JOINT COMMITTEE ON EUROPEAN AFFAIRS (Sub-Committee on European Scrutiny) díospóireacht -
Thursday, 6 May 2004

Scrutiny of EU Proposals.

Chairman

Nos. 1.1 to 1.12, inclusive, do not warrant further scrutiny. No. 1.1 is COM (2004) 155, a proposed regulation regarding the conditions for the re-export and re-dispatch of products covered by the specific supply arrangement. It relates to the Azores and Madeira. It is proposed that this does not warrant further scrutiny. Is that agreed? Agreed.

No. 1.2, COM (2004) 159, is a codification exercise relating to a proposed decision on consultation and information procedures in matters of credit insurance, credit guarantees and financial credits. Is it agreed that the proposal does not warrant further scrutiny? Agreed.

No. 1.3, COM (2004) 179, is a proposed regulation on the statistics relating to the trading of goods between member states. This proposal is an amended text of COM (2003) 364 and takes on board a number of amendments tabled by the European Parliament. These provide, inter alia, that any list of goods drawn up by the Commission for inclusion in the survey will be designed to ensure that the trade statistics are comparable at world level and that the question of the confidentiality of data supplied will rest with the national authorities. It is proposed that this does not warrant further scrutiny. Is that agreed? Agreed.

No. 1.4, COM (2004) 183, is a proposed regulation on the conclusion of an agreement in the form of an exchange of letters concerning the extension of the protocol setting out the fishing opportunities and financial contribution provided for in the agreement between the European Economic Community and the Republic of Cape Verde and fishing off the coast of Cape Verde for the period 1 July 2004 to 30 June 2005. The vessels concerned are from France, Spain and Portugal and if licence applications from these countries do not cover all the fishing opportunities outlined in the agreement, the Commission may consider applications from any other member state. It is proposed that this does not warrant further scrutiny. Is that agreed? Agreed.

Nos. 1.4 to 1.7, inclusive, are similar measures and No. 1.6 has already been adopted. It is proposed to note these measures, which relate to fishing agreements and do not warrant further scrutiny. Is that agreed? Agreed.

No. 1.8 is a proposed decision granting Cyprus, Malta and Poland certain temporary derogations from Directive 2002/96/EC on waste electrical and electronic equipment. The directive on electrical waste, known as the WEEE directive, provides for minimum targets for the collection of electrical waste. The proposal to adopt that directive was considered by the sub-committee at its meeting on 26 June last year. The sub-committee also considered, at its meeting on 11 March 2004, a proposal, COM (2004) 81, to give temporary derogations from aspects of the proposal of between 12 and 24 months to a number of the accession states. This proposal seeks similar derogations for Cyprus, Malta and Poland. The derogations will be granted on the basis of low population density or low level of infrastructural development. It is proposed to note this matter. It was adopted in the past couple of days. Is that agreed? Agreed.

The following proposals were received yesterday by the secretariat: No. 1.9, COM (2004) 203, No. 1.10, COM (2004) 204, No. 1.11, COM (2004) 205, and No. 1.12, COM (2004) 206. They are a set of proposals inspired by the accession partnerships for the candidate countries Romania, Bulgaria and Turkey. They relate to European partnerships being drawn up for the countries participating in the stabilisation and association process. These are Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav republic of Macedonia and Serbia and Montenegro, including Kosovo. The European partnerships identify priorities for action in supporting the efforts of these countries to move closer to eventual membership of the European Union and serve as a checklist against which to measure progress. They reflect the stage of development of each country, are tailored to specific needs and drawn up by the Commission following contacts with the countries concerned. The proposed measures are for consideration at the next meeting of the General Affairs and External Relations Council. It is proposed that the proposals do not warrant further scrutiny. Is that agreed? Agreed.

To sum up, it is proposed that Nos. 1.1 to 1.12, inclusive, do not warrant further scrutiny, except for Nos. 1.5, 1.6 and 1.8, which were adopted prior to scrutiny. The next set of proposals are the documents which it is proposed to refer to the sectoral committees for further scrutiny - Nos. 2.1 to 2.3, inclusive.

No. 2.1, COM (2004) 166, is a proposed regulation fixing the maximum annual fishing effort for certain fishing areas and fisheries. In October 2003, the establishment of the biologically sensitive area that covers much of the area known as the Irish Box was agreed. That was Council regulation 1954/2003. This recognises the biological sensitivity and commercial importance of waters around Ireland. A map has been supplied to members. It is believed that these waters contain important spawning and nursery areas for commercial Irish fish stocks in the Atlantic.

