- 78 -
4. Summary of Internal Use Software Requirements Under the Seven
Tests
The higher threshold of technological advancement and
functional improvement in the development of internal use software
vis-a-vis other fields of research is consistent with the general
rule that qualified research under section 41 excludes internal use
software development. Sec. 41(d)(4)(E). Although the reasons for
such discrimination are not readily apparent, they nonetheless do
exist. The conclusion we draw from these higher threshold
requirements is that Congress sought to limit the development of
internal use software under section 41 only to those endeavors that
ventured into uncharted territory.39 We are mindful, however, that
39 We recognize that commentators to the 1983 and 1989
proposed regulations under sec. 174 were concerned with language
that could discourage the "evolutionary" nature of research. The
Explanation of Provisions in the 1989 proposed regulations to
sec. 174 states in pertinent part:
A number of commentators suggested that the [1983]
proposed regulations could be read to require a
significant improvement for an activity to qualify
under section 174. They suggested that such a reading
would be overly restrictive because research and
development activities may in many instances be part of
an evolutionary process involving a series of minor
improvements that, when taken together over a period of
time, lead to a significantly improved product. The
regulations proposed by this document do not include
the reference to "routine" or "periodic" improvements.
* * *
54 Fed. Reg. 21225 (May 17, 1989).
The Explanation of Provisions in the 1993 proposed
regulations to sec. 174 states in part:
(continued...)
Page: Previous 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 NextLast modified: May 25, 2011