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By doing away with software patents, Europe could gain a major competitive edge over the USA, and create jobs in the EU. However, the legalization of software patents would have the opposite effect.

The EU already has a software trade deficit vis-a-vis the USA in the tens of billions of Euros. A large part of that amount is due to monopolies held by certain American software companies in the largest and most lucrative segments of the software market. A monopolist always charges much more than a fair market price. It should therefore be a vital interest of the EU to ensure a competitive market in which Europe does not have to overpay. It is never a good policy to favor monopolists regardless of their residence but strengthening foreign monopolists is self-damaging behavior.

There are many reasons why the EU is better off if it disallows than if it legalizes software patents. Here are the key reasons:

1. Software patents put at a disadvantage the domestic software industry. Software patents strengthen large players from outside of the EU at the expense of small and medium-sized enterprises. With the exception of SAP, Europe's software industry consists of SMEs. Moreover, Europe as the birthplace of key open-source projects and as an early-adopter market for open source has an opportunity to create growth and new jobs related to open source. Some of the related opportunities might go to Asia, where governments are even more supportive of open-source software and less likely than the EU to let open source suffer under the patent system.

2. Software patents increase the costs of software and goods containing software to Europe's public administrations, enterprises, and consumers. Without software patents, open-source software is an unprecedented opportunity for bringing down the price levels of standard software. That opportunity must not be sacrificed. Europe needs to realize those cost-savings and invest them into its own growth.

3. A more competitive software market means more innovation, and that results in higher productivity in all sectors that use software. Combined with the aforementioned cost-savings, this would represent a significant competitive advantage over the increasingly patent-plagued USA.

4. The patent system comes with a variety of direct and indirect costs, and there is no economic evidence that it justifies those. The incremental cost of the patent system is effectively paid by consumers. Without very strong indications that the patent system may be beneficial in a certain area, it should not be extended further.

5. More jobs in production and service industries are more valuable to the overall economy than more jobs in the patent system. Creating jobs in the patent bureaucracy and in patent law firms is not a way of creating more employment on the bottom line. The patent system is economic overhead. If it expands into areas where it causes serious damage, such as software, then it is quite possible that each additional job in the patent system indirectly kills a considerable number of other jobs.

6. Large corporations just want to "outsource" jobs in software development. The logic of the likes of Siemens is simple: Fire 20 programmers in Europe, hire 30 (at a fraction of the cost) in Bangalore, have 1 patent attorney in Munich process the work of those 30 Indian programmers. A few years later, they'll outsource the job of that patent attorney to Romania. By comparison, small and medium-sized IT companies are very service-oriented. They need to have their staff close to the customers, and they also have to pay their taxes where they are based.

Click here to read why software patents are particularly negative for the economies of Eastern European countries