litigation fund to assist in certain cases.

Subsection (2) places a limit on the levy. The fund should be limited in size, because there is no intention that every case meeting the criteria laid out in subsection (4) should be given assistance. The idea is that the mega-conglomerates should always run the risk that, instead of teasing a small, weak SME with a brilliant patent it could face the wrath of the Patent Office. Suddenly it is not a cheerful chappie from Victoria Street in Thoroton having a valiant go on behalf of his client; it is Clifford Chance, and counsel will be Mr Floyd QC.

In other words, it is a deterrent not a solution to every instance of wilful or flagrant infringement. The Patent Office would not be obliged or even able to pursue every case that met the criteria. This is not a patents legal aid scheme for all. At present, there is little risk at all for a financially strong infringer. Some cases involving disproportionate resources might be resolved very rapidly following the intervention of the Patent Office.

Of course, it may not be legal to discriminate in favour of British or even European patent holders. There should be no intention to do that, since it may well be desirable to provide assistance in a purely domestic case.

I have now calculated that a 1.5 per cent levy on search and examination fees would raise only about £40,000 per annum. That would clearly not be enough to make any difference at all. In some cases it may be necessary to put 1 million US dollars into court as security for costs.

However, it is worth remembering that the Patent Office runs a substantial financial surplus. When he was speaking to Clause 12, the Minister suggested how he would like to use that surplus. But can the Minister explain what is currently happening to the surplus? Where does the money go? If it is to support innovation, how does it do so? The important point on funding is that the litigation fund should not be paid for through general taxation. The taxpayer has enough problems as it is.

It is significant that the Patent Office would act independently in this area. It would not be a case of the Secretary of State picking winners.

A number of other conditions that have to be met before assistance can be given are suggested in subsection (4). I will not weary the Committee by describing each one in turn.

Certainly the amendment is aimed at security of court costs, but other assistance could be provided. The Patent Office may even pick up the whole case on behalf of the proprietor. I beg to move.

Lord Lyell

I support my noble friend Lord Attlee in his eloquent presentation of the proposed new clause. However, it has been brought to my attention that the industry may be worried by an additional levy.

I understand that in many cases the cost of presenting a major patent can be in the region of 3 million US dollars. A 1.5 per cent levy would not seem very much. But 35,000 to 40,000 US dollars on every application made would soon mount up. I begin to worry a trifle that this could be a needless irritant. Perhaps I might refine my noble friend's amendment by suggesting that it might be feasible to limit the slight extra levy to those found to have infringed a patent.

At the same time, my noble friend has brought forward an amendment that seeks to bring the law of patents back towards the small man, to whom I referred at an earlier stage as David versus Goliath.

5.45 p.m.

Lord Sainsbury of Turville

This amendment, proposed by the noble Earl, Lord Attlee, and the noble Lord, Lord Lyell, would insert a new Section 71A in the Patents Act 1977 which would allow the Secretary of State to establish a levy on all patent applications in order to raise moneys for a fund, referred to as a "special litigation fund", to assist patent holders with the costs of infringement proceedings in certain circumstances. These special circumstances are listed in proposed Section 71A(4).

I think that the amendment is very premature. Such a significant change to current legislation can be made only following a full and proper consultation process. The Government have been keen to ensure that proposed new legislation is subject to proper consultation so that its advantages, disadvantages and long-term effects can be explored in sufficient detail to ensure that it will fulfil its intended purpose and function. Unfortunately, that is not the case with this proposal, on which there has been no consultation whatever. Before producing this kind of legislation, surely we need to undertake consultation because this idea is difficult, although important. We have started to look at the issue, but it is early days.

The difficulties that some patent proprietors experience in enforcing their patents has been the subject of much discussion in recent times among those involved in the innovation and intellectual property fields, and has even attracted some interest in the press. While it is fair to say that the problem has now been recognised, there is still much argument over how best to solve it. For example, some experienced practitioners in the patent field do not think that a special litigation fund, whether or not supported by such a levy, is a workable solution. Committing to one option such as that proposed in this amendment, without fully exploring and comparing it with alternatives, would be a failure to act responsibly and could lead to all sorts of unforeseen difficulties downstream.

