The Second IPR Enforcement Directive — A Threat to Competition and to Liberty

Ross Anderson

IPRED2, the second "Intellectual Property" Rights Enforcement Directive, mandates the following:

"Member States shall ensure that all intentional infringements of an intellectual property right on a commercial scale, and attempting, aiding or abetting and inciting such infringements, are treated as criminal offences."
(Article 3. Page 6 of the dossier: com(2005)276)

Until now, large-scale copyright or trademark infringement has been a crime in a typical European country, while patent infringement has been a matter for civil litigation. The new proposal will force all member states to make patent infringement a crime, and to criminalise incitement to infringement. If I advise an Indian economist that her country should consider infringing US companies' patents on AIDS drugs, then I might be in trouble.

Like its predecessor IPRED 1, the directive divides industry. The music industry, the big consumer brands, the drug majors and the car makers are in favour; the telecomms industry, the car-parts makers, the supermarkets and the generic drugmakers are against. Most civil-society groups, from librarians to the free software movement, are opposed. The computer industry is divided - Microsoft is for, while Sun is against (while, curiously, Microsoft's lobbying for the penalties for patent infringement in the USA to be reduced).

Here is the response that FIPR made to the UK Government consultation on the proposal.

FIPR Response

To: Jeff.Watson@patent.gsi.gov.uk
Subject: IPRED 2
Date: Mon, 26 Sep 2005 18:48:29 +0100

Jeff

The Foundation for Information Policy Research strongly opposes the new enforcement directive.

I will focus on the main issues.

Until now, large-scale copyright or trademark infringement has been a crime here, while patent infringement has been a matter for civil litigation. The new proposal will force the UK to make patent infringement a crime, and to criminalise incitement to infringement.

First, the criminalisation of patent infringement will damage competition, resulting in higher prices for consumers. For example, companies who make generic drugs once the molecule patent has expired are often harrassed by the original patent holder with lawsuits over secondary patents - which have a low probability of success but which are used cynically to delay competition by a year or two. At present, generic manufacturers indemnify their customers against one of these suits succeeding. Criminalising patent infringement will stop such indemnities being given, and will thus tilt the balance in favour of the former patent holder. The directive will also give the former patent holder greater powers to seize bank accounts, get court orders to disclose documents, and generally harrass the generic manufacturer more severely than before. The overall effect will be to lengthen the effective patent term and deprive patients of cheap drugs, contrary to the will of Parliament. This effect will not be limited to the pharmaceutical industry either: consumers can expect higher prices for car parts and all sorts of other products.

Second, new business formation and economic growth will also be hit, especially if patent infringement remains a civil matter in America. At present, all technology entrepreneurs take risks with intellectual property. There are so many patents, written so obscurely, that it's impractical to read them all; and many patents don't stand up in court once people dig hard for prior art. So a sensible entrepreneur will just start a business, and if it's successful she will have the money to pay royalties if she has to. Making patent infringement a crime rather than a civil matter will undermine this - especially as it will happen only in Europe, not in the USA. The natural reaction of European entrepreneurs will be to move to America and start their businesses there. (It's particularly interesting to note that while Microsoft is lobbying for IPRED 2 in Brussels, it's lobbying in the USA for less severe civil damages there - see here.)

Third, the criminalisation of aiding and abetting will create pressures for censorship. Phone companies and ISPs will be asked to filter Internet traffic for potentially infringing material, using filters currently installed to block child pornography, such as BT's `CleanFeed'. If they do not do this, they may be prosecuted for aiding and abetting. But if they do, many legitimate services will be disrupted, and customers will be placed under growing surveillance. This will undermine the deal done in the E-commerce directive which limited the liability of common carriers. It will also place Europe at a further disadvantage to the USA in information society services.

