2004-06-22 DE Deutsche Bank Research recommends against software patents
As one of four urgent measures for strengthening innovation and economic growth in Germany, Deutsche Bank recommends:
- Set up a balanced IP protection regime to foster the creation and flow of ideas.
- Stronger IP protection is not always better. Chances are that patents on software, common practice in the US and on the brink of being legalised in Europe, in fact stifle innovation. Europe could still alter course.
In more detail (pages 6-7) the paper argues:
- Let ideas flow Opportunity 3: Set up a well-balanced IP protection regime that keeps fostering the creation and diffusion of ideas. Rapid diffusion of innovation is key for economic growth. Formal IP protection through patents, copyrights and brands is a prerequisite for a large chunk of innovation diffusion: it enables controlled licensing of IP. The importance of this kind of knowledge transfer has surged in recent years. Worldwide licensing revenues increased tenfold from 1990 to 2000,
to USD 100 billion per year. A growing number of R&D intensive businesses realises that licencing out their IP can constitute a substantial share or their revenues, which in turn encourages innovation efforts. Bearing this in mind, one could be tempted to consider ever stricter IP protection regimes to provide ever more stimuli for innovation. This conclusion is wrong, however. A prime example is patents on software, which might at first sight be seen as a logical expansion of the classic technology patent. But creating software differs markedly from creating machinery and the like: MIT researchers Bessen and Maskin argue that innovation in software is both strongly sequential (one invention building on a previous one) and complementary (thriving on parallel approaches to the same problem), far more so than in other technology fields. In fact, they found empirical evidence that software
patenting substitutes R&D activity, rather than encouraging it, and conclude: ?For industries like software or computer, there is actually good reason to believe that imitation becomes a spur to innovation, while strong patents become an impediment?2. In accordance with other academics, they strongly favour copyright over patent protection for software. Copyrighting provides both adequate leeway for sequential innovation and enough protection for marketable software products. The cited studies analyse the US software market, where patentability has been introduced gradually since the early 1980s, lowering patent granting standards and strengthening enforcement (see figure). 20 years later, the EU is following suit: the Council of the EU has introduced a controversially discussed pro-patent bill to the European Parliament, due to be enacted this summer. Thus, the rapidly closing window of opportunity for Germany ? and the EU in general ? is to alter course, keep the legacy copyright system for software, and thereby provide a better-balanced IP protection regime than software?s old bull: the US. Measures to take. The German government is among the tentative critics of the EU software patent bill. This position should be bolstered, by (1) putting forward academic evidence and (2) making SMEs? concerns heard. SMEs are crucial providers of pathbreaking innovations, but would be most adversely affected by patentability. The majority of them is deterred by the costs of patenting themselves, but would have to navigate around software patent portfolios of large corporations.