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Selling Ideas: An International Perspective on Patenting and Markets for Technological Innovations, 1790–1930

Published online by Cambridge University Press:  16 May 2013

Abstract

An extensive global market in patents and innovations developed after the middle of the nineteenth century. I employ data from the United States, Britain, Germany, Canada, New South Wales, Spain, and Japan during the nineteenth and early twentieth centuries to assess the evolution of transfers in patent-property rights across these countries. The empirical analysis examines the factors that affected patterns in patent assignments and foreign patenting for these countries. It sheds further light on cross-sectional variation in foreign patenting and transfers to corporations, based on a panel data set of patent grants and assignments at issue in the United States during the Second Industrial Revolution. The results indicate that, just as inventive activity responded to incentives, the patterns of market exchange in patent rights varied in accordance with legal, economic, and institutional parameters. The analysis is consistent with the position that developing countries today might benefit from tailoring their patent institutions to individual circumstances rather than adhering to harmonized standards.

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Copyright © The President and Fellows of Harvard College 2013 

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References

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20 As late as 1920, Sir Robert Hadfield observed that “invention is discouraged by excessive fees, by inadequate preliminary search of the patent records, and by the complexity of the rules. He advocates a radical revision of the whole system after the American model, and he gives point to his suggestion by comparing the number of patents taken out in Great Britain and the United States. This suggestion, coming from a man who has taken out several hundred patents in England and abroad, is worthy of attention, but there are no indications that it is likely to be adopted,” US Bureau of Foreign and Domestic Commerce, Special Agents Series, 188–195 (1920), 50Google Scholar.

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26 Britain introduced compulsory licenses in 1883 (and strengthened them in 1919 as “licences of right”) for fear that foreign inventors might injure British industry by refusing to grant other manufacturers the right to use their patents. In 1907 patentees who manufactured abroad were required to also make the patented product in Britain.

27 For Australia, see Magee, Gary B., “Technological Development and Foreign Patenting: Evidence from Nineteenth-Century Australia,” Explorations in Economic History 36 (Oct. 1999): 344–59CrossRefGoogle Scholar.

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29 The Act of 1921 also permitted the state to revoke a patent grant on payment of appropriate compensation if it was deemed in the public interest. Medicines, food, and chemical products could not be patented, but protection could be obtained for processes relating to their manufacture.

30 See, for instance, Deardorff, Alan, “Welfare Effects of Global Patent Protection,” Economica 59 (Feb. 1992): 3551CrossRefGoogle Scholar. Deardorff attempted to assess the welfare implications of extending patent regimes from a country of innovation producers to a country of innovation consumers. He found that the welfare of the producer increased unambiguously, but the welfare of the consumer country fell, and it was possible for the net effects on global welfare to be negative overall.

31 The United States was the most prolific patenting nation in the world. Many of the major American enterprises owed their success to patents and were expanding into international markets, and the US patent system was recognized as the most successful. It is therefore not surprising that patent harmonization implied convergence towards the American model despite resistance from other nations. In 1884 the International Union for the Protection of Industrial Property was signed by Belgium, Portugal, France, Guatemala, Italy, the Netherlands, San Salvador, Serbia, Spain, and Switzerland. The United States became a member in 1887, and a significant number of developing countries followed suit. Other conferences were held in 1878, 1880, and 1883, Rome (1886), Madrid (1890–91), Brussels (1897–1900), Washington (1911), The Hague (1925), and London (1934). Ironically, because its patent laws were the most liberal towards patentees, the United States found itself with weaker bargaining abilities than nations that could make concessions by changing their provisions. This likely influenced the US tendency to use bilateral trade sanctions rather than multilateral conventions to obtain reforms in international patent policies. See Khan, Patents and Copyrights in American Economic Development; and Penrose, Economics of the International Patent System.

32 For a study of the welfare effects of harmonization in the twentieth century, showing that harmonization redistributes income toward the strongest patenting nations, see McCalman, Phillip, “Reaping What You Sow: An Empirical Analysis of International Patent Harmonization,” Journal of International Economics 55 (Oct. 2001): 161–85CrossRefGoogle Scholar.

