The hotly contested legislation on the patentability of computer-implemented inventions - widely known as the software patents directive - moves a step nearer the end of its journey on Wednesday 6 July when the European Parliament holds its plenary vote on the second-reading report by Michel Rocard (PES, FR), following a debate the previous day.

A wide-ranging debate has been taking place since 2001 between the EU institutions and experts, including software industry representatives. A consensus has been reached that patents on pure software should not be allowed. But views within the industry differ on the degree of patent protection that should be granted for computer-driven inventions such as cell-phones, washing machines or car braking systems.

The European Patent Convention

Patents are already granted for computerised inventions, either by national patent offices or by the Munich-based European Patent Office (EPO), a non-EU body set up in 1973 by the European Patent Convention, whose members are the EU-25 plus Switzerland, Iceland, Liechtenstein, Monaco, Romania and Turkey.

Under the Convention, a patent may be granted only if an invention is new, involves an inventive step and is capable of industrial application. The granting of patents for computer programs (i.e. software) is expressly ruled out. Yet since only pure software is excluded, thousands of patents for inventions that use software are issued by the EPO or national offices. An example is a patent granted for a method of detecting whether an ABS brake system is functioning properly. In this case, the software is deemed to make a "technical contribution" and is thus patentable under EPO practice. The patent protects the invention (the brake control system) as well as the software involved.

Computer-related inventions nowadays account for a significant share of patent applications. In 2001, over 16,000 out of a total of 110,000-plus patent applications received by the EPO related to such inventions, i.e. over 15%. A similar picture comes from national patent offices.

However, national patent offices may apply widely varying rules on patentability. And although EPO patents apply to all its member states, EPO rules have been interpreted in different ways.

Why a directive is needed

The European Commission decided this confusing situation was potentially harmful to the EU's software industry. It concluded a Community patent regime, based on principles broadly similar to those of the EPO, would clarify matters and thus stimulate technological innovation.

In February 2002, the Commission published a draft directive to harmonise national patent laws on computer-implemented inventions and ensure legal certainty. Like the EPO, it proposed that a computerised invention should be patentable only if makes a genuinely innovative "technical contribution" to the state of the art. Patents could not be granted for software such as mathematical algorithms; in other words software could not be patented in isolation from the machine on which it runs.

Opposing views within the industry

Large information technology firms are broadly in favour of a patent regime which would protect not only individual inventions that use computer programs but also the programs themselves. They argue that a patent regime can encourage research spending since it reduces management risks, rewards R&D expenditure and can help defend European inventions from US competition. Some large firms also argue that small and medium enterprises (SMEs) can benefit from using patents and they propose that smaller firms be granted discounts on patent fees.

By contrast, smaller companies generally want patents to be limited to the inventions themselves, excluding software from the scope of the directive and thus leaving the underlying software unprotected and available to other users. Many smaller firms in any case prefer the copyright system (see below), partly on cost grounds although they also argue that copyright gives software authors sufficient protection.

Among smaller companies, the users of "open source" software claim they would be particularly hard hit by the directive. The "open source" community, symbolised by the free operating system Linux, bases its work on the sharing of ideas and the right to use other people's software. It fears that free software, whose copyright is owned by individual programmers, could be gathered up by big companies and then shielded behind a patent.

According to one study (*), SMEs own an average of 20% of all software patents issued over the last five years by the EPO. The remaining 80% has been assigned to large firms or governmental organisations.

Patent and copyright – what's the difference?

A patent grants a property right to an inventor that will prevent anyone else from making any use of his invention. It lasts for a limited amount of time, usually 20 years. Since it is deemed to be "property", it can be bought, sold or licensed by the owner - something which is not possible with copyright.

Copyright protects original works based on ideas or concepts, such as novels, music, audio recordings, photography, software, video and cinema by preventing people from copying or commercially exploiting them without permission of the owner. The copyright on computer software lasts for 70 years after the death of the author.

Copyright protection can be obtained by filing a simple, relatively cheap registration application. Patent procedures are much more complex and the cost can vary from €10.000 in the US to almost €50.000 for a patent delivered by the EPO.

A long legislative journey

At first reading in September 2003, in a report by Arlene McCarthy (PES, UK) adopted by 361 votes to 157 with 28 abstentions, a majority of MEPs decided that the Commission's draft directive was insufficiently clear on the question of what constituted a "technical contribution". Parliament therefore adopted amendments to ensure that computer programs as such could not be patented. Other amendments were approved to protect SMEs' interests, including a call for the Commission to monitor the directive's impact on such firms.

On 7 March 2005, the Competitiveness Council of Ministers approved a common position that ignored most of Parliament's amendments and broadly reinstated the Commission's text.

In May 2005, Parliament's Legal Affairs Committee held a major public hearing with legal experts. A key conclusion of the hearing was that the Commission's definition of a "technical contribution" was ambiguous and thus risked allowing patents on pure software. This view appeared to support Parliament's first reading position.

Second reading: Legal Affairs Committee backs patents on software

However, in the second reading vote on 20 June 2005, the Legal Affairs Committee rejected (by 16 votes to 10 with 0 abstentions) most of the amendments to the common position tabled by rapporteur Michel Rocard (PES, FR) seeking to restrict patenting of computerised inventions to the invention itself. It thus went against Parliament's first reading position by voting to leave the Council's text largely unchanged and agreeing that patent protection should generally extend to computer programs - as advocated by big software companies.

The Socialist, Greens/EFA and GUE/NGL groups voted to limit patent protection to inventions, in the name of "open access" to software. Michel Rocard argued "the free circulation of ideas is at stake". But this view was defeated, essentially because most of the EPP-ED and ALDE groups decided to back the Council's position in order not to hold up the passage of the legislation. Klaus-Heiner Lehne (EPP-ED, DE) said the directive in its current form would "protect SMEs, without undermining the industry's basis".

A few amendments were adopted, similar to those at first reading, calling for the creation of a committee on technological innovation to assess the impact of software patents on SMEs, as well as a fund to provide smaller firms with financial and technical support.

A number of the amendments rejected in committee on 20 June have been retabled for the plenary vote next Wednesday. To amend or reject the common position would require the support of an absolute majority of Members of Parliament, i.e. 367 out of 732. The Council would then have three months either to approve Parliament's amendments or reject them. If the Council rejected them, the two institutions would then have to try to reach agreement in the conciliation procedure. If this last attempt failed, the directive would be dead.

(*) European Patents on Computer-Implemented Inventions Issued to Small and Medium Enterprises, Daniel K.N. Johnson, Colorado College, May 2005

Press enquiries:

Federico de Girolamo - tel. (32-2) 28 31389 / mobile (32) 0498.983.591
e-mail: lega-press@europarl.eu.int