Building a wealthier nation through innovation

Building a wealthier nation through innovation

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Microsoft is passionate about the success of New Zealand businesses on the world stage. From Windows, to Xbox, to the cloud, many Kiwi innovators build on Microsoft technology. When these innovators succeed, we succeed. We do our best to help, with inspiration , expertise , offshore scale , and special deals for start-ups .

Innovators also need clear, predictable laws that let them choose for themselves the business model that’s the “best fit”, and prepares them for success on the world stage.

In March 2010, a new provision was inserted in the Patents Bill which will take away choice from the technology sector and diverge from international norms – and the laws of New Zealand's export markets. The scope and effect to the provision, clause 15(3A), is so ambiguous that a seven page explanatory documents published by the Ministry of Economic Development were unable to adequately clarify how the provision will be applied. In fact no one – even those who asked for a restriction – seems to be able to say exactly which (if any) patentable inventions will be excluded if the proposal becomes law.

Many changes in the Patents Bill are constructive and will help to improve patent quality in New Zealand. However, the proposed exclusion in clause 15(3A) is a step in the wrong direction. And, setting aside policy considerations, an exclusion that no one can explain will be bad law.

We think the focus should be on patent quality, not on an arbitrary exclusion. However, if there must be an exclusion, the question must be asked: “How can inventors and investors make decisions about their commercialisation strategy if it is not even clear which inventions are now to be excluded from protection?”

If no patentable inventions are to be excluded from protection, or no one can say with certainty which patentable inventions (if any) it will exclude, clause 15(3A) will just be a troublesome white elephant, leading to years of pointless litigation to figure out something the Government can easily fix now with the stroke of a pen.

Innovators were faced with similar difficulties after the adoption of an exclusion in Europe. After decades of litigation and debate, there is still disagreement about how the exclusion should be interpreted, resulting in unnecessary inefficiencies, cost and uncertainty for innovators. Ultimately, this has been to the benefit of no one. However, rather than leaving the law as it is or ensuring that a known model where case law has resolved the more serious ambiguities will be adopted, the Ministry of Economic Development has, in both versions of its explanatory papers, proposed a novel approach that departs from international norms and ensures that New Zealand will need to start the process of interpreting and applying the provision from scratch.

Our view on patents is simple. Appropriate protection for intellectual property supports innovation and commerce, and all innovators should have the option to patent their inventions.

The current law is clear. It has not caused problems. It is similar to Australia, and that similarity saves inventors and taxpayers money by reducing re-work to satisfy different technicalities and by avoiding unnecessary cost, secrecy and complexity in commercial transactions.

We are joining Kiwi innovators and their representatives in calling for clause 15(3A) to be deleted from the Patents Bill before the Patents Bill becomes law.

We think this is important for New Zealand’s future.

Laws that encourage and reward organic innovative activity are preferable to relying on Government subsidies to prop up research and development – the fruits of which could then not be used to their full potential if patent protection that is available elsewhere in the world is removed.

Those who want to build a high income, export oriented, innovation driven economy for New Zealand should reject clause 15(3A).

We encourage readers to find out more about this issue.

Microsoft New Zealand Limited's submission further expands on our views and offers an interpretation of clause 15(3A) based on legal principles. We have also collated links to some other perspectives below for ease of reference.

UPDATE: Submissions on the draft guidelines have now been published by the Ministry of Economic Development. Detailed summaries are available from AJ Park, Henry Hughes, Dr Mark Summerfield, James & Wells and in Law News - Patents bill proposes no patents for computer programs. There have also been reports in the Dominion Post and Computerworld. The pie chart below gives an overview of the preferences expressed about clause 15(3A) in submissions to the Ministry of Economic Development.

Pie chart of Patents Bill clause 15(3A) preference in submissions to the Ministry of Economic Development.

Recommended Reading:

Submission on Computer Programs Guideline, New Zealand Law Society

“The Society submits that officials should advise the Minister that to leave the Bill as it is, and continue to finalise guidelines (no matter what those guidelines say), would create ongoing uncertainty because Parliament’s intention will not be able to be discerned from the legislation.”

“If Parliament has doubts that the meaning is clear then it should follow the usual procedure and amend the Bill by supplementary order paper.”

Submission on Computer Programs Guideline, James & Wells

“In view of the proposed wording of clause 15(3A), we believe the Guidelines are both ultra vires and do not give an adequate indication of what is likely to be patentable in New Zealand under the Patents Bill. Therefore, the Guidelines are an inappropriate framework for examination of patent applications.”

