This paper was presented at a colloquium entitled “Science, Technology, and the Economy,” organized by Ariel Pakes and Kenneth L.Sokoloff, held October 20–22, 1995, at the National Academy of Sciences in Irvine, CA.

Long-term change in the organization of inventive activity

NAOMI R.LAMOREAUX*AND KENNETH L.SOKOLOFF*

Departments of *Economics and History, University of California, 405 Hilgard Avenue, Los Angeles, CA 90095

ABSTRACT Relying on a quantitative analysis of the patenting and assignment behavior of inventors, we highlight the evolution of institutions that encouraged trade in technology and a growing division of labor between those who invented new technologies and those who exploited them commercially over the nineteenth and early-twentieth centuries. At the heart of this change in the organization of inventive activity was a set of familiar developments which had significant consequences for the supply and demand of inventions. On the supply side, the growing complexity and capital intensity of technology raised the amount of human and physical capital required for effective invention, making it increasingly desirable for individuals involved in this activity to specialize. On the demand side, the growing competitiveness of product markets induced firms to purchase or otherwise obtain the rights to technologies developed by others. These increasing incentives to differentiate the task of invention from that of commercializing new technologies depended for their realization upon the development of markets and other types of organizational supports for trade in technology. The evidence suggests that the necessary institutions evolved first in those regions of the country where early patenting activity had already been concentrated. A self-reinforcing process whereby high rates of inventive activity encouraged the evolution of a market for technology, which in turn encouraged greater specialization and productivity at invention as individuals found it increasingly feasible to sell and license their discoveries, appears to have been operating. This market trade in technological information was an important contributor to the achievement of a high level of specialization at invention well before the rise of large-scale research laboratories in the twentieth century.

The generation of new technological knowledge is one of the fundamental processes of economic growth. Despite its importance, however, scholars have only an incomplete understanding of how the sources of invention have changed over time with the development of technology and of the economy more generally. Although there has been recent progress in establishing basic historical patterns in the composition of patentees and in the levels of patenting over place and time, issues such as how resources were mobilized and directed to inventive activity, as well as how they were organized, have not yet been systematically investigated (15).

Two stylized models dominate thinking about the process of invention. The first, which mainly grows out of research on technology during the early nineteenth century, views the inventor as a creative individual who comes up with an idea and then extracts a return by directly applying or exploiting the invention himself (6). The second derives from study of the twentieth-century economy and portrays invention as carried out by large, in-firm research laboratories where teams of salaried employees pursue a range of activities—from basic research to the development of commercial products (7). If these models accurately reflect the eras that inspired them, their contrast raises questions as to how and why such a major transformation in the organization of inventive activity occurred during the nineteenth and early-twentieth centuries and what effect it had on the pace and direction of technological change.

This paper reports preliminary findings from our long-term program of research on these issues. Relying on a quantitative analysis of the patenting and assignment behavior of inventors, we demonstrate that a substantial trade in technological information had emerged by the end of the nineteenth century, and suggest that the evolution of institutional supports for this exchange of property rights to intellectual capital helped foster a growing division of labor between those who invented new technologies and those who exploited them commercially. At the heart of this change was a set of familiar developments which had significant consequences for the supply and demand for inventions. On the supply side, the increasing complexity and capital intensity of technology raised the amounts of human and physical capital required for effective invention, encouraging individuals involved in this activity to specialize. Moreover, although expanding markets meant higher returns for successful discoveries, they also increased the cost of marketing products and led the inventor to regard more favorably the spinning off the task of commercialization to other specialized parties. On the demand side, the growing competitiveness of product markets made it imperative for firms to stay on the technological cutting edge—in the first place, by making inventive activity a regular part of their operations, but also by obtaining the rights to technologies developed by others.

These increasing incentives to differentiate the task of invention from that of commercializing new technologies depended for their realization upon the development of markets and other types of organizational supports for trade in technology. As we show below, such institutions evolved first in areas where inventive activity was high and spread only gradually to other regions of the country. They appear to have been the product of a self-reinforcing process whereby high rates of patenting stimulated investments supporting a market in technological information, which in turn encouraged greater specialization and productivity at invention as inventors found it feasible to sell and license their discoveries. The prominence of firms in this market for technology rose substantially over the late nineteenth century, as they acquired a growing share of patents at issue, and patentees who chose to assign their patents to firms were more specialized and productive at invention than their counterparts who did not. This evidence seems to indicate that the evolution of market exchange in technology had gone far toward achieving high degrees of specialization at invention among individuals, long before firms invested in large-scale research laboratories or even developed stable employment relationships with inventors.

