The UK's obsolete copyright laws are hurting innovation and should be overhauled to boost economic growth and make it easier for content and creative businesses to set up in the country, an independent report has recommended.

The 123-page, government-commissioned report Digital Opportunity: A Review of Intellectual Property and Growth by Professor Ian Hargreaves of Cardiff University has suggested a raft of changes, some fundamental, other simple tweaks, to bring laws into line with the shifting realities of the digital age.

One of the most significant reforms is that the UK should set up the world's first "Digital Copyright Exchange," an online copyright shop where rights holders and businesses could buy and sell licenses for work in a simple and legally clear way.

"It will make market transactions faster, more automated and cheaper. The result will be a UK market in digital copyright which is better informed and more readily capable of resolving disputes without costly litigation," said the report.

The government should also change the law to permit access to "orphan" works -- those restricted when one or more copyright holders cannot be located -- a move the report described as having "no economic downside."

Most popular of all, the report has urged reform of the long-ignored anomaly that stops consumers from legally copying files from a CD or DVD to an iPod or computer for their own use, a practice known as "format shifting," and currently legal under "fair use" provisions in many EU countries.

In the future, the government should balance the needs of consumers and non-rights holders more carefully with those of copyright holders, Hargreaves said, and for sound economic reasons. Copyright reform would give the U.K. a competitive advantage with the potential to add up to 0.6 percent to the country's annual GDP, the report said.

"In recent years, the UK has failed to make the changes needed to modernise copyright law, for which we will pay an increasing economic price as we make our way into the third decade of the commercial internet. My recommendations set out how the IP framework can promote innovation and economic growth in the UK economy," said Professor Hargreaves.

"Could it be true that laws designed more than three centuries ago with the express purpose of creating economic incentives for innovation by protecting creators' rights are today obstructing innovation and economic growth? The short answer is: yes," he said.

The government, which is widely expected to act on many of Hargreaves' recommendations, has endorsed the report with unusual enthusiasm.

"It is vital that our intellectual property laws incentivize innovation and investment, helping to drive the private sector-led economic recovery," said Chancellor of the Exchequer George Osborne. "I warmly welcome Professor Hargreaves' review on how the intellectual property framework can be updated to better support economic growth in the digital age."

Organizations representing rights holders expressed disappointment that Hargreaves had not recommended tougher sanctions against the abuse of intellectual property (IP), a contentious issue the report examined in some detail.

"The government has missed an opportunity to create a strong enough disincentive against software IP theft," said Sarah Coombes of the Business Software Alliance, an organization that represents the interests of large software companies, including Apple, Adobe and Microsoft.

"The absence of a strong deterrent means that the issue of unlicensed software use will continue to remain a drain on our economy and will continue to stifle UK innovation in IP," claimed Coombes.

Others in the business community remain more concerned that, as has happened in the past, the government might drag its feet in the face of vested interests.

"While many of the report's recommendations appear to be a step in the right direction, businesses will be wary as many similar recommendations were made and not implemented in the discarded Gower Review [a 2006 report on copyright law reform]," said Emily Devlin, IP lawyer at legal firm Osborne Clarke.

"If the government drags its feet on implementing the review's recommendations, companies could lose faith in the U.K. regime and look to relocate abroad," she said.