The Commerce Select Committee recommended in 2010 that software should not be patentable, which led to lobbying from patent lawyers and others.
Foss then released a supplementary order paper (SOP) which changed some wording in the bill and caused industry concern that he might be reversing his decision.
Ongoing consultation with the New Zealand software and IT sector had led to today's announcement, Foss said.
"I'm confident we've reached a solution where we can continue to protect genuine inventions and encourage Kiwi businesses to export and grow."
The Labour Party said Foss had been forced into "a humiliating back down" over the software patent system.
"Last year Craig Foss gave in to patent lawyers and multinational software players and sought to impose a software patents system on our IT sector," said communications and IT spokesperson Clare Curran.
"He overrode the advice of the Commerce Select Committee that copyrighting software would smother innovation."
Foss said there had been "a lot of noise" about the SOP when he released it and today's move was not a back-down.
"There were some concerns out there but that was a misconception about what we intended from the first SOP."
His intention was always that devices such as digital cameras or washing machines, that make use of a computer program, would be patentable, but not the software itself, Foss said.
Internet New Zealand welcomed today's tabling of the SOP, saying it made clear that computer software was not patentable in New Zealand.
Foss' decision to amend the Patents Bill drew to a close "years of wrangling between software developers, ICT players and multinational heavyweights over the vexed issue of patentability of software", said spokesperson Susan Chalmers
"Patenting software would not only make the continued development of the Internet more difficult, it would reduce innovation and could well stymie interoperability of various software platforms," she said.
New Zealand's largest IT representative body, the Institute of IT Professionals, expressed relief and said a major barrier to software-led innovation had been removed.
Chief executive Paul Matthews said although there were varied opinions on the matter, the consensus amongst professionals was that the patent system simply did not work for software.
"If you look at the New Zealand market, you would be hard pressed to find many people that were thinking patents would be a good idea."
It was in New Zealand's best interests for software to continue to be covered through the provisions of copyright - "a far more appropriate mechanism" - in the same way movies and books were, Matthews said.
"We believe it's near impossible for software to be developed without breaching some of the hundreds of thousands of software patents awarded around the world, often for 'obvious' work.
"Thus many software companies in New Zealand, creating outstanding and innovative software, live with a constant risk that their entire business could be threatened due to litigious action by a patent holder."
Patenting software would give large overseas firms the opportunity to monopolise a concept and crush smaller competitors through the legal system, he said.
New Zealand's biggest software exporter, Orion Health, also welcomed Foss' decision.
Chief executive Ian McCrae said obvious things were being patented under the current regime.
"You might see a logical enhancement to your software, but you can't do it because someone else has a patent.
"In general, software patents are counter-productive, often used obstructively and get in the way of innovation."
Matthews said a recent poll of more than 1000 Kiwi IT professionals found 94 per cent wanted to see software patents gone.
A petition launched by the industry against software patents received over 1,000 signatures in under a week, he said.
