Patent Simulation Study Indicates that Patent Protection May Not Encourage Innovation or Promote Societal Wealth

    By James DeGiulio --

A recent study published in The Columbia Science and Technology Law Review challenges the traditional view that patents foster innovation, suggesting instead that patents may harm creation of new technology, economic activity, and societal wealth ("Patents and the Regress of Useful Arts").  The study, conducted by Dr. Andrew W. Torrance (at right), Associate Professor at the University of Kansas School of Law and a Research Associate at the Biodiversity Institute at the University of Kansas, and Dr. Bill Tomlinson (below left), Assistant Professor in the Informatics Department of the Bren School of Information and Computer Sciences at the University of California-Irvine, sought to address the lack of empirical evidence to support the assumption that patents do actually encourage technological innovation.  The results of the study challenge the orthodox view that the prospect of patent protection for new inventions leads to higher rates of technological innovation, as well as greater attendant benefits to society, than would a commons system offering no patent protection.

To test the hypothesis that a patent system promotes innovation, the study used a computer program to simulate the behavior of inventors and competitors under conditions approximating patent and non-patent systems.  PatentSim, the computer program used, is a multi-user interactive simulation of patent, patent/open source, and commons systems.  Inventions are created from a database of potential innovations, represented by an assortment and pattern of a fictional widget product.  The program attempts to represent the systematic, experimental nature of the process of invention by creating a set of values in which certain innovations are very valuable, but difficult to invent.  PatentSim contains an interactive interface that allows users to invent, patent, or open source innovations, and a network over which users may interact with one another to license, assign, buy, infringe, and enforce patents.  The program measures individual and societal benefits by offering money incentives for such activities as invention, licensing, and infringement.

First year law students at University of Kansas School of Law competitively played PatentSim against one another in games under three distinct systems:  (1) a system approximating a pure patent system ("Pure Patent"), (2) a system allowing both patents and open source ("Patent/Open"), and (3) a system approximating a pure commons system ("Pure Commons").  Before the simulation began, all players were informed that they will be playing a simulated business game, and that the goal is to make as much money as possible before the game is over.  They are told that the game will conclude at a time randomly chosen between 25 and 35 minutes after they begin.  Following the conclusion of the simulations, data was generated that compared rates of innovation, productivity, and social utility across these three systems.

Innovation was defined as the mean number of unique inventions.  Graph 1 (below) illustrates the relative amounts of innovation generated in the Pure Patent, Patent/Open Source, and Pure Commons systems.  The data reveal that there is no significant difference in innovation (p=0.538) between the Pure Patent and Patent/Open Source systems, a nearly significant difference in innovation (p=0.128) between the Pure Patent and Pure Commons systems, and a significant difference in innovation (p=0.046) between the Patent/Open Source and Pure Commons systems.

Productivity was defined as the mean number of total inventions created.  Graph 2 (below) illustrates the relative amounts of productivity generated in the Pure Patent, Patent/Open Source, and Pure Commons Systems.  The data reveal that there is no significant difference in innovation (p=0.886) between the Pure Patent and Patent/Open Source systems, a highly significant difference in productivity (p=0.0000000004) between the Pure Patent and Pure Commons systems, and a highly significant difference in productivity (p=0.000003) between the Patent/Open Source and Pure Commons systems.

Social Utility was defined as the mean amount of money with which each subject ended each trial.  Graph 3 (below) illustrates the relative amounts of social utility generated in the Pure Patent, Patent/Open Source, and Pure Commons systems.  The data reveal that there is no significant difference in social utility (p=0.454) between the Pure Patent and Patent/Open Source systems, a highly significant difference in social utility (p=0.0002) between the Pure Patent and Pure Commons systems, and a significant difference in social utility (p=0.0006) between the Patent/Open Source and Pure Commons systems.

Data generated from this simulation suggest that the current system combining patent and open source protection for inventions generates significantly lower rates of innovation (p<0.05), productivity (p<0.001), and societal utility (p<0.002) than does a commons system.  Further, the empirical data generated using PatentSim suggests that commons systems can generate significantly greater amounts of innovation, productivity, and social utility than currently predominating patent systems that combine both patent and open source protection for inventions.

Additional information regarding the study can be found in a press release issued by the University of California-Irvine.

James DeGiulio has a doctorate in molecular biology and genetics from Northwestern University and is a third-year law student at the Northwestern University School of Law.  Dr. DeGiulio was a member of MBHB's 2009 class of summer associates, and he can be contacted at [email protected].

Comments

[Kevin E. Noonan]

It is well to remember the Supreme Court's view of the effects of patents on innovation in Diamond v. Chakrabarty:

"The grant or denial of patents on micro-organisms is not likely to put an end to genetic research or to its attendant risks. The large amount of research that has already occurred when no researcher had sure knowledge that patent protection would be available suggests that legislative or judicial fiat as to patentability will not deter the scientific mind from probing into the unknown any more than Canute could command the tides. Whether respondent's claims are patentable may determine whether research efforts are accelerated by the hope of reward or slowed by want of incentives, but that is all."