Regulation 1954/2003 envisages the presentation of this proposal by the Commission on the fixing of maximum annual fishing efforts in the waters. The proposal is based on information provided by the member states on the previous fishing effort in the waters concerned. The later than expected presentation of this proposal arose from the longer than anticipated time it took for the compilation of the data requested. The proposal is classified as of major significance. The Department has also indicated that the adoption of the measure would undoubtedly be positive for the protection of nursery and spawning grounds in the area. It has, however, clarified that the proposal seeks to reduce fishing effort and this would impact on the Irish fishing fleet. It is proposed that this requires detailed scrutiny and that it be referred to the Joint Committee on Communications, Marine and Natural Resources for such scrutiny.

Deputy Sexton

With regard to the proposed implementation date, it is stated that the Commission shall adopt a regulation by 31 July if it is not adopted on 31 May. Does that allow sufficient time for further scrutiny or has the date been changed?

Chairman

The date has not been changed. It will go to the committee this morning and it can be considered at its next meeting if the committee so decides.

Deputy Sexton

Is there a reason for it coming before this committee so late?

Chairman

The document states that it is based on information provided by the member states and that the later than expected presentation of the proposal arose from the longer than anticipated time it took for the compilation of the data. Apparently, it took a long time to get the basic information on which to base it.

Senator Dardis

The Council document did not appear until 16 March. That is quite recent.

Chairman

It is but, apparently, the Commission changed the data on which this was based so it took a little longer to compile. It is late for such a proposal but it will go directly to the committee on communications, marine and natural resources which will give it urgent consideration.

Deputy Sexton

Can the committee's attention be drawn to the lack of time for scrutiny?

Chairman

Yes.

Senator Dardis

I find the use of the term "believed" extraordinary in the line "these waters are believed to contain important spawning and nursery areas for commercial fish stocks". One would have thought that it would be known where the fish spawn.

Chairman

COM (2004) 166 will be sent for urgent consideration to the committee on communications, marine and natural resources.

COM (2004) 239 is a proposed decision on guidelines for the employment policies of member states and a recommendation on the implementation of member states' employment policies. This proposal follows from the report of the European employment task force and recommends a number of policy approaches by member states in general and addresses others to member states in particular. These recommendations are incorporated in the national action plans of the member states and the departmental note indicates that the next one will be prepared and presented to the Commission by 1 October 2004.

Four recommendations for action are addressed to all the member states. These are increasing the adaptability of workers; attracting more people to enter and remain in the labour market: making work a real option for all; investing more effectively in human capital and lifelong learning; and ensuring effective implementation of reforms through better governance.

It notes that social partnership, the tax system, a good regulatory environment and investment in human capital are import factors in the impressive progress in the Irish economy. The recommendations addressed specifically to Ireland include increasing access to the labour market for a larger share of the unemployed and inactive population; the supply and affordability of child care facilities; and a coherent lifelong learning strategy. The recommendations are meant to provide additional guidance for member states by directing their attention to issues. The recommendations are targeted at significant issues. It is proposed to refer the proposal to the committee on enterprise and small business and forward it to the committee on European affairs for information in the context of the Lisbon process.

Deputy Carey

This reflects the work of our parent committee and it has significant policy recommendations. While the proposal is to be adopted by the European Council on 17 June and submitted to the Commission on 1 October, there is no legal binding effect of these measures. What is the status of such a directive?

Chairman

These are guidelines for member states with recommendations. It is up to the individual member states to implement them.

Deputy Carey

Are there sanctions if they are not implemented?

Chairman

There are no sanctions but the member states must report to the Commission on implementation which then decides if further steps are required. It is similar to the Lisbon process in that there are guidelines and best practice recommendations but no sanction from the Commission if they are not put in place.

Is it agreed to send it for scrutiny? Agreed.

COM (2004) 91 is a proposed decision of both the European Parliament and the Council on establishing a multi-annual community programme on promoting safer use of the Internet and new on-line technologies. The EU's safer Internet action plan has operated through programmes of financial support, 1999-2002 and 2003-2004. The objectives of the programmes, as specified in the European Parliament and Council decisions, were promoting safer use of the Internet and encouraging, at European level, the establishment of an environment favourable to the development of the Internet industry. Members will have seen from the proposal that the current programme ended in December 2003. An evaluation of the previous programme, COM 2003/635 found inter alia “at the policy level, the programme has been successful in putting the issues of developing a safer Internet firmly on the agenda of the EU and member states”. It also recognises the “foresight of the European Commission in identifying these issues early on in the development of the Internet”.

The evaluation also outlined that during the years 1999 to 2002, 37 projects were co-financed, involving more than 130 different organisations. The Department's note sets out that invitations for funding are advertised by the Commission and that Irish organisations have received funding under the programme, including the Internet Service Providers' Association of Ireland's public hotline for reporting child pornography. There is a network of hotlines across Europe sharing information on notified sites and passing this information to authorities in states where the images are generated. The programme specifically sets out to inter alia assist in creating a safer environment through a European network of hotlines and encouraging self-regulation and codes of conduct. It also sets out to develop rating systems and encourage awareness.

