Innovation and Intellectual Property Protection in the Software Industry: An Emerging Role for Patents?

Over the past few decades, the software industry has emerged as one of the most important sectors of the economy. Intellectual property (IP) laws have had an important impact on the software industry's success. IP protection has given software developers the incentive to invest in developing and marketing new programs by providing a legal mechanism through which developers can capture at least some of their software's value - whatever that may be - in the marketplace. Recent developments in IP law, together with technological innovations and broader changes in the IT industry, suggest that the software industry may now be entering a third phase in protecting against third-party appropriation. These changes have highlighted copyright's somewhat limited ability to provide appropriate protection against certain forms of copying and have made trade secret law a less attractive option for IT firms and their customers. Developments in the patent area, however, suggest that patent protection may emerge as a critical form of IP protection for software during this new phase.