The professors ask the wrong question. Patents are not intended to promote innovation - that will happen with or without patents, although the speed with which it happens will be influenced by whether investment is available to bring inventions to market. Patents are intended to promote disclosure, something that may not be a problem if you invent a plow, but becomes more of a problem for a gene, or a diagnostic test, or a pharmaceutical or natural product drug.

Patents are not a problem for innovation (and a computer simulation isn't reality).

[Bob Lelkes]

Does anyone know whether PatSim simulates private investment in technology to bring the technology to market? In particular, does the nonpatent scenario require a player to invest in the technology to commercialize it prior to entering the market while allowing other players to immediately use the invention to make money?
Does the nonpatent scenario allow the inventor to maintain the invention as a trade secret? If so, what is the basis for further innovation?
Can we invite the authors of this study to respond to these questions?

[Skeptical]

Is this PatentSim version 2.0, or is this related to last year's computer program story which was shown to be deficient in its modeling behavior?

[Big Pharma Big Biotech]

Value of exclusivity to society differs depending on the business model and how that model interacts with society. In the biotech or pharmaceutical arena, it is apparent to most that without exclusivity, including sometimes patent exclusivity, no one would invest in drug development, and society would be worse off for it.

Drug development is not "the scientific mind probing the unknown." It is damn hard work, particularly for proteins, and intellectual curiosity would not drive it without a profit motive available through exclusivity including patents.

Completely different story in high tech, where I don't comment on application of the central thesis here.

[EG]

"a computer simulation isn't reality"

Kevin,

Couldn't agree with you more.

[Anti-commonist]

I wonder if the model allows follow-on competition or copying in the commons; it seems unlikely given the short time frame for the game. I think the model might also be improved by adding a "venture capitalist" feature where the players had to attract investments to fund production of their inventions in order to make money--not going to happen so much in a commons.

[Prior Art]

I think the study is flawed.

First year law students at University of Kansas School of Law competitively played PatentSim against one another.

A greater diversity of players is required.

[Guy Levi (Ph.D, EMTM, J.D.)]

Two points.
A. The argument favoring patents is not as old as the hills (page 132), but rather started in the 15th century when innovator craftsmen wanted exclusivity for their invention (printing machine e.g.) for a period of time which was approximately double the time it took to train an apprentice on the new technology without risking the departure of the aforementioned apprentice immediately at the end of the training period and setting up shop across the street. Essentially a technology-tethered non-compete agreement with the then city-state governor.

The evolution of the patent system from a non-compete agreement, for a craftsman in a city-state for 7 years; to the current 20 years worldwide monopoly of predominantly multinational corporations behemoth notwithstanding; the basic economical incentives remain the same. Investment protection and reimbursement. NB: NOT INNOVATION PROMOTION

Which brings us to the second (short) point:

B. It is a well known fact in experimental economics (let's face it, this is what this is), that behavior of the participants when they KNOW they are in a simulation situation (as in here, where there are no ACTUAL out-of-pocket expenses) does not necessarily reflect the real behavior under normal circumstances, especially when it directly contradicts (as in here) observed behavior.

Extreme caution should be exercised when interpreting the results of this very intrguing experiment.

[6]

You should have led off like D did on a recent post and said "No suprise:" right before you posted the title to this post.

It's pretty self-evident at this point that, at most, patents promote us paying people to make us technology. It is, in a way, a very very very indirect "technology" tax.

The thing is, they don't harm the creation of all new tech. They really spur the high-dollar items. Like your pharma drugs and huge industry machines. The rest of the stuff is probably hampered a bit.

Incidentally, when the patent act was enacted it was well-known that it applied to the USEFUL ARTS, which, at the time, were the high-dollar manufacturing processes/machines. Funny how those things seem to coincide with the things that patents promote.

"Patents are not a problem for innovation (and a computer simulation isn't reality)."

No, not a problem for innovation, but they are a problem for bringing that to market. Just look at me, I'd love to start a company in my field, but looking around it's hilarious how primitive the tools would be that I would have to use to avoid stepping on patents. These tools were made shortly after I was BORN.

But I agree with you about disclosure. Thing is, how many people in the "public" need that knowledge? I'm just not so sure anymore. Especially considering companies will do their best to keep everything a trade secret if they think it is possible.

"A. The argument favoring patents is not as old as the hills (page 132), but rather started in the 15th century when innovator craftsmen wanted exclusivity for their invention (printing machine e.g.) for a period of time which was approximately double the time it took to train an apprentice on the new technology without risking the departure of the aforementioned apprentice immediately at the end of the training period and setting up shop across the street."

