I will outline the background to the information and communication technology, ICT, sector, the background to the legislation and its aim, the reasons patents are important to the ICT sector, Ireland and the European Union and the reason the directive is so important.
Many committee members will be aware of the importance of the ICT sector in Ireland. It employs 100,000 people. Significantly, if I had appeared before a parliamentary committee 12 or 15 years ago, that number would have been as low as 50,000. There has been dramatic growth in the sector in recent years. It generates sales of €52 billion, to which a significant contribution is made by foreign direct investment but also by a significant indigenous sector.
The ICT sector in Ireland includes about 1,000 companies, 700 of which are small and medium-sized enterprises, SMEs. The remaining 300 are foreign direct investment entities, typically multinational companies which recruit many staff. One must acknowledge that the SME sector is both vocal and relevant within the overall ICT sector. It generates exports of €45 million. At more than €600 million, the corporation tax contribution is no mean figure. The wage bill is €4 billion. The contributions to PAYE and PRSI are over €900 million and €700 million, respectively. Of significance in the case of this legislation is the research and development spend of €900 million.
As it is quite a mouthful, the directive on patentability of computer implemented inventions has been shortened to either the patents directive or the CII directive. In March the European Council adopted a Common Position, of which the industry would be broadly in favour. We think it did a good job in trying to harmonise the current regime. The European Parliament will vote on the matter next week in Strasbourg. That is one of the reasons we are here to talk to the joint committee today about the legislation.
The directive establishes the patentability of computer implemented inventions when they perform a technical function. That is significant. In other words, one cannot patent pure software or a business method, although one can in America but we are not looking for this in Europe. We think patents should be attached to a technical function. That is where much of the research is conducted and the development spend made when a company is developing products. That is the part that we think needs to be protected. Software can be protected through copyright but that is not enough to protect the technical function.
The aim of the directive is to harmonise a regime which has been working successfully for the past two decades in Europe. Although companies may file their claims through national regimes or the European Patent Office, the problem is they cannot defend them easily because they must go to 25 countries with 25 legislative regimes and perhaps 25 outcomes. The directive aims to harmonise the process in order that such activity will not be necessary. It will make the process more straightforward, clarify the position for many companies and, more importantly, reduce the cost for many SMEs.
One might ask why patents are important. Having spoken about the directive and its aim, one might ask what is so good about patents and why we should protect them. For the ICT sector, they promote innovation and research and development. If we listen to many of our advisers and European politicians on reaching the targets set in the Lisbon Agenda, we will need to invest more in research and development, in which many companies in Ireland invest a good deal of money. To give them an incentive, they need to be able to protect their invention. If we do not permit them to protect their patents and inventions, they will not see the need to invest in research and development and we will certainly fail in our aim to become a leading ICT centre in Europe and the world. Patents provide incentives for companies to undertake research. I outlined the importance of the ICT sector to Ireland. The issue to bear in mind is that if we do not continue to protect our patents, we will lose our position as a global leader.
One might ask why the patents directive is important for the ICT sector in Ireland and elsewhere in Europe. Patents are awarded on a national basis. This directive attempts to clarify disputes in national courts and information coming from the 25 different jurisdictions.
One of the problems we faced in talking to people opposed to this legislation is that they do not accept that this is good for SMEs. Some of my colleagues will talk further about that. It is very important for me to leave behind the message that this directive is just as important for the SME sector as it is for companies such as Microsoft. The patent directive will allow an SME to be on the same level playing field as a large company. By protecting their patents they are in a position to negotiate and deal with large companies rather than being swallowed up by them.
It is also very important for SMEs seeking venture funds. I am sure members of the committee have often heard companies speak about how difficult it is to get seed capital and venture funds to enable them to go from being a fledgling company to dealing on the global stage. A patent will encourage venture capitalists and angel investors to invest in a company where their intellectual property is protected. Very importantly, SMEs can access a very large customer base by licensing their software. They cannot license their software unless they have something to license, and they cannot do that without protecting their intellectual property.
The Common Position does not seek to change what has already been extremely successful over the past two decades but rather seeks to harmonise and codify the current system. It will make it less difficult, expensive and complex for companies to protect their inventions. Some of the European Parliament's amendments which will be voted on next week could, if adopted, radically change the current environment and exclude many inventions. It will jeopardise innovation and research and development in the long term in Europe and in Ireland. It will shift investment from multinational companies and foreign direct investment to areas where intellectual property is protected, such as Japan and America, and over the long term it will also open the door to low-cost economies which will then be free to imitate European products.
Before I ask some of my colleagues to speak and respond to questions, let me say that in the past two decades more than 30,000 CII patents have been filed in Europe. We have a list of the Irish patents that have been filed. A minimum of 300 that have been listed are companies which have a registered address in Ireland. Many Irish companies, as members of the committee are aware, file their patents using a foreign address. That indicates the level of importance SMEs place on the patents directive.
I thank the committee for its time. I will respond to any questions. Some of my colleagues will explain why the patents directive is important for them.