The publication costs of this article were defrayed in part by page charge payment. This article must therefore be hereby marked “advertisement” in accordance with 18 U.S.C. §1734 solely to indicate this fact.



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America This paper was presented at a colloquium entitled “Science, Technology, and the Economy,” organized by Ariel Pakes and Kenneth L.Sokoloff, held October 20–22, 1995, at the National Academy of Sciences in Irvine, CA. Long-term change in the organization of inventive activity NAOMI R.LAMOREAUX*† AND KENNETH L.SOKOLOFF* Departments of *Economics and †History, University of California, 405 Hilgard Avenue, Los Angeles, CA 90095 ABSTRACT Relying on a quantitative analysis of the patenting and assignment behavior of inventors, we highlight the evolution of institutions that encouraged trade in technology and a growing division of labor between those who invented new technologies and those who exploited them commercially over the nineteenth and early-twentieth centuries. At the heart of this change in the organization of inventive activity was a set of familiar developments which had significant consequences for the supply and demand of inventions. On the supply side, the growing complexity and capital intensity of technology raised the amount of human and physical capital required for effective invention, making it increasingly desirable for individuals involved in this activity to specialize. On the demand side, the growing competitiveness of product markets induced firms to purchase or otherwise obtain the rights to technologies developed by others. These increasing incentives to differentiate the task of invention from that of commercializing new technologies depended for their realization upon the development of markets and other types of organizational supports for trade in technology. The evidence suggests that the necessary institutions evolved first in those regions of the country where early patenting activity had already been concentrated. A self-reinforcing process whereby high rates of inventive activity encouraged the evolution of a market for technology, which in turn encouraged greater specialization and productivity at invention as individuals found it increasingly feasible to sell and license their discoveries, appears to have been operating. This market trade in technological information was an important contributor to the achievement of a high level of specialization at invention well before the rise of large-scale research laboratories in the twentieth century. The generation of new technological knowledge is one of the fundamental processes of economic growth. Despite its importance, however, scholars have only an incomplete understanding of how the sources of invention have changed over time with the development of technology and of the economy more generally. Although there has been recent progress in establishing basic historical patterns in the composition of patentees and in the levels of patenting over place and time, issues such as how resources were mobilized and directed to inventive activity, as well as how they were organized, have not yet been systematically investigated (1–5). Two stylized models dominate thinking about the process of invention. The first, which mainly grows out of research on technology during the early nineteenth century, views the inventor as a creative individual who comes up with an idea and then extracts a return by directly applying or exploiting the invention himself (6). The second derives from study of the twentieth-century economy and portrays invention as carried out by large, in-firm research laboratories where teams of salaried employees pursue a range of activities—from basic research to the development of commercial products (7). If these models accurately reflect the eras that inspired them, their contrast raises questions as to how and why such a major transformation in the organization of inventive activity occurred during the nineteenth and early-twentieth centuries and what effect it had on the pace and direction of technological change. This paper reports preliminary findings from our long-term program of research on these issues. Relying on a quantitative analysis of the patenting and assignment behavior of inventors, we demonstrate that a substantial trade in technological information had emerged by the end of the nineteenth century, and suggest that the evolution of institutional supports for this exchange of property rights to intellectual capital helped foster a growing division of labor between those who invented new technologies and those who exploited them commercially. At the heart of this change was a set of familiar developments which had significant consequences for the supply and demand for inventions. On the supply side, the increasing complexity and capital intensity of technology raised the amounts of human and physical capital required for effective invention, encouraging individuals involved in this activity to specialize. Moreover, although expanding markets meant higher returns for successful discoveries, they also increased the cost of marketing products and led the inventor to regard more favorably the spinning off the task of commercialization to other specialized parties. On the demand side, the growing competitiveness of product markets made it imperative for firms to stay on the technological cutting edge—in the first place, by making inventive activity a regular part of their operations, but also by obtaining the rights to technologies developed by others. These increasing incentives to differentiate the task of invention from that of commercializing new technologies depended for their realization upon the development of markets and other types of organizational supports for trade in technology. As we show below, such institutions evolved first in areas where inventive activity was high and spread only gradually to other regions of the country. They appear to have been the product of a self-reinforcing process whereby high rates of patenting stimulated investments supporting a market in technological information, which in turn encouraged greater specialization and productivity at invention as inventors found it feasible to sell and license their discoveries. The prominence of firms in this market for technology rose substantially over the late nineteenth century, as they acquired a growing share of patents at issue, and patentees who chose to assign their patents to firms were more specialized and productive at invention than their counterparts who did not. This evidence seems to indicate that the evolution of market exchange in technology had gone far toward achieving high degrees of specialization at invention among individuals, long before firms invested in large-scale research laboratories or even developed stable employment relationships with inventors. The publication costs of this article were defrayed in part by page charge payment. This article must therefore be hereby marked “advertisement” in accordance with 18 U.S.C. §1734 solely to indicate this fact.

