Digital economy, intellectual property and small business

Baroness Neville-Rolfe talks at Politeia about the importance of the digital economy and intellectual property.

I am very glad to be here today, and my thanks to Politeia for hosting this great event.

Today I am going to be talking about the importance of the digital economy and intellectual property; the government’s commitment to this area; some of our past successes; and the challenges that we face in the future.

The advance of the digital function

Even a few years ago digital matters impacted on most people via the actions of special companies and products, which were quite distinct from most things that they experienced in life. Digital was, as it were, an addition to normal life.

This is becoming ever less true. There are still special firms and products which deal with what might be called digital matters. But much else - perhaps most else - now has a digital component. As one trivial example I was fascinated earlier in the year to be shown a production process for washing machines in northern England - the only production of washing machines in the UK I was told.

The most important part of these machines was what I call the computer part. This is very sophisticated and allows, at least in theory, processes to be amended after the machine has been built and sold.

I fully appreciate that all this is old hat to all of you and that what I have said constitutes nothing remarkable.

That is quite true but I suspect there are many people who have not grasped that fact - or at least have only grasped a part of the story and have not realised the larger picture. We all have a responsibility to educate - in the widest sense of educate - others in this truth. Typically we cannot do so here because everyone is in on the secret!

In any event the companies in this digital world are pivotal to the UK economy and indeed to continued small business creation and growth. I ought to add, that government realises this very well.

We made this clear in the Autumn Statement. We are, for example, investing £1.8 billion in digital technology and transformation projects across the public sector over the next 4 years.

We have also established the concept of ‘Digital Catapults’ – these help our SMEs to innovate speedily and with minimum risk, so that new digital products and services can be accelerated to market.

The Digital Catapult in Kings Cross was opened by my ministerial colleague Ed Vaizey, in November. It provides a space for those concerned - academia, technologists and business - to advance their ideas from the concept stage through to commercialisation. It is also the home of the Copyright Hub. The aim of the Copyright Hub is to remove one of the excuses for piracy by making it easy and relatively cheap for potential users to seek and obtain permission to use works subject to copyright.

£33 million has already been invested in a series of city demonstrator Catapult projects in Glasgow, Bristol, London and Peterborough to show what can be achieved by the imaginative use of technologies, and £50 million more will be invested over the next 5 years.

A fundamental part of support for digital is ensuring access to broadband. Today, superfast broadband is available to over 83% of homes and businesses in the UK up from 45% in 2010. This is better than Germany, France, Italy and Spain, but we need to be world leading like Japan and South Korea. I have worked in South Korea and their hard work, obsession with getting a good education and their digital savviness have much to commend them.

The good news here however is that things are getting better and by the end of 2017 superfast broadband will be available to 95% of homes and businesses in the UK. And the Prime Minister has announced a Universal Service Obligation of 10 megabytes from 2020 in recognition of the fact that broadband is in effect now a fourth utility, and a disruptive one at that.


Joseph Schumpeter famously described capitalism as an engine of ‘creative destruction’. Innovation in goods, products and services creates new markets and destroys old ones. This insight certainly applies to digital, which is every bit as disruptive as power looms in the mills of Lancashire, the railways starting with Stockton to Darlington, and all the other great advances were in their time.

And as in the other cases while the disruption can and does deliver great benefits, it often has a negative impact on existing businesses and individuals.

Digital disruption has, for example, fundamentally altered the way consumers listen to and access music, and old world analogue business models would be unthinkable in today’s climate. That has caused businesses to rethink and as I said at the start nearly all businesses now need to do so in the wake of the digital revolution. My quite extensive experience of business is that they often struggle with dealing fast enough with their legacy businesses hurt by new technology. But in general grasping new opportunities is more easily accommodated in to corporate business culture.

On the back of all this, a successful industry has been created. 1.46 million people are employed in digital tech companies in the UK. 50% of these have been formed since 2008, and 15% alone in 2013 to 2014. 98% of these are small businesses. And this will be news to most of you, 3 quarters of digital tech companies are based outside London.

Maintaining an efficient intellectual property (IP) system in the UK

As Minister for Intellectual Property (IP), I am naturally aware of the symbiotic relationship between digital and IP. Innovators must be able to protect and benefit from their IP.

The UK is widely recognised as having a very good IP system by for example the Taylor Wessing’s Global IP Index popular with the British IP mafia as it puts us at number 1. And WIPO’s innovation index put us at number 2 this year, after Switzerland and well ahead of other economies of our scale and complexity.

But, given the speed of change it is pertinent to ask whether our IP framework is fit for purpose.

Hargreaves review

This question was mostly recently examined by my fellow speaker today, Professor Ian Hargreaves. Broadly, he found that the IP framework was fit for purpose across the majority of IP rights, but amendments were needed to copyright policy.