This proposal seeks to extend the programme for a further four years, 2004-2007. The scope of the new programme will be wider and include international co-operation and support actions directed at end-users, such as parents, educators and children. The budget for the new programme will be €50 million.

The issue of safer use of the Internet, particularly for children, is a topic of great public interest. It is proposed that the measure be referred to the committee on communications, marine and natural resources for further scrutiny and forwarded to the Committee on Justice, Equality, Defence and Women's Rights for information.

Deputy Carey

The memorandum states that the scope will be broadened to include new media and new issues such as spam, it will expand the network to accession countries and stimulate a multiplier effect and broaden international outreach with actions primarily aimed at end-users such as parents, educators and children. What does this mean in practice? A note on the proposal would suffice.

Chairman

Is it agreed that the proposal be sent for further scrutiny? Agreed.

There are four proposals which were adopted prior to scrutiny. No. 3.1 is COM (2004) 185 which is a proposed directive as regards the possibility for Cyprus to apply in respect of energy products and electricity, temporary exemptions or reductions in the levels of taxation. It is proposed to note the measures. Is that agreed? Agreed.

No. 3.2, COM (2004) 192, is a proposed regulation EC EURATOM fixing from 1 May 2004 what are euphemistically called the correction coefficients applying to the pensions of officials and other servants of the European Communities. This is the kind of measure that always comes before us late which only gives rise to us asking questions. It must be asked why this came late for scrutiny.

Deputy Carey

These measures must be written by an actuary and one would need to be one just to understand them. These types of proposals always come at the last minute. We should be told why.

Chairman

This particular proposal came a little earlier than usual. However, it will be pointed out that the committee wants to see these types of proposals in advance. It is proposed to note this measure. Is that agreed? Agreed.

No. 3.3, COM (2004) 215, is a related matter and it is proposed to note it. Is that agreed? Agreed. No. 3.4, COM (2004) 253, seeks to amend the existing relevant regulations to take account of changes in the new staff regulations of those employed by the European Communities. In particular, the measure recognises the creation of the new category of contract staff. The measure also sets out special allowances payable for arduous, regular standby duty and shift work. However, the allowances remain unchanged, as the departmental note has set out. It is proposed to note the adopted measure. Is that agreed? Agreed.

No. 4.1, COM (2004) 68, is a proposed decision on the position to be adopted by the Community within the ACP-EC Council of Ministers regarding the revision of the terms and conditions of financing for short-term fluctuations in export earnings. I propose to defer this for scrutiny at a later date when more detailed information is available. Is that agreed? Agreed.

No. 5 is a Title IV measure. The note states Nos. 5.1 and 5.2 are Title IV measures but while No. 5.1 is a Title IV measure, No. 5.2 is, in fact, a Title VI measure. There is a significant difference because a Title IV measure needs prior approval of the Oireachtas.

No. 5.1, COM (2004) 178, is a proposed directive on specific procedures for admitting third country nationals to carry out scientific research in the European Union. This is a proposed Title IV measure and does not automatically apply to Ireland. It concerns proposals which aim to streamline the procedure that should be followed in the issuing of visas to researchers entering member states of the European Union to carry out research. Under the proposed measure, the research organisations hosting the researcher would assume responsibility for certain items such as health and residence costs. There would also be a hosting agreement whereby, inter alia, the salary, duration and nature of the work to be carried out would be outlined. The proposal is being presented in the context of the need for the European Union to “attract and retain” high quality research talent and is accompanied by a recommendation from the European Commission for similar measures to be implemented in advance of any adoption of the proposed measure. It is proposed that it be sent to the Joint Committee on Justice, Equality, Defence and Women’s Rights for information in advance of any decision to opt in in respect of this measure. Is that agreed? Agreed.

Deputy Carey

I did not get the opportunity to read it in detail. Is there any reference to it in the proposed directive on the mutual recognition of qualifications?

Chairman

No. 5.2, COM (2004) 221, is a Title VI measure on judicial co-operation, a proposed directive on the exchange of information and co-operation concerning terrorist offences. It follows from recent terrorist attacks, including those of 11 September 2001 and 11 March 2004. The European Commission's memorandum to the proposal sets out that "terrorism is a phenomenon with complex and various causes", with implications, among other matters, for the economy. It also underlines the importance of addressing the issue of the sources of funding for terrorism and notes the links between organised crime and terrorism. In this context, it stresses the importance of being aware of the "true owners" of bank accounts and sets out the need for reliable national registers of corporate bodies, including firms and charitable organisations.