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America The Patent System as the Basis for Trade in Technology The patent system provided the institutional framework within which a market for technology evolved. Consciously designed with the aim of encouraging more investment in inventive activity, the U.S. system granted inventors an exclusive property right to the use of their discoveries for a fixed term of years. Responsibility for enforcing these rights was left to the courts, especially before an 1836 revision in the law empowered the Patent Office to examine applications for originality, and the courts responded by quickly developing an effective set of principles that protected the property rights of patentees and also those who purchased or licensed patented technologies (8). Although one purpose of the patent system was to stimulate invention, another was to promote the diffusion of technological knowledge. The law required all patentees to provide the Patent Office with detailed specifications for their inventions (including, where appropriate, working models). The end result was a central storehouse of information about technology that was open to all who wished to exploit it. In addition, the very act of establishing secure property rights in invention promoted the diffusion of technological knowledge. With the protection offered by the patent system, inventors had an incentive to promote their discoveries as widely as possible so as to maximize the returns from their ideas, whether they commercialized them themselves or traded the rights to others. Because infringers were subject to severe penalties, moreover, firms could not risk investing in a new technology without finding out whether others already controlled the relevant property rights. They therefore had to keep well informed about technological developments in other sectors of the economy as well as geographic areas, and it is likely that technologies diffused more rapidly as a consequence and also that the resulting cross-fertilization was a potent stimulus to technological change overall. Finally, two distinctive features of the U.S. law encouraged more widespread participation in the patent system and, at the same time, trade in technological information. First, the much lower costs of obtaining a patent in the United States than in other countries meant that a larger fraction of inventions would have expected yields high enough to warrant being patented. Second, the United States was exceptional for much of the nineteenth century in reserving for the first and true inventor the right to patent an invention (9). Inventors in the United States, therefore, did not have to be as protective of their discoveries as their counterparts elsewhere; they could even risk revealing critical technological information before the award of the patent to negotiate the early sale of their invention. Although the patent system provided a legal framework conducive to trade in technology, there were nonetheless a variety of information and transactions costs that limited the market for inventions. Over the nineteenth century, however, a number of institutional and organizational changes reduced these costs, and in so doing, encouraged an expansion of trade. One of the most important was an explosion of published sources of information about patented technologies. The Patent Office itself published an annual list of patents issued, but private publications emerged early in the nineteenth century to improve upon this service. For example, Scientific American featured articles about technological developments, printed complete lists of patents issued on a weekly basis, and provided readers with copies of patent specifications for a small fee. Over time, moreover, in industry after industry specialized trade journals appeared that kept producers informed about patents of interest. Patent agents and solicitors also became important channels through which individuals and firms far from Washington could access information about and take advantage of recent discoveries. Their numbers began to mushroom in the 1840s, first in the vicinity of Washington and then in other urban centers, especially in the Northeast. Solicitors in different cities linked themselves through chains of correspondent relations not unlike those that characterized the banking system of that era. Although the original function of these solicitors was to shepherd applications for patents through the official review process and to defend previously issued patents in interference and infringement proceedings, they soon began to act as intermediaries for trade in technologies. Solicitors advertised their services in journals like Scientific American, offering to find buyers for patents on a commission basis, and we know from manuscript records of assignment contracts that it was not uncommon for inventors actually to transfer control to such agents (10). Although we are not yet able to construct a precise index of the volume of trade in patented technologies for the period before 1870, it is clear that such exchange began to take off during the middle of the nineteenth century, at the same time as these new information channels and intermediaries were developing. Not only was there a substantial increase in the number of assignments filed at the Patent Office, but a new focus on the rights of assignees and licensees is evident in the court cases of the period (8). The Growth of Trade in Patents and Specialization at Invention Inventive activity, as reflected in rates of patenting per capita, first began to increase rapidly with the beginnings of industrialization early in the nineteenth century. This initial phase of secular increase in invention was characterized by distinctive geographic patterns. In particular, the rise in patenting was concentrated in districts that were near urban centers or along navigable waterways that provided low-cost transportation to markets. These patterns, together with the pro-cylicality of patenting rates and other evidence that patenting was sensitive to demand, have led scholars to suggest that expanding markets helped induce the acceleration of invention and technological change associated with the onset of economic growth, and that differential access to these markets was an important contributor to the opening up of pronounced geographic variation in inventive activity (1, 3, 5). The responsiveness of patenting to market demand may have been related to the small scale of enterprise and the broad familiarity of the population with the relatively simple and labor-intensive technologies characteristic of the era; in such a context, the “supply” of inventions could be elastic. Indeed, studies of the careers of early inventors suggest that they were drawn from rather ordinary occupations, were far from specialized at inventive activity, and were usually involved in the commercial exploitation of their discoveries. Changes in these patterns began to be apparent about the middle of the nineteenth century, however, as the share of inventors from more technical occupations rose—paralleling the spread of mechanization and the rise in capital intensity across the manufacturing sector (4, 5, 11). Despite significant changes in technology and in the backgrounds of inventors, as well as the massive extension of product markets associated with the building of the railroads, marked geographic differentials in patenting persisted over time. As shown in Table 1 for the period from 1840 to 1910, not only did patenting rates remain lower in regions like the South and the West North Central than in the Northeast, but there were substantial differences between New England and the Middle Atlantic as well. Although the regional gaps narrowed considerably over time, most of the convergence occurred late—after 1890. Among the factors that might contribute to the persistence of such regional differences in inventive activity are institutions that have location-specific effects on the costs of contracting

