New Zealand has finally passed a new Patents Bill that will effectively outlaw software patents after five years of debate, delay, and intense lobbying from multinational software vendors.

Aptly named Commerce Minister Craig Foss welcomed the modernisation of the patents law, saying it marked a "significant step towards driving innovation in New Zealand".

"By clarifying the definition of what can be patented, we are giving New Zealand businesses more flexibility to adapt and improve existing inventions, while continuing to protect genuine innovations," Foss said.

The nearly unanimous passage of the Bill was also greeted by Institute of IT Professionals (IITP) chief executive Paul Matthews, who congratulated Foss for listening to the IT industry and ensuring that software patents were excluded.

Matthews said it was a breakthrough day "where old law met modern technology and came out on the side of New Zealand's software innovators".

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The Patents Bill was first drafted in 2008. In 2010, the Commerce Select Committee recommended a total ban on software patents. However, that stance was overturned with the introduction of a Supplementary Order Paper (SOP) in August last year, where the removal of software patents was reversed.

An IITP poll of members at the time showed that 94 percent of those with a view were in favour of banning software patents.

"The patents system doesn't work for software, because it is almost impossible for genuine technology companies to create new software without breaching some of the hundreds of thousands of software patents that exist, often for very obvious work," Matthews said.

"Today's historic legislation will support our innovative technology industry, and sends a clear message to the rest of the world that New Zealand won't tolerate the vexatious practice of 'patent trolls'."

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