The Benefits of E-Commerce

Introduction

In the period prior to the commissioning of the Hargreaves Review by the government, concerns were raised by the government that the UK was not in a sufficiently strong position when it came to encouraging intellectual property and technology growth, particularly when competing with other jurisdictions. As a result, the Prime Minister commissioned a review in November 2010, which aimed to look at the ways in which intellectual property could be used to achieve growth in the economy. The purpose of this paper is to look at the impact of the Hargreaves Review and to consider what this means to firms looking to engage with e-commerce. Although the review aimed to look at the broader issues of the intellectual property framework, it has clearly had a greater impact on certain industries, including those engaging with e-commerce[1].

The government has largely adopted the findings of the Hargreaves Review in the report of 3rd August 2011[2] and these have been included in the Enterprise Regulatory Reform Act 2013 which received Royal Assent on 25th April 2013. These provisions will be considered alongside the background and the perceived problems that the review was looking to tackle, before looking at the likely impact this would then have on all aspects of intellectual property, as well as on e-commerce, in general. Finally, conclusions will be drawn[3]

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Background

A fundamental part of the report is focused on the fact that intellectual property is an important aspect of achieving growth. Moreover, the government views intellectual property as a means of stimulating economic growth and this is also seen to be the case for online activity associated with typical e-commerce transactions, with the ability of companies to buy and sell items or in order to have an online presence[4]. Intellectual property laws must necessarily adapt and change to deal with surrounding circumstances; the technology itself must also become much more forward thinking. There are concerns however that copyright law is beginning to act in a way that creates barriers for the development of new and innovative product ideas. But, on the flipside, in the event that companies are able to act entirely freely, there would be no incentive to invest and the ability of e-commerce companies in the UK to compete internationally, as others simply come along and take on board their investment and thoughts for their own benefit[5].

The focus of the review was on the intellectual property framework and this extends beyond purely looking at e-commerce, which deals with the buying and selling of products and services online. However, for the purposes of this report, many of the findings relating to intellectual property, in general, can be seen to be directly linked to the potential stimulation of growth within e-commerce. In order to consider the impact that the Hargreaves Review will have on e-commerce, specifically, it is first necessary to look at the key proposals that emanated from the review and how these have then been adapted or applied by the government.

Key Changes Proposed

The key changes that were proposed by the review include[6]:

creation of a digital copyright exchange, to make it much easier for organisations, including those that operate solely online, to license copyright protected works;

• to introduce a general right in order to allow individuals to use work where it is not possible to find the author;
• to place certain limits on the use of copyright, so that issues, e.g. non-commercial research and format shifting, are not seen to be an infringement;
• the introduction of a small claims track to the patent’s County Court, in order to make enforcement easier for SMEs;
• also, to support SMEs, it has been advised that there should be an investigation into the impact of having patent clusters and the ability of an SME to grow and evolve;
• a focus needs to be placed on assisting SMEs in getting value from the IP that they have established;
• and the provision of mediation services to deal with intellectual property disputes in a much more cost-effective and commercially minded way.

There are multiple process based changes proposed as part the review however the actual implementation is the ongoing focus of this paper with particular reference to how the application of these changes will potentially impact on the UK e-commerce arena. Broadly speaking there are two key perspectives, the need to protect the position of companies without potentially increasing the regulatory burdens and preventing the company themselves from being involved in the infringement of intellectual property rights. By looking at the government approach to each of the recommendations, this issue can be explored in more detail[7].

The conclusion reached by the Hargreaves review that intellectual property is important for growth needs to be taken seriously and is a key merit of the proposals. More specifically, the review notes that the protection of intellectual property needs go beyond simply looking at the core intellectual property industries, but is also relevant to a wide variety of industries, some of which are operating through e-commerce alone. In many cases, there may be useful ideas and work that is prevented from being used, simply because the author cannot be located or permission cannot be obtained[8].

Of particular interest to e-commerce in the UK is likely to be the second statement that the current intellectual property nuclear framework is falling behind the technology infrastructure available for these types of firms; therefore, in order to encourage any form of innovation within e-commerce, it is necessary to have a framework in place to protect this type of investment[9].

