The Power Of Patents

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George B. Selden, the son of an appeals court judge in Rochester, New York, was a bright young man who dutifully studied law at his father’s behest and in 1871 was admitted to the bar as a patent lawyer. He was also a tinkerer and was fascinated by the prospect of building a self-propelled road vehicle, something no one had achieved up to that time. By the late 1870s he had adapted an existing two-cycle gasoline engine and had fashioned a rudimentary “road-locomotive,” as he called it, combining his engine with a carriage body, clutch, and running gear to approximate what was later to become the motorcar. It was far from a workable vehicle. But on May 8, 1879, he applied for a patent on it.

Being well informed about the status of patents under consideration in Washington, Selden knew that no one else had made such an application. He was first in line. What an advantage! Surprisingly, however, he made no further improvements on his design and did little to get his vehicle manufactured. Instead, taking advantage of quirks in the patenting procedure, he succeeded in delaying for a monstrous sixteen years the actual issuance of a patent to him—all the way to November 5, 1895. (“The prince of procrastinators,” someone once dubbed him.) But while delaying it, he was also able to amend and enlarge his claim—a privilege possible in those days—until in 1895 he was the possessor of a patent covering far more than what he had built in 1879. No matter that in the intervening years a different kind of engine had been universally judged superior to the kind he used, or that Germany’s Gottlieb Daimler was by now widely acclaimed as the true inventor of the automobile, or that many other inventors had produced cars that worked well. He had the jump on everybody. And his patent would run seventeen years, until 1912.

To police it by suing existing car makers for infringement would be expensive, of course, and Selden did not have that kind of money. He bided his time, and in 1899 his patience paid off. He was approached by a group of industrialists headed by the New York financier William C. Whitney, who asked him for a license. The industrialists had banded together to manufacture electric automobiles—which for a while had seemed promising—but sales were slow and they needed a source of quick cash. Selden’s patent offered the chance to exact tribute from the entire auto industry. Selden, happy to oblige, agreed, and the deal was done. Whitney’s cohorts proceeded to demand royalties from virtually all U.S. car makers, and Selden, who would receive a percentage of each fee paid, sat back and waited for the royalty checks to arrive.

The outcry was immediate and pained. The largest automaker, Winton, refused to pay up, the Whitney forces sued, and Winton settled out of court. But the suit was expensive, and Whitney’s people decided to take another tack; they would form a trade association that would control Selden’s patent, persuade the country’s principal car makers to join it for a modest fee, and levy a big fee on all outsiders. The new group, called the Association of Licensed Auto Manufacturers (ALAM), quickly attracted most of the major companies.

One key automaker refused to go along. Henry Ford, who had been developing his own car for a decade and knew he owed nothing to Selden’s outdated concepts, and who thought patents only exploited the consumer anyway, was outraged. He realized that the ALAM could force him out of business. It must be defeated. When the ALAM sued him in 1903, he fought back.

Because of the need to take lengthy depositions in many parts of the country, and for other reasons, it was years before the case came to trial. At first several other companies joined in the defense, but gradually almost all dropped out, leaving Ford to wage the campaign virtually by himself. The legal fight was expensive for Ford—but also beneficial, as he reaped a harvest of favorable publicity from the fight against the monopoly interests. “Nothing so well advertised the Ford car and the Ford Motor Company,” he said later, “as did this suit.” Finally, in 1909, the trial was held—and the ALAM won. Ford’s associates were sickened. Ford himself was undeterred and decided to appeal. In January 1911 the appeals court reversed the decision and found for Ford. Although Selden’s patent might be valid, the court stated, Ford and others had not infringed it as they all were using a different kind of engine. The suits were dismissed. The monopoly was broken. But by then Selden had received an estimated two hundred thousand dollars for his wiles, and there was only one year left on the patent anyway.

The Selden fight, ugly as it was, did have one beneficial result: The patent laws were tightened so that no one in the future could perpetrate such a monstrosity. But patent pooling continued in the auto industry. Anxious to avoid costly legal battles after this one, the major manufacturers drew up cross-licensing agreements that in one way or another have continued to the present. Only Ford refused to play along with the new trade association, although he willingly licensed his company’s own patents to any and all takers in the industry.