Three versions in two weeks: NZ refines its proposed software patent exclusion (again)

When it rains, it pours. Following several years in which “progress” was a somewhat subjective term in respect of New Zealand’s patent law reforms, the Government has again shown that they now mean business.


Previously, we mentioned that the Patents Bill 2008 was finally being prioritised by the Government, seemingly as the result of an “innovation drive”. We noted that in the previous week, it had advanced from #50 to #7 on the Parliamentary Agenda – and that it was expected to be passed before the year’s end. As at the time of writing (11 September 2012), the Patents Bill now sits at #4 on the Agenda. However, a further Supplementary Order Paper (SOP) has now been tabled. This latest SOP purports to clarify New Zealand’s proposed software exclusion, which has proven to be easily the most controversial of all the issues addressed in the Patents Bill.

In essence, the previous SOP proposed to adopt the “as such” wording of EPC Article 52(3). However, in the short interim period, the anti-software lobby was again active – and was highly critical of the Government’s apparent “about-face”. The latest SOP (unsurprisingly, tabled by a member of one of the Opposition parties) appears to be in response to such criticism.

According to this latest SOP, New Zealand’s proposed software exclusion would now read:

(1) A computer program is not an invention for the purposes of this Act.(2) Subsection (1) does not prevent an invention that makes use of an embedded computer program from being patentable.

As such, the “as such” wording of the EPC has been removed; it lasted less than a fortnight!

According to the Explanatory Note, this latest SOP serves “to ensure that an invention that makes use of an embedded computer program may be patented despite a computer program not being an invention for the purposes of the Bill”.

These are dangerous times for the New Zealand Government. On the one hand, they have clearly signalled that passing the Patents Bill is a priority. However, on the other hand, they do not appear at all certain of what they want the new legislation to entail – especially as it pertains to software patents.

The concept of “embedded” software has been something that the Government struggled with throughout the Select Committee phase of the Patents Bill. In charging the Intellectual Property Office of New Zealand (IPONZ) with developing guidelines that distinguish between software and embedded software, the Government was asking IPONZ to succeed where others (most notably, Europe) had failed consistently. Indeed, draft examination guidelines, adopting the intent of the test set forth in Aerotel Ltd v Telco Holdings Ltd & Ors Rev [2006] EWCA Civ.1371, were published, and public submissions were invited.

Of the 36 submissions received and published, very few offered any support for the Government’s position. Unsurprisingly, many of the submissions identified the apparent inconsistency between the proposed exclusion, the intent of the Select Committee proposing the exclusion and the guideline itself. Despite the fact that the Government had emphasised that the submission process was not an invitation to revisit the policy decision behind the exclusion, many nonetheless urged an about-face for the sake of consistency with New Zealand’s major trading partners.

A submission was received from no less than the European Union; the New Zealand Government should have been at once flattered and embarrassed. The Directorate General of Trade identified and questioned the apparently selective use of UK patent law in the guidelines. The crux of the EU’s submission is a cautionary note that UK law is based on and includes the EPO’s abundant case law – as well as the EPC itself. It has evolved to where it is now as a consequence of this “bigger picture”, rather than through convenient selection of legal principles.

Notwithstanding the practical difficulties associated with the revised exclusion, it is worth briefly considering some of the political motives that may have prompted such a change. On the one hand, Article 27 of the TRIPS Agreement requires signatories (of which New Zealand is one) to make patents available in “all fields of technology”. Secondly, New Zealand is presently attempting to negotiate a Free Trade Agreement (FTA) with the United States. The US Government publishes an annual report entitled Foreign Trade Barriers in which it particularises laws and regulatory mechanisms in foreign countries that are considered “significant barriers to US exports”. In this document, a ban on software patents has been identified as an impediment to trade.

Clearly then, a “blanket” exclusion on software patents was untenable. However, the apparent “compromise” position (“as such”) proved unpalatable for the local software industry. As related above, the latest round of changes happened very quickly indeed.

Orion Systems and Jade are New Zealand’s two largest software exporters. They, amongst others, have urged the Government to re-think the previous exclusion. Despite nearly three decades of European case law shining at least some measure of light on the parameters of “as such”, this industry lobby still considered the terminology to be problematic insofar as that it did not specifically state that embedded computer programs could still be patented (which, after all, was the original intent of the Select Committee).

Therein lies the Government’s essential Catch-22. On the one hand, the local industry demands a specific inclusion for embedded software. However, on the other hand, nobody knows for certain what “embedded” software really is. When inevitably thrashed out in the various Courtrooms across the country, this is likely to get messy.

What the Government needs to now decide is whether pushing the Patents Bill though represents responsible governance. One could argue that whilst there is such spirited debate, the Bill is best left in the queue. However, the software issue is likely to be one of those arguments that will never truly be resolved; one could argue, therefore, that the Government needs to decide on a path – and stick with it.

Any uncertainty, be it one way or the other, is likely to have a negative effect on the New Zealand software industry. Apparently, a major Canadian software developer has already invested around $170 million in planning to relocate to New Zealand on the basis that software would not be patentable. Only time will tell whether this investment proves to be opportune or premature.

As mentioned above, at the time of writing, the Patents Bill (as now proposed to be amended by this latest SOP) should have its second Parliamentary Reading later today. Given the torrent of developments over the past fortnight, it is highly likely that we will be writing another such article this time tomorrow…

For completeness, we should note that a third SOP was also tabled earlier today. However, it relates to the “living matter” exclusion, rather than computer software. This third SOP is unlikely to cause too much of a stir, as it was tabled by a relatively small opposition party (and a clear majority is required in order to pass the amendment). The SOP reflects an opinion that patents should not be held over “life”. As previously drafted, the exclusions covered plant varieties and humans or animals in certain situations – a considerably narrower grouping than that now proposed. This latest amendment covers all organisms, micro-organisms, and their traits. In recent times, we have seen Australia struggle to reconcile the issue of gene patents – and so the potential of this issue to throw a further spanner in the works in the timely passage of the Patents Bill should not be underestimated.