In March 2010, we reported on continuing progress toward New Zealand's new Patents Act []. Specifically, it was noted that, in its report to Parliament following public consultation on the Patents Bill 2008 (PB), the Commerce Select Committee provided a real "curveball" in purporting to now exclude computer software from patentability.

Such a reversal is at odds not only with the position adopted during drafting of the PB, it is also contrary to the stance taken by New Zealand's major trading partners, especially Australia and the United States, who generally allow software patents subject to satisfying what approximates to a mild "technical effect" criterion. However, perhaps most significantly, the exclusion also contravenes New Zealand's obligations under Article 27 of the TRIPs Agreement, which requires that signatories make patents available "in all fields of technology".

In the present instance, it appears as if the Select Committee's position has been altered by a flurry of submissions from proponents of "open source" software. To some extent, the pro-software patents fraternity has been "caught with their pants down" in failing to provide the Select Committee with a sufficient counterargument. Then again, given previous public consultation, the wording of the PB itself – and indeed a recent public statement by the Ministry of Economic Development that software patents would be available under the new Act, they probably had good reason to believe that software patents were not under threat.

Following release of the Select Committee's report in March 2010, New Zealand's pro-software patent community, including Microsoft, was then stirred into action. Whereas it was initially felt that subsequent lobbying of the pro-patents group may have the capacity to again reverse the Government's position, this now seems unlikely. On 15 July 2010, New Zealand's Minister of Commerce, Hon. Simon Power, confirmed that the exclusion will remain, but that patents for "embedded software" will be allowed when the Bill is finally passed in Parliament. Mr Power then stated that "further amendment to the Bill is neither necessary nor desirable", indicating that this is to be the Government's final position on the matter.

This policy decision leaves software developers seeking patent protection in New Zealand somewhat in limbo. Further, it places the Intellectual Property Office of New Zealand ("IPONZ") in a near-impossible situation, for in the same announcement, Mr Power also instructed IPONZ to develop guidelines that allow inventions for embedded software to be patented. In drawing a line in the sand between "software" and "embedded software", IPONZ must now "succeed" where other jurisdictions – both at Patent Office and indeed Court level have consistently failed. Not only that, but they must hope the guidelines stand up in Court, which will surely place greater emphasis on legislative intent and persuasive decisions from other jurisdictions than they would Patent Office guidelines.

Assuming the present "anti-software/pro-embedded" scenario remains the Government's legislative plan, an arguably better approach to the "no-win" situation in which they have placed IPONZ may be simply to adopt the wording of the European Patent Convention which excludes computer software "as such". This qualifier has been interpreted to mean that an invention which makes a non-obvious technical contribution or solves a technical problem in a non-obvious way is patentable even where that technical problem is solved by running a computer program. Such wording is significant in that it would give the Courts legislative basis through which to create their own distinction between what is and is not patentable; this is surely preferable to the Government's proposed scenario in which the "tail wags the dog".

We fear the New Zealand Government may have somewhat rushed into this important policy decision without giving due consideration to both sides of the software patenting debate. In part, this may be due to a desire to quickly pass the new legislation given that it has now been gestating for more than six years. On the other hand, the issue of software patents has only recently come under consideration and further debate certainly seems justified in this instance.

Another reason the New Zealand Government may wish to reconsider the proposed exclusion is the forthcoming United States-New Zealand Free Trade Agreement ("FTA"); President Obama confirmed in September 2009 that this was to proceed. Whilst the opportunity to trade freely with the US is a boon for New Zealand exporters, any such agreement will inevitably come at a price; New Zealand would likely need to yield in certain areas in order to secure such a deal. To this end, one need only look to the changes that were made to the Australian Patents Act 1990 following the Australia-United States FTA in 2008.

The United States 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". Were the proposed exclusion enacted, it is surely at short odds that this would soon be identified as an impediment to trade. In terms of New Zealand's "bargaining chips" toward the FTA, software patents would likely be high on the list – and for this reason alone, it is felt that the proposed exclusion without due debate may be at this stage somewhat premature. The other possibility, of course, is that the New Zealand Government has no strong view as to the patentability of computer software, but is now cunningly excluding software patents so as to present a bargaining chip for the FTA negotiations – the rationale being to secure some other advantage at the cost of allowing patent protection for software, which was considered appropriate all along, for all the reasons given above.

The PB is now due for its second reading in Parliament and is expected to be passed before the end of the year. The complementary Patents Regulations should follow shortly thereafter. The proposed date of commencement of the new Act is 31 December 2012; this will allow the Regulations to give effect to the provisions of the new Act.

Each of Shelston IP's Australian Patent Attorneys is also dual-registered in New Zealand where we practice extensively. We retain an active interest in seeing New Zealand's present, outdated patents legislation modernised appropriately, to the expected benefit of all stakeholders.

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