Study 1. Computer and Software Related Services

This study examines software as a cross-cutting intellectual property asset in New Zealand’s services economy and trade profile. It argues that software’s dual role—as both a production input and a tradable service output—requires a coherent IP framework that balances innovation incentives, market access, and international competitiveness. It also maps how existing WTO commitments and key IP policy choices shape trade outcomes for software-based services.

(A) Software is a cross-cutting IP asset

1. Software is a big deal for New Zealand's economy

• The widespread integration of software is a defining feature of technological advancement within numerous economic sectors. Its role as an enabler of efficiency, innovation, and disruption is evident across borders. Software generates profound effects on operational methodologies and value creation. The adoption of software solutions is a key determinant of a sector's competitive edge and capacity for innovation.
• The computer services sector in New Zealand has experienced steady growth over the past ten years, reinforcing its importance within the broader service economy (NZTech 2023). Although the balance of trade for computer services has historically shown a deficit, with imports surpassing exports, this sector has solidified its position as a key component of the service trade (Stats NZ 2023a). Continuous investment and development have resulted in computer services consistently contributing around 10% to the total value of both exported and imported services over the last five years (Stats NZ 2023a). This trend demonstrates the sector's resilience and its critical role in the technological advancement and digital connectivity of New Zealand's economy.
• In New Zealand's context, the consistent contribution of the computer services sector to the overall service trade underscores the strategic importance of software. Moreover, with an acceleration from a 16% to a 19% annual growth rate, the potential for the software-as-a-service (SaaS) sector alone to become a major industry by 2030 is substantial (NZTech & MBIE 2023). Therefore, software is not merely a strategic enabler of wider economic functions but also an intellectual property (IP) deliverable underpinning digital trade in services. This suggests that the regulation of IP is a critical factor that can influence New Zealand's stance in both the domestic market and in international trade relations.

2. Software underpins numerous services sectors

• Through broad application, software is a foundational component across various services industries, acting either as an essential input to other services or as the final service output itself. In New Zealand, this is evident virtually in all sectors. Take for instance, finance, where software ensures internal data and project management, and drives the delivery of digital banking and fintech services, or healthcare, where it underpins systems for patient data management and telehealth services. As a result, software has become integral to the seamless operation and delivery of contemporary services.

Table 1. List of economic activities related to software in [1](B) Computer and Related Services and [7] Financial Services sectors

• The implication of software's dual role is deep. As an input, it streamlines and enhances operational processes, enabling businesses to rapidly respond to changing market demands and customer needs. Each sector harnesses software's potential uniquely, adapting its functionalities to optimise performance and service delivery. As an output, software itself is often the product, exemplified by the SaaS models, which have seen significant uptake due to their scalability and subscription-based delivery methods (NZTech & MBIE 2023, 17). The success of SaaS highlights an evolving marketplace, one that values flexibility and continual improvement in software applications.

• This adoption pattern underscores the importance of establishing a coherent IP policy that equally acknowledges the breadth of software's integration into the fabric of modern businesses and its capacity to stand alone as a salient, marketable service. Here are some examples demonstrating the versatility of software within economic sectors and suggesting the necessity of a robust IP policy that underpins software development and dissemination.

  Agriculture

  Agriculture benefits from software applications that support precision farming and business management in general. These applications enable farmers to make data-informed decisions that enhance crop yields while conserving resources.

  Legal sector

  Within legal services, software underpins efficiency through intuitive case management systems and AI-enhanced legal research. Additionally, firms offer automated document generation tools as a client service, reducing the complexity and time required for creating standard legal documents.

  Architectural services

  Software transforms architectural design via CAD and BIM tools, streamlining and automating the creation of precise structural models. Architecture firms also deliver virtual reality (VR) presentations as a service, allowing clients to experience designs in an immersive environment before construction begins.

  Healthcare sector

  In healthcare, software provides robust platforms for the management of electronic health records, AI -enhanced diagnostics and the delivery of telemedicine services. These systems streamline administrative tasks and improve the accessibility of patient care, enhancing both accuracy and outcomes.

  Note: For human health services there is a dedicated study that examines the role of IP policy in the context of unscheduled services sectors.

  Manufacturing

  In manufacturing, software facilitates the automation of production processes and supply chain management. It enables predictive maintenance using data analytics, which helps to reduce downtimes and leverage developments in the Internet of Things (IoT).