Submission on Computer Programs Guideline, Bram van Melle (Maclean Law)

“The Select Committee proposed clause 15(3A) on its understanding of the difference between embedded and non-embedded software. ‘Embedded’ is a loose commercial concept not a technical distinction. […] Attempting to chart a course through this distinction will be problematic as technology is changing all the time.”

Submission on Computer Programs Guideline, Technology Interest Group

“Our group has grave reservations about the Guidelines, and the Patents Bill 15(3A) change on which they loosely rely. Both will increase the uncertainty surrounding patent protection for inventions, and thus increase patent application, litigation and business costs.”

Software: to patent or not to patent, Matt Sumpter (Chapman Tripp)

“[I]n this case the addition of clause 15(3A) introduced a new element which hadn’t been hinted at in the Bill before and it wasn’t something which many of these companies directly affected had even considered, let alone submitted on.”

Submission on Computer Programs Guideline, Business NZ

“BusinessNZ is perplexed as to how a process that started and continued through with a high level of consultation and considered views over the last ten years seems to have fallen at a crucial hurdle in a key area many considered would be left unchanged, as indicated during all stages of the consultation process up until the proposed Clause 15(3A) exclusion was introduced in March 2010.”

Opinion: Fog warning on computer-implemented inventions , Matt Adams (AJ Park)

“People who were opposed to ‘software’ patents emphasised that innovation is strong, even ‘rampant’, with the law that’s in place. One said the software industry is ‘highly competitive, innovative and prosperous,’ and another pointed out that New Zealand was appealing ‘due to the healthy and innovative software industry here.’ Statements like these suggest those who were most opposed to ‘software’ patents had not experienced any detrimental effects from our current law.”

Some musings on the Patents Bill , Elena at Elena's Blog

“In this day and age of clear and concise legislation that can be understood by the man (or woman of course) on the street, it is ridiculous that the plain and clear words of an Act – ‘A computer program is not a patentable invention’ – is not intended to mean what it appears to mean.”

Comparison of UK patent system and proposed New Zealand patent system with respect to patentability of computer-implemented inventions , Olswang LLP

“The New Zealand Patents Bill and draft ‘Examination Guideline: Patentability of Inventions involving computer programs’ are not consistent with UK Patent Law or with European practice more generally. UK Law excludes only claims to computer programs ‘as such’ so that in practice many patent applications for computer-implemented inventions are granted. In contrast, the New Zealand Examination Guideline adopts a far broader interpretation that would appear to exclude from patent protection virtually all computer-implemented inventions.”

NZICT calls for caution over abandoning software patents , New Zealand Information and Communication Technologies Group Inc

“NZICT chief executive Brett O’Riley says the country’s software development sector deserves the same protection as other sectors where invention and innovation occurs.”

“Software patents, while acknowledged as a less than perfect solution in some areas, are none-the-less integral to an individual or company’s right for commercial protection and essential for competing globally. We believe that it is very important that companies retain the option to protect their innovations under patent law, if that is their choice.”

Submission to the Commerce Select Committee , Henry Hughes

“We also support the continued patentability of computer software in New Zealand. [...] We consider that concerns about the novelty and obviousness of computer software patents will be mitigated by the more stringent examination criteria under the new Act.”

Submission to the Commerce Select Committee , New Zealand Institute of Patent Attorneys Inc

“We agree with an invention being patentable on the basis that it is a ‘manner of manufacture’, provided that the exclusions of clause 15 are deleted. […] Exclusions to patentability are not needed for the reason that the courts’ interpretation of ‘manner of manufacture’ enables flexibility to deal with changes in technology [...].”

Submission to the Commerce Select Committee , Fisher & Paykel Appliances Limited

“In relation to the subject matter excluded from patentability under clause 15 [Fisher & Paykel Appliances] specifically supports the absence of ‘computer software related inventions’ from the listed exclusions.”

“A significant proportion of FPA inventions are software related inventions. Much of what it once achieved using dedicated hardware circuitry is achieved using software controlled microprocessors. Many FPA product development engineers are software engineers. […] FPA has been seeking such software related patents since 1985.”

The computer programs affair , Chapman Tripp

“Computer programs run cars, telephones, pacemakers, whiteware and all manner of other gadgetry. Why would you exclude an inventive new camera, eftpos terminal or navigation system from patentability just because it is run by a computer program or used with a computer? Well you wouldn’t.”

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  • This is a very one sided presentation of the various submissions that were heard in the select committee.

    Here is my Masters Thesis which actually presents an analysis of what people and organizations actually presented:

    researcharchive.vuw.ac.nz/.../1027

    ---

    I would wager that in terms of raw import/export economic arguments that a better one can be made by making New Zealand a safe haven for Reverse Engineering and Interoperability research testing and development, and shielding developers based here from patent infringement legal costs.

