Economists reject European software patent proposals

A proposed law due before the European Parliament next week would derail Europe's software industry while allowing big corporations to take over, warn European economists

A group of economists from around Europe has issued a scathing critique of the European Parliament's proposed law on software patents, arguing it would damage Europe's software industry, while benefiting almost no one except patent lawyers.

In an open letter to the European Parliament issued on Monday, 12 economists from institutions including the University of London, the Oxford Internet Institute and the University of Sussex urged that the proposed Directive on the Patentability of Computer-Implemented Inventions be rejected in its current form when it comes for a vote on 1 September. The term "computer-implemented inventions" includes, but is not limited to, software.

While they said the European Commission's goal of creating a more consistent patent framework for Europe was laudable, the economists said a better investigation must be made into the potential economic impact of making it easier to patent software innovations.

The current draft legislation would be a recipe for disaster, they said, and would encourage large companies to build up an arsenal of patents that they could use to fend off competition from smaller companies. This technique is common in the US, where the patenting process was liberalised several years ago.

"While clothed as an administrative clarification, the proposed directive will provide opportunities and incentives for the construction of extensive portfolios of software patents," the economists wrote. "The exploitation of these portfolios will have serious detrimental effects on European innovation, growth and competitiveness."

Their assessment is in line with that of many software developers and Europe-based IT businesses. Opponents of the proposed directive -- some of whom are generally in favour of software patents -- have compiled a petition of more than 150,000 names and planned a demonstration in front of the European Parliament building in Brussels for Wednesday afternoon.

The patents initiative, which has been shepherded through the European Parliament by the Committee on Legal Affairs and the Internal Market (Juri), aims to harmonise the patent systems across the European Union, making it easier to obtain computer-related patents that will be valid across Europe. Under the current system, many patents approved by the European Patent Office are invalidated by the patent regimes of individual countries.

Arlene McCarthy, Juri's rapporteur -- or the MEP responsible for the draft legislation -- said in a June analysis of the proposed directive that there were links between the patentability of computer-related inventions and the growth of IT industries in the US. Such patents aided "in particular the growth of small and medium enterprises and independent software developers," she wrote, citing a study on the issue carried out for the European Parliament by London's Intellectual Property Institute.

But the economists writing to the European Parliament poured scorn on any notion that software patents and business growth are connected, saying most economic research does not support this claim.

"What is known via academic research is that although a firm's R&D spending is clearly related to its productivity, profitability or market value, there is little evidence that patents contribute separately to performance, that is, above and beyond R&D spending," the economists wrote in an analysis also issued on Wednesday. One study has shown that as software patenting rates have risen, R&D investment in IT sectors has declined, say the economists.

More generally, they criticised the process that has led to the formulation of the draft legislation, saying there has been little balanced background analysis provided to the Parliament. McCarthy's own analysis, which will introduce the directive to most MEPs, was seen to have omitted reference to the concerns of economists over the impact of software patents.

"Members of the European Parliament should insist on being informed by independent, critical assessment of the available evidence... before committing the region's economies to an institutional change that will prove very difficult to reverse," the economists wrote.

Those signing the letter were Birgitte Andersen of the University of London, Paul A. David of the Oxford Internet Institute and Stanford University, Lee N. Davis of Copenhagen Business School, Giovanni Dosi of Scuola Sant'anna Superiore, Dominique Foray of IMRI Université Dauphine, Alfonso Gambardella of Scuola Sant'anna Superiore, Aldo Geuna of the University of Sussex, Bronwyn H. Hall of the University of California, Berkeley and Scuola Sant'anna Superiore, Dietmar Harhoff of Ludwig-Maxmiliens Universitaet, Peter Holmes of the University of Sussex, Luc Soete of the University of Maastricht and W. Edward Steinmueller of the University of Sussex.

David, Hall, Steinmueller and Brian Kahin of the University of Michigan wrote the accompanying analysis.

Both documents can be found on the Web site Research in Europe.