The proposed measure aims to increase co-operation between member states and provides, inter alia, for the following: that member states should transmit relevant information to Europol and Eurojust; and that the member states should have a designated “specialised service” within their own police services which, in accordance with national law, would collect all of this relevant information. The departmental note indicates that the Department is awaiting legal advice from the Attorney General’s office on the proposal which it is examining to determine the full implications for Ireland. It is likely that this measure will be the subject of a detailed working group examination. It is proposed that it be referred to the Joint Committee on Justice, Equality, Defence and Women’s Rights for further scrutiny. Is that agreed? Agreed.

Deputy Mulcahy

Is it being referred for a legal decision by the Attorney General as to whether it comes within the ambit of the Treaty of Rome?

Chairman

The Attorney General's advice has been sought. I presume, therefore, that all of the issues involved, legal and constitutional, will be reviewed.

Deputy Mulcahy

Could we agree to have it referred back to this committee at some future date in order that we would know what his findings were?

Chairman

Is that agreed? Agreed.

No. 3 concerns the minutes of the previous meeting which were circulated. Are they agreed to? Agreed.

No. 4 which concerns the reports of the sub-committee may be deferred until the next meeting while No. 6 is Any Other Business. I do not believe there is any. No. 7 concerns the date of the next meeting of the sub-committee. It is to be held on 27 May, three weeks from now rather than the normal two due to the fact that the committee will be hosting the COSAC meeting in between.

No. 2 on the agenda is the discussion of COM (2002) 92, the proposed directive on the patentability of computer implemented inventions. I welcome Mr. John McCallion, chief executive officer, Altamedius; Mr. Brian Caulfield, investment director, Trinity Venture Capital; Ms Una Halligan, government public affairs director, Hewlett Packard; and Mr. Tony McGrath and Ms Helen Curley, Department of Enterprise, Trade and Employment. In keeping with the normal format of these meetings I will invite each witness to make a brief presentation which will be followed by questions from members. Perhaps Mr. McCallion would like to start, followed by Mr. Caulfield.

Mr. John McCallion

I am the chief executive of an indigenous Irish company and represent the SME software sector. SME software companies make up a significant and growing contribution to the economy. For instance, they support around 30,000 jobs, a number which is growing. Therefore, they form an important basis for future growth in the economy. There is significant investment involved, by individuals, venture capitalists, finance companies and Government.

Individuals such as myself have made significant investments, in some cases involving their life savings, in their own intellectual property rights, IPR. In many cases such individuals, following redundancy, have employed others who had experienced difficulty in sustaining employment in the non-Celtic tiger days. Entrepreneurs tend to dismiss venture capitalists who are an important channel for investment in the economy. As investors, they represent important sources of value, including individuals, financial institutions and so on.

It is significant that European legislation will seriously devalue the €650 million investment in Science Foundation Ireland. Any softer invention emanating from it will be fundamentally devalued. For example, it reduces the opportunity for universities to benefit from investments they have made in their own people and IPR.

Potentially, Irish companies will compete in the United States with American concerns which may have copied our inventions. These American companies which have patent protection in the United States are competing against us in Europe. If the European Union implements the legislation in question, we will not have any protection whatsoever.

The open software sector deserves a level of protection. The legislation should ensure this is provided. In this respect, there will be much confusion which I want to try to lift. Protection must not be provided at the expense of software companies such as ours which have patented inventions. We have not taken the open software route but nonetheless follow open standards. Like many of the leading companies, we defend and support the concepts of inter-operability and inter-connectivity through the use of published open standards. Published open standards, however, are not the same as open software. This is an important point.

From an economic and governmental point of view, this will shift research and development investment out of the European Union because it fundamentally undermines its value. It will remove the opportunity to earn royalties from patents and introduce the possibility and probability of competition from those who clone the IPR and patents of others. On behalf of Altamedia and other Irish SMEs, I ask that the value to Irish SME software companies not be removed because that is what the legislation will do. Do not devalue the investment made by our customers because they have invested in our software as it gives them a strategic advantage. Push forward the Irish Presidency's middle-way approach which offers the best wording for the legislation, not the European Parliament's version. In this way jobs would be protected because without investment there will be no jobs. There are some investors present and, clearly, it is important to them. We do not want this investment to be made elsewhere.

Mr. Brian Caulfield

I thank the Chairman and committee members for giving me the opportunity to speak to them on this very important issue. I would like to start by emphasising that industry is not against the initial objectives of the directive, specifically the harmonisation of patent rules on computer implemented innovations across the European Union. Our difficulty arises from the amendments introduced in the current version of the European Parliament text.