    Joel Wiramu Pauling

  • Joel, thank you for your observations on this important discussion. I will read your analysis with interest. Out of curiosity, which inventions do you consider that clause 15(3A) will exclude?

    Waldo [MSFT]

  • Wrt clause 15(3A) - Based on F&P's lawyers arguments I assume that they have convinced the policy makers that embedded software (i.e anything burned into an IC) will be covered - which IMHO is just as erroneous as any other patent being allowed -

    The fast and hard of it is, that Patents, as they are used today, having nothing to do with innovation and everything to do with Legal Battles and International Trade Policy. The only reason you file or take out a licence on a Patent is to prevent yourself being sued, or to have a bartering chip when you infringe. Digital artifacts have no hard resource limits on the way they can be manipulated by people, which arguably is why patents in manufacturing sectors are not so economically morbid as those applied to conceptual realms (such as business methods, software and medical diagnosis). You simply can't exist in a world of ideas which are arbitrarily given exclusive punitive rights to those who were first to file.

    JoelW

  • Unfortunately, this is a rather one-sided view of the Patent issue, which benefits Microsoft's monopolistic practices rather than indicating the tenor of the kiwi software industry. Historically, patents existed to provide an incentive for inventors to make their inventions public - to benefit the "greater good" - by providing the inventor with a government granted monopoly on a particular invention. This monopoly is an inherently *bad* thing economically, and should only exist if, in fact, innovation benefiting the public is the result.

    The specific definition of "software" in this context is largely irrelevant - it is a legal detail, for which those lawyers writing the legislation can request guidance from those of us who actually write software - after all, we actively define what "software" is by our actions and innovations. The last thing we need is for a lawyer to be in charge of determining that definition without our input. The principle of excluding software from patentability is valid independent of the specific legal definition of software.

    In the software industry, patents are not an incentive to create - until recently almost no kiwi software developers in NZ even considered patents when investing in new softarwe development. It has definitely *not* been an incentive for us (kiwi software developers). For the record, 80+% of kiwi patents (software and otherwise) are held by overseas companies.

    Moreover, in the US (and Microsoft is feeling the brunt of one of this trend now with the i4i suit which threatens MS' ability to see its flagship MS Office in the US) software patents in particular are

    a) being granted for routinely for trivial "innovations" or innovations actually developed by others previous (prior art), and these overly broad, poor quality patents

    b) are being used to inhibit competition (and thereby investment and innovation) in entire areas of software.

    Some of the worst "Patent Trolls" interestingly, are ex Microsoft employees. One noteworthy example is Nathan Myhrvold of Intellectual Ventures. Patent Trolls exist simply to gain revenue from buying up software patents from their original developers and initiating (or threatening to) litigation against other software developers who ay (or may not) be infringing on those patents, forcing them to settle and/or pay an on-going royalty to his firm for... having a good idea and turning it into a saleable product.

    The activities of these patent trolls, widely reported in the IT media, have seen software patents move from being totally obscure to most software developers less than a decade ago, to being front-and-centre in the minds of many of us. We see them as a huge *disincentive* to enter markets where software patents might apply. In fact, in NZ (as in other countries), software patents will, if allowed to continue as they currently are, cripple software innovation through liability: any new software innovation we develop *could* result in us being the target of a lawsuit by some unknown patent holder which would force us to spend money defending against, or, at the very least, pay royalties for dubious patents which remove any profit we might make. It's not sustainable.

    The reality is that most kiwi software developers (80% of NZ Computer Society members, for instance) are decisively against software patents.

    A new organisation NZRise (http://nzrise.org.nz) has formed to represent the views of these kiwi owned IT organisations, largely because Microsoft and other multinational corporations are so dominant in the positions espoused by the NZICT Group, and other IT-related industry groups in NZ.

    I believe that Microsoft wants software patents because it is currently dominant in a number of important facets of the software industry: it wants patents to bolster its existing monopolies and put potential competitors at a disadvantage. This will do nothing whatsoever to encourage innovation, and will eventually force kiwi software developers to become a minor part of the fringe of Microsoft's global software hegemony, or out of business.

    Dave Lane

  • Thanks Joel for the further comments.

    The F&P submission is one that was made to the Commerce Select Committee in 2009. You would need to talk directly with policy makers, I am unsure of their perspective on the issue of where a line could sensibly be drawn between embedded and other software.

    I think it's important for law to be clear, particularly in the realm of property rights. Otherwise it is difficult for innovators to make effective use of that law.

    Waldo [MSFT]

  • Thanks Dave for your detailed observations.