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America Table 1. Annual patents received per million residents, by region, 1840–1911   1840–1849 1850–1859 1860–1869 1870–1871 1890–1891 1910–1911 New England 55.5 175.6 483.3 775.8 772.0 534.3 Middle Atlantic 51.7 129.4 332.3 563.4 607.0 488.6 East North Central 16.6 57.3 210.3 312.3 429.9 442.3 West North Central 9.5 22.9 95.4 146.5 248.7 272.0 South 5.5 15.5 26.0 85.8 103.1 114.4 West — 24.8 164.5 366.7 381.6 458.4 U.S. average 27.5 91.5 195.7 325.4 360.4 334.2 The patenting rates have been computed from the cross-sectional samples and from information in (3, 12). The regional classifications are the census classifications, except that Maryland, Delaware, and the District of Columbia are included in the Middle Atlantic for the 1840s, 1850s, and 1860s, but in the South for the later periods. over technological information. The evolution of such institutions would stimulate increases in invention by making it easier for inventors to raise capital to support their inventive activity, increasing the net returns they could expect from a given discovery, and accordingly encouraging individuals with a comparative advantage to make appropriate task-specific investments to augment their productivity at invention. Moreover, the investments necessary for the emergence of market institutions, such as patent agents, would presumably be concentrated in areas where rates of invention were already high and, therefore, the prospects for returns on trade in technology would be greatest. Since these sorts of institutions likely had a limited geographic scope during the early stages of their evolution, persistence in geographic patterns of patenting could have resulted from a self-reinforcing process whereby inventive activity stimulated the development of the institutions, which in turn promoted specialization and productivity at invention as well as attracted individuals with inventive potential to the area. We use patent records, which contain information on full and partial assignments of patent rights, to examine the outlines of the emerging market for technology. Two of the three samples of patent records we analyze in this paper are drawn from the Annual Report of the Commissioner of Patents. The first consists of three cross-sections for the years 1870–1871, 1890–1891, and 1910–1911, totalling slightly over 6600 patents. The second is a longitudinal sample that follows over their entire patenting careers all of the 562 patentees in the cross-sections whose surnames began with the letter “B” (the most common among patentees during this period). The latter data set is not yet complete, but we report here on information retrieved for just over 4200 patents from 53 of the years from 1834 to 1936. For each patent, we collected the names and addresses of both patentees and assignees. Additional relevant information, such as the characteristics of the locality in which the patentee was located and other patents awarded to the patentee, was also linked to each patent. Finally, a new sample of assignment contracts recently put in machine-readable form is the third data set we employ. The so-called Liber data set contains nearly 4600 contracts, assembled by collecting every contract filed with the Patent Office during January 1871, January 1891, or January 1911. This sample has the advantage of providing detailed information about sales or transfers of patents that were contracted after, as well as before, the date of issue. Regional estimates of the proportions of patents assigned at issue were computed from the three cross-sections and are reported in Table 2. They suggest an association between rates of patenting per capita and rates of assignment, with the paces at which New England and the Middle Atlantic states generated and traded patents far exceeding those in the rest of the country. In 1870, 26.5% and 20.6%, respectively, of the patents from those two regions were being assigned by the date they were issued, compared with 14.7% in the East North Central states and below 10% elsewhere. Though there was some convergence in proportional terms, the geographic correspondence between assignment rates and patent rates remained. Table 2. Assignment of patents at issue by region, 1870–1911   1870–1871 1890–1891 1910–1911 New England % assigned 26.5 (340) 40.8 (321) 50.0 (264) % of assignments to companies 33.3 56.5 75.0 Middle Atlantic % assigned 20.6 (645) 29.1 (669) 36.1 (710) % of assignments to companies 22.6 50.8 72.7 East North Central % assigned 14.7 (340) 27.9 (505) 32.3 (660) % of assignments to companies 12.0 47.5 68.1 West North Central % assigned 9.0 (67) 21.8 (202) 17.5 (285) % of assignments to companies 0.0 36.4 46.0 South % assigned 6.4 (140) 25.0 (216) 22.7 (322) % of assignments to companies 11.1 33.3 34.2 West % assigned 0.0 (31) 25.4 (118) 21.4 (271) % of assignments to companies — 20.0 41.4 All patents included foreign % assigned 18.5 (1,618) 29.1 (2,201) 30.5 (2,816) % of assignments to companies 23.7 47.2 64.8 The estimates were computed from the cross-sectional samples. Those assignments that were not to companies went to individuals. The numbers of observations in the respective cells are reported within parentheses.

