Eric Schiff analyzes two countries, widely known for their sophisticated industrial development, that are unique in having had no national patent protection for appreciable periods in their recent history.
Originally published in 1971.
The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.
Read an Excerpt
Industrialization without National Patents
The Netherlands, 1869-1912 Switzerland, 1850-1907
By Eric Schiff
PRINCETON UNIVERSITY PRESSCopyright © 1971 Princeton University Press
All rights reserved.
In decades gone by, advocates of the patent system have relied on a variety of arguments. More recently, one argument has come to overshadow all others: the proposition that patents, by stimulating invention and innovation, promote industrial growth and thus contribute decisively to general well-being.
"Property rights" of the inventor on his invention are still being talked about, but usually in the framework of the idea that in the public interest it is good policy to grant the inventor a privilege that can be thought of as a property right. The old doctrine that an invention gives its originator a natural property right fully analogous to ownership rights on physical property is virtually dead in learned circles. The "contract theory," according to which the patent grant represents a compensation that the community owes the inventor in return for disclosing the invention, is not often invoked nowadays. This is partly so because, in many instances, it is highly doubtful whether the new device could have been kept secret in any case. Prompt disclosure of inventions is still being mentioned as one of the merits of the patent system, but the emphasis is now usually on the advantage accruing to the community (by the rapid dissemination of the knowledge that the new device exists), rather than on any give-and-take aspect. Likewise, one still encounters the reasoning that the temporary patent monopoly is justified as a reward for the effort and outlay spent by the inventor or his financial sponsor on the research and development that led to the invention. But here, too, the viewpoint under which the reward is felt to be necessary is not so much the desirability of being fair to particular individuals, but rather the desirability of providing an incentive to special activities that will eventually result in a more rapid rate of industrial progress, and thus in a more rapid rise of general economic well-being.
Thus, the causal connection between the existence of a patent system and the pace of industrialization is at the heart of most of the recent discussions on the merits and shortcomings of the system. In many quarters, this causal connection is believed to be a matter beyond doubt and dispute. In the present study, it will be regarded as a question that still deserves further examination, and an attempt will be made to contribute to the topic by an approach that does not seem to have been sufficiently explored so far.
Patents and the Pace of Industrial Development
Essentially, the approach to be used is historical and empirical. Before outlining that approach, it may be useful to say a few words about how far we can get in this area by theoretical reasoning. The basic theorem at issue is the belief that the prospect of obtaining a temporary monopoly on the use of an industrially or commercially usable new device accelerates the pace of progress in industry by stimulating both invention, the production of new technology, and innovation, the introduction of the new technology into industrial or commercial practice. Let us assume, for the sake of argument, that the prospect of patenting new products or processes will normally result in a broader stream of inventions than would be forthcoming in the absence of this prospect. This is only part of the answer to our question, for the number of new products or processes currently emerging is only one of the factors that determine the pace of industrial development. The pace is also affected by what we may call the overall or average lag between invention and innovation, that is, between the birth of the new devices and their use in industry or trade.
When a new product or process has just been invented, there is usually still a good deal of uncertainty as to whether its use will pay, especially if the innovation calls for extensive and expensive rearrangements in an existing plant, or for building an entirely new one. The hesitation of businessmen to introduce the new device may be overcome soon, or late, or never; many inventions "die" without ever finding their way into industrial or commercial use. The temporary monopoly that a patent or exclusive license grants the user of an invention raises the gross revenue he can derive from its use, and this may convince a businessman or a corporation management to go ahead with the innovation. Assuming that this is the case, should we infer that the patent system accelerates the spread of technological progress in industry and that it shortens the overall or average lag between invention and innovation?
That still depends on another assumption, namely, on our assumption as to what would happen in the absence of the patent system. If we assume that without the prospect of a patent monopoly on the innovation, nobody would be willing to accept the risks of the new venture, the answer to our question is yes; the patent monopoly, by inducing someone to go ahead, shortens the lag between invention and innovation from infinity to something finite. But if we assume that even without the chance of obtaining a patent, some people would be willing to embark upon the new venture, then, except for the case of an invention that could be kept secret for a long time, the answer is no. Then the lag is obviously longer under a system where the use of the invention is temporarily reserved to one or a few innovators than under a system where everybody is free to use it as soon as it becomes known. With such freedom, the lag, at least under competitive conditions, may in fact be quite short. Once an innovation has proved its commercial value in the enterprise that introduced it, the knowledge that there is profit in it spreads swiftly, and if the innovation is not covered by a patent, many competitors will soon follow suit.
