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Innovation, Jobs, and Patents: A Historical Perspective on US Patent Reform

bridges vol. 30, July 2011 / Feature Article

By W. Bernard Carlson

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As the Obama Administration and the US Congress confront the current economic recession, patent reform has come to be a hot topic.  At first glance, this may seem surprising, since it's easy to assume that patents - the legal means by which inventors secure economic control of their creations - are an esoteric topic that concerns only patent lawyers, R&D managers, and inventors.  However, because patents play an important role in modern economies - stimulating technological creativity and creating jobs - they have long been an important issue debated by political leaders and ordinary citizens.  To understand this, let's have a quick look at the history of patents, which will allow us to put current debates about reforming the US patent system into perspective.

woodcut
Woodcut of a furnace from The Pirotechnia of Vannoccio Biringuccio; The Classic Sixteenth-
Century Treatise on Metals and Metallurgy

Patents Have Always Been about Job Creation
The idea of rewarding inventors by giving them monopoly control over their creations dates back to medieval Europe.  The word patent comes from the Latin litterae patentes, meaning an open letter.  These letters were issued by medieval monarchs in order to confer rights and privileges on different individuals, including artisans who had developed new goods or techniques.  Displaying a royal seal, the letters served as proof of those rights, for all to see.

During the Italian Renaissance, as Italian city-states vied for dominance and prestige, they frequently issued patents to artisans to attract them to their cities or to keep creative individuals from leaving.  Italian rulers were well aware that new goods or techniques - such as ways to make silk - stimulated demand and, in turn, created employment and wealth for their cities.  Venice, in particular, was anxious to protect its glass-making industry and regularly issued patents to its glassmakers.


However, as Venetian glassmakers migrated across Europe, they took the idea of patents with them and asked monarchs for monopoly privileges before settling in a particular state.  For instance, one of the earliest recorded patents was granted in 1449 by the English crown to John of Utynam for a glass-making process previously unknown in England.  In return for a monopoly for twenty years, John was required to teach his process to English artisans, thus stimulating the development of the glassmaking industry in England.

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But Who Should Get a Patent?
But from their earliest introduction, patents posed several challenging questions.  Yes, patents could be granted to someone by rulers in order to stimulate economic growth, but who should that someone be?  Should the monopoly rights go to

  • the inventor who comes up with a new idea, or
  • the innovator who does the engineering, manufacturing, and marketing needed to convert an idea into a successful product and a new business?
englebart
Douglas Englebart with first computer mouse, invented in 1963.
computer mouse
Computer mouse introduced by Apple in 1983

In early modern Europe, monarchs wrestled with this question in terms of whether to grant monopolies to the artisan who actually generated the 
new idea versus rewarding the entrepreneurs who imported the idea to their country and launched a new enterprise.  A more recent example of this dilemma is the computer mouse. As Malcolm Gladwell asked in a recent New Yorker article: Who is more important - Doug Engelbart, who invented the mouse in 1963, or Apple Computer, which solved the design and manufacturing problems so that it could begin mass-marketing the mouse in 1983?

A second, and even more vexing, question concerns not just who should get the patent but what kind of inventions should be patented. As the Austrian economist Joseph Schumpeter frequently reminded people, a dynamic economy needs two kinds of new technology in order to thrive:

  • disruptive, blockbuster inventions (such as the steam engine, airplane, or the Internet) which create new industries and change everyday life, and
  • incremental innovations (such as improvements to dustpans)  which stimulate demand and keep factories busy.


Whether issued at the whim of a monarch or carefully scrutinized by scientific experts working for a government agency, patents pose these challenges for any society that seeks economic growth by rewarding technological creativity.

As you might expect, changes in technology and politics influence how various societies respond to these challenges.  Some societies are more likely to reward innovators as opposed to inventors.  For instance, the inventor of the first steam engine, Thomas Newcomen (1663-1729) was unable to secure a patent for his revolutionary design and was forced to work with a London syndicate known as "The Proprietors of the Invention for raising Water by Fire," a group of promoters who controlled an impractical patent held by Thomas Savery.

Inventors and Innovators in the American Patent System
But to fully appreciate how technology and politics shape patent law, let's look more closely at how the American system has evolved over the last two centuries.  Sometimes the system has favored inventors and sometimes it has leaned in the direction of innovators.