I would like to highlight a number of key points for the committee. First, patents are widely used by the technology industry. Second, they are fundamental to the technology industry's way of doing business. Third, the effects of adopting the Parliament text would be very damaging and far-reaching. Fourth, there are other methods of IP protection which are not a substitute for the patent system.

ICT Ireland and the Irish Software Association recently surveyed the membership on its use of patents. Of those who responded, 75% are using patents. The vast majority are small and medium-sized early stage technology companies rather than multinationals. They are using patents to protect their intellectual property and defend against IPR infringement claims. The fundamental point is that they are not used for tax purposes.

As I mentioned, patents are fundamental to the way the technology industry does business. Many contracts with our customers in the industry involve licences to use patented technology. If we remove the ability to patent technology, that way of doing business will be fundamentally undermined. As the current Parliament text would effectively nullify existing patents retrospectively, existing commercial arrangements would have to be renegotiated.

I also stated the effects of adopting the Parliament text would be very damaging and far-reaching. The current Parliament text is extremely broad. It would affect not just the software industry but any industry which uses information technology. For example, most cars have 12 to 15 micro-processors. Therefore, the directive would impact on innovation in the automobile sector and even consumer electronics. Other methods of IPR protection are not a substitute. The patents system is the only method that protects the underlying technological idea. Copyright and trade secrets do not do this. Therefore, the patents system is very important.

The likely impact on industry of adoption of the current Parliament text would be a significant reduction of investment in research and development by European technology companies. It is also likely to lead to a significant reduction in venture capital investment in early stage companies because such companies would not be in a position to protect their intellectual property rights from fast following large companies which can invest enormous amounts in rapidly duplicating existing technology innovations. It would undermine the business model and, potentially, lead to a requirement to renegotiate enormous numbers of existing commercial agreements, which agreements would be devalued because there would no longer be a patent to licence.

We are very encouraged that the Irish Presidency has proposed an alternative text and urge all concerned to ensure this text is adopted as a common position at the Competitiveness Council meeting to be held before the end of the Irish Presidency.

Ms Una Halligan

I am here to represent the ICT multinational sector in Ireland, in which I take Hewlett Packard as a typical example. We have over 4,200 employees in Ireland, following the Hewlett Packard-Compaq merger.

Hewlett Packard located in Ireland eight years ago to set up its ink-jet manufacturing facility. With over 1,800 people on site, this is a typical example of a business which started out with just a manufacturing facility and is now very involved in climbing up the value chain. We have started working with IDA Ireland on capability grants and Science Foundation Ireland on collaborations with the universities on research and development.

The reason Hewlett Packard has located much of its business here, both in the software development sector in Galway, as well as in Leixlip, is the availability of the patents system, any threat to which would also be a threat to inward investment in the sense that we are under pressure from operations in Singapore and Puerto Rico where there is no such regulation. We, therefore, support the motions.

Mr. Tony McGrath

I will speak on behalf of the Department.

The European patent convention, to which 28 states are party, applies to the operation of the European Patent Office. While the laws in the 28 states were similar, their application of case law and administrative practices differed. For example, a situation might have arisen in which a computer implemented invention could have been patented in one state but not in another. Obviously, this had a negative impact on the internal market.

The European Commission proposal was aimed at regularising and harmonising the situation within the European Union from a base where there was already some form of harmonisation. Under the proposal, in order to be patentable, a computer implemented invention would have to be new, involve an inventive step and be susceptible to industrial application - it would be a condition for involving an inventive step that a computer implemented invention would make a technical contribution. All of these requirements were set out in the Commission proposal discussed in 2002.

In November 2002 the Council agreed a common approach. While there were reservations from some member states, a text was agreed. Several delegations stressed that it constituted an overall package and pointed to the danger that changes to it would upset the balance achieved. While this was the approach of the Council, it is important to recognise that it was a co-decision of the European Parliament and the Council, not a consultation process.

In September 2003 the European Parliament adopted a resolution proposing a number of amendments, many of which moved away from what the European Commission had proposed and the Council had adopted in November 2002. Some 64 amendments were proposed, of which the Commission indicated to the Parliament it could accept 21. This occurred during the Italian Presidency.

During the Irish Presidency, we drew up a document - a Presidency proposal - which we believed could garner the support of the member states. We took account of the November 2002 position and the proposed amendments made by the European Parliament. This was discussed within the working group in Brussels on a number of occasions and then forwarded to the Committee of Permanent Representatives who were to consider it before it was referred to the Council. It has now considered it on a number of occasions, most recently yesterday. At this stage, it is a confidential document. However, I have provided copies for the committee having removed the footnotes on the positions of member states, because it is a concern that the information does not become available outside COREPER.

