Until the late 20th century, the functionality of most innovative products, particularly those relying on semiconductors, was primarily embedded in hardware. There was no doubt about their patentability. But today, increasingly sophisticated semiconductor technology and design tools mean that physical objects are no longer the sole basis of innovation. In other words, technical functionality is progressively migrating from hardware to software. And yet in many jurisdictions software-related inventions either do not qualify for patent protection or have a very limited scope of protection.
The huge economic growth and innovative potential of technology companies that develop products that combine hardware and software, and of the software industry in general, suggest the time is ripe to rethink IP statutes and bring them into line with present-day commercial realities.
The advantages of software-intensive systems
The great advantage of software is that engineers and designers have more flexibility in developing – and launching, or licensing to others to launch – products with new technical capabilities, and in fixing errors and releasing new software with simple downloadable updates. In many cases, implementing an invention in software rather than in hardware is more rapid and is the faster and more cost-effective way to get a product to market.
Consumers benefit from seamless and affordable access to the latest advances. And the relatively low capital investment involved in creating software solutions makes market entry easier for small businesses and startups. However, these companies still need effective IP protection to secure a reasonable return on their R&D investments.
Which IP rights are relevant to software protection?
Historically, IP laws have influenced the success of the software industry by providing software developers with a legal mechanism through which to capture at least some of their innovation’s market value. Since at least the 1960s, the software industry has relied on three distinct IP protection regimes: trade secrets, copyright and patent law. The scope of protection offered by each has varied significantly over time, as has the software industry's reliance on them.
History shows that patent law offers the most effective framework for protecting an invention’s functionality. In many countries, however, a distinction is drawn between inventions implemented in hardware, which are patentable, and inventions implemented in software (i.e. computer programs), which are protected by copyright law. But in a world in which the Internet – and not hardware such as CDs – is...