33 For early US patents granted to foreign inventors, See Bill S. 38, 16th Congress, 1st Session, 17 Feb. 1820: “A Bill Authorizing the Secretary of State to issue letters patent to Richard Willcox”; H.R. 57, 20th Congress, 1st Session, 11 Jan. 1828, “An Act for the Relief of Simeon Broadmeadow”; “An Act for Christopher Bechtler,” “praying that letters patent may be granted him for invention of two new and useful machines for the purpose of washing gold ores, without requiring the two years' residence as is by law now required.” Approved by the President of the United States on 3 Mar. 1831, Journal of the Senate of the United States of America, 1789–1873; Anthony Hermange, an alien, residing in the city of Washington, and Paul Steenstrup, of Kongsberg, in the Kingdom of Norway, praying that letters patent for an invention may be granted, approved by President 1 May 1828. However, not all petitions were granted; see for instance, Peter Hirgoyen's petition to be able to apply for a patent for a distilling apparatus (Journal of the House of Representatives of the United States, 1817–1818, 21 Jan. 1818.Google Scholar)

34 The degree of foreign patenting in registration systems is inaccurately gauged, since patents were often taken out in the name of the foreign patent agent or representative. For instance, Daniel Treadwell noted that he obtained a patent in 1845, under the name of the US Consul in London, Thomas Aspinwall (English patent No. 10728 of 23 Dec. 1845, “For improvements in ordnance carriages; comprising apparatus for governing the recoil, and likewise for moving the piece of ordnance backwards and forwards.”)

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39 Randolph, David Meade was also the author of a Treatise on Wheel Carriages; Or, Considerations, Comments & Certain Conclusions Respecting Their Principles & Construction (Washington, DC, 1810)Google Scholar.

40 “We [E. L. Richards & Co.] have agents in all the principal foreign countries, and have every facility for giving thorough work and securing the patents in the shortest possible time. The most desirable foreign patents for American inventors to secure are those of Canada, England, France, Germany, Spain, and Belgium. These six patents secure the exclusive monopoly among about One Hundred and Fifty Millions of the most intelligent people in the world.” E. L. Richards & Co., The Inventors' Handbook.

41 See the Transactions of the Chartered Institute of Patent Agents (London, various years).

42 According to Rosenberg, Nathan, “Economic Development and the Transfer of Technology: Some Historical Perspectives,” Technology and Culture 11 (Oct. 1970): 550–75CrossRefGoogle Scholar: “physical proximity between the producer and user of machinery seems to have been indispensable in the past for reasons which we do not really understand but which seem to be rooted basically in the problem of communications.” For a contrary conclusion in the modern context, which likely owes to the marked fall in transactions costs over the past century, see Cornish, Susan L., “Product Innovation and the Spatial Dynamics of Market Intelligence: Does Proximity to Markets Matter?Economic Geography 73 (Apr. 1997): 143–65CrossRefGoogle Scholar.

43 The French dominance fell rapidly during the Second Industrial Revolution, and the foreign roster for corporate patenting during the 1820–1939 period consisted of Germany (29.7 percent), France (19.7 percent), the US (14.5 percent), and the UK (13.7 percent). See Sáiz, J. Patricio, “Why Did Corporations Patent in Spain? Some Historical Inquiries,” Universidad Autónoma de Madrid Working Papers in Economic History (Madrid, 2010)Google Scholar.

44 It might be expected that the newly established Japanese patent office would lack the materials to conduct thorough searches, especially where leading technologies were described in a foreign language. According to Thompson, W. P., Handbook of Patent Law of All Countries (London, 1920), 108Google Scholar, the Japanese patent procedures were somewhat arbitrary, and “the office are very apt to reject inventions which they consider closely resemble in appearance others known, and they frequently reject an invention as ‘publicly known’ without citing any specific proof.” In 1903, Americans accounted for 52.6 percent of foreign patent applications in Japan, followed by Britain (21.0 percent) and Germany (14.2 percent).

45 The US firm “transferred to the Japanese companies the right to apply in Japan for patented technology owned by GE in their own names; the Japanese companies could apply for and acquire a patent with themselves as the rightful claimants within Japan. In accordance with this contract, Tokyo Electric and Shibaura Engineering Works applied for, registered, and subsequently controlled GE patents in their own names” (Nishimura, Shigehiro, “International Patent Control and Transfer of Knowledge: The United States and Japan before World War II,” Business and Economic History Online 9 [2011]: 13)Google Scholar.

