My Lords, we have argued in Committee about whether or not criminal sanctions should be introduced to the design rights field. However, even if the Government’s current proposal is adopted, unregistered design rights will remain outside the criminal courts.
It has been argued that the present civil damages regime is ineffective and provides no deterrent to those seeking to infringe IP rights—infringements which, it can be argued, impact on economic growth. The current regime offers little opportunity for organisations to claim back the true costs of the losses they suffer, apart from the often nominal unpaid licence fee, as it takes no account of the profits a person may have made on the back of their infringement. Therefore, given that the only penalty available is an ability to reclaim the fee that should have been paid in the first place, a situation is created that provides an incentive to infringe.
The Gowers report of 2006 stated that:
“Damage awards should act as a disincentive to infringement”.
The 2007 Culture, Media and Sport Select Committee report into new media and the creative industries stated:
“The deterrent effect of the present law in this respect is near zero: it should be substantial, as are some of the illicit profits being made”.
The 1997 Law Commission report, Aggravated, Exemplary and Restitutionary Damages, stated:
“Substantial numbers of consultees considered that exemplary damages do or could have a useful role to play in filling these gaps. They fulfil a practical need. We agree”.
When pressed, the Ministry of Justice points to the fact that the civil regime is there only to compensate, while the criminal regime is there to punish. However, blurring of these boundaries already takes place. In January 2010, a judge awarded exemplary damages in a civil case involving a car insurance scam. In addition to ordering the individuals in the fraud ring to compensate the companies for £300,000 of losses, the judge ordered the ring to pay a further £92,000 as a punishment. The reason, he stated, was to send a clear message that this sort of action would not be tolerated.
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights—TRIPS—requires that members provide enforcement procedures that
“permit effective action” against infringement of intellectual property rights covered by the agreement, including,
“remedies which constitute a deterrent to further infringements”.
The EU directive on the enforcement of intellectual property rights echoes the TRIPS obligation. To satisfy the obligations imposed by TRIPS and EU law, many EU member states have adopted strong rules on civil damages for intellectual property infringements; for example, in Ireland aggravated and exemplary damages are available. In other markets, including Austria, the Czech Republic, Greece, Poland and Romania, rights holders can recover multiple damages. Lithuania provides for a form of statutory damages. These remedies are not available in the UK. In addition, Canada, the US and other countries have introduced statutory or pre-established damages.
Can the Minister say whether the UK Government believe that their implementation of the enforcement directive meets the requirement for member states to have “effective, proportionate and dissuasive” civil remedies? It is true that the courts are free to continue to apply their existing approach. A subsequent licence purchase, for example, may be deemed adequate to compensate for lost profits. Technically, this leaves the rights holder with the ability to recover unfair profits by suing the infringer. However, proving such profits can be exceedingly difficult in many cases, especially where the profit is a saved cost.
Much, if not all, of the substantive and common law that concerns the awarding of damages predates the development of the modern, digital-based creative economy. As a result, anomalies, deficiencies and inequities have become increasingly apparent, particularly for copyright interests. The amendment provides the ideal opportunity for these problems to be fixed. I beg to move.