Friday, June 10, 2011

Innovators reject software patent exclusion

The Commerce Select Committee’s proposal to exclude patents for software innovation has been firmly rejected by a convincing majority of submissions on the draft guidelines. Yesterday the Ministry of Economic Development published the 36 submissions that it received in response to the only publicly notified consultation on the issue. Very few offered any support for the current proposal, and most want clause 15(3A) to be deleted.

In our last article, titled “Fog warning on computer-implemented inventions", we said that the proposed new exclusion to patentability of computer programs goes against the trend and will leave inventors in a fog of uncertainty.

Now that the proposal has been opened up to a level of public scrutiny for the first time, it appears to have hit a wall.  In a clarion call to lawmakers, New Zealand innovators have condemned not only the guidelines themselves but also the proposed legislative framework – clause 15(3A) of the Patents Bill – within which the guidelines were supposed to operate.

Most of those who lobbied lawmakers to reduce protections for software innovation came from creators and users of “open source” software.

It is now clear that not all open source creators and users were represented accurately during the Select Committee submissions.  One such party is Intel Corporation.  It needs no introduction, but nevertheless states its position as a corporation that “supports and uses and distributes open source extensively and is a leader in the open source movement”.  Intel makes its position very clear.  It states, for example:

  • “While many object to the patentability of software, few consider what this means”.
  • “Banning patentability of software leads to what can frankly only be labeled as absurd results.”
  • “Those who oppose the patentability of software have allowed their prejudices to get the better of their good judgement.”
  • “[They] fail to understand that the same level of inventiveness can be applied to software as in any other invention.”
  • “[W]e do not find any merit in the arguments that … patent protection of computer programs will stifle the development of open source.”

Many of us have made these observations many times over the last few years.  We are encouraged to see the same arguments put forward by a prominent open source organisation.

Let’s hear from the innovators
The Ministry of Economic Development discouraged submissions on the topic of patents for software innovation.  It stated that “[i]n releasing the draft guidelines for comment, it is not intended to re-open the debate regarding the patentability of computer programs, or whether an amendment should be made to clause 15(3A)”.  In making this statement, MED appeared to suggest that it may have been attempting to prevent any debate on the issue, despite the flawed process that had led to the introduction of clause 15(3A) in the first place.

None of the New Zealand companies who made submissions on the guidelines had anything positive to say about them.  Some reluctantly confined themselves to comments on the guidelines themselves, as directed by MED.  Others took the opportunity to question the legislative framework under which the guideline is intended to operate.

Airways Corporation of New Zealand Limited (Airways Corporation) is “disappointed to see clause 15(3A) included”.  Airways Corporation states that the “New Zealand Commerce Select Committee may have applied a very short sighted approach to the question of patentability of computer software in New Zealand”.  It goes on to state:

“Many of the systems we develop require five or more years of considerable research and development and an investment which runs into the millions of dollars to see the systems through from initial concept to a commercial product … Patent protection is important to enable us to realise the benefits of our investment, both in New Zealand and overseas.  Inadequate patent protection in New Zealand is a significant risk for our business because it allows overseas competitors to locate part of their operations here.”

Air New Zealand together with Crown Research Institutes Plant and Food Research Limited and Geological and Nuclear Science Limited all point to an inconsistency between the proposed legislative exclusion, the intentions of the Commerce Select Committee, and the guidelines.  All asked for legislative alignment with Australia, the United States, or Europe.

Thermal Chemistry Limited is another organisation that is concerned about proposed clause 15(3A).  It states that it is “undertaking a process to develop and commercialise our expertise as specialist instrumentation for use in power station environments.  This will consist of hardware devices and corresponding computer programs that will execute on those devices.”

Thermal Chemistry concludes by stating that if section 15(3A) and any resulting guidelines mean that inventions such as theirs would be excluded from patent protection, then it opposes the enactment of this law.

Auckland UniServices says that “a growing percentage of [new patent applications] involve software in one way or another”, and that, “the potential for patent protection around these applications can be the deciding factor in capturing new investment or licences.”

Fisher & Paykel Appliances notes that the lawmakers “had not received any evidence of economic harm” from the current law which allows patenting of inventions involving software.