Just as England and France established patent systems in the sixteenth and seventeenth centuries in order to attract creative artisans, the American colonies did so as well. In 1646, for example, the General Court of Massachusetts granted Joseph Jenks a patent for special techniques for making scythes.  Emulating the English Statute of Monopolies passed in 1624, Jenks' patent was limited to 14 years.
 

Eli Whitney's Cotton Gin
Eli Whitney's Cotton Gin

Following the American Revolution, the Founding Fathers decided that the new federal government should issue patents, and in the US Constitution, they specifically charged the new government "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."  Initially, all patent applications were examined by the Secretary of State, Thomas Jefferson, but this procedure soon proved to be too onerous, and Congress amended the law to create a simpler system.  Functioning like a "first-to-file" system (i.e., the patent went to whomever filed an application first), it was up to inventors to enforce patents by taking infringers to court.  Not surprisingly, this system frustrated individual inventors who could not afford litigation.  Eli Whitney, the inventor of the cotton gin, nearly went bankrupt suing individuals who used his cotton gin without paying royalties.

With the election of Andrew Jackson as president in 1828, however, came an opportunity to reform the patent system.  Under Jackson, Congress sought ways to help the "Common Man," and this included creating a patent system that favored ordinary Americans.  Along with low application fees, the reforms introduced in 1836 included:

  • patents were issued on the date of conception (i.e., first to invent);
  • all applications were reviewed by government examiners who determined whether the invention was new and useful;
  • inventors had to submit not just a written description but also a small model, which examiners used in the review process and which were put on display in Washington; and
  • all patents were published and copies made available in public libraries.
Patent Office
US Patent Office in 19th century
Washington, DC

To facilitate these reforms, Congress authorized the erection of a special building for the Patent Office in Washington.  For much of the nineteenth century, the Patent Office was the largest government building in the capital and a popular destination for visitors who came to study the thousands of patent models on display.

As European nations became industrialized in the nineteenth century, they took note of the developments in the American patent system and sought to create equally robust systems.  The British reformed their system in 1852, and shortly following unification, Germany established its patent system in 1877.  Unlike the Americans, however, most European patent systems chose to operate on a "first-to-file" basis.1

Back in America, the democratic patent system proved to be effective in stimulating technology.  While 10,000 patents had been issued between 1790 and 1836, Americans filed another 100,000 patent applications between 1836 and 1870.  Under this system, Alexander Graham Bell patented the telephone in 1876 and Thomas Edison patented both the phonograph (1877) and incandescent lamp (1879).

Thomas Edison
Thomas Edison with incandescent lamp, West Orange, NJ, 1890s.

But it's one thing to invent an incandescent lamp and it is entirely another matter to make such a product widely available - to do the work of innovation.  In order to mass-produce a new product like electric lamps, inventors and entrepreneurs have to create large companies that can do the necessary engineering, marketing, and manufacturing.  To protect the significant investments they had made in people and resources, large companies soon turned to patents.  By either hiring scientists to secure patents or buying them from independent inventors, large firms like General Electric in the US or Siemens in Europe could protect themselves from competitors.  Consequently, from the 1890s to the 1920s, many companies in the US and Europe set up research laboratories for the purpose of securing patents related to new and existing products.2 By the first decades of the twentieth century, the patent system generally seemed to favor large firms and innovators, rather than the inventors of disruptive new technologies.  For instance, David Sarnoff and Vladimir Zworkin at the Radio Corporation of America (RCA) were able to use the patent system in part to get around Philo T. Farnsworth and other independent inventors working on television in the 1920s and 1930s.3

George Selden's Automobile
George Selden's 1895 Automobile Patent

But just as companies could use patents to protect themselves from competition, so individuals could use patents to harass companies and force them to pay royalties on patents that appeared to cover the technology being used by the company.  For instance, George B. Selden, a patent lawyer from Rochester, New York, secured a general patent for an automobile in 1895 and then required all other automakers to pay him royalties.  Outraged, Henry Ford took Selden to court and won in 1911, thus opening the way for the American automobile industry to take off.4 Today, non-inventing patent holders such as Selden are known as "patent trolls."

It was during another economic downturn - the Great Depression of the 1930s - that Americans again considered patent reform.   Suspicious that the large corporations had used patents to accumulate too much power, President Franklin D. Roosevelt and the New Deal pursued antitrust investigations of several corporations holding large patent portfolios; AT&T, for instance, underwent scrutiny because the government became concerned that the telephone giant had squelched the development of wireless radio communications in order to protect its wired telephone network.  The pendulum swung further in favor of inventors over innovators when, in 1941, the US Supreme Court ruled that to be patentable an invention must "reveal the flash of creative genius not merely the skill of the calling."

