LORDS AMENDMENT TO COMMONS AMENDMENT No. 193 (Hansard, 27 March 1980)

§ Lord LLOYD of KILGERRAN
My Lords, I beg to move. I move this amendment quite unashamedly as supporting the tasks of inventors in companies and innovation by companies, and the general problem of creating wealth in industry at the present time. First of all, I must strongly endorse the views of the Minister in the other place when he said in respect of this new clause, in the Official Report of Standing Committee A, that the Government wished, to see company law state quite unambiguously that directors have a duty that is mandatory and not a permissive requirement to consider the interests of employees". As I said before, subsection (1) of this clause raises the question of standard of care which directors must have in dealing with their employees. But in my view it does not go far enough in this age. So often companies and their directors, educated in fields other than science and technology, do not realise the advantage to the company in encouraging invention by their employees. I fully realise that there are many companies with which this Bill is concerned that have no research 1037 facilities and are not concerned with inventions. However, a large number of companies are, and, as the Secretary of State for Industry and the Conservative Party have said so frequently, they wish to encourage innovation.
All that this amendment does is to make it clear, in the exceptional case, that this is concerned with inventions and innovation; that the functions of the directors shall at all times include the provisions of advice, facilities, opportunities or other reasonable assistance for the making, developing and working of inventions and innovations, having regard to the nature of the duties and responsibilities of their employees.
I frequently find myself in the company of distinguished criminal laywers and chancery lawyers, but very rarely do I find myself in this House in the company of lawyers who have any knowledge of intellectual property, the law that relates to inventions and innovations. In this House generally, of course, there are a great number of noble Lords who in their business activities and in their scientific and technological experience know how valuable it is that inventions and innovations should be encouraged in the course of the activities of their employees.
It will he said that the words "interests of employees" in subsection (1) covers this aspect on my amendment. In my view that is not enough. There should be a declaratory statement in this Companies Bill dealing with the encouragement of invention and innovation, clearly set out as one of the duties of the directors when the company's business is such that research and development takes place, and therefore invention and innovations may also occur.
It is not enough merely to say that of course the interests of the employees will be looked after. The words I have chosen in the amendment, which are concerned with questions of advice, facilities, opportunities and other reasonable assistance, are taken out of Section 41 of the Patents Act which deals with compensation which a company can now pay to an employee whose invention has been of advantage to the company. It is quite easy these days for an employee to make inventions which are worth £1 million to that company. It would be quite easy 1038 for companies to encourage their employees to invent and make improvements in a way which is declared in the Bill as a duty of the directors.
I know that the company lawyers, most of whom know nothing about intellectual property—they are not scientists and some of them have no knowledge of the position of employees who are inventing or working in an ordinary company—will say it is not right to legislate for details in a broad Bill of this kind. I am dealing with a most important and notable exception, and that is the encouragement these days of innovation in industry. And, in my submission, the inclusion of a mandatory statement of this kind, to use the words of the Secretary of State, and not a permissive requirement, would do a great deal for British industry at the present time. I beg to move.

§ Lord MACKAY of CLASHFERN
My Lords, the noble Lord, Lord Lloyd of Kilgerran, has certainly put before us an interesting amendment which needs careful consideration. The noble Lord played a most important part in creating the climate of opinion which led to that part of the Patents Act 1977 which provides for an employed inventor to receive a fair share of the benefit for an invention of his which is patented, and that is from the passage to which the noble Lord referred. What is being proposed in this amendment to Commons Amendment No. 193 is that directors should furnish the assistance necessary to the activities of those engaged at various levels in the company in the making, developing and working of invention and innovation.
I would point out, as I am sure your Lordships will accept, that directors have a duty to act in good faith in the best interests of the company, and to the extent that they consider the company's interests as served by providing assistance to its research staff, then they already have an obligation to do so. To the extent that the company or a member thought the company was suffering damage from the failure of its directors to give such assistance, as the law stands they could 1039 seek to bring an action against the directors for breach of their general fiduciary duty. More generally, however, I think the present policy to encourage innovation in industry, and therefore to encourage directors to take a broad view of the company's interests, is satisfactory in that it allows patents to be acquired by companies and individuals as a protection from competition for 20 years.
The noble Lord referred to company lawyers who know nothing about patents and so on. One of the advantages of having been a Scottish lawyer is that one has to attend to a number of different matters, and I think I can claim to have had some experience in company litigation and have also managed to get an odd reference to my name in the reports of patents cases, so I have every sympathy with the noble Lord's point of view and would desire to do my very best to advance it in the appropriate way. That is really what I have to say here; namely, that company legislation is concerned with the protection of creditors and members and with the rights of employees, not with the specification of particular details of the way in which directors should discharge their business and other functions.
Companies Bills are concerned with the general functions of companies and of those directing them and with clarifying those points which over the years have become obscure, and the case I referred to obscured the matter that is dealt with in this amendment. Amendment No. 193 therefore is concerned with such a lack of clarity in regard to directors' duties to have regard to the interests of employees in general. The Government have very much at heart the interests which the noble Lord is seeking to advance, but we do not feel this is an appropriate place in which to insert his proposal, and I must therefore invite the noble Lord to withdraw his amendment.

§ Lord LLOYD of KILGERRAN
My Lords, I am grateful to the noble and learned Lord for his kind personal remarks about me, and I am glad to hear he has had some experience of patent matters, and that fortifies me in the action I am about to take. When the noble and learned Lord refers to company law generally, 1040 as is set out in his brief—that company law must be concerned with particular details and general functions—that kind of statement seems to belong to the category of flyblown phylacteries of an age that is past. In my view, we and industry are concerned with encouraging innovation, and I must express my deep disappointment that the noble and learned Lord did not, with his ingenuity, find some way of introducing into the Bill something more than particular details and general functions and be a little more precise in the interests of British industry than the Bill can be. I beg leave to withdraw the amendment.