Our expectation is that the document will be referred to the Competitiveness Council on 17 and 18 May when we hope there will be agreement on the Irish Presidency compromise. A political approach would first be agreed. If this is agreed, it will then go through juris linguis procedures before a common position is adopted. It will then be referred back to the European Parliament, the next phase of the co-decision process. It will be a matter for the new Parliament whether to accept the common position of the Council. If it does, this can be adopted. If not, it will be a matter of conciliation.

The Minister recently wrote to Senator Quinn and stated the working party had agreed to take on board a number of the European Parliament amendments while rejecting others which would seriously undermine the common approach on the directive adopted by the Competitiveness Council in November 2002. She indicated that the working party had not accepted the most controversial amendment which related to a proposal for a new Article 6A concerning the interoperability of computer systems or networks. The effect of this amendment would be to render many patents, particularly in the telecommunications field, worthless. Most delegations considered that concerns regarding abuse of a dominant position, the reason behind the amendment, should be dealt with by competition rules rather than patent law. There is a recital to this effect in the most recent document.

Chairman

Does Ms Curley wish to add anything?

Ms Helen Curley

No.

Chairman

Is there a sizeable sector of Irish industry opposed to what has been said by other witnesses? Mr. McGrath mentioned competition. Are the interests of the consumer being protected? Is this of disproportionate interest to Ireland because of our IT sector or is there concern at the same level among all of the member states?

Mr. McGrath

We have had consultations with industry and the approach we have adopted has not been opposed to any great extent. With regard to consumers, the intention simply is to regularise the current situation. We believe it represents a reasonable balance between the positions of industry and the consumer. On Ireland's interests, a number of major IT companies located in Ireland made representations to us. In the context of the Irish Presidency, our aim was to bring forward a package that would be acceptable to member states rather than to represent our own interests. As it happens, that package would be broadly in line with our interests.

Chairman

The point I am making is that the member states are on one side and the European Parliament on the other. Within the member states, broadly, is there a general approach?

Mr McGrath

Yes.

Ms Patricia McKenna, MEP

I am attending the meeting to discuss this issue which was quite controversial when it passed through the European Parliament in September. I recently attended a conference in Brussels which attracted a large attendance and was surprised by the number of young people involved, particularly those connected with the software industry. There was great concern about the paving of the way for uncontrolled software patenting in the European Union. Many believe the granting of such patents could radically slow the development process because companies would have to check registers or dispute patents with competitors.

It was believed the major danger was that software could be used by large companies with considerable legal teams to stifle competition from others, especially small and medium-sized companies which could not afford the necessary fees for registering or fighting the patent. There is significant opposition in the European Parliament and from the software industry - I say this because of my experience in the Parliament and the conferences I have attended. Thousands of software companies and thousands of companies which carry on business across Europe have expressed their strong objections to the introduction of patents for software. This must raise serious questions considering these are the individuals and companies supposed to benefit from this. Why is there such huge concern?

The European Parliament voted on this issue last September. The Green group in the Parliament was quite concerned about it, although we managed to get a few amendments through. One of the most important concessions was limiting the scope of the directive and the possibility of patenting software. However, we were very much against the overall report adopted by the Parliament where a petition has been submitted to the petitions committee, signed by over 200,000, including many software entrepreneurs and small and medium-sized enterprises which have legitimate concerns. As I said, I was surprised by the level of concern among young people involved in the industry. While this issue does not seem to be widely debated in Ireland, it is a hot topic in the Parliament.

Deputy Mulcahy

I welcome the delegation and sincerely hope our representatives in the European Parliament have been assisting Irish companies primarily. As I understand it, in the United States one must have novelty and inventive steps but not a technical contribution. Is that correct? In Europe, it appears one needs novelty, inventive steps and technical contribution before registering a patent. Am I correct in saying that if one registers a patent with the European Patents Office it is applicable across Europe?

Mr. McGrath

May I answer that question?

Chairman

Yes, briefly.

Mr. McGrath

In regard to the European patent organisation, what happens is that one would apply for a patent - there are 28 countries involved - and one decides in what countries one wants one's patent covered. There are costs involved for the more countries covered. On average one applies for a patent in eight countries and pays the renewal fees there. One can patent business methods in the US but not in Europe.

Deputy Mulcahy

Is it done at central level in the US?

Mr. McGrath

USPTO.

Deputy Mulcahy

It seems that in the US one patent covers all the US, whereas in Europe one has to take out patents in many different states to cover all of Europe. Is that correct?

Mr. McGrath

That is correct but the Deputy may be familiar with the proposal on community patents which will be coming up but unfortunately——

Deputy Mulcahy

This is obviously a complex issue. I join the Chair in thanking the delegation for coming before the committee. We would like to help. A balance has to be struck between companies which have invested much in research and development and have come up with new inventions and want to protect that work without stymieing small new vibrant technology companies. I would need to be fully briefed to assist in striking that balance. Is that reasonable?

