On 3 August, the government published its response to the independent review of the intellectual property framework carried out by the journalist, academic and public servant, Professor Ian Hargreaves. The review set out to determine whether copyright laws obstruct innovation and economic growth, preventing companies such as Google (that relies on fair-use policies) from setting up in the UK.

Prime minister David Cameron’s aim for the review was to ‘see if we can make [copyright laws] fit for the internet age’. He wanted to ‘encourage the sort of creative innovation that exists in America’. So, does the Hargreaves review promise radical change? No, it does not. Reassuringly for all copyright owners, Hargreaves rejected transplantation of an American-style fair-use doctrine because it would be unworkable in UK and European law.

Hargreaves does, however, reject the apocalyptic claims of some rights holders about the extent of piracy, on the basis that estimates of its extent (at 13% to 65% of downloads) are too wide-ranging and that the evidence on which many of these claims are made is rarely robust. The message is that content owners must find new business models and markets, rather than expect legislators to protect their revenues through more penal or intrusive enforcement.

For most, four of Hargreaves’ 10 recommendations would have most impact.

Copyright licensing

The big, but not new, idea is a voluntary Digital Copyright Exchange (DCE), described as the world’s first - a one-stop shop for buying and selling rights on a legitimate basis: transaction costs are reduced and rights holders keep control of their content. A senior figure will oversee its development to an ambitious timetable. The lack of detail has led one commentator to describe it as a ‘big internet flying machine thingy, added at the last minute to ensure the review had something novel in it’.

There are many practical issues with regard to turning this into reality. How will it be run, governed and policed? How will pricing work, how will complex limitations (for example, territorial restrictions) be simplified? And how will it dovetail with existing arrangements, including collection societies?

The proposal that Digital Economy Act sanctions would apply only to infringements involving rights in the DCE - with larger damages for infringement of DCE rights - could mean the DCE acquires significant market power. It might become an issue for the competition authorities. But this is running ahead; first the DCE has to be developed.

Limits to copyright

To avoid over-regulation, further exceptions to copyright are called for to allow limited private copying (format shifts, CD to iPod etc), non-commercial research, library archiving and parody. Copying a CD onto a music player will no longer be a crime (not that most people are aware that it is). Enabling non-commercial research is deemed highly beneficial and library archiving is a no-brainer.

In respect of parody, the chanteurs of Newport can relax. Newport Stateof Mind - their video parody of Jay-Z’s song, Empire State of Mind - achieved more than 2.6m views on YouTube, but was pulled from the site. Not by EMI or EMI Music Publishing, but by the songwriters. However, it is unclear how the proposals for parody will work in practice given the complexities in the copyright chain. Keep an eye on YouTube and the courts before and after the parody exception is invoked (assuming, of course, that it is).

Rights enforcement

The interest here is not so much the proposals, but the analysis. Hargreaves states: ‘Given its importance, you would think we would have a very clear picture of the scale and dynamics of online piracy, but this is not so.’ The review examines an array of studies. Two points stand out. First, the methodological weaknesses: many of the studies do not give details of methods, sampling, response and data sources (usually a giveaway for an unsound survey).

Second, even if the numbers are to be believed, Hargreaves’ ‘worst case’ estimate of the total cost of IP crime is between 0.1% and 0.5% of economic activity. The message is understated, but clear: Hargreaves does not subscribe to the view that piracy is killing content-based industries, nor does he believe in more aggressive enforcement. Alongside a softer strategy of education, he suggests the development of new business models to encourage more consumers in developed and emerging markets to pay for content.

Of course, Hargreaves may be complacent. Illicit behaviour is difficult to research; consumers may not reveal their behaviour in surveys. Furthermore, generations raised with one attitude towards creative content (won’t pay) may not be enticed by these business models. Hargreaves notes the apparent decline in investment in new talent.

A system responsive to change

The review explores why the UK’s IP framework has faced difficulties in adapting to change and notes a ‘failure of public policy’, because even when the law is clear, policy is rarely grounded in economic priorities or evidence.

Hargreaves calls for a revamped IPO, institutionally and legally, with new duties and powers, and a more forward outlook; the latter to identify changes in technology/markets that require the IP system to adapt. While this is sensible strategic positioning, in practice we suspect the forward-looking aspect will be of limited value. Combinations of technologies, individual behaviour and entrepreneurship shape future uses (or abuses) of IP and all are very difficult to predict.

Conclusion

Many will see Hargreaves as underwhelming. It would take more than this review to turn Shoreditch into San Jose. While the review identifies the direction of travel, it is sometimes light on how to get there. This becomes apparent in the government response.

While the government has accepted the main conclusions of the review, in nearly every case there are further pieces of work planned or there are considerations that will determine whether the individual recommendations are implemented. The response highlights even more practical issues that have to be dealt with in setting up the DCE than were specified in the Hargreaves report itself.

However, behind the understated prose, there is some content. If they are implemented, the proposals for extensions to copyright exemptions are useful steps to improving the credibility of the current regime. But there are caveats in the government’s response. The detail of any revisions has still to be determined. There is much still to play for and groups on both sides of the argument will be preparing for an extended debate.

Alison Sprague and Mark Beatson are consultants for FTI Consulting. Sprague specialises in strategic, regulatory and ­policy issues in the media sector, and Beatson in regulation and public policy