  Retail

  Retail now depends on e-commerce platforms powered by software, allowing businesses to operate online stores efficiently. In addition, logistical software systems ensure that supply chain operations are managed effectively, from inventory control to delivery tracking.

  Education

  The education sector has utilised software to expand its reach through online learning platforms, virtual classes, and educational applications that provide access to a broad range of learning materials and interactive educational experiences.

  Transportation and logistics

  Software is crucial in the transportation and logistics sector, optimising route planning, traffic management, and the transport of goods. It has also been instrumental in the rise of ride-sharing services and the efficient management of vehicle fleets.

  Audiovisual services

  Software drives the audiovisual industry forward through advanced editing and special effects software that enhances the production quality of films and videos. Moreover, as a marketable output, streaming services deploy software solutions, offering easy-access original content to users.

  Note: For audiovisual services there is a dedicated study that examines the role of IP in detail, both as a tool and as a marketable streaming services shaping modern media consumption.

These and many other examples across economic sectors affirm the critical role of software in service delivery. As such, the imperative for a robust IP policy is essential to ensuring that the fruits of innovation are accessible while safeguarding the rights of creators. For New Zealand this seems a necessary position in gaining a competitive advantage in the global digital economy and in nurturing the domestic market receptive to the advancements of technology. Nevertheless, it should be said that achieving the right balance with an IP policy that reflects the nature of software in trade relations is never easy and trade-offs are to be made.

3. New Zealand's software-based industry prefers soft IP protection

• Within New Zealand's software-based services sector, the prevalent preference for soft IP measures like confidentiality agreements, trade secrets, and first-to-market strategies echoes a broader trend among other New Zealand industries. This trend has been consistently observed in responses from the NZStats survey from 2007 to 2021, which may suggest an overarching approach to IP, favouring the flexible and immediate protection of soft IP measures over the more traditional and formalised core hard IP protections such as copyrights and patents.
• The software sector’s propensity for soft IP measures may be attributed to several factors:
  • Innovation intensity: For sector dependent on rapid evolution, the lengthy processes and perceived rigidity associated with hard IP protection may discourage reliance on such measures. This aligns with wider industry feedback, indicating a possible nationwide pursuit of greater agility and less cumbersome IP protections that can keep pace with fast-changing market demands.
  • Competitive dynamics: The importance placed on being first to market in combination with secrecy protection suggests that for software-based services, securing early market presence is vital for establishing a foothold before competitors emerge. This strategy suggests a broader industry priority for rapid market access in the course of securing business interests over protection against infringing competitors, which might or might not come into question at later stages of business development.
  • Economic implications: Across the borders the costs related to obtaining and enforcing formal IP rights could be deemed prohibitive, particularly for smaller players, driving them towards more cost-effective soft IP strategies. This reasoning is particularly resonant in software-based services, where development cycles are often shorter and the lifecycle of products may not justify the investment in hard IP protection measures.
  • Enforcement challenges: Both software-based sectors and other industries hint at concerns over the enforceability of hard IP rights, pointing to the difficulties of pursuing legal remedies across jurisdictions in a globally connected marketplace. Soft IP measures offer a more practicable and immediate form of protection that can often be preferable within such a context.
• The inclination towards soft IP protection in New Zealand's software sector, reinforced by similar trends across other industries, signals a need for a thoughtful examination of the IP regulatory environment. Policymakers are prompted to ensure that New Zealand’s IP framework is appropriately equipped to support the unique traits of software-based services while also recognizing that these traits may reflect wider national preferences. This includes fostering flexible IP policies that can support fast market entry and confidential innovation, thus aligning with industry's strategic priorities and reinforcing New Zealand's standing in both domestic and global digital economies.