Deputy Sexton

I have listened with great interest to the contributions of our guests which have been informative. The contribution from Ms Halligan on Hewlett Packard drives home succinctly the points everyone is making in regard to inward investment. I thank the Department for clarifying its position. Do I understand we are all in agreement that the Department's proposals are the ones we are to drive?

Chairman

Who would like to respond?

Mr. Caulfield

I begin by referring to one of the Chairman's questions. This is of particular interest to Ireland because we have more than double the EU average of our GDP deriving from the ICT sector. This is unusually important to Ireland. This directive was initially designed to harmonise the existing situation. It was not intended to extend the patent ability of software beyond what exists today. That is important because some of the concerns arise from a notion that this would extend software patents. It was not intended to do so and we support the notion that we would not extend the patent ability of software beyond what exists.

In regard to the US, there are significant issues with the system there where business methods are patentable. We do not want to go down that road and the directive is not designed to take us down that road; it is designed to ensure we do not go down that road. Many of the concerns that have arisen are due to a lack of information.

In regard to our own business, we have invested in about 15 early stage technology companies, the largest of which employs more than 100 people, most employ significantly smaller numbers, although we hope they will grow and become successful. Almost all of those companies are using patents to protect their intellectual property. This is one of the questions Patricia McKenna, MEP, of the Greens, has raised. There are concerns in the open source sector about innovation and the impact of large companies using patents to stifle competition. We do not see that as a major issue. It is generally not to the benefit of a large organisation to sue a small one for a patent infringement, partly because small organisations cannot pay any damages that might be assessed against them. More often than not when one is seeking to sell a small software company or a small information technology company to a larger organisation, that the small company has a portfolio of patents protecting its intellectual property is key to achieving fair value for that intellectual property and achieving a return on the investment in research and development that has been made by that company.

Chairman

I should advise that even though some members have had to leave for the two Houses, this is being recorded verbatim so there is a record of it.

Mr. McCallion

I recognise Ms McKenna has left at this stage. I represent a small Irish company. One of the key issues that gives our company value is the patent ability of our products. We do not attract investment or grow as a company if we are not allowed patent our products. The SME objection is not a real point. There is however a real point, that is, that there are strong objections from open source representatives. These are generally individuals who should also have their rights protected. Those individuals write a code and leave it open for others to use. They retain copyright on that code but they do not have a patent on it. What they do not want to see happening - and I support it - is big companies patenting their inventions and then preventing them from selling their open source or benefiting from it. So far as I am concerned, the SME sector supports the Irish Government's wording and not the Parliament's wording.

Ms Halligan

The timing of this is fundamental. If one looks at the way Ireland Inc is going up the valley chain and trying to move from low-end manufacturing jobs into the high end, anyone, European or Irish, who sends out a message to foreign direct investment that this is not a friendly place to do business at that level is sending a significantly bad message and it is a serious threat to us. It is significant that within a company, such as ours, our research and development into Europe is growing in patents in Ireland and other European countries. This is a time when we are looking outside the US to do much more of this work. We are not unique in that.

Senator Quinn

I have no doubt where Irish interests lie in this, particularly when Ms Halligan referred to Singapore and Puerto Rico. We have invested in this as a nation and it has been very successful for us in protecting patents. I was impressed when I heard from Patricia McKenna, MEP, that 200,000 people had signed for an alternative. I tried to question this to get an example of it in some other business. I was given the example by somebody who said that in the supermarket business, about which I know something, if one asked one's customers if they would like something free they would all sign to say they would like their products free in future, whereas those who are opening supermarkets would have a view on whether they could do so. It is probably not a good simile but Ireland has invested and it has been very successful in Ireland. We have to stiffen the resolve of those nations who recognise that at this stage they have not yet supported the Irish view, and we should find a way to ensure they do. The case made is strong. We would query the difference of opinion between the viewpoint expressed that the small and medium enterprises appear to say they do not want the Irish position because it does not interest them. Mr. McCallion has expressed the strong view that we cannot invest in the future unless we know we will get paid for it and Mr. Caulfield made a strong case on that basis.

Having heard the representatives' side, I have no doubt where lie the interests of investing in Irish industry. It is the right direction for the European Union to take and the Irish should resolve to determine what we have in that regard. If I understand the representatives correctly, the Irish compromise, to use Mr. McGrath's word, is one they will accept. Can he give us a sense of how likely it is to be won? The next direction will be decided on 17 and 18 May. Can Mr. McGrath give us an indication as to whether the case is likely to be won and adhered to?

The other point Mr. McGrath made clearly, which I had not understood previously, was that the original agreement formed a package. Once a package is formed, bits and pieces cannot be taken from it and it cannot easily be changed. Am I correct in thinking that is the example which has been outlined to us?