Fourth, the UK software industry will be particularly vulnerable, as will people who rely on free and open-source software platforms. The Software Directive permits EU companies to reverse engineer their competitors' products in order to produce compatible, competing products. This is a historic compromise, worked out 17 years ago to promote enterprise and competition while still respecting the rights of incumbents. IPRED 2 will undermine it. It will become harder for new, innovative companies to challenge existing software companies or even to add value by complementing them. For example, many EU computer gaming companies sell software and accessories independently of the console vendors. The Directive will make it much harder for them to escape paying royalties to Sony and Microsoft.

A particularly pernicious threat to free and open source software will come from the predatory abuse of IP by its enemies. At present Microsoft is reported to be funding SCO to bring civil cases against firms such as IBM that use GNU / Linux in their products, citing copyright claims about which outside observers are deeply sceptical. If patents can be added to copyright claims, and threats of criminal prosecution added to the civil-law cases, then many firms might become more reluctant to use free software - thus increasing Microsoft's market dominance still further, despite the DG Competition finding against it.

Fifth, the disabled could be hit as the tools necessary to read copy-protected books, in order to make lawful `talking' versions of them under fair-use provisions of copyright law, could be criminalised.

Sixth, librarians already have a lot of trouble complying with copyright. For example, in the UK there are about fifty different durations of copyright, depending on whether the material is published and in what media. With electronic publications, there are often contract terms too: a library typically has dozens of contracts, all with different conditions. The current proposals will make this worse by making librarians criminally liable for aiding and abetting, unless they become more active enforcers of copyright law in their libraries. And since copyright infringements are not necessarily black and white, and librarians' employers are risk-averse, libraries will err on the safe side and discourage practices which would not actually be deemed infringements by a court. This will reduce, in practice, the freedoms to copy that UK citizens enjoy in theory.

Seventh, universities will also feel the squeeze. Academics often put preprints of papers on our web sites, which can be a technical infringement if the papers are subsequently published in a journal whose contract restricts it. Also, we suffer increasing harrassment by the record industry over students swapping songs. If university managers can be jailed as accessories for all copyright infringement that is claimed to have a commercial effect, then they will be much more aggressive at policing the content that passes over their networks - which will be profoundly contrary to academic values.

There is a specific concern for people who engage in security research. The Directive does not contain any exemption for research; it may become technically illegal to possess a laser (as it can be used to forge a hologram), or a magnetic-card reader-writer (as it can be used to forge a credit card). Now the government is planning to amend the Fraud Bill in the Lords so that Section 8 (which refers to the possession of equipment that can be used for fraud) is restricted to the case of dishonesty. This follows academics' pointing out to the Home Secretary that criminalising security research will do no-one any favours. But if the government makes an exception in the Fraud Bill for people involved in security research and testing, but then finds it has to criminalise them two years later because of an EU directive that went through in the UK presidency, that will be bad news. At the very least, ministers will be open to a charge of not providing `joined-up government'.

Finally, there are issues of justice. Previously most companies preferred to sue over copyright infringement rather than to bring criminal charges, because they could get discovery, injunctions and damages (see, for example, Cornish's textbook `Intellectual Property'). By insisting that Member States make such remedies available to the injured parties in criminal cases about intellectual property, the Directive will distort the system of justice itself. The police will be able to demand information from defendants in copyright cases that they are not allowed to demand even in terrorism cases (see `Brown gets tough on France, Italy over trade', Evening Standard, 9 September 2005 p 10). This will lay ministers open to ridicule from both the IP-rights lobby and the law-and-order lobby at the same time. Is that what you want to achieve?

The UK's interests are not at all well served by this directive, and I strongly urge you and your colleagues to use the opportunity of the UK Presidency to kick it into touch.

At a very minimum, the UK should get the Council to amend it so as to remove patents from the scope, and to restrict mandatory sanctions to infringements that are carried out by organised crime or that pose a threat to health and safety. The text of the directive, in other words, must reflect the rhetoric being used to sell it.

Regards

Ross Anderson