4. Software (and other IP assets) need a coherent IP policy

• Effective IP policy ensures that software developers are incentivised to innovate and create, with the assurance that their creations are legally protected. Such a policy framework also recognises the pivotal role of software as a vital input, which is essential for businesses across various sectors that depend on software to operate and compete. It is therefore just as crucial to consider users' rights to access and deploy software within their operations.
• To account for that, such IP policy encourages an accessible marketplace for software, enabling companies to adapt and integrate technology solutions that drive their competitive advantage. This, in turn, ensures that home-grown software can thrive, contributing positively to the economy's balance of trade.
• Furthermore, strong IP laws that align with IP minimum standards contribute to New Zealand's attractiveness as a destination for foreign investment and as a participant in cross-border digital trade, while also accommodating the needs of software users who contribute to the development of these services within the national context.
• Conversely, insufficient IP protection, or equally an overprotection, can have a deterrent effect on local innovation and dissuade international partners, potentially leading to a larger trade deficit in the computer services sector. It could also render New Zealand's software market less competitive, affecting the flow of cutting-edge technologies into the country and limiting opportunities for local firms to engage in overseas markets.
• In the realm of international trade, New Zealand's stance on IP rights can enhance or impede trade negotiations and the establishment of trade agreements, affecting access to international markets. Therefore, it is imperative to recognise the linkages between IP regulation and trade in services dependent on software to reflect the needs of the domestic software industry and also to ensure that these regulatory measures are complementary to those of its trading partners, creating a cohesive framework conducive to international trade.
• The intersection of software's dual role as both an economic enabler and an IP asset presents a complex path — one that New Zealand navigates with a long-standing commitment to fostering a nuanced trade environment, pivotal for achieving a competitive edge globally. This means going beyond viewing IP regulation as a mere protective measure; it is integral to understand that IP policy is a multifaceted tool that can both safeguard innovation and influence market accessibility. Therefore, it is indispensable that New Zealand's IP policymaking process thoughtfully addresses regulation's potential to act as a legitimate, but nevertheless a full-scale market access barrier. Through careful and informed regulation, New Zealand can create an IP framework that truly balances the promotion of creative endeavours with the facilitation of fair trade, setting a foundation for a resilient and sustainable digital economy.

(B) Software IP Regulation is Relevant to the Existing Trade Commitments

1. Identifying software-based services sectors relies on rules-based interpretation

• Understanding the classification and scope of software-based services within existing trade commitments is a task that necessitates meticulous rules-based interpretation. New Zealand's Schedule of Specific Commitments (NZ Schedule) under the WTO Agreement delineates [1](B) Computer and Related Services into several subsectors:
• [1](B){a} Computer Hardware Consultancy Services;
  • [1](B){b} Software Implementation Services;
  • [1](B){c} Data Processing Services; and
  • [1](B){d} Database Services.
• In addition, there are related [2](C){n} Online Data Processing, [2](C){n} Online Information Processing and [2](C){j} Online Database Retrieval services subsectors under [2](C) Telecommunications Services.
• These commitments are stated broadly, highlighting the challenge in capturing the full spectrum of modern software services which have evolved significantly since the original negotiations. As demonstrated in Study 2. Audiovisual and Streaming Services with the subscription video-on-demand (SVOD) sector, narrowing down which new services fall under these conventional classifications requires to infer and apply the recognised principles behind these categories to emerging market realities.
• In tackling this challenge, policymakers have to consider both the original categorisation intent in accordance with the rules on treaty interpretation and the contemporary industry landscape to ensure that New Zealand's trade commitments remain relevant and comprehensive. This interpretive exercise underscores the need for periodic reassessment of the NZ Schedule as the realms of technology and services continue to merge and diversify, presenting novel intersections that may not be explicitly covered under existing trade terms. It also stresses the significance of maintaining an adaptable legal and regulatory environment that can accommodate advances in the software services sector.

2. Qualifying software-based services requires to consider their integrated nature

• The process of qualifying software-based services under NZ Schedule requires careful consideration of the complexity of their value chains. Software products are seldom stand-alone offerings; instead, they often form part of interdependent systems that involve various layers of service provision. Drawing upon the WTO panel's perspective in 🧑‍⚖️ China–Electronic Payments (P), the critical factor in qualifying an integrated service is not the number of suppliers but the emergence of a new, distinct service that results from the combination of component services.
• This principle has significant implications for the classification and treatment of software services. For instance, while an integrated software service, such as a cloud computing solution, may constitute a distinct offering under a specific commitment, the contributory services such as cannot be disregarded. Similarly, in Study 2. Audiovisual and Streaming Services services such as SVOD are a composite offering of content production, platform delivery, and digital rights management, similar integrations can be seen in software services like cloud computing. Each of these input services is relevant in its own right to trade commitments and has its distinct IP considerations, particularly when dealing with copyright and patent rules.
• The complexity lies in acknowledging that input services, while they may stand independently under certain commitments, also contribute to the creation of integrated services that could be subject to different commitments or IP regulations. This underscores the necessity for a nuanced understanding of how these services layer and intersect with one another, which in turn shapes the broader frameworks of trade and IP policy.
• The position of the WTO panel highlights the need for policymakers to evaluate both the individual software-based services and their combined effects within integrated offerings. As software products continue to evolve and new service delivery models emerge, it is essential to consistently assess how these developments fit within the existing trade commitments, as this will directly inform the regulatory approach to IP protections for the sector. Such an analysis should reduce chances for New Zealand’s IP framework and its trade commitments to contradict each other and will facilitate a favourable environment for both innovation and international trade.

