Saturday, December 06, 2008

Patent pools don't encourage innovation

There's been some blog discussion of Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry by Lampe and Moser. The paper is mainly about sewing machines, but the Wright Brothers come up, right at the beginning of the paper:

On the eve of the United States' entry into World War I, the American aeronautics
industry was in disarray. While the Wright Brothers owned a basic patent on airplanes,
Glenn Curtiss owned patents that were crucial for improving their design, engines and
controls (Dykman, 1962; Heller, 2008). Since the Wright Brother's patent covered any
aircraft using these improvements, they were able to block the Curtiss Company from
producing planes (Bittlingmayer, 1988). Faced with the need to purchase aircraft from
Europe for the war, Congress created a committee headed by Franklin D. Roosevelt. The
Committee recommended that the two firms form a patent pool: an arrangement in which
“two or more parties agree to pool their respective technologies and license them as a
package” (Gaule, 2006).1 The aircraft pool combined all patents that were required to
build a plane and made them available for licensing. The United States entered the war
three weeks after the formation of the pool; U.S. production soared from 83 aircraft in
1916 to 1,807 in 1917 and 11,950 in 1918 (Stubbs 2002, p. 133).

The authors omit several facts. On the eve of US entry into World War I, Wilbur Wright had been dead
for years, and Orville had sold out, so that the Wright Brothers did not own any patent. The patent pool deal was written
by Benton Crisp, who was Curtiss's lawyer. No U.S. built plane ever fought in World War I. The pool was
used by the interests of Curtiss and the owners of the Wright patent to freeze out
smaller, innovative competitors. The litigation against Curtiss, begun by the Wright Brothers,
never resumed after World War I. One point was that there was a huge surplus of airplanes.
Better information on the Wrights than in Lampe/Moser may be found in
Patent thickets and the Wright Brothers

Moving on to the authors' discussion of sewing machines-->

-->Measures of innovation-->

Our first measure of innovation consists of the total number of sewing machine
patents (Knights Mechanical Dictionary 1877, United States Patent Office, Annual
Reports 1850-1885, Figure 1). We distinguish patents owned by the four member firms
(Grover and Baker, Howe, Singer, and Wheeler and Wilson) from other patents in the
sewing machine industry (Figure 2).

Our second measure of innovation quantifies improvements in the performance of
sewing machines. We have collected these data from the Scientific American and a
variety of trade publications, including the trade cards and pamphlets, reports from
exhibitions, such as the Crystal Palace Exhibition, and business histories of the clothing
and sewing machine industries.


Patent data, especially when electronically collected, are subject to measurement
error.14 For instance, the Google Patents cannot always distinguish the 19th-century script
for letters R from B, P from F, and U from J.

-->Civil War stuff-->

Because uniforms of fallen soldiers were repaired and reused, only additional soldiers
required new uniforms. Thus, we control for annual changes in the number of Union
soldiers between 1861 and 1865; all results are robust to including both Union and
Confederate soldiers.16 Between January 1961 and May 1965, the number of soldiers in
the Union Army increased from 16,367 to 1,000,516 (Long and Long 1971, Figure 3).

After the initial boost, however, the number of annual patents declined as fast as it
had risen. By 1862, annual patents had declined below pre-pool levels, possibly because
the Civil War disrupted patent applications at a time when the sewing machine industry
had not yet benefited from the increase in demand that also resulted from the war. From
1862, the annual number of patents increased gradually up to 150 patents in 1873. Then,
patenting declined again until the pool dissolved in 1877.

Thus, patent data for the entire sewing machine industry – including both pool
members and outside suggest that patenting may in fact have discouraged innovation. To
examine these effects more closely, we first restrict our data to pool members only.


Our data, however, challenge the expectation of regulators that pools encourage
innovation. Specifically, we find that pool members patent less while the pool is active.
This result may reflect a benefit of pooling: To the extent that a pool reduces the risk of
litigation it also eases the need for strategic patents.

**Attempted post at patenthawk**

The patent pool agreement concerning aircraft in World War I was written by Benton Crisp, Curtiss's lawyer, and produced no US-built fighters actually USED in World War I. It did freeze out smaller competitors, though.

Was there any credible research that patent pools increased innovation? This seems like flogging a strawman.

***UPDATE. 20 Feb. 09

from Michael Martin. Competition over Time :

Perhaps the reason why people engage in activities that require cooperation with others is because of a perceived need to win in a competition with another group. If that were the case, then it might be in our best interest as a nation to make our groups as large and inclusive as possible, and our enemies more abstract and ideological. Maybe it's better if our war is on terror rather than terrorists, since we are prone instinctively to label other people.

This last possibility is the most intriguing to me. If competition fosters growth because it encourages people to cooperate with their clan, then at the same time it fosters conflict between clans. What we want to design is institutions that use competitions to foster growth without at the same time fomenting conflict. There are some organizations that seem to cooperate as if in conflict with another organization, but they are few and far between. The "Stage 5" organizations described in Tribal Leadership may be examples. Certain religious organizations seem also to provide examples.


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