See that makes sense and I can buy into that.

"especially when it directly contradicts (as in here) observed behavior."

Where do you observe this data?

[not on board]

it looks like there is no cost to innovation in this game (other than the player's time) unless a player decides to patent. is that right? if it is, the game misses a central purpose of patent systems which is to subsidize the inherent costs of research and development.

i would like to be able to play the game. based on the description, it looks rigged to me.

[Allison Williams Dobson]

Well put, Kevin and others.

Who is going to finance the biotech industry if the ACLU and SACGHS have their way? Even if there are investors willing to gamble on the strength of trade secret protection, do we want everyone keeping secrets about their latest and greatest biotechnology? I don't think so.

Does anyone think Cetus would have come forward with the details of PCR if patents had not been available? We could make a laundry list of important biotech disclosures that would not have happened under a trade secret regime.

Reverse engineering would have eventually allowed outsiders to figure out the secrets, but someone has to (wastefully) invest heavily in that endeavor, too.

Can PatentSim model those consequences, please?

[GL]

"especially when it directly contradicts (as in here) observed behavior."

Q. Where do you observe this data?

A. All around. Just look at the rate of new products brought to market before and after the Bayh-Dole act. And that is just the beginning. The data is there.

[6]

GL, iirc Bayh-Dole came after we already had a plenty of patents in force. Just because Bayh-Dole allieviated some of the backwards effects of the patent system then in effect you would have me believe that such a thing is "observed behavior" that flies in the face of the behavior observed in the game?

Sir, please. Bayh-Dole reinforces what we see in the game. That patents without special provisions like Bayh-Dole are pretty bad. And with such provisions patents are only less bad.

The bottom line is that patents were created for a specific reason and that was to promote the useful arts. And the useful arts are expensive endeavors that industry undertakes, not your everyday joe shmoe bs. Early court decisions even confirm this when they speak of patents not being intended for every new little trinket and doodad. But somewhere along the way we started interpreting "invention" to mean "anything" and "useful arts" to mean "anything".

It's a shame. There's a chance the USSC will come close to setting this somewhat aright in Bilski.

In any event, by the time I'm you guy's age, patents will no longer resemble the mess we have now.

[Noise above Law]

context 6 context - I am sure that you are NOT aware that the trinket and doodad court quote you love so much was put forth by the most venomous anti-patent judge our country has ever seen and that the 1952 Act was specifically crafted in some substantial part to counteract the legacy of your favorite source.

btw - you are wrong yet again about Bayh-Dole. "patents are only less bad" is a clear indicator of your anti-patent bias.

I can only imagine that you are a masochist to post so frequently and so incorrectly. Your famoosity is legendary (not a good thing 6).

[6]

"I am sure that you are NOT aware that the trinket and doodad court quote you love so much was put forth by the most venomous anti-patent judge our country has ever seen and that the 1952 Act was specifically crafted in some substantial part to counteract the legacy of your favorite source."

No Actually I'm very aware of that. I believe you've probably already told me that yourself.

"anti-patent bias."

Patent-purist bias if you will please.

Don't be jealous that I was nominated for the fed circ before you were. If it'll make you happy I'll nominate you (the special child in our little class).

[Noise above Law]

'Patent-purist bias" from the judge who earned the phrase "the only valid patent is one I haven't seen yet".

I am just not surprised by your comment. Of course, that only means that it is wrong and twisted - more 6 famoosity.

[6]

"from the judge"

I'm not a judge yet Noise.

[Noise above Law]

even worse then, 6 - the purity of your famoosity could only aspire to the bias and hatred of your idol.

With the given ease of dispatch of your positions (often with the very rope you provide), you simply do not deserve a label including the word "patent" in it.

[6]

Wut? You're going even further off your rocker than normal Noise.

[GGF]

Quick, someone patent the improvements to the technology they used for the study and stop this inane 'research'.

The people designing the software don't quite get the patent system or the drivers of it.

[Nogento]

I manage a few dozen patents and I agree that innovation (in research universities and research institutions) will continue without patents, however it would not continue in companies without patents - and companies do a lot of valuable research that the public bodies can't afford to do. Much of this is shared with the public research bodies. In a world of no patents there would be a huge incentive not to disclose and the pace of development would slow as so much research would be kept secret.
Let's face it even with the the patent system a lot of knowledge is kept in-house by companies seeking to lock up their sector - and some patent disclosures are barely sufficient to be described as adequate disclosure to enable replication of the invention. So we need patents to assist the disclosure process.
And yes, having undergrad students pretend to be researchers at no cost is not exactly a reflection of reality.
In reality (at least in Europe) people choose to opt out of the patent system everyday when they choose to publish patentable work rather than to patent it.
And of course the non-patent and post-patent generic markets do make a lot of money.
However if I am a biotech company why would I choose not to patent and not protect my investment?