Copyright – Modernisation within the E-Commerce Arena, The Pros and Cons

The establishment of the digital copyright exchange is one of the central recommendations which are likely to have a direct impact on e-commerce firms, as well as on other industries that have a degree in reliance on digital copyright. This is one of the key benefits and merits associated with the proposal and is worthy of particular note. The review requires the government to consider ways in which it can develop an effective market to copyright licensing, which can take control of the market when it is not emerging of its own right. By creating additional copyright exchange, the UK government is able to ensure that a more efficient marketplace is provided for both owners and purchases. This makes it considerably easier for those involved in copyright, whether as an owner or a purchaser in the purchasing and giving of licences, the e-commerce arena becomes much more transparent, with a consistent approach that is relatively easy to follow due to the fact that there is one consistent digital exchange.

This would enable e-commerce organisations either to purchase licences or to sell licences in a manner that is consistent and transparent to all parties, thus making it more viable to invest in copyright. It would also enable the company to gain access to copyrighted material, so that it can then develop the business without being thwarted by authors that cannot be located or similar blockages in the availability of copyright licences.

The issue of copyright protection is argued to be the fundamental area of reform for e- commerce organisations post Hargreaves and will be the focus here, in order to gain a practical understanding of the impact of this review on e-commerce, in general. Several different issues need to be looked at from a practical perspective, including the fact that businesses will often be prevented from gaining access to data, due to the lack of availability of copyright licences. Other issues include the businesses themselves complaining that it is difficult to enforce remedies and that copyright is extremely complex when dealing with online violations, something which is likely to be particularly prevalent within e-commerce organisations.

Regardless of the perspective being taken by each individual organisation, the fundamental argument presented by the review is that the framework for copyright law across the European Union, including the UK, is simply no longer reflective of the digital economy and e-commerce activity, from a technical perspective. Redressing the balance is a key part of the review and is likely to be the area that has the most practical impact on e-commerce. In order to consider the real impact of these changes, two distinct stages will be undertaken: the first to identify the arguments for reforming copyright; the second to look at the approach taken by the policymakers and the practical application of these changing policies.

The review placed a heavy emphasis on noting that the digital economy is central to economic growth, with e-commerce being a fundamental part of the digital economy. Evidence from the European Commission has shown that creative industries are increasing at a rate of approximately 3.5%, in the UK, compared to an average across all industries of just 1%. This shows just how important it is to have the appropriate framework in place to support the digital economy and to ensure that those engaging in areas such as e-commerce have a framework within which to operate, effectively[10].

As noted by the European Commission[11] it wants to work towards a “copyright framework that guarantees effective recognition and remuneration of rights holders in order to provide sustainable incentives for creativity, cultural diversity and innovation; opens up greater access and a wider choice of legal offers to end users; allows new business models to emerge; and contributes to combating illegal offers and piracy”.

The digital copyright exchange was looked at as a potential opportunity by the UK government, with the initial phase of the digital copyright now being recognised as a crucial aspect to online business and offers a real opportunity for e-commerce for those organisations to gain a much clearer idea of where copyright is owned and how it can then be licensed. As noted by Hargreaves: “an automated e-commerce website or network of websites which allows licensors to set out the rights they wish to license and allows licensees to acquire those rights from the licensors”. Although progress has been made in this area, it is unlikely that this digital copyright exchange will be able to operate as a marketplace whereby any organisation can simply log on, but rather the additional copyright exchange facility will enable an entity to interact with others through the hub created, in a way that may not have been possible previously. This is a fundamental step forward for those involved in e-commerce[12].

Although no singular digital copyright exchange has yet been established, the government and surrounding policies towards achieving this will have a dramatic impact on a variety of industries, most notably those that have historically found it difficult to manage and control copyright licences and to deal with online infringement. Despite the recognition of the potential benefits of this type of copyright exchange, the parliamentary report notes that it is crucially important that any overall digital copyright exchange which is established must not increase the regulatory burden for those engaged in e-commerce, while still offering more consistent protection and transparency within the system[13].

Certain copyright exceptions have been suggested by virtue of the Hargreaves Review, with content mining being one of the more controversial proposed exceptions. The Hargreaves review defines content mining as being “the automated analytical techniques such as text and data mining work by copying existing electronic information, for instance articles in scientific journals and other works, and analysing the data they contain for patterns, trends and other useful information”.

The parliamentary report has raised concerns that this type of interaction will jeopardise primary markets when it comes to copyright works and these types of arrangements should be dealt with in contractual solutions, rather than creating a global copyright exception. By having these exceptions in place however it is argued that some of the potency of the reforms would be lost and unnecessary complexities experienced, adding to the administrative burden. The extent of the copyright exceptions are also likely to have a dramatic impact on the practical operation of the Hargreaves Review therefore warranted an element of discussion in its own right. Although there have been notable discussions as part of the parliamentary report established a result of the Hargreaves Review, the content of the Enterprise and Regulatory Reform Bill 2013 has now been given Royal Assent on 23 April 2013, in order to deal with many aspects of the Hargreaves Review and make them statutory provisions.

