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The Power Of Patents
For two hundred years the United States patent system has defined what is an invention and protected, enriched, and befuddled inventors. As a tool of corporate growth in a global economy, it is now more important than ever.
September/October 1990 | Volume 41, Issue 6
Far more stringent pooling was practiced in the electrical and communications industries, with whose affairs, by no coincidence, Edwin Prindle was long involved. Besides controlling a tremendous number of patents themselves, the two biggest concerns, AT&T and General Electric, became aware around the time of World War I that they could use their patent holdings to, in effect, divide the world between them. In a series of pacts in the early 1920s involving exchanges of key patents, they set up what amounted to spheres of influence. AT&T was given control of all transmission devices and arrangements, wired or wireless; GE spun off a new company, the Radio Corporation of America, that delved into the new field of radio broadcasting, while GE reserved for itself most related fields like light bulbs and electrical appliances. The deal also gave certain subsidiary rights to other large concerns like Westinghouse, Western Electric, and British Marconi, providing each with what amounted to worldwide sway in their various fields. The gigantic apparatus was known informally as the Radio Patent Pool.
The international aspect of patents was somewhat different in the chemical industry during that era. Before World War I the acknowledged leader in the coal-tar dyestuff industry was Germany, whose major companies held U.S. patents on all the important new chemicals. During the war, however, the U.S. government, in order to bolster American companies producing organic-based explosives, seized all the German patents in this country and distributed them among the largest domestic concerns. Du Pont alone received licenses on some three hundred German patents. The setback to Germany, even in defeat, was short-lived, though, and by the 1930s its chemical industry was once again formidably strong. The response of American companies this time was to enter into international cartels, in which patents were shared with foreign concerns in return for pledges not to invade each other’s territories. One such alliance was effected before World War II between Standard Oil of New Jersey (today’s Exxon) and Germany’s I. G. Farben; it permitted Standard Oil to hold sway over the petroleum industry while Farben dominated the chemical.
Selden’s patent on the automobile offered the chance to exact tribute from an entire industry.
All such agreements were (and are) without a doubt quasi-monopolistic and have repeatedly come under antitrust scrutiny. The 1914 Clayton Antitrust Act, in fact, was a direct response to the monopoly exercised by the United Shoe Machinery Company. During the 1920s and into the 1930s, the U.S. government tended to be lenient toward such combinations; but many restrictions were imposed by New Deal legislation, and even more followed World War IL Still, in one form or another agreements based on patent control persist today. And industry’s efforts to enforce such agreements have led to the use of strong-arm tactics, at least in the past. An official of the Owens-Illinois glass company was once reported to have remarked to a small manufacturer of melting and annealing equipment that it wished to control, “If you don’t go in with us on this thing, we will enter suit against you and we will continue to sue you until you are out of business.”
A few notable companies, it must be admitted, have avoided problems of this kind by deliberately ignoring the patent system and relying on secrecy to protect their product. Much the best known is the Coca-Cola Company, which has never patented its familiar drink. It has not had to, for no one outside the company has ever been able to learn Coke’s secret formula.
Another class of companies that ignore the patent system is made up of those whose innovations are necessarily short-lived. In many rapidly evolving technical fields, for example, an invention is likely to be outmoded before a patent on it can be obtained. As the president of a company in the electronic instrumentation field noted, all his products would be superseded in five years. “Why,” he asked, “should I spend money on patents?”
In any event, it has become extremely difficult for the individual inventor to fight the system. Cases abound of inventors who were ruined by the unrelenting pressure and expense of litigation. Lee de Forest, renowned for his inventions in radio, found himself pushed into bankruptcy by the cost of infringement suits. Another radio pioneer, Edwin Armstrong, who introduced frequency-modulation (FM) radio to the world, became so distraught by his bitter court battle against RCA that he killed himself. Certainly a good proportion of such loners feel that their independence, while perilous, is essential. In the words of the inventor of the critically important three-phase motor, Nikola Tesla, “Invention is predominantly individualistic. Everything of prime moment comes from some individual unconnected with any commercial organization—from the lone worker who follows the fleeting inspiration of a moment and finally does something that has not been done before.”