    Respectfully, I disagree. It is important that the law is clear.

    While the principle of the exclusion may be clear to you, it is not apparent from the text of 15(3A). That makes the provision problematic for the innovators who want to use the patent system, because they will need to apply the text to real circumstances.

    Waldo [MSFT]

  • Waldo, it's interesting you've chosen to only include submissions and commentary supporting the minority view posed primarily by a small number of multinationals and their lawyers.

    I can't say I'm overly surprised that patent lawyers are pleading for more things to patent. You don't see turkeys voting for Christmas either.

    The piece also ignores the fact that *New Zealand* innovators, including the two largest software exporters in New Zealand (Orion Health and Jade) together representing around half of all software exported have come out AGAINST software patents, the former having been the target of their innovation-crushing effect in the form of legal maneuvers from both competitors and non-technology law firms previously.

    You also appear to have missed the fact that the majority of the New Zealand software sector is firmly against software patents. From an association perspective almost all organisations have spoken out against them including NZCS, the Software Association, NZRise, InternetNZ, the Open Source Society and others. This is nothing new - the previous vendor body (ITANZ) also led the charge against them actually instigating legal action to prevent patents such as Amazon's one-click patent gaining traction in New Zealand.

    As you are aware, a recent poll by NZCS found that 81% of members supported NZCS's view that on balance software shouldn't be patentable in New Zealand. For the other side of the view expressed above, including a link to a letter to the Minister outlining the key reasons software patents are bad for innovation in New Zealand, see http://bit.ly/i19E7o

    And lastly, I see a submission from someone calling themselves the "technology interest group". Can you confirm whether Microsoft are a founding member or involved with this "group"? I wonder why they're not prepared to put their name to their views, assuming that it is a "they" of course.

    Thanks,

    Paul Matthews

    NZCS Chief Executive

  • Hi Paul, thank you for taking the time to express your opinion.

    If there is to be an exclusion, then surely it is important to get it right. I would be interested to know what you mean by software patents. And, if those are what should be excluded, would clause 15(3A) do that? Which inventions would clause 15(3A) exclude from patentability?

    Waldo [MSFT]

  • Thanks, Waldo, for your response. I respectfully disagree with your disagreement. If an "innovator" is, in fact, in a position to create innovative software he or she is not likely to need a legal definition of software, because, based on the current statistics we have regarding kiwi software developer support for software patents, he or she will not consider applying for one. More over, as a software developer, she or he will, *be* defining (or redefining) what software is based on what she or he produces.

    If, on the other hand, the patent applicant is a lawyer for Microsoft or some other "interested party" (e.g. a patent troll), then he or she won't actually be doing any innovating, and as such, should not benefit from the government granted monopoly which a patent represents.

    Regarding your admirable but futile position on improving software patent quality, I draw your attention to your own employer, Microsoft, and their attempts to game the NZ Patent system by applying for a patent on a straightforward (i.e. obvious) XML process for which Microsoft already knew, at the time of application, substantial prior art existed.

    computerworld.co.nz/.../F68C4D35A4AE5DD5CC257038000F4A24

    I believe that Microsoft's management responsible for the application simply thought that no one was paying attention, and that they could slip patent application - which failed in other jurisdictions like the US, the EU, Japan, and South Africa due to prior art - without anyone noticing.

    The fact that someone in the NZOSS (http://nzoss.org.nz) *did* find Microsoft's patent, and that we as an organisation funded the necessary legal costs to contest it, resulted in the patent which was eventually granted being substantially altered, and its scope narrowed. But our finding that patent was a bit of a fluke.

    The question is: how many other bad patents have we missed?  I, for one, hope it becomes a non-issue because the need to do so is unjustifiable.

    (I could be mistaken, but I understand that IPONZ assessors do not normally perform obviousness" or "prior art" assessments on patent applications - patent applications go through unless someone contest them... at their own cost.

    This is a fact which wealthy multinational corporations can exploit by applying speculatively for all manner of software patents, eventually allowing them to hold the kiwi software industry (or key players in it) to ransom, or at least control the industry by using their patents to pick some developers over others to receive royalty-free licenses.

    The only way that IPONZ could hope to maintain the expertise to assess software patents properly would be to hire all NZ's software developers to assess patents applications instead of writing software - because let's face it, it's a lot more fun to write software than to review that of others... If IPONZ did go down that route, however implausible, I suspect it would have a detrimental effect on NZ's international competitiveness in software development)

    Dave Lane

  • Dave, thank you for the follow-up.

    If I may quote from your submission to the Commerce Select Committee, dated 17 August 2009, on behalf of Egressive Limited and another: You mention that you believe "NZ's software industry is already innovative" and that "innovation is already rampant in these areas".

