SMEs weigh in on Cameron's copyright fight

Google says UK laws are outdated and hamper innovation, but many smaller companies are not so sure. Nick Clark reports

David Cameron unveiled his vision for an "East London Tech City" in November; a plan to create a British rival to Silicon Valley. Yet he fears current laws governing intellectual property (IP) could be a major barrier for digital small and medium-sized enterprises (SMEs) looking to set up in Britain. Surprisingly, it seems that the companies themselves may not agree.

The Prime Minister said during last year's launch at The Old Truman Brewery on London's Brick Lane that digital companies were struggling to come to terms with the UK's copyright laws. "The founders of Google have said they could never have started their company in Britain," he said. "The service they provide depends on taking a snapshot of all the content on the internet at any one time and they feel our copyright system is not as friendly to this sort of innovation as it is in the United States."

He launched an independent review of the current IP regime, which is due to report in a matter of weeks, with proposals that could have a dramatic impact on the way copyright is governed in the UK. Mr Cameron wants to make the laws "fit for the internet age".

Yet a report drawn up by IFF Research into the impact of UK copyright laws on SMEs shows a remarkable divergence of views within the industry, and casts some doubt whether the industry shares the fears of Mr Cameron and Google. Surprisingly, the report was drawn up for the search engine giant, before it was submitted to the so-called Hargreaves review. Joel Smith, an IP partner at the law firm Herbert Smith and chairman of the City of London IP Committee, said the IP rules did need updating for the digital age.

Ian Hargreaves, the chair of digital economy at Cardiff School of Journalism, Media and Cultural Studies, is overseeing the review, which is scrutinising whether the current IP framework – the rules and regulations governing how intellectual property is created, used and protected in the UK – hampers growth. It will also scrutinise the cost and complexity of enforcing intellectual property laws, the interaction between IP and competition rules, and the cost to SMEs of accessing services to protect and exploit their IP. The findings and proposals will be presented in early May.

About half of digital SMEs currently use others' copyrighted materials with permission. Last month a group of companies and industry bodies in the digital industry, including Google, signed a letter condemning the UK's copyright laws, saying they were "outdated" and were "hindering innovation and damaging our country's future prosperity".

They said: "What is needed is a system which continues to protect the rights and rewards of creators without unnecessarily hampering the ability of other artists, researchers and innovators to reuse the work."

The companies said reforming the rules "would eliminate legal uncertainty, protect Britain's economy and promote teaching and innovation".

Currently, UK copyright law means consumers cannot edit, remix or translate content they have bought. Technically those copying a CD on to their computers to transfer on to an MP3 player are infringing copyright law.

Yet the IFF report found a mixed picture among digital SMEs. Just 7 per cent believed the current rules were a "barrier to my business innovating" with two-thirds saying they were a "fair way of protecting the rights and interests of creative content originators".

Despite the seeming support for the current regime, more than 60 per cent of digital SMEs backed the call for a change to the rules to introduce a US-style "fair use" policy, which would allow limited access to copyrighted material.

Steve Lomax, a director of IFF, said: "A small but significant minority are of the opinion that their business growth is hampered by the current laws, and one in 20 of the digital SMEs is considering moving their business overseas because of them."

Of the digital SME's quizzed, 23 per cent have at one stage decided not to pursue a product or opportunity because of copyright issues. It also found that three-quarters of digital SMEs had to change a product because of potential copyright infringement. IFF put the diverse range of views down to a fundamental confusion over the current regime.

Mr Lomax explained: "The majority of digital SMEs, and especially the smaller ones, have little awareness and understanding of the details of UK copyright laws. The default reaction is that copyright is a good thing, and they are passionate in their defence of it. However, when the principle of fair use is explained to them, the majority concede that this would be a helpful change to the rules."

Reflecting that confusion, the report found that 30 per cent of respondents would support a change to copyright laws and 29 per cent would actively oppose it. Apart from 7 per cent who do not know, the rest do not have a preference for either.

Those calling for a change to the rules tend to back the introduction of fair use, a policy similar to that in the US. Joel Smith at the law firm Herbert Smith said: "In the UK, there is no 'fair use' doctrine. We have more specific exceptions relating to a European Union copyright directive. They are all tightly defined areas. There is no blanket rule."

Copyright holders particularly would be less keen to see an overarching fair use rule introduced in the UK, he said. "They would be very nervous for a broad doctrine of fair use to be introduced. In the US it has been worked up over a number of years. With something introduced right away in the UK it may suffer the law of unintended consequences." He added: "I don't think we need to change the whole doctrine, just look at the exceptions to the rules. Really the laws need reviewing in the context of harmonising copyright across the European Union. Unfortunately the review doesn't have the mandate for that."

Case study: Mendeley

* Mendeley was set up in London in 2007 to allow users to manage and share academic research papers online. Its backers include academics from Cambridge and Johns Hopkins universities, and senior managers from Last.fm, Skype and Warner Music. Victor Henning, Mendeley's founder and chief executive, said copyright was a "big issue" for the group and bemoaned the lack of clarity for his business. The group currently spends about £2,000 a year on lawyers because of the uncertainty, and he said adopting "fair use" in the UK would help his business. He added: "Even though our largest user base is in the US and we are compliant with the [US] Digital Millennium Copyright Act, we are uncertain if that would protect us if there were a lawsuit in the UK. We are operating in a sphere of 'tolerated uncertainty' of our legal situation. I would like certainty and clarity". Copyright was a problem because individual databases were copyrighted to universities and copies were not allowed, IFF said. The content creators and site users were the same people who wanted research shared so it could be discussed, but did not want their copyright infringed. "So in this respect the UK copyright laws fail," IFF said.