3. Software-based services have a liberalised trade landscape

• In line with the findings from Study 2. Audiovisual and Streaming Services where audiovisual services are subject to highly liberalised trade commitments, software-based services enjoy a similar level of openness under the trade framework. In other words, New Zealand maintains the country's commitment to open markets and the promotion of international trade in technology services.
• The commitments listed under NZ Schedule for [1](B) Computer and Related Services are characterised by the absence of limitations under Mode 1, Mode 2, and Mode 3 – cross-border supply, consumption abroad, and commercial presence, respectively. They are marked as "None", indicating no existing restrictions or additional measures inhibiting the provision of these services from foreign suppliers into New Zealand.
• This level of openness is substantial and is actively encouraging the cross-border exchange of technological expertise and innovation. However, the Mode 4, involving the presence of natural persons, is listed as "Unbound" except as indicated in the horizontal section, which aligns with general reservations applicable to all sectors. It suggests that while the movement of people for the purpose of delivering these services faces certain limitations, those limitations are consistent across all service sectors and not unique to the software industry.
• The liberalisation of these commitments opens multiple doors for New Zealand's software industry, enhancing its ability to compete globally. It allows New Zealand service providers to operate and innovate in an international marketplace, contributing to the global value chain in software services. However, this openness also implies a responsibility to ensure that liberalisation does not inadvertently restrict market access for foreign companies. In this regard, IP policy should be crafted and utilised in a way that facilitates competition rather than creating barriers.
• Regulators should design IP provisions that foster a fair and competitive environment, enabling both domestic and foreign enterprises to thrive. This ensures alignment with the commitments towards liberal trade and stands in compliance with New Zealand's obligations under international agreements, such as the TRIPS Agreement. It would also mean that any modifications to New Zealand's IP framework must undergo rigorous assessment to ascertain their impact not only on domestic innovation but also on foreign entities looking to engage with the New Zealand market.
• In this balanced approach, New Zealand would not only consolidate its reputation as a nation that values open trade and innovation but also signal to the international community its commitment to equitable trading practices. The strategic alignment between trade liberalisation and nuanced IP policy would support New Zealand's improving position in the global software market, fostering an ecosystem where competition drives innovation and not exclusively protection.

4. IP dynamics affecting trade in software based services

• Policy is not a one-size-fits-all undertaking but requires continual refinement of IP protection. Each pressure point – from protection scope to thresholds, exclusive rights, and their exceptions – interacts to shape both global and domestic software services markets. Regulators should be vigilant in adjusting these levers while considering the wider implications they hold for New Zealand's standing in international trade relations. Below is an elaboration on the mechanics of key policy pressure points within the IP regulatory framework.

  4.1. Scope of IP protection

  • The scope, defined by legislation, determines what is protected under IP law. For instance, while software is universally protected as a literary work, its patent eligibility varies, influencing how jurisdictions treat software and consequently affecting international trade dynamics.
  • Example: Through its 📄 Patents Act 2013 (NZ), New Zealand specifies that software is not eligible for patent protection, a stance that differentiates it from some jurisdictions where software patents are permissible. This legislative approach influences international trade by potentially fostering a more open domestic environment for software innovation and use, which may encourage software development in New Zealand. However, it also raises considerations about the compatibility of New Zealand’s software products within international markets that do afford patent protection to software, potentially impacting the export potential, competitive positioning of these products and the investment climate onshore.

  4.2. Thresholds for IP protection

  • Varying standards for what qualifies for protection shape thresholds for IP coverage. For instance, copyright protection requires to meet the originality threshold across numerous jurisdictions. However, the definition of originality fundamentally varies from the minimum creativity test versus a skill and labour test.
  • Example: In the U.S., the originality standard placing emphasis on a minimum level of creativity may lead to a more stringent approach to copyright protection of software, especially considering AI-generated code. This can incentivise deeper innovation and leave more room for the use of existing code in new creations. Conversely, in New Zealand, where copyright subsistence is justified by the skill and labour invested, the threshold potentially envelops a wider range of works, offering protection more readily. This comparatively lower threshold may provide a stronger incentive for investment in the creation of software, even if it does not meet the higher bar for innovation. As a result, the different emphasis in these standards could affect the competitive dynamic between innovators and investors, potentially shaping the types of software developments that are fostered within each legal framework and the way they are treated on the global stage.

