International Think-Tank on Innovation and Competition
Patents on Computer-Implemented Inventions in the EU
August 1st, 2005
During the last months, the European Union tried to complete a process of harmonization of the patent system for computer-implemented inventions (CIIs) with the aim to provide proper incentives to invest and innovate in the New Economy. After a long procedure, the Common Position adopted by the European Council in March 2005 proposed the patentability of CIIs when they provide a technical contribution to a field of technology. While this positive proposal simply reaffirmed the requirements already adopted in Europe for the last two decades and it excluded from patentability any pure software, business methods and consulting practices, part of the European Parliament proposed a number of amendments aimed at radically change the current situation excluding most of the innovations in the Information and Communication Technology from patentability (for instance, amendments which established vague definitions of “technical” contribution or “field of technology” were going to add significant restrictions on what could be patented). As a consequence of such a confusing situation, the European Parliament ended up rejecting the all Directive in July 2005. While this avoided the introduction of those dangerous restrictions on patentability, there is still a need for a deeper harmonization of the European patent systems (not just for CIIs) and the debate is likely to continue in the near future.
Unfortunately, the recent debate has been characterized by a certain confusion on the role of patents in general and in particular on CIIs, largely created by the pressure of lobbies willing to extend the possibility of free imitation to new fields of technology. However, policymakers should always keep in mind that what matters is not the interest of this group rather than the one of the innovative firms driving technological progress, but the interest of the society as a whole, and in particular of current and future consumers who benefit from a higher rate of innovation.
Mainstream economic theory (at least since the work of Joseph Schumpeter in the 30s until the most recent research on the determinants of growth) is quite clear about the fundamental role of the protection of intellectual property rights through patents in promoting innovation, technological progress and growth, especially in high-tech sectors, which create general purpose technologies and hence are able to increase overall productivity in the economy. While the main social gain from all patents on CIIs is to promote innovation in the most dynamic sectors, the social cost, traditionally associated with market power of patentholders, is smaller than for other patents since in these sectors competition mainly works through frequent price-reducing and quality-improving innovations. Hence, the rationale for patents on CIIs is even stronger than for other inventions.
Neglecting these traditional economic insights, opponents of the patent system have often claimed that patents stifle innovation. Unfortunately, even the evidence on the US experience provided by few works against these patents does not support such a view in a convincing way. The extension of patent protection to software related inventions started in 1980 (the first patent for a CII was granted by the US Patent and Trademark Office in 1981) and it was associated with a clear increase in R&D investment during the eighties. The R&D/sales ratio for US firms innovating on computer, telecommunications and electronic components (the relevant field for CIIs) increased from 5.5% to above 8% in 1989. Moreover, the works against patentability of CIIs did not compare investment in CIIs with investment in other technologies and did not take into account other (macroeconomic or sector-specific) factors, hence there is no any rigorous econometric evidence against patents which could be drawn from the American experience. Nevertheless a misleading interpretation of this research has created a lot of confusion in the debate.
Adopting a more balanced view in line with the theoretical and empirical findings of economic research, we can summarize the following suggestions for the future debate on rules for patents on CIIs:
a) additional restrictions to the patentability of CIIs would jeopardize investment in innovation and technological progress in the leading high-tech sectors of the European economy with negative consequences on growth and competition in the global economy and would shift investments toward US and other countries where IPR are better protected in a large and rapidly increasing number of sectors;
b) new limitations to the enforcement of the current patent system would open doors to foreign low cost productions (think of China) which, without patent protection, would be free to imitate European products even in high-tech sectors, with negative consequences on European employment and on innovative (and also non innovative) SMEs;
c) improvements of the effectiveness of the current patent system for CIIs should rather promote access to patents especially for SMEs, traditionally less able to exploit this opportunity, to consolidate the European comparative advantage in high-tech sectors where innovation and human capital play a crucial role and to help achieving the goals of the EU Lisbon strategy. In this sense, it would helpful to establish institutional ways to provide financial, technical and administrative support to SMEs dealing with patents in the EU;
d) enhancement of the spillovers created by the patent system on the diffusion of knowledge could be obtained through further requirements on a disclosure of the patented inventions which should be sufficiently clear and complete to be carried out by a person skilled in the art.