After an extensive programme of reform and legislation, concluding with the IP Act in October last year, we have made the system more robust, flexible, and, I hope, fit for the challenges of 21st century.

The need with copyright was to make the system more flexible and efficient so that it did not stand in the way of digital innovation, but was still able to meet its central objective of rewarding creators and encouraging creativity.

We did this by making copyright licensing more efficient and by removing copyright regulation from areas where it was unnecessary.

Not all these changes met with universal approval, but I believe most of those affected are reasonably content.

The data mining exception is a good example. There is no doubt that data mining benefits both the economy and individuals. For researchers in particular, data mining is important as it makes it much easier to analyse information and make advances.

But it requires computers to make lots of copies of the works they are analysing, which raises copyright issues. Copyright was never intended to stand in the way of scientific research, which is why we introduced our new data mining exception, which makes it clear that where researchers have permission to access a copyright work, they also have permission to mine it.

The new copyright exception for parody similarly reflects a cultural function that is important to our society. This was also very popular with some of the government’s critics - at the Guardian, in the BBC etc. The British sense of humour is almost part of our values.

So to conclude on the changes, our system is in a good place, but the body of work kicked off by the Hargreaves Review serves to remind us that the IP framework will need to be reviewed and refreshed from time to time as the world changes around us.

Digital single market (DSM)

Digital and IP do not just concern us in the UK. We need also to ensure we benefit from Europe’s single market.

The UK has long been a strong supporter of the single market, and the extent to which the EU has been able to remove barriers to trade within it has been one of its greatest achievements.

But there are still barriers that need to be tackled, in particular when it comes to the digital environment.

The European Commission has said it wants to address these barriers and complete the digital single market. The UK fully supports them in this goal.

If we get this right, then consumers will enjoy greater choice, lower prices, more mobility and better public services, while businesses will thrive, innovate, drive growth and create jobs.

The issue is urgent; if we do not act now to shape the global digital environment, the EU will increasingly get left behind. Instead we need to take advantage of our potential digital market of 500 million people. 79% of UK consumers sometimes shop online, far more than in other member states and with our large e-commerce and creative industries we are well placed to benefit.

The European Commission’s DSM roadmap published in May with 16 broad headings is light on detail, but very comprehensive. It ranges from consumer rules for cross-border shopping to postal services and VAT and from broadcasting services to building trust in digital data.

Tomorrow or even today the first set of Commission proposals on DSM will be published. We are expecting a proposal on portability of online content, and a communication setting out the Commission’s future direction of travel.

We expect the portability proposal to focus on ensuring that consumers will have access to their content when they travel temporarily abroad in the EU on holiday or for business.

Most people see no reason why they should not be able to take the iPlayer or Netflix with them when they are away.

I agree with this. In delivering portability, I believe we are demonstrating the benefits the EU can deliver to consumers in the digital world.

We understand the Commission proposes to do this through providing for improved access to cross-border services; greater certainty around copyright exceptions; and clarifying the rules on online intermediaries.

Some of these areas will present us with challenges. For example, better cross-border provision of digital services has potentially many benefits in increasing sales of UK content and reducing incentives for piracy.

But there are also very complex questions attached to this concept. The audio-visual sector in particular has genuine concerns over how changes to licensing rules might affect investment in new content. We are great creators in the UK in television and film with a strong independent sector that needs to flourish and grow. So we are watching this point carefully and engaging with like-minded allies.

We expect the Commission to touch on other equally difficult conundrums – how to introduce EU-wide rules on data mining; on the freedom to photograph buildings in public places; on accessible formats for disabled people; on copyright’s interaction with education, research, and culture; on the liability rules governing search engines and internet services providers and their responsibility to help prevent copyright infringement.

In each of these areas, the questions are difficult. And the devil will be in the detail. We want to make sure that copyright does not stand in the way of innovation and new markets; but we also have a responsibility to ensure it continues to reward our creators and creative industries.


Unfortunately we will never be able successfully to predict the next challenge or technological revolution that will come our way.

But we can do our best to ensure that our framework is encouraging growth and innovation, rather than inhibiting them.

While our IP system is adaptable to the needs of the business community we must be alive to the new technological developments that can turn the world on its head.

First and foremost we must view the DSM as a real opportunity to build a flexible, modern and robust framework that supports the UK economy, creates jobs and boosts productivity.

I will leave you by reminding you that producing a system that works must always be a collaborative effort. However good our horizon scanning, governments and the Commission cannot do it alone.

Whether through the process of formal review, or through engagement and collaboration with industry, we need that support to help maintain a vibrant and responsive IP system that serves us all.

Thank you.