  4.3. Exclusive rights

  • The array of statutory definitions and the nature of exclusive rights granted to copyright holders vary by jurisdiction. These rights can control reproduction, adaptation, distribution, and public performance of the software. They directly impact how multinational entities in the software industry operate across borders, as they must navigate a patchwork of domestic laws to ensure compliance and protect their assets.
  • Example: Suppose states start enacting an exclusive right specifically aimed at protecting the output of AI systems, restricting the reuse of significant portions of data or code at the core of AI. This right would create a distinct layer of protection for AI-related IP. It might incentivise the development of AI and services built over-the-top of AI models within that country due to the legal shield provided to developers. However, it might also limit the ability of others to interact with or build upon AI and its outputs, potentially stifling innovation in fields that rely on AI training and generated data.
  • Under the national treatment principle of the TRIPS Agreement, foreign nationals or companies would be entitled to the same level of protection provided to locals in the country of protection. As such, a sui generis right for AI in one country would need to be extended to nationals of all other WTO members operating within its jurisdiction. This could lead to a situation where foreign entities might be incentivised to develop AI in a country with stronger protections rather than their home jurisdictions.
  • Such a right could also have implications for international trade, as countries without similar protections may find themselves at a competitive disadvantage when trading with the nation providing this sui generis right. Their AI developments could be subject to stringent regulations once they enter into the legal jurisdiction of the country with the new right, affecting the flow of technology and services across borders.

  4.4. Exceptions to exclusive rights

  • Market access is keenly affected by the scope of permitted uses under exceptions to IP protection. Various approaches may differently shape how software is interacted with internationally. In markets with dynamic exceptions software may be subject to a wider array of uses, whereas in jurisdictions with static or more restrictive exceptions, the usage may be more limited. This has a direct impact on the potential innovation and development of software-based services, as well as the attractiveness of different markets for international companies participating in cross-border trade.
  • Example: In the realm of copyright, New Zealand operates with a prescriptive fair dealing approach, enumerating specific circumstances under which copyrighted material can be legally utilised without infringement. This more restrictive framework provides clarity but potentially limits the applications of copyrighted software, particularly in scenarios that were unforeseen when the 📄 Copyright Act 1994 (NZ) was drafted.
  • Conversely, the U.S. employs the fair use doctrine rooted in the principle of transformative use, which affords a more flexible, case-by-case assessment based on factors that include the purpose, nature, amount, and effect on the market value of the use. This adaptability is especially pertinent in the software industry, allowing for a broader range of uses that can stimulate innovation such as integration into new tech applications.
  • These variations can lead to constraints or freedoms in how software is used in practice, which becomes a critical consideration for international companies seeking to trade software services and importantly innovate.
  • For a New Zealand company, the flexibility inherent in the fair use doctrine could be beneficial in exploring new technological frontiers or in repurposing existing software in transformative ways. However, starting in a home market governed by fair dealing, New Zealand companies may face difficulties when competing internationally with counterparts from fair use jurisdictions. The comparatively narrower scope of fair dealing could limit the ways in which these companies are employing software, presenting a challenge when scaling their operations and competing in markets where fair use provides a broader spectrum of possibilities for innovation and utilisation of software.
  • Conversely, a US company operating under a fair use regime at home might find its innovative activities more limited in New Zealand due to the specific confines of fair dealing. While fair use provides broad leeway for creative repurposing, the delineated exceptions of fair dealing may require US firms to navigate a more stringent legal landscape when their software enters the New Zealand market, potentially affecting their willingness to invest in or export to New Zealand’s market and their ability to harness the full scope of software innovations.

Finally, in New Zealand, the ongoing copyright review has highlighted the critical pressure points within the IP landscape, underscoring the complexities of adapting to the evolving digital economy. Both regulators and industry players have acknowledged the need to address the pressing issues such as the scope of copyright protection, the thresholds for qualifying work, the extent of exclusive rights, and the fine line of exceptions that allow for fair usage without undermining the rights of creators. This dialogue reflects a shared understanding of the significance of the legislative framework in fostering innovation, ensuring fair competition, and providing clarity for both domestic and international market participants. The review process is indicative of New Zealand's proactive approach to refining its IP policies, with an eye towards maintaining its competitive stature while echoing the collective voice of its software industry.