The matter is further complicated by still other factors. One is the question of secrecy, just touched upon. In the case of a patented invention that, in the absence of the patent, could be kept secret for some length of time, the disclosure, generally required by modern patent laws as a condition for granting the patent, may have some importance. It at least helps to disseminate the knowledge that the new technology exists, and the disclosed specifications, while not themselves open to general use during the term of the patent, may convey to some persons ideas for devising variants that serve a similar purpose and can be used without infringing any existing patent. In this way the patent system, via the disclosure requirement, may contribute to a shortening of the lag between invention and innovation. On the other hand, we must remember the cases of nonuse, or long postponed use, of patented inventions, the use of which, in the absence of the patents, would have spread quickly.
What Type of Approach Is Promising?
While this discussion has covered only a tiny segment of the economic theory of patents, it should suffice to show that the question of the overall impact of the patent system on the rate of progress in industry cannot be settled by purely theoretical reasoning. Here as always, theory is valuable, nay indispensable, as the intellectual tool that brings the essence and meaning of the problem fully into the open. It tells us what factors are involved and how they operate. In the present instance it tells us that some of the factors involved work in opposite directions, and that the direction in which some of them operate, depends on which of two opposite assumptions, both of them intrinsically plausible, we choose to make with respect to certain extraneous conditions, such as the presence or absence of the willingness to risk untried ventures without the prospect of a temporary monopoly.
When this is the situation, theoretical considerations cannot help us proceed much further. What the final effect of the complex and partly conflicting influences is likely to be, cannot be ascertained by a priori reasoning or dogmatic assertion. Only empirical evidence can give us any further clues.
It would be most desirable to find such empirical evidence in present-day conditions and developments. Here, however, the analyst is handicapped by a difficulty that can hardly be overcome in a fully satisfactory way: the present ubiquity of the patent system. Since all industrialized nations now have patent systems, there is no empirical information as to how things would go in the absence of a system, and without such information all reasoning as to how much or how little the system accomplishes is to some extent hypothetical and conjectural. Thus, when we want to get an idea of the degree to which the patent system stimulates organized research and development, about all we can do is to ask corporation managers or directors whether, and if so, by how much, they think they would reduce expenditures on laboratories and other research facilities if there were no prospect of patenting inventions. Responses to such questions have been far from unanimous, 4 but even if they had been, their value would suffer from the inherent and inevitable inconclusiveness of a hypothetical answer to a hypothetical question. We will therefore turn to economic history as a possible source of empirical evidence.
How the Historical Record Has Sometimes Been Summarized
Before asking what is the best way to tap this source, let us listen to a number of statements which, explicitly or by clear implication, purport to summarize the verdict of history on our main problem. They all read the same verdict into the historical record; this very unanimity, and the sweeping language used in most of the statements, should help to justify research attempts on the part of those who think that there are sound reasons for "reopening the case." The analysis presented in the subsequent chapters is such an attempt. In this sense, the statements quoted below provide an appropriate background for the survey that will follow.
First, a voice from England:
"The Patent Law was our invention, and it gave us the first place among nations in industry for over 200 years."
Next, a testimony from a Canadian:
"If patent property is limited or destroyed, the world will be a poorer place, for industrial and intellectual property monopolies are the lifeblood of rational endeavor."
"It was ... not by accident that the patent system had its origin in England, nor that the industrial revolution was the inevitable sequence."
"The dross of abuse and impropriety in the monopoly system had to be refined in the furnace of experience before the gold of the present patent system emerged to take its place as the greatest contributory factor to modern industrial progress."
"It is only when they are so scrutinized [on a historical basis] that the true facts emerge, and that monopolies by patents ... are seen to be one of the greatest assets to the development of civilization yet devised by the mind of man."
"... whatever its failures and shortcomings, it [the patent system] has been one of the greatest of all those elements which have contributed toward the expansion of industry and the development of science and the useful arts."
