In an environment widely described as a 'pro-patent era' and in the light of vigorous debates over business method patents, this article discusses how the issuance of these software-based patents could be, paradoxically, a state-sanctioned deterrent to software innovation and commercialization. It also questions if these patents fit the 'economic reality' of the software market. Empirical data on how European Internet-based software companies regard these patents are drawn from a recent study on Patent Protection of Computer Software Programs conducted for the European Commission. The paper concludes that there are grounds to interrogate the view that stronger rights will inevitably lead to a more innovative and competitive industry for three main reasons. The first is that software is a cumulative systems technology made up of multiple and incremental steps. The second is that stronger rights could jeopardize the ease of entry and detract attention from the right course of policy action with respect to intellectual property protection of software. Third, smaller firms, which make up the majority of software producers do not, on the overall, patent for competitiveness reasons nor do they readily regard patents as a stimulus for innovation.