Nationaløkonomisk tidsskrift,
Nationaløkonomisk Forening

Abstract: A spotlight was cast on software-related patents in September 2003, when the European Parliament, under heightened media attention, delayed a vote on a controversial European proposal on software-related patents.1 The proposal would have moved European legislation closer to the US practice, where software-related inventions have been patentable since at least the State Street Bank case in 1998.2 After delaying the vote, the European Parliament amended the proposal in a way that even sharp critics found agreeable. The new proposal, containing no less than 124 amendments to the original text, was examined by the EU Council of Ministers, which put a Working Party in charge of reexamining the dossier. In May 2004, the Council of Ministers approved the Working Party’s text, which removed all the amendments of the Parliament, by a slim majority.3 Once the directive is formally endorsed, it will go to the European Parliament for a second reading.4 To an outside observer, it might seem surprising that software-related patents are such a controversial topic. After all, patents have been issued on other types of inventions for more than 150 years. In this paper we try to explain what the special issues surrounding software-related patents are. We present and discuss the main arguments in favor and against European patents on software-related inventions. The discussion is based on a survey of the large literature on patents in general as well as the few works on software-related patents in particular. The main arguments of the debate can be summarized as follows:– Proponents of software-related patents argue that they stimulate innovation in the software industry by increasing the rents that accrue to software inventors. – Opponents of software-related patents argue that firms use patents strategically to block competitors from developing competing products and to »extort« firms that need their invention as an input. Such behavior creates a »patent thicket« that increases the cost of innovation. Furthermore, it is argued that software-related patents will effectively put an end to open source software. In our opinion, it is impossible to say who is right at this stage. There is simply not enough evidence on central issues such as the effect of patents on innovation in the software industry and the seriousness of the patent thicket problem. However, the arguments of the opponents, as well as the US experience, do point to a number of problems that ought to be addressed by European patent legislation if software-related inventions become patentable matter. Rather than take a strong stand on whether software-related patents should be introduced or not, we instead provide a number of specific policy recommendations concerning the (possible) design of softwarerelated patents in Europe. Finally, we argue that software-related patents are likely to reduce welfare in Europe because Europe, and even more so Denmark, does not host big players in the software industry. The welfare loss is caused by monopoly pricing and a net outflow of profits. The paper is organized as follows: in section 2 we go through the software-related patent legislation in Europe and in the US. The role of patents for innovation is discussed in section 3. This provides the background for the discussion in section 4 where we exchange arguments for and against European patents on software-related inventions. In Section 5 we discuss the potential effects of software-related patents for Denmark. Finally, section 6 contains a short summary as well as policy recommendations.

Keywords: software; patents

JEL-codes: A10

Language: English

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