Commerce Minister Simon Power says the Government will back changes proposed by a select committee that will mean computer software can no longer be patented.
Parliament's commerce select committee proposed amending the Patents Bill, which passed its first reading in May last year, after receiving many submissions on the controversial issue.
The recommendation has attracted considerable attention outside New Zealand, particularly from the open source software community, which claims large software makers have gamed the patent system and stifled innovation.
At present, software can be patented so long as it produces a "commercially useful step". The committee said it accepted that new software invariably built on existing software and that software patents were often granted for "trivial or existing techniques".
Power says the issue is not simple or straightforward. "However, the Government believes the committee has dealt with the issue in a sensible manner and has found a reasonable solution."
The Government would support a select committee recommendation that the Intellectual Property Office develop guidelines for inventions that involve "embedded software" — software that is built into a physical device. Software will still be protected by copyright, which prevents outright copying.
Open Source Society president Don Christie welcomed the decision, while Microsoft expressed reservations.
Christie says there are lots of high-profile cases of "patent trolls" trying to milk the efforts of people doing real work. "New Zealand is a net buyer of software and that is having an effect in that we are paying more for software."
His own firm, software developer Catalyst IT, was now having to indemnify customers for potential intellectual property infringement stemming from open source software that it on-supplied.
"How on earth can we predict what is going to happen on a global scale?"
Large software companies are earning significant royalties from software patents, he says. "More chilling is the way they are able to use their patent portfolios to strong-arm people."
Microsoft New Zealand national technology officer Mark Rees says the company is concerned by the prospect of patent protection for software programs being removed.
"In New Zealand we don't do product development, but we do have a large number of partners that do. It is really important for New Zealand that those organisations are able to commercialise their ideas and intellectual property protection is a key element of being able to do that successfully."
Rees says obtaining a patent had been a necessary step for some export-oriented software firms when seeking investment capital.
"We are not sure why software entrepreneurs shouldn't be given the same protection afforded to leaders in other industries. It is not clear to us why they have been singled out."
Christie says it would be a special case if software was patentable.
"Nobody thinks that academic papers or lawyers' arguments in court should be patentable. Software is a case of putting ideas into code in the same way that you would in a novel."
Software Association past president Wayne Hudson, who is a co-founder of intellectual property law firm Hudson Gavin Martin, says researching and filing a software patent is a lengthy and expensive process because of the "myriad patents being filed in virtually every space". If granted, they were costly and difficult to enforce.
Large software firms had used patents "in a war among themselves", but had not tended to pursue small software firms for infringement.
Equally, there were few cases where small software firms had managed to secure patents and defend them successfully.
"For the most part we have got small software development houses as our membership base and they are going to have a different interest to the IBMs and Microsofts of this world who can afford to play the patent game. Most of our members can't."
Most members of the association are probably apathetic, given copyright is generally sufficient to protect what they have got, he says.
Rees says the irony is that the reform of the patent law is an opportunity to deal with some of those issues. "Microsoft believes there is a need for patent reform in many jurisdictions and this was an opportunity for us to lead the way."
It would talk to its partners and to industry body NZICT before deciding whether and how to press the case for patents, he says.
"It is a conversation about what the New Zealand ICT industry wants and where it wants to go. It would be a shame if it became about Microsoft."
Despite being "a cynic" about patents, Mr Hudson says software will become harder to protect through copyright as more applications are delivered online, where innovations can be more easily dissected and copied.