    It appears from your submissions that you were either entirely satisfied with the current law, or not aware that patents have been granted for computer-implemented inventions in New Zealand since 1995.

    If patents really are as harmful as you suggest, it does seem odd that you had not noticed that they are already law.

    Besides, many are using the patent system. IPONZ data shows that more than 200 Kiwi innovators have NZ patents for computer-implemented inventions. Those innovators, and others like them, will need a clear definition of what is to be excluded by clause 15(3A).

    An exclusion will have an impact on them. So, I do think it is important that clause 15(3A) is clear and usable for their needs, even if you have not found any need to interact with the patent system.

    Waldo [MSFT]

  • As I mentioned in the previous two posts, Waldo, as far as I can tell, most kiwi software developers, including me, were largely oblivious to software patents until a few years ago.

    We certainly weren't motivated to develop innovative software because of them. It was only with the publicity surrounding abuse of software patents in the US, and in NZ (by Microsoft) that most kiwi developers became aware software patents and the liability they represent. It's telling that of the thousands of kiwi software development businesses and tens of thousands of professional kiwi software developers, and probably hundreds of thousands of innovative software projects for which they are responsible, there are only 200 software patents.

    By the way, how many of those 200 were awarded to Microsoft development partners like Aptimize and Intergen? More pointedly: which of those 200 patents would withstand scrutiny of actual software developers with regard to obviousness and prior art?  Hmm. Based on the small sample I've looked at, it would be a precious few.

    Another question: why isn't someone at Intergen or Aptimize writing this essay instead of you? Surely having an at least *somewhat* kiwi-owned company writing this would give it greater credibility than having an emerging patent troll like Microsoft doing it (digitaldaily.allthingsd.com/.../salesforce-com-ceo-on-microsoft-suit-whatd-you-expect-from-a-patent-troll or www.fool.com/.../is-microsoft-turning-into-a-patent-troll.aspx ). Based on their lack of contribution to this process, it seems reasonable to believe software patents aren't a big deal for them.

    PS on this MS blog, I always have to submit comments twice (Firefox 4 on Linux) to get the submission to register... is that by design?

    Dave Lane

  • Hi Dave, thank you for sharing your thoughts.

    You do not appear to have clarified what clause 15(3A) will mean for innovators who do wish to use the patent system.

    You can continue to post additional thoughts as they arise, but I think understanding the practical implications of clause 15(3A) is a point that needs to be addressed regardless of personal views about whether an exclusion is good or bad.

    Waldo [MSFT]

  • [Post removed due to inappropriate language. Please edit and re-post.]

  • Waldo - the exclusion (and corresponding IPONZ Guidelines and indications to the Courts) effectively means that only inventions with a physical component that is in itself nonobvious will be patentable.

    Just like the implicit or explicit exclusion of all other things without a nonobvious physical effect/component such as a story, book, movie, drawing, mathematical formula, Pi, etc. Imagine if the first person to write a "thriller" novel was able to patent the idea and prevent all other thrillers. That's what you're advocating for software.

    As with most of the other examples those that write software can still rely on all other forms of intellectual property protection - ie copyright, trademarks and trade secrets. If someone copies your work you still have the weight of the law behind you to seek relief.

    Given the nature of software we believe copyright is a far more appropriate means of protection and doesn't cause the significant potential liability, issues and handbrakes to innovation that Patents create to all software developers.

    For instance global revocation of software patents would mean that every person who independently comes up with the idea of allowing a quick online purchase with a single mouse click, or auto-activation of interactive content on a website, or any manner of other things you and I would consider "obvious" wouldn't have to pay licensing fees or face legal action from the first company that grabbed a patent for it. (Or the law firm that "bought" the patent with the intention of attacking developers who might have unintentionally implemented something covered by one of the hundreds of thousands of software patents around the world).

    Thanks, and I hope this helps outline what the exclusion means, an exclusion which we and most others in the software sector welcomes.

    Kind regards,

    Paul Matthews

    CEO, NZ Computer Society Inc

  • Dear Mr Matthews, EverEdge IP is part of the technology interest group and filed the submission on behalf of the group. As such I am aware of the membership of the group which is described in the submission. The decision that was taken not to discuss the membership of the group broadly and the reason for this decision are described in the submission. Microsoft is not a member of the group. As mentioned in the submission, all group members are either individuals or New Zealand owned and operated. I can confirm on the group's behalf that we would be pleased to disclose our membership to the Minister should that be requested.

    Yours faithfullly

    Paul Adams, CEO, EverEdge IP

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