Patents in the Information Age
Since World War II, new technologies such as computers and biotechnology have prompted the US Patent Office and courts to broaden the concept of what can be patented. Since the 1970s, efforts have been made to harmonize American patent procedures with European and Japanese practice in order to facilitate the adoption of new technologies around the world.  To coordinate the examination of patents in Europe, a number of nations banded together in 1977 to establish the European Patent Office in Munich.  This agency reviews applications but, rather than issuing a single patent, it facilitates the issuing of a bundle of national patents, thus making it easier for inventors to secure coverage across the European Union.

In the United States, both innovators and inventors have pushed hard to structure the patent system in their favor.  Innovators, for instance, have used administrative and court actions to argue that "everything under the sun" can be patented.  In 1999, Congress broadened the law so that not only devices and processes could be patented but also business methods.5

Looking Ahead to Patent Reform
Because patents are vital to inventors for launching new enterprises based on their ideas and to innovators to protect their existing businesses, various groups in the US have advocated for further changes in the patent system.  Most notably, since 2005, groups have regularly pushed Congress to change the system from "First-to-Invent" (FTI) to "First-to-File" (FTF).

Clearly, both inventors and innovators will benefit if the patenting process can be streamlined.  At the moment, it can easily take two years for a patent application to be examined and approved, and a better system would provide greater incentives to creativity.  Everyone also wins if there are fewer opportunities for patent trolls to engage in frivolous and time-consuming litigation that distracts companies and increases their operating costs.

But patent reform involves trade-offs that will affect inventors and innovators in different ways, and these tradeoffs are most clearly seen when we consider FTI versus FTF.  As we have noted, First-to-Invent has a long history in America but requires an expensive examination process. Nevertheless, it results in stronger patents that inventors can use to secure investment for startups.  Broadly speaking, FTI is more likely to prompt inventors to develop more risky, disruptive technologies.  The downside of FTI is that it can be much more expensive and difficult for inventors if they have to defend their patents in court and prove that they really were the first to come up with a new idea.

Advocates of First-to-File argue that shifting to this new system would simplify and speed up the application process, since the patent would be awarded to the individual with the earliest filing date.  FTF would help innovators, allowing them to secure patents needed to develop products, drive down costs, and gain a competitive advantage in the marketplace.  By requiring less up-front work, the new system would probably permit individuals and companies to file patents for smaller, incremental developments.  Advocates also argue that inventors with limited resources would be able to avoid the risk of expensive litigation and get legal protection of their ideas more quickly.

In my view, Americans need to ask how any changes in the patent law would reward both inventors and innovators.  For the economy to grow, it needs both the breakthroughs and incremental improvements provided by each group.  Historically, the American patent system has evolved in ways that serve the interests of both groups, and reforms need to strike a balance.  Only by so doing will the American system live up to Abraham Lincoln's vision that patents should be "the fuel of interest to the fire of genius in the discovery and production of new and useful things."


This article is based on a talk given at "Innovation, Jobs and Patents: Understanding the Connection," a Congressional Briefing organized by the American Chemical Society, June 8, 2011.

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About the Author: Dr. Carlson is a professor at the University of Virginia, with appointments in the Department of Science, Technology, and Society (School of Engineering and Applied Science) and the History Department (College of Arts and Sciences).


References:

1B. Zorina Khan, “An Economic History of Patent Institutions,” available at http://eh.net/encyclopedia/article/khan.patents (accessed July 19, 2011).

2W. Bernard Carlson, “Innovation and the Modern Corporation: From Heroic Invention to Industrial Science,” in Science in the Twentieth Century, eds. J. Krige and D. Pestre (Harwood Academic Publishers, 1997), 203-26.

3Evan I. Schwartz, The Last Lone Inventor: A Tale of Genius, Deceit, and the Birth of Television (New York: HarperCollins, 2002).

4William Greenleaf, Monopoly on Wheels: Henry Ford and the Selden Automobile Patent (Detroit: Wayne State University Press, 1961).

5Ladas & Parry LLP, “A Brief History of the Patent Law of the United States,” available at http://www.ladas.com/Patents/USPatentHistory.html (accessed July 19, 2011).

 

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