46 Inkster, Ian, “Intellectual Dependency and the Sources of Invention: Britain and the Australian Technological System in the Nineteenth Century,” History of Technology 12 (1990): 4064Google Scholar.

47 Nicholas, , “The Origins of Japanese Technological Modernization,” 272–91Google Scholar.

48 Khan, B. Zorina and Sokoloff, Kenneth L., “Institutions and Democratic Invention in Nineteenth-Century America,” American Economic Review 94 (May 2004): 395401CrossRefGoogle Scholar.

49 Spulber, Daniel, “The Quality of Innovation and the Extent of the Market,” Journal of International Economics 80 (Mar. 2010): 260–70CrossRefGoogle Scholar.

50 Moreover, foreign patenting was positively correlated with assignments and licensing.

51 Sáiz, J. Patricio, “Patentes, Cambio Técnico e Industrialización en la España del Siglo XIX,” Revista de Historia Económica 17 (Mar. 1999): 265302Google Scholar; Sáiz, Invención, Patentes e Innovación en la España Contemporánea.

52 Lamoreaux, Naomi R., Sokoloff, Kenneth L., and Sutthiphisal, Dhanoos, “The Reorganization of Inventive Activity in the Early Twentieth Century US,” in Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, ed. Costa, Dora L. and Lamoreaux, Naomi R. (Chicago, 2011), 235–74CrossRefGoogle Scholar.

53 The Lamoreaux and Sokoloff dataset includes patent assignments that occurred at the time the patent was granted, as well as a sample of assignments that were completed after the patent was issued. They find that over a third of US patents were assigned after issue, and approximately one quarter were never transferred. During the 1870s, inventors tended to be personally involved in the commercialization of their patented innovations, granting licenses to manufacturers in outlying regions. However, over time a division of labor occurred as invention and commercialization became separate pursuits, and specialized inventors sold off or licensed their rights to others.

54 The rights of employees to their patented inventions were gradually eroded, according to Fisk, Catherine L., “Removing the ‘Fuel of Interest’ from the ‘Fire of Genius’: Law and the Employee-Inventor, 1830–1930,” University of Chicago Law Review 65 (Autumn 1998): 1127–98CrossRefGoogle Scholar. See also Merges, Robert P., “The Law and Economics of Employee Inventions,” Harvard Journal of Law and Technology 13 (Jan. 1999): 254Google Scholar.

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56 Meyer-Thurow, Georg, “The Industrialization of Invention: A Case Study from the German Chemical Industry,” Isis 73 (Sept. 1982): 363–81CrossRefGoogle ScholarPubMed. Murmann, Johann Peter, Knowledge and Competitive Advantage: The Coevolution of Firms, Technology, and National Institutions (Cambridge, UK, 2003)CrossRefGoogle Scholar, provides an extensive study of the German chemical industry that compares the German innovation system to the experience of other countries. See also Hagen, Antje, “Patents Legislation and German FDI in the British Chemical Industry before 1914,” Business History Review 71 (Autumn 1997): 351–80CrossRefGoogle Scholar.

57 Marsh, Ulrich, “Strategies for Success: Research Organization in the German Chemical Companies until 1936,” History and Technology 12 (Jan. 1994): 2377Google Scholar. The prominent role of intellectual property in Bayer's American business strategy can be discerned from its appointment of a patent attorney, Anthony Gref, as the President of its US subsidiary.

58 For instance, 16.3 percent of French chemical patents issued in the US were assigned, as were 21.2 percent of British patents, and 33.8 percent of American patents; whereas the assignment rates for German and Swiss patents were 75.5 percent and 87.4 percent, respectively.

59 These propensities to assign property rights for patented inventions can be compared to an average rate in Germany itself of 8 percent (see Table 3). According to Burhop, Carsten, “The Transfer of Patents in Imperial Germany,” Journal of Economic History 70 (Dec. 2010): 921–39CrossRefGoogle Scholar, two-thirds of assignments in Germany were transferred to firms. See also Burhop, Carsten and Luebbers, Thorsten, “The Historical Market for Technology Licenses: Chemicals, Pharmaceuticals, and Electrical Engineering in Imperial Germany,” MPI Collective Goods Preprint, No. 2009/25 (Aug. 2009)Google Scholar.

