PATENTS

Societies issue patents to promote the public welfare; they encourage individuals to innovate and they guarantee a reward when useful innovations are shared with society. The first patents in the Anglo-American legal system were granted in the 16th century to encourage foreign craftsmen to migrate to England and spread their knowledge through apprenticeships.43 Thereafter, patents served more often to promote invention. If individuals would benefit the commonwealth by developing new techniques and products, the state would reward them with a temporary monopoly on the sale or exploitation of their contribution. At the heart of all patent systems, therefore, is a tension between the public good (invention) and private gain (monopoly).44

The United States is no exception. Its first patent law appears in Article I, Section 8, of the Constitution, which gives Congress the power “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.”45 Subsequent legislation, culminating in the Patent Act of 1836, established a national system of patent examination and registration. The essential features of a patent are novelty, invention, and utility.46 In practice this has meant that the patent applicant must demonstrate an unprecedented process or product that embodies concepts beyond mere technical skill. Criteria for utility are less demanding.

The inherent tension between public good and private profit remained tolerable through the nineteenth century and into the twentieth. In the 1920s and 1930s, however, this tension pitted American esteem for the individual against suspicion of corporations and the state. Inventors such as Thomas Edison were seen as quintessential American heroes; their patents were the fruits of their labors. Large corporations, however, appeared to subvert the American system and corrupt the political process. Slowly the impression dawned that corporations were abusing the patent system to control the marketplace, and that government was doing their bidding. The charges of trust and conspiracy leveled at the aircraft industry in the wake of the cross-licensing agreement and the debacle of World War I constituted but one of many public scandals that grew up in the 1920s and 1930s around large corporations in high-technology industries.47 The Nye Committee hearings of the mid-1930s, which attached the label “merchants of death” to aircraft manufacturers and other “war profiteers,” were followed in the late 1930s by hearings before the Temporary National Economic Committee, popularly known as the Monopoly Committee. This latter body repeated the widely-held belief that American prosperity was based on invention, and it noted with alarm that individuals had accounted for 72% of patents in 1921 but less than half in 1938.48

Law Professor Robert Merges believes that the American patent system fell under a darkening cloud in the 1920s and remained compromised for almost 60 years, just about the period when the cross-licensing agreement was in force.49 Though the cross-licensing agreement contributed little to the phenomenon, it nonetheless operated in this inimical environment. The height of the anti-patent movement, Merges believes, was the reformist era of the 1920s and 1930s. World War II brought some relief, and a post-war honeymoon produced a new patent act in 1952. But the anti-technology sentiment that he sees dominating American society in the 1960s and 1970s sparked a revival of anti-patent sentiment. During this half­century, the courts were less likely to hold patents valid,50 and even industry moved away from patent activity.

Merges’ periodization of American experience with patents casts the aircraft patent pool in a new light, suggesting that many of its problems were not peculiar to this industry but were rather part of a larger national ambivalence toward patents in general. Not until 1982, says Merges, when Congress passed the Federal Courts Improvement Act, creating a single federal appeals course for patent cases, did the situation improve. Patents are now more likely than previously to be held valid, money damages have risen dramatically, and injunctions against infringers are easier to win.

Whatever the politics of patents may have been in the era of the cross-licensing agreement, the still more important issue is whether or not patents worked. Did they, that is, promote invention? Were they useful? And were aircraft patents any different from patents in other industries? Were they different from industries that did not pool their patents?

Scholars disagree. Sociologist S. C. Gilfillan spent most of his adult life arguing that patents and inventions correlated poorly with each other. In 1935 he wrote that inventive activity was demonstrably increasing while the number of patents was decreasing.51 Almost thirty years later, in a book sponsored by the Joint Economic Committee of Congress, Gilfillan made the same claim, calling for reform of the patent system to return it to its original purpose of promoting invention.52