Here are various statements from works published in the United States:
"The strongest evidence of the value of the American patent system is our industrial economy, which has been built largely upon a groundwork of patented inventions."
"It is a matter for national thanksgiving that we had available a vast storehouse of knowledge, as represented by that 2,275,079 patents granted prior to Pearl Harbor. ... The aforementioned 2,275,079 patents have been one of the prime factors in shaping American industrial life."
"The fact remains that since the enactment of our organic patent law in 1836 we have grown from an agricultural country to the mightiest industrial nation on earth. The enormous strides made in a material sense are largely due to our patent system."
"... the overall result [of the protection of inventions under the American patent system] has been a major factor in the emergence of a small struggling nation to the most prosperous country on earth."
"It was the U.S. patent system as a whole which helped in the war by developing the habit of ingenuity and by building up the huge industrial machine which enabled our country to survive. ... It is significant that the three countries which had the best-developed patent systems in the world — America, Great Britain, and Germany — turned out to be the most formidable in waging war."
"The defence of the democratic world depends largely on American industry, which owes its present strength in large part to traditional American patent policy."
"The Patent System is the foundation of American enterprise.
"It has ... contributed to the achievement of the highest standard of living that any nation has ever enjoyed."
"We believe our patent system has played a vital role in the industrial development of our country and that this has been true for many other countries as well."
A spokesman of the Philippines:
"As a tool of government policy, it [the patent system] is vital to the orderly enhancement of the overall growth process of the country."
A German author, widely recognized in his days as an authority on public law:
"... the countries whose industries take foremost place, also rank highest in patent policy."
"It is self-evident, then, that the patent is a tremendously effective instrument for promoting ... industrial progress."
"While it would be going too far to contend that the dominant position which English industry has been holding well into recent times, was due exclusively to the early development of patent policy in that country, ... patent protection has been one of the main factors.
"The spectacular success of American industry is doubtless due in large part to the manner in which patent policy has developed there, nor is it an accident that the tremendous rise of German industry occurred in the period following the first Patent Law enacted by the Reich." (Italics in original.)
"... that independent production of ideas is a matter of our national honor as well as our well-being, and that this production can flourish only if the ideas are granted protection."
Finally, a few replies to a questionnaire in which the Secretary-General of the United Nations in 1961 had asked various governments to state (among other things) their evaluation of the significance of national patent systems for the industrialization of countries that were then underdeveloped or, at any rate, recipients of foreign inventions rather than suppliers of domestic inventions to the world:
"The supply of inventions and technical know-how to under-developed countries is hindered in most of these countries by the still inadequate patent system." (Answer from the Federal Republic of Germany.)
"It is considered that the utilization of foreign inventions by Israel enterprises would, for all practical purposes, be rendered impossible in the absence of a national patent system.
"It seems that the existence of such a patent system since 1924 has made it possible both to build up industries utilizing contemporary technical knowledge protected by patents and secret know-how, and to protect the fruits of research carried on by local industry and its research industries." (Answer from Israel.)
Some of the statements quoted refer to the patent system in general terms, praising it as one of the great achievements of human ingenuity. But they clearly imply, and the rest of the quoted opinions explicitly emphasize, something more specific, namely, that for a nation wishing to develop its industry it is vital to have a national patent system, regardless of whether the citizens or residents of the country can obtain patent protection in other countries. What made the authors of these and many similar statements so sure about this?
Excerpted from Industrialization without National Patents by Eric Schiff. Copyright © 1971 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
- Frontmatter, pg. i
- Contents, pg. v
- Preface, pg. ix
- 1. Introduction, pg. 1
- 2. Historical Background, pg. 19
- 3. Industrial Development in the Netherlands, 1870-1914, pg. 25
- 4. Inventive Activity Before and After 1912, pg. 42
- 5. Two Dutch Industries During the Patentless Period, pg. 52
- 6. Discussions Preceding the Reintroduction of a Patent System, pg. 69
- 7. Historical Background, pg. 85
- 8. Industrialization in Switzerland During the Patentless Era, pg. 96
- 9. Inventions and the Patent Problem, pg. 107
- 10. Concluding Observations, pg. 121
- Appendix: Derivation of the Data Underlying Figures 1 to 5, pg. 127
- Index, pg. 131