60 These were Aktiengesellschaft fur Farben, Badische Anilin Fabrik, Bayer/Farbenfabrik Elberfeld, and Meister Lucius & Bruening (Hoechst). United States Congressional Report, H.R. No. 326, 62d Congress 2d Session, Report on Schedule A: Chemicals, Oils, and Paints (Washington, DC, 1912), 361Google Scholar.

61 Burhop, , “The Transfer of Patents in Imperial Germany,” 921–39Google Scholar, estimated that 85 percent of assignments in Germany comprised economic transactions rather than procedural transfers.

62 Steen, Kathryn, “Patents, Patriotism, and ‘Skilled in the Art’: USA v. The Chemical Foundation, Inc., 1923–1926,” Isis 92 (Mar. 2001): 91122CrossRefGoogle Scholar. See also Moser, Petra and Voena, Alessandra, “Compulsory Licensing: Evidence from the Trading-with-the Enemy Act,” American Economic Review 102 (Feb. 2012): 396427CrossRefGoogle Scholar, who contend that compulsory licensing of foreign chemical inventions increased domestic US inventions by at least 20 percent.

63 The price in the US was $1, whereas Canadians paid 15 cents.

64 Dickerson v. Tinling, 84 F. 192, 195 (1897).

65 Report on Schedule A: Chemicals, Oils, and Paints, 362.

66 Hearings before the Committee on Patents, H.R. 13679, 58th Congress (Washington, DC, 1904), 3. A noted economist of the patent system, Floyd Vaughan, also advocated altering US intellectual property laws to enable compulsory working of patented inventions (Vaughan, Floyd W., “Suppression and Non-Working of Patents, with Special Reference to the Dye and Chemical Industries,” American Economic Review 9 [Dec. 1919]: 693700Google Scholar).

67 One of the referees points out that the success of these German chemical companies in negotiating and using the US patent system to their own advantage is intriguing, since it provides a stark contrast with the example of American machine tool manufacturers. The Germans exploited the features of their own system, which allowed them to copy and ultimately compete with the superior American technology. The Americans were foiled when they tried to use the German patent system to prevent Germans from infringing on American machine tool inventions. Richter and Streb contend that the German patent office administered the rules in a discriminatory fashion that was biased against foreign inventors. See Richter, Ralf and Streb, Jochen, “Catching-Up and Falling Behind: Knowledge Spillover from American to German Machine Toolmakers,” Journal of Economic History 71 (Dec. 2011): 1006–31CrossRefGoogle Scholar.

68 Friedman, Walter A. and Jones, Geoffrey, “Business History: Time for Debate,” Business History Review 85 (Spring 2011): 18CrossRefGoogle Scholar.

69 For discussions of the role of intellectual property rights in today's developing societies, see Finger, J. Michael and Schuler, Philip, Poor People's Knowledge: Promoting Intellectual Property in Developing Countries (Washington, DC, 2004)Google Scholar; and Netanel, Neil Weinstock, ed., The Development Agenda: Global Intellectual Property and Developing Countries (Oxford, 2008)CrossRefGoogle Scholar.

70 Khan, Patents and Copyrights in American Economic Development. The evidence suggests that the “infant industry” argument might apply to intellectual property rights as well as to trade. Especially relevant is the experience of the US publishing industry prior to the recognition of international copyrights in 1891. A number of arguments can be made against outright “piracy” such as the deleterious effect on local industries, the misallocation of resources to counterfeiting, and the consequent fall in quality. However, far from being deterred by the reprinting of foreign literary and artistic works, their ready availability promoted domestic publishing output to the extent that, by the turn of the century, the balance of trade was moving in favor of the United States. At this point, self interest dictated reforms in the copyright laws although the provisions still included protection of US manufacturers and printers. See also Khan, B. Zorina and Sokoloff, Kenneth L., “Historical Perspectives on Patent Systems in Economic Development,” in The Development Agenda: Global Intellectual Property and Developing Countries, ed. Netanel, Neil Weinstock (Oxford, 2008), ch. 10Google Scholar.