Some of these key changes will potentially have a dramatic impact on e-commerce. The 2013 Act has presented the Business Secretary with a much wider range of opportunities to create new rules, in order to deal with the management of orphan works, i.e. works whereby no author can be found. The Intellectual Property Office is working towards creating a situation whereby, provided an organisation or individual can show that they have made a diligent search for the original owner, the author’s works can then be licensed to them, thus creating opportunities for those involved in e-commerce to gain access to previously unavailable material. It also presents a potential challenge whereby the commerce organisations need to be more forward thinking when protecting their own copyright. This creates some difficulty of adjustment and from an administrative point of view for the organisations looking to implement these requirements.

As well as the changes brought in by the 2013 Act in the UK, the government is still looking at various aspects of the EU Commission’s Digital Agenda for Europe, which has the underlying purpose of ensuring that cross-border e-commerce is more transparent, with little or no obstacles when trading across the EU digital single market. Furthermore, a wide variety of factors were perceived to be relevant in terms of establishing an efficient digital single market, many of which are likely to have a dramatic impact on the e-commerce industry, particularly when it comes to establishing a framework for protecting its own copyright position, as well as dealing with the opportunity to utilise information and data that would be easily be unavailable due to the author not being readily identifiable[14].

The Future for E-Commerce

By looking at the various different elements of the Hargreaves Review as well as the issues are being taken forward by the UK government, as well as the EU Commission looking at the creation of a single digital market, there are several key factors being driven into the future, with the likelihood of having a direct impact on firms operating within the ecommerce arena.

The key impacts that have been identified in this paper have been done with the recognition that many of these proposals remain as proposals, rather than specific rules and regulations that have yet to be implemented. There are multiple elements of the Hargreaves Review and the e-commerce conditions post-Hargreaves Review, which are worthy of recognition and are likely to have a dramatic impact on e-commerce, in the UK, in the long-term. The pressure to create an EU single market, therefore, is likely to be one of the majors driving factors, with UK firms being able to operate across the entire EU, with no barriers. While this increases opportunities, it also potentially increases competition and requires those engaged in e-commerce in the UK to become much more astute, in terms of what is happening outside their immediate jurisdiction.

It is also suggested that the digital copyright exchange is going to provide a much more robust framework for those engaged in e-commerce to protect their own position, particularly when dealing with online violations of copyright which are becoming increasingly prevalent in certain industries, such as music and photography, in recent years. Fundamentally, it is concluded in this paper that the real impact is the fact that IP has brought to the attention of the legislators and has required the UK government to consider what it needs to do for the future so that those engaged in e-commerce to be able to protect their own position and to become on a level playing field with other jurisdictions. It is this recognition of the need to create transparency and to deal with many of the historic difficulties in this area that is likely to have the greatest impact, regardless of the proposals which are actually enacted in the long run.

References

1. Bakhshi, H., Hargreaves I. and Mateos-Garcia, J (2013( A Manifesto for the Creative
2. Economy, London: Nesta.
3. Brinkley, I and Lee, N (2007) The Knowledge Economy in Europe: A Report prepared for the 2007 EU Spring Council, London: Work Foundation.
4. European Commission, (2012) Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market, COM(2012) 372 final, Brussels: European Commission.
5. Ghafele R and Gibert, B (2012) The Economic Value of Fair Use in Copyright Law: Counterfactual Impact Analysis of Fair Use Policy on Private Copying Technology and Copyright Markets in Singapore, MPRA, 2012.
6. Hargreaves, I (2011) Digital Opportunity: An Independent Review of Intellectual Property and Growth, London: Intellectual Property Office.
7. Manyika et. al., (2011) Big Data: The Next Frontier for Innovation, Competition and Productivity San Francisco: McKinsey Global Institute.
8. Mettler A and Williams, A (2012) Wired for Growth and Innovation: How Digital Technologies are Reshaping Small- and Medium-Sized Businesses and Empowering Entrepreneurs, Brussels: Lisbon Council.
9. OECD, (2012) “Internet Economy Outlook 2012”
10. Samuelson, P, (2010) The Copyright Principles Project: Directions for Reform, Berkeley: Copyright Principles Project.
11. Veugelers, R. (2012). New ICT Sectors: Platforms for European Growth, Brussels: Bruegel.

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