Mr. McGrath

I will deal with a few points. Ms McKenna referred to the protests in Brussels. Obviously, we are aware of what is happening there. She also mentioned the concern about the introduction of patents, a point about which Mr. Caulfield spoke. It is important that one recognises that it is not a question of introducing patents, rather it is a question of regularising the current situation to ensure harmonisation as tens of thousands of patents have been issued for computer implemented inventions.

One of the purposes of the patents system is to protect research and development. If one invests in research and development, one wants something in return to enable one to recoup the investment. That is what the patents system does. Obviously, one has to pay for this which some do not like, as Senator Quinn pointed out. People prefer to get something for nothing.

Regarding the Competitiveness Council, I am hopeful it will be agreed but would not like to go further than that. This was a package agreed within the Council but there is the second institution, the European Parliament. A decision has to be reached which is acceptable to both parties. It is a co-decision process.

Deputy Mulcahy

Is there a conference taking place as we speak? It was explained to us in Brussels that as part of the co-decision process, both sides would enter a room to talk.

Chairman

That will happen later in the process. There will be a new European Parliament by the time that happens.

Deputy Mulcahy

I note the Chairman's hopeful aspiration in that regard. Is it the case that the Council has to make a decision?

Mr. McGrath

Yes. The European Parliament did not accept the Commission's proposal and was not prepared to accept something which would have been acceptable to the Council. Now the Council has to agree to what is called a common position.

Deputy Mulcahy

With the Parliament.

Mr. McGrath

No, a common position of the Council. This will be referred to the new Parliament which may accept it, or it may not be happy with it, but I expect there will be a conciliation process. There are other areas where this could be explored also. Members are probably familiar with the enforcement directive agreed to earlier this year on First Reading. There were trilateral meetings between the European Commission, the Presidency and the European Parliament, together with the Council secretariat, which helped to get it through. The Dutch Presidency may have plans to speak to the Parliament about the matter as the Irish Presidency will have come to an end when this comes about. The Competitiveness Council represents the immediate stage at which we expect this matter to be brought forward for decision.

Chairman

We hope to reach a common position of the Council during the Irish Presidency.

Mr. McGrath

It will go through the juris linguis procedures afterwards but that could happen.

Senator Quinn

It hasbeen useful to hear the views of industry representatives. We have not heard the opposing view. I am not sure there is a particular one, there may be many but it is useful for any organisation to hear the opposing view on a matter. The only hint of an opposing view we got was from Ms McKenna. Do we understand the strength of feeling and the power of the argument of those who are opposed to the view the representatives have strongly expressed?

Chairman

We asked Mr. McGrath at the beginning if there was significant concern about this matter among industry and the consumer implications. Has he received representations in this regard?

Mr. McGrath

I thought I had answered that question. We did discuss the position in the food industry but the feedback came more from the sector of industry represented here. We have not received many representations concerning the other side. In this regard, there is far more lobbying in certain member states.

Deputy Mulcahy

Given the importance of this matter and the fact that the conciliation process will occur during the period of the new Parliament, can we discuss this matter again in four or five months' time? It would be good for us to be kept up to date as I would not like us to lose touch on it. The Chairman might attend a meeting of this committee at a future date as a Member of the European Parliament when he would be able to keep us well informed.

Chairman

The Deputy does not know in what capacity I will be here. We have to repose a certain degree of confidence in the Department of Enterprise, Trade and Employment in the absence of any other evidence and given the extent of representations we have received. Anybody who wishes to make representations can do so. In this regard, we have received strong representations.

It seems the Irish Presidency has brought forward a compromise proposal which, in the absence of any other evidence, we should strongly support. I do not see any evidence to the contrary. We have to repose a degree of confidence in the Department and the Presidency. I presume that is the feeling of the committee.

It would be beneficial if we could be kept informed of developments at the appropriate time, whether in three or four months' time or sooner. This is an issue of particular concern to Irish industry in terms of employment and to Members of the Oireachtas who asked that it be raised.

I say to the members of the industry present that it is not often that we ask people to come here. Usually, we refer matters for detailed scrutiny by the on-line sectoral committee but a view was taken on this matter that, as there was widespread concern and it was of such significance to industry, we should hear first hand its concerns in this regard. The committee strongly wants to be on the side of the Department and the Irish Presidency on this issue. We hope the Competitiveness Council will be able to reach a common position. As an institution, the European Parliament represents the people of Europe and, as an institution, the Oireachtas represents the Irish people. That is something of which we have to take account in all of this.

I thank Mr. McGrath, Ms Curley, Mr. Caulfield, Mr. McCallion and Ms Halligan for their presentation.

The sub-committee adjourned at 10.50 p.m. sine die.