Industry organisations are concerned
An unexpected but positive development to come out of this law reform process was the formation of an informal Technology Interest Group.  In its submission on the guidelines, the Technology Interest Group states that it is a group made up of small, medium and large businesses that are New Zealand owned and operated.  Most of the members use patents and all members want the choice to use patents.  Members wish to be protected from those who have responded with hostility towards different opinions on this topic.

The Technology Interest Group urges the government to “go back to the drawing board”, both in the guidelines and the underlying legislation.  Introducing clause 15(3A) would be a reversal of the current law and would put NZ out of step with our major trading partners.

The Technology Interest Group strongly encourages the government to develop clear guidelines and supporting legislation that can be applied predictably and be respected by the courts in New Zealand.  The law should be fully consistent with the Australian rules on the patentability of inventions involving computer programs to further a Single Economic Market.

BusinessNZ encourages a “big-picture” assessment.  Policymakers are urged to take a step back and ask a series of related questions.  These include:

  • Is there a problem in New Zealand with current regulatory settings (i.e., are there significant issues of “market failure” which need to be addressed)?
  • If there is a problem, is the problem significant? 
  • What are the costs and benefits (including unintended costs) of any proposed changes outlined in the document?
  • What are the potential options for improving outcomes which don’t impose significant costs (e.g., by educating market participants)?

BusinessNZ articulates clearly why many submitters did not participate in the Select Committee submissions.  It states:

“[T]here appears to be a serious discrepancy between what many submitters either favoured or expected the Government to do, and what has actually transpired in the revised Bill.  While we have no problem with rigorous policy debate that can lead to changes of direction if signalled early enough, with strong justification/evidence, there comes a point where certain policy views become, for want of a better term, naturally embedded during the process because they will produce sound policy outcomes, almost universally agreed on.  Therefore, such views remain untouched during the later stages of the consultation process.”

This explains why clause 15(3A) came as a surprise to many stakeholders when it was included as a late change in the bill.  For many of us the patentability of computer-related inventions had become naturally embedded.

Other industry groups, for example, the NZICT Group and the Business Software Alliance, urge the government to delete clause 15(3A) in the Patents Bill before it becomes law.

The guidelines have even drawn criticism from the European Union.  The Directorate General Trade of the European Union questions the selective use of UK patent law in the guidelines.  The European Union points out that “UK patent law is aligned on the European Patent Convention, and that the EPO’s abundant case law may thus also be relied on, in addition to UK case law, when interpreting NZ patent law”.

Patent attorneys restate their views
The New Zealand Institute of Patent Attorneys (NZIPA), the Institute of Patent and Trade Mark Attorneys of Australia (IPTA) and the International Federation of Intellectual Property Attorneys (FICPI)  all made submissions on the guidelines.  All were critical of the guidelines and the legislative framework under which the guidelines are intended to operate.

Most patent attorney firms and sole traders made submissions along similar lines.

Where to from here?
It is a matter of common sense that we can only stumble around in the fog for a finite time before we eventually hit something.  With the overwhelming rejection of clause 15(3A) and the draft guidelines,  it will be interesting to see whether lawmakers insist on passing into law a provision that no one asked for, and no one seems to be able to explain with any certainty.

In a further twist, the Ministry of Economic Development has confirmed that it has not conducted an economic assessment in respect of the proposed exclusion and that it has not sought formal legal advice on the international law implications of the exclusion.

The Ministry states that it had limited time to consider and provide advice, and instead relied on “existing economic and legal frameworks applied to the Bill”.  This is extraordinary when it is considered that this Bill has been under review for over two decades.  This is not to imply any criticism of MED in not seeking appropriate advice.  It is simply recognition that the late insertion of clause 15(3A) surprised MED as much as anyone else.

The Bill is currently waiting for a second reading.  We are unlikely to see any movement on it any time soon.  We have an election date of 26 November 2011.  The Minister who is responsible for this Bill and who endorsed the Select Committee’s recommendation has announced his retirement effective in November.

It is likely that the Patents Bill will undergo further revisions under the next Government before becoming law.

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