In addition to the lack of consultation on this proposal, there is also the need to ensure that any provision is compatible with our commitments under European and international law. If access to such a special litigation fund were restricted to patent proprietors who are UK nationals, such a preferential treatment of UK nationals over others might infringe our commitments under the agreement on Trade-Related Aspects of Intellectual Property Rights, the TRIPS agreement. Restricting access to such a fund to UK nationals would also raise EU state aid implications.

Of course, this amendment is limited to raising funds for litigation from a patent levy. Were a litigation fund thought to be a good idea, and the solutions to any problems identified found, there are many ways that funding might be forthcoming. For example, funding could come from participating patentees directly, or from government funding for supporting business in various ways, instead of a levy on patents. Although the provision that would be added to the Bill by this amendment is only an order-making power and thus would not ever have to be used, its very existence could nevertheless preclude a proper consideration and evaluation of the right way to provide the funding. This could have a damaging effect on our ability to decide what is the best approach were support of this type to proceed.

I can reassure noble Lords that the Government are taking steps to address the difficulties of enforcing patents. Several provisions of the Bill are designed to help with enforcement of patent rights. In addition, negotiations on a proposed EU directive concerning the enforcement of intellectual property rights, which will also address some of the difficulties in this area, are at an advanced stage. Adoption of the directive may well take place before May. Moreover, the Patent Office, through its Patent Enforcement Project, has recently accepted a tender for a study on the feasibility of a fund of the type proposed by this amendment. This work is therefore at an early stage, but a proper and full evaluation of all the factors is the right way to proceed.

We do consider that there is an issue here. It will come as no surprise to noble Lords when I say that we are on the side of David against Goliath, but we need to be certain that David is truly being bullied by Goliath and so we need to look carefully at the best way to help David if it turns out that there is a serious problem here.

For these reasons, the Government are unable to accept the amendment at this stage and I strongly urge the noble Earl to withdraw the it.

Earl Attlee

The Minister referred to lack of consultation. That never prevents the Government from tabling legislation. I have only to think of the provision on clandestine entrances in goods vehicles, which was introduced as an amendment on Report in the House of Commons and not debated at all. We discussed it in the House of Lords, but there was no consultation about it and the industry was very upset. Although I understand the need for consultation, it is not necessarily a reason for not doing anything on the matter.

Why has the Minister not thought of consulting on the matter? He has consulted on the Patents Bill and the implementation of the EPC, which is obviously very desirable. If, in less than a couple of weeks, I can come up with the idea of some sort of special litigation fund, it is surprising that the Minister, with the benefit of all his officials, has not thought of consulting on the issue himself.

The Minister mentioned the obvious point about the difficulties, in terms of competition law, of supporting UK nationals. We might want to support European patents; the Minister touched on the European directive on intellectual property rights, which we hope will be welcome. He also touched on the possibility of the Government, through the DTI, funding such cases. The attraction of my amendment is that we would get away from the Government and the Secretary of State picking winners. The activity would be for the Patent Office on its own, judging the merits of a patent and whether it needed to be protected.

I shall read what the Minister said very carefully and in due course decide what I shall do with my amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 13 agreed to.

Clause 14 [Amendments, repeals and revocations]:

Lord Sainsbury of Turville moved Amendment No. 22: Page 8, line 7, leave out subsection (3) and insert— (3) Article 6 of the Patent Office Trading Fund Order 1991 (S.I. 1991/1796) is revoked.

On Question, amendment agreed to.

Clause 14, as amended, agreed to.

