The Power Of Patents

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So a whole new system of corporate patent development and control was devised by the leaders of such mighty concerns as AT&T and General Electric, aided and abetted by a number of astute patent lawyers working for them. First of all, in-house invention mills were set up. These were labs dedicated to introducing new wrinkles on the original invention so that its patent could be extended, to creating adaptations that enlarged the market for it, or even to making discoveries that enabled the corporation to grow in whole new directions. (One of the first such units was AT&T’s Bell Laboratories, whose employees have produced a formidable array of inventions, including the transistor, devised in 1947.) At the same time, a great many bright people who might otherwise have toiled in solitary penury were quite willing to trade a heroic independence for the certainty of a big company’s regular salary. Hired inventors, at the very least, no longer had to fear lawsuits; the corporation’s lawyers would shield them from the unnerving onslaughts that had bedeviled Goodyear and had even caused innumerable headaches for the incomparable Edison.

More significantly, the big companies devised all sorts of schemes to protect the patents they already owned, by getting together with other corporations to pool their respective patents, by cross-licensing, by buying up patents from those people still in their own basements so as to keep them from upsetting the market, and even by suppressing (or at least delaying) newly patented items indefinitely. The first patent pool had been set up in the mid-nineteenth century after Elias Howe, the sewing-machine inventor, attempted to collect steep royalties from rival manufacturers using his device; the rivals objected and sued him, whereupon an agreement was arrived at between Howe and his three major competitors to share their patents and to license outsiders, who would be driven from the industry if they did not pay up. Later manufacturers in many different industries were to improve on the game.

The Clausewitz of this movement was a thoughtful and highly successful patent attorney named Edwin J. Prindle, who in a number of writings and other formulations around 1906 advised industrialists how to go about rigging the system to their advantage. “Patents,” he explained, “are the best and most effective means of controlling competition,” and he had high praise for concerns like the United Shoe Machinery Company, which at that time effectively controlled the shoemaking industry by means of its several thousand closely held patents. Corporate executives should be aware, Prindle said, that if their product itself could not be patented, they might patent the machine on which it was made or the process by which it was fashioned. They should not overlook the fact that a new feature on an old machine could be patented if it resulted in a better product. And a patent on the humblest machine could bring unexpected dividends. A rather simple but securely patented machine for setting buttons on shoes, he recalled, was leased on condition that it be used only with button fasteners (not patented) made by the lessor; the revenue from the machine was minor, but sales of fasteners brought a handsome return.

Prindle saw patents as “the best and most effective means of controlling competition.”

Trade combinations—Prindle’s euphemism for patent pools—should be sought to enable a patentee to hold sway over an entire industry. “Under such combinations there can be effective agreements as to prices to be maintained, with penalties for violation of the agreement.” Such combines, he observed, “are the only valid and enforceable trade combinations that can be made in the United States.”

Prindle reserved his sternest advice for corporate managers who employed staff inventors. Such hirelings were hardly to be trusted, he said, since they were all too likely to try producing inventions of their own on company time and acquiring patents for their own private gain. So they must be persuaded to sign rigid contracts assigning to their employer all rights to whatever they came up with during their period of employment as well as immediately thereafter, lest they skip off to a rival and hand over the company’s best-laid designs. If they balked at signing, they could be brought around by being assured that all top officers of the company initialed such agreements. (Never mind that the executives might not be inventors.)

Such advice was highly valued, and Prindle enjoyed a very lucrative career. Patent lawyers, in fact, were becoming almost as important as inventors themselves in the business world, and sometimes more so. When the two skills were combined in one person, as a matter of fact, the effect could be lethal. This was demonstrated by the saga of the Selden auto patent, wherein one diabolically clever man was able to tie up a whole industry.