In historic fashion, New Zealand’s Parliament passed a bill stating that computer programs are “not inventions” and thus not patentable. Although the bill carves out an exception for embedded software, it significantly restricts the scope of patentable computer software. The bill’s proponents contend that patent protection is inconsistent with the open-source model of programming and that the bill could help curb the growing problem of patent trolls.

Indeed, the open source model is premised, at least in part, on eliminating transaction costs by providing a free license to a computer program code. This allows another programmer to modify and improve the original program without any interaction with the original programmer. Although most patent laws provide for improvement patents, filing an application is significantly more costly, both temporally and financially, than the open-source option. Thus, proponents of the bill reason, software patents actually stifle, rather than foster, technological innovation.

Some commentators have argued that the United States should follow suit. Software patents now represent a majority of issued patents in the United States. A recent GAO study notes that “low-quality” software patents have caused a rise in patent infringement litigation. According to the GAO study, the dynamic nature of technology makes claim language “inherently imprecise,” which engenders numerous disputes regarding claim interpretation. More definite claim language could better notify potential infringers of their possible misdeed.

But a more practical consideration in the software patent debate is the sheer number of issued software patents. Disgruntled heads of technology companies complain that their software developers cannot develop new programs without infringing thousands of patents. As a result, larger technology companies will stockpile patents of “dubious quality” and cross-license one another for all of the these patents.

Proponents of the New Zealand approach argue they would not have to turn to Congress, which recently passed the America Invents Act of 2011 and left software patents intact, to make this change. Instead, they argue that Supreme Court precedent suggests no original intention to allow the patentability of software.

Will New Zealand’s recent legislation cause a ripple effect on international patent law? Regardless of the appropriate solution for the United States, New Zealand may have been motivated by different considerations in enacting its software-patent ban. In addition to the ban on software patents, the legislation implements an absolute novelty standard as well as an “inventive step” requirement, akin to the non-obviousness requirement in the United States. Thus, software patents may have been an easy addition to a broader effort to increase the overall standard for patentability.

Given the stance of U.S. technology giants, a complete ban on software patents is unlikely. But the New Zealand bill has given proponents of a U.S. ban hope and, more importantly, a model to judge the efficacy of such a solution. New Zealand might be a pioneer in modifying patent rights, or it might be merely an anomaly.

–Mark Foley

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