We invented penicillin, radar, hovercrafts, television and the jet engine. But you won't find many TVs manufactured in Britain nowadays - and UK plc never made much money out of hovercrafts.

Britain's failure to capitalise on its discoveries has long been recognised as a problem by ministers, with even Tony Blair voicing fears that this country is falling behind in the 'new knowledge economy'. So it's a shock to hear the government accused by one of its own advisers of standing idly by while UK innovators get ripped off by rich American corporations.

John Mitchell, who until recently advised lawmakers on the plight of small-time inventors, says: 'Britain has become a breeding ground for foreign predators.' A creator of hi-tech voice recognition software himself, he says that talking to ministers was 'like banging your head against a brick wall. I've been trying to urge reform of the patent system at the DTI, but to no avail.'

Mitchell now heads the Patent Reform Group, a body supported by hundreds of inventors who believe the UK's current patent regulations are stifling innovation, failing to protect them against intellectual property theft and costing British industry billions of pounds in lost revenues every year.

This is fierce criticism, coming just months after the government passed a new Patents Act. But it is echoed in part by James Dyson, Britain's most famous inventor. In 2001, he extracted a £4 million settlement from Hoover after accusing the Tennessee vacuum giant of infringing the patent on his Dual Cyclone cleaner. Dyson, though, is a multimillionaire who could afford to go to court. Smaller players, he admits, find it 'impossible' to safeguard the exclusive commercial rights to their work.

Successful inventors in Britain are not usually found working for large cor porations. Nor, contrary to the stereotype, are they wild-haired loners hammering away in garden sheds. The figures show that most innovations with real commercial value are created by small-and medium-sized enterprises, and especially by firms with five employees or less.

For minnows like these, registering a patent is expensive. Advice from a legal specialist, together with the Patent Office's application fees, can often top £10,000. It is a long-winded process too, usually taking three years.

Even then, the granting of a patent doesn't provide an inventor with automatic protection against infringers. Instead, he will have to go to court to defend himself, and typically will have to prove two things: that the patent is valid, ie a genuinely new invention; and that it has been infringed, entitling him to damages.

This can also take years - sometimes a key consideration, especially in the fast-moving biotech and software sectors. And, of course, it risks huge expense. Faced with six or seven-figure legal bills, and in the absence of affordable litigation insurance, most small businesses don't bother taking up cudgels against bigger rivals - or they settle out of court at a disadvantage.

With so many practical impediments to litigation, it is impossible to know how widespread patent infringement really is. But copyright theft - which, loosely speaking, means infringing a brand, rather than an invention - is worth £10 billion a year, according to official estimates. Mitchell reckons that patent-holders must be losing billions too, especially since patents are less precise and therefore much easier to infringe than copyrights.

There's another financial imbalance. Even in the rare instances where patent infringers are brought to account in a UK court, their punishment is hardly a deterrent. If they have made money from the infringement, they have to pay the inventor his rightful share of the royalties. But, crucially, they don't have to pay punitive damages on top. This, say critics, means that patent infringers have little or nothing to lose.

It sounds bad, but Jeremy Philpott of the Patent Office takes a more relaxed view. 'We have more than 300,000 valid patents on our register, and 8,000 are added every year,' he says. 'Of those, only about a dozen to 20 become the subject of infringement disputes. And you'll find a small company infringing the patent of a large company as often as vice versa. In fact, I know of one large company that found it was cheaper to buy the infringer than to sue.'

Nonetheless, the Patent Office recognises the current system isn't ideal. The 'big idea' of this year's Patents Act was to offer a service by which inventors who feel they have been infringed - or that they might be in future - can get an independent Patent Office 'opinion' on the validity of their patent.

A 'positive' opinion, it is hoped, would strengthen their case in court, while a 'negative' one would save them from a futile and costly legal fight.

Even a favourable 'opinion' from the Patent Office will be no guarantee of courtroom success, however, and the Patent Reform Group says the Act doesn't go far enough. It wants the Patent Office to take full responsibility for the issue by setting up a compulsory arbitration service of its own, which would be cheaper and simpler to use than the law courts.

Failing that, it wants the government to set up a 'fighting fund' to help aggrieved inventors finance litigation. And it wants to see infringers made to pay punitive damages to their victims, in addition to compensation for lost royalties.

But this is all difficult to contemplate under the conventions of common law, says Gregor Grant, an intellectual property lawyer at Wragge & Co. Everyone has the right to appeal to the courts, he says, so arbitration decisions could be overturned, or prove difficult to enforce. 'Everyone wants a quick, inexpensive and painless way of solving disputes, but life is more complicated than that.'

Grant doubts that punitive damages are feasible: 'If you commit a civil wrong, the basic principle under UK law is that you get back what you lost [and nothing more].' He admits that if patent infringement were to be criminalised, as certain kinds of copyright infringement already are, then punitive damages could be imposed. 'But it is quite straightforward to identify copyright theft, whereas with patents it's a question of nuance. There's no easy answer.'

While the experts argue, Trevor Baylis, inventor of the clockwork radio, has suggested that inventors license their ideas to bigger businesses with the money to fight litigation. Entrepreneurial as ever, he has even set up a company, Baylis Brands, to make the necessary introductions. It may yet be innovators themselves, with their eye for a good sell, who find a solution.

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