Schedule 2 [Minor and consequential amendments]:

Lord Sainsbury of Turville moved Amendments Nos. 23 and 24: Page 12, line 1, leave out paragraph 6 and insert— (1) Section 22 (information prejudicial to defence of realm or safety of public) is amended as follows. (2) In the heading, for "defence of realm" there is substituted "national security". (3) In subsections (1) and (5)(a), (c) and (d), for "the defence of the realm" there is substituted "national security". (4) In subsection (6)—

1. (a) in paragraph (a), for the words from "inspect and authorise" to "in connection with it" there is substituted—
1. "(i) inspect the application and any documents sent to the comptroller in connection with it;
2. (ii) authorise a government body with responsibility for the production of atomic energy or for research into matters connected with its production or use, or a person appointed by such a government body, to inspect the application and any documents sent to the comptroller in connection with it;";
2. (b) for the words from "that Authority" to the end there is substituted "a government body or a person appointed by a government body carries out an inspection which the body or person is authorised to carry out under paragraph (a) above, the body or (as the case may be) the person shall report on the inspection to the Secretary of State as soon as practicable.""

Page 12, line 29, at end insert In section 41(10) (method of enforcing in Scotland certain orders made by comptroller). for "a recorded decree arbitral" there is substituted "an extract registered decree arbitral bearing a warrant for execution issued by the sheriff court of any sheriffdom in Scotland."

On Question, amendments agreed to.

Schedule 2, as amended, agreed to.

Schedule 3 agreed to.

Clause 15 [Commencement etc]:

Lord Sainsbury of Turville moved Amendment No. 25: Page 8, line 14, leave out "Section 14(3)(b) and paragraphs 5,6" and insert "Paragraphs 5

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 26: Page 8, line 21, at end insert— (4A) A statutory instrument containing provision made by virtue of subsection (4) is subject to annulment in pursuance of a resolution of either House of Parliament, unless the only such provision it contains is transitory, transitional or saving provision.

The noble Lord said: The amendments to Clause 15 include Amendment No. 28, which, although it will not be moved, I shall try to sweep up in the generality of what I say. I am quite sure that that offends against some principle or other, but let me do my best.

Under Clause 15(6), commencement orders which add to, replace or omit any part of the text of an Act are subject to an affirmative procedure, but otherwise orders under Clause 15 are not subject to any parliamentary procedure. However, the Delegated Powers and Regulatory Reform Committee recommended in its report of 29 January 2004 that certain orders—other than those falling under subsection (6)—be subject to the negative procedure.

I appreciate that it is at least very likely that noble Lords tabled Amendment No. 28 in response to that recommendation, but its effect would be that an order which contained even the smallest and simplest transitional provision would be subject to the negative procedure. It would be unduly burdensome if an order were made subject to that procedure simply because, for example, it ensured that a particular provision in the Bill applied only to patents granted after the provision came into force. In short, the procedure would be disproportionate.

None the less, the Government are keen to act on the committee's recommendation. That purpose must guide all noble Lords in their consideration of this matter. Amendments Nos. 26 and 27 are therefore what we hope will be a practical alternative. They ensure that orders which contain any supplementary, incidental or consequential provision are subject to the negative procedure; but orders which contain only transitory, transitional or saving provision are not subject to such procedure. That is the distinction. As before, orders which make textual amendments to Acts will be subject to the affirmative procedure.

The committee acknowledges in its report, as noble Lords will know, that such an arrangement is not without precedent. One such precedent, for the sake of illustration, is Section 276 of the Enterprise Act 2002.

In the light of that explanation and the amendments that the Government have tabled today, I hope that noble Lords opposite will feel able to withdraw their amendment and support the Government's response to the committee's report. I beg to move.

Earl Attlee

I am grateful for the Minister's explanation of his amendments. It is not profitable to duplicate the work of the Delegated Powers and Regulatory Reform Committee. On that basis, provided that we get a clean bill of health from that committee for the Government's amendments, I shall support them and not move mine.

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 27: Page 8, line 27, at end insert; and subsection (4A) does not apply to such an instrument

On Question, amendment agreed to.

[Amendment No. 28 not moved.]

Clause 15, as amended, agreed to.

Clause 16 agreed to.

Bill reported with amendments.

The Grand Committee adjourned at four minutes before six o'clock.