State of Innovation

Patents and Innovation Economics

Intellectual Property Socialism: Part I Patent Law Theory and Development to 1960

A country without a patent office and good patent laws was just a crab and couldn’t travel anyway but sideways and backwards“, Mark Twain- Connecticut Yankee in King Arthur’s Court 

            Starting in the late 1990’s patents came under attack from a number of companies, economists and intellectuals.  A rallying point for these anti-patent crusaders was the Amazon “one click” patent covering the use of a one-step system for ordering items online.  A number of competitors quickly copied Amazon’s one click ordering system.  Complaints against the Amazon “one click” patent included: it was not novel, it was obvious, it was a trivial invention, and it was easy to program such a system.  The anti-patent movement forced a number of changes to patent laws in the decade from 1999 to 2009.  These changes tend to reduce the benefits to the inventor and allow society to use other peoples’ inventions with less cost and risk.  In other words, these rules socialized the benefits of inventions but kept the cost private.[1]


Patent Theory and History

            Patents have always been an instrument of industrial policy by countries.  The first patents countries awarded were either for new inventions or as a reward for bringing new technologies to a country.[2]  The purpose of these early patents was to strengthen local industry and patents were awarded as special privileges from the Monarchy or legislature.  Countries tried other incentive systems such as annuities, cash prizes, and titles as methods to encourage technological innovation and industry.[3]  The US still uses cash prizes in the form of grants for scientific and industrial research and in the form of contests with prizes as an instrument of industrial policy.  The first modern patent system was created in the US in 1790.  A modern patent system is characterized by an examination system administered by an independent examination core that is readily accessible to all inventors – as opposed to only wealthy or politically connected inventors.  Also, such a system provides for the diffusion of knowledge.  Recent research has shown that the US patent system in 19th century met these goals.  Inventors obtaining patents in the US were from all occupations, varying economic circumstances, included men, women, and even slaves, and were dispersed geographically throughout the US.[4]

            Patents are often considered a social contract, a reward system, or a property right.[5]  The US constitution emphasizes both the industrial policy and social contract nature of patents as:

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 – Article 1, Section 8 US Constitution.

The social contract theory of patents is a trade between the inventor and society.  The inventor is given a limited term property right in exchange for disclosing how to practice their invention.  The reward system emphasizes that the inventor receives an award, such as a limited term to exclude others from using his invention.  While the property theory of patents emphasizes that, like tangible property, an inventor owns the product of his labor (physical and mental).[6]

            The US patent system was established by statute in 1790.[7]  The statute allowed an inventor to apply for a patent from the Secretary of State, Secretary of War or the Attorney General.[8]  The inventor had to provide a description of the invention, a drawing, and a model.  This information had to be sufficient for one skilled in the art to build the invention.[9]  If upon examination of the patent application the Secretary of State, Secretary of War or the Attorney General found the invention sufficiently useful and important they could issue a patent.[10]  This system was too time consuming for Secretary of State, Secretary of War and the Attorney General, so it was replaced with a registration system in 1793.[11]  However, the registration system for patents resulted in many frivolous patents, some fraud, and ultimately expensive litigation.[12]  The Patent Act of 1836 established the patent office with independent examiners.[13]  These examiners were hired based upon their skill in the technology of the inventions they examined. 

            The perceived success of the US patent system in encouraging technological development caused a number of countries to emulate the US patent system.[14]  However, in the latter half of the 19th century in Europe an abolitionist movement against patents grew.[15]  This movement argued that patents impeded competition and free trade.[16]  Holland went so far as to repeal its patent laws in 1869, however they reinstated patent rights in 1912.[17]  This anti-patent sentiment did not seem to infect the US.  However, by the 1930s antitrust concerns about patents in the US began to surface.  This backlash against patents reached its zenith with a Supreme Court judge writing “the only patent that is valid is one which this (the Supreme) Court has not yet been able to get its hands on.”[18]  The 1952 Patent Act reaffirmed the rights of inventors to obtain patents if their invention was novel and nonobvious.  The nonobvious requirement was new and appears to have been in reaction to a Supreme Court case that required “a flash of genius” in order to obtain a patent.[19]  The “flash of genius” standard was arbitrary and inventions that were the result of years of research did not fit the “flash” part of the standard.  For example, Edison’s high impedance light bulb resulted from intensive research and did not exhibit a “flash of genius”.  The general economic and technological fortunes of the US followed the attitudes towards patents.[20]  Favorable treatment of patents in the 19th century coincided with the US advance from a minor economic player into the world’s greatest industrial economy.  While, anti-patent attitudes that prevailed in 1930’s corresponded with the great depression.  The anti-patent rulings of the Supreme Court in the 1940’s gave way to a more favorable legislation towards patents encompassed in the 1952 patent legislation.  This more favorable atmosphere for patents seemed to hold through the 1950s and most of the 1960s and corresponded to strong economic and technological growth. 


[1] Note that the US has tried the opposite of socializing the costs, but keeping the returns private.  For instance, the US K-12 educational system is tax funded but the student keeps the returns on their education.  Another example is the recent (2008) banking scandals where any profits were kept by private investors and any losses were born by the taxpayer. 

[2] Khan, Sorina B., “An Economic History of Patent Institutions”,, p. 1.

[3] Ibid, p. 4.

[4] Khan, Sorina B., The Democratization of Invention: Patents and copyrights in American Economic Development, 1790-1920, Cambrdge  University Press, 2005, pp. 9-10.

[5] Denicolo`, Vincenzo and Franzoni, Luigi Alberto, “The Contract Theory of Patents”, Societa Italiana di Economia Pubblica, 2003, p. 1.

[6] Mossoff, Adam, “Rethinking the Development of Patents: An Intellectual History, 1550-1800”, Hastings Law Journal, Vol. 52, p. 1313.

[7] Warshofsky, Fred, “The Patent Wars: The Battle to Own the World’s Technology”, John Wiley & Sons Inc., 1994, p. 38.

[8] Ibid pp. 38-39.

[9] Ibid p. 39.

[10] Ibid p. 39.

[11] Ibid p. 47.

[12] Ibid p. 48.

[13] Ibid p. 48.

[14] Khan, Sorina B., “An Economic History of Patent Institutions”,, pp. 2, 9 & 15.

[15] Ibid p. 8.

[16] Ibid p. 8.

[17] Ibid p. 8.

[18] Dissent by Jackson J. in Jungerson v. Ostby and Barton Co. 335 US 560, 80 USPQ 32 (1948).

[19] Cuno Engineering v. Automatic Devices Corp, 314 U.S. 84, 51 USPQ 272.

[20] No attempt is being made for a rigorous correlation between patent attitudes and economic performance.  This is because policies often lag attitudes and the effect of policies is not immediately reflected in the economy.  In addition, a number of other variables confuse any analysis, such as the US was the only industrial country whose production facilities were essentially left intact after WWII and this contributed significantly to the US economy in the 1940s.  Despite this, there is clearly a general correlation between general patent attitudes in the country and its economic and technological performance.

May 15, 2009 - Posted by dbhalling | -Economics, -Law, Innovation, Patents | | 4 Comments


  1. You acknowledge that no title to the intellectual property in the Product is transferred to you. Online Banking

    Comment by Online Banking | May 16, 2009 | Reply

    • Online Banking: If I understand your comment, you are correct that purchasing a product protected by intellectual property does not trasfer the intellectual property to the purchaser. For instance, if you buy a book you do not obtain the copyrights in the book. You do own the book, which is personal property, and may dispose of it as you like.

      Comment by dbhalling | May 18, 2009 | Reply

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