Other scholars, however, have found patent activity useful in attempting to measure the level of invention within a community. Jacob Schmookler, for example, argued that “for the pre-1940 period,… the behavior of patent statistics is consistent with what little external evidence exists as to the course of American inventive effort.”53 The basis for Schmookler’s opinion was a pair of articles he had written in the 1950s, attempting to correlate patenting and invention.54 Gilfillan singled out Schmookler for criticism in the summer 1960 issue of Technology and Culture, eliciting responses from Schmookler and I. Jordan Kunik, a patent lawyer.55 Kunik raised the novel argument that one could not expect a rise in patenting comparable to the increase in population because “proliferation of the population requires merely a marriage license” while patenting requires an idea that has never been patented before; the supply of children is endless but the supply of new inventions is, in his view, finite.56

The debate spilled over into the December 1960 meeting of the American Association for the Advancement of Science. In a panel sponsored by Section L of the AAAS, Gilfillan and Kunik were joined by experts from various fields and disciplines, most of whom viewed the patent system more favorably than Gilfillan. One panelist presented data purporting to demonstrate that in the chemical field “technology in those various disciplines stimulated by the patent system had advanced more rapidly than in those where the advantages of the patent system were either unavailable or were not broadly used.”57

This flurry of interest in the early 1960s, and the subsequent publication of Gilfillan’s Invention and the Patent System, produced little consensus. Historians of technology took up the matter again at the 1971 meeting of the Society for the History of Technology. Morgan B. Sherwood presented a paper entitled “Patent Nonsense in the History of Technology.” Employing rhetoric and some arguments reminiscent of Gilfillan, Sherwood argued that throughout American history the U. S. patent system had failed, as the panel chair put it, “to encourage technological progress, to reward inventive genius, and to benefit society.”58 The commentators all disagreed.

When the historical value of patents was again addressed in the pages of Technology and Culture, in a special issue on “Patents and Invention” in 1991, the contributors avoided the direct question of whether or not patents promote invention. Issue editor Carolyn Cooper reviewed the previous literature and cautioned that patents should not be used as a direct measure of inventive activity, though “patent records of various types can be valuable sources of information about particular inventions.”59 In sum, historians of technology and students of patent history are ambivalent about the explanatory power of patents. Most believe that patent records and statistics can be a useful source of information about technical development. At the same time, the best scholars caution against using patent activity as an index of invention. Their reticence suggests that aircraft patents may have been less closely related to aeronautical development than the friends and critics of the cross-licensing agreement believed.

Economic analysis is somewhat more positive, at least in the special category of “cumulative industries.”60 These are industries such as automobiles, aircraft, and computers in which fundamental, pioneering patents often control initial production. When they have run their course, the field experiences improvement patents, which are generally more difficult to win and less valuable to hold. Such industries may be contrasted with those based on discrete inventions, such as the safety razor and ballpoint pen, and the rarer fields of science-based technology, such as biotechnology. In the cumulative industries, the “broad basic patents” often have a blocking effect on commercial development and invite pooling, cross­licensing, or consolidation. This analysis suggests that the MAA was not an extraordinary intervention but rather a familiar response to a certain category of industrial patenting.

In spite of this strong endorsement of patent pooling in cumulative industries, the literature of pooling in general is ambivalent.61 Most authorities agree that there are good pools and bad pools. Most agree as well that the difference often turns on the openness of the pool. If pools accept new members under reasonable terms, then they are less likely to cross the line into monopolistic practice. Indeed, there is widespread agreement that pools can have important positive impact on a field or industry. For one thing, they can lower the transaction costs of individual licensing.62 A 1981 study found that transaction costs averaged more than $100,000 for the cases examined, and a 1976 investigation found that transfer costs accounted for more than 19% of total project costs in the international ventures studied.

But pools can also retard invention and competition.63 They smother competition in two ways. First, members of pools may be reluctant to purchase a patent from someone outside the pool, because to buy it is to share it; to abstain is without cost, for no other member of the pool will have it exclusively.64 Second, members of pools may be unwilling to develop new products, for they will have to share them with other members. Even though a pool such as the MAA offered a mechanism by which members could earn royalties for a patented invention, the royalty was determined by arbitration rather than by the market. In the MAA, total royalty payments in the first 16 years of the agreement amounted to $4,360,000. But $4,000,000 of this went to the Wright and Curtiss interests for their foundational patents. All the other patents combined earned a mere $360,000.65 That is small incentive for companies to invest in research and development with the intent of patenting or for outsiders to invent with expectation of selling to the major manufacturers.