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America Table 3. Descriptive statistics on assignments made before and after issue of patents   1870–1871 1890–1891 1910–1911 New England Assignment to patenting index 115.1 109.5 132.4 % assigned after issue 70.4 31.2 30.1 % geographic assignments 17.1 0.8 0.0 Middle Atlantic Assignment to patenting index 100.7 94.8 116.3 % assigned after issue 70.9 44.4 37.9 % geographic assignments 19.1 1.9 0.7 East North Central Assignment to patenting index 96.3 118.1 104.9 % assigned after issue 77.7 48.5 32.8 % geographic assignments 34.3 5.7 1.8 West North Central Assignment to patenting index 90.7 110.1 73.5 % assigned after issue 77.4 48.6 42.6 % geographic assignments 41.9 13.0 2.6 South Assignment to patenting index 60.0 68.9 68.0 % assigned after issue 74.4 42.3 48.2 % geographic assignments 20.9 6.2 2.5 West Assignment to patenting index 150.0 67.2 81.5 % assigned after issue 59.1 57.4 36.0 % geographic assignments 18.2 7.4 1.2 Total domestic Assignment to patenting index 100.0 100.0 100.0 % assigned after issue 72.3 44.1 36.5 % geographic assignments 22.8 4.6 1.2 Assignments to patents ratio 0.83 0.71 0.71 Number 794 1,373 1,869 The assignment to patenting index was constructed by setting the ratio of the total number of assignments by U.S. patentees to the number of patents awarded in the respective year equal to 100. The regional ratios were computed analogously, and the indexes report their values relative to the national average in the respective year. The % geographic assignments was calculated as the proportion of all assignments by patentees residing in the particular region that transferred rights to the patent for a geographic area smaller than the U.S. Table 2 also shows that trade in patent rights increased in all regions through 1910, nearly doubling overall by this measure. The Liber sample we have collected, which includes all assignment contracts—those made after issue as well as before—indicates that though the volume of trade in patented technology (as reflected in the number of assignment contracts) increased steadily over the nineteenth century, the ratio of the total number of contracts to the total number of patents peaked earlier than the proportion of patents assigned at issue.‡ As shown in Table 3, the estimated ratio of assignments to patents actually fell from 0.83 in 1870–1871 to 0.71 in 1890–1891 and 1910–1911. Hence, the appearance in Table 2 of low levels of assignment in 1870, and of a substantial increase in assignments over time, really only reflects the low percentage made by the time of issue in 1870, and the increase in that percentage over time. The Liber data unambiguously demonstrate that there was already extensive trade in patented technologies by 1870, but that most of the activity at this early date occurred after patents were issued. The early trade also appears distinctive in other respects. More than a quarter of the contracts filed in 1871 were for secondary trades, or had someone other than the patentee or a family member as the assignor of the patent rights; even more interesting perhaps is that nearly a quarter were assignments of rights restricted to geographic areas smaller than the territory of the United States. Although this practice became much less prevalent over time, patentees made extensive use of geographic assignments to extract the returns to invention before national output markets emerged. Although assignments made before the date of issue evidently constituted only a small proportion of all patents until late in the century, their patterns of regional variation appear to have been representative of the entire population of assignment contracts. Whether one looks at assignments at issue or all assignments, the regions with the highest patenting activity—New England, the Middle Atlantic, and East North Central—were those with the highest propensities to trade patent rights. Whether one looks at assignments at issue or all assignments, therefore, the results are consistent with the hypothesis that the evolution of institutions and other conditions conducive to trade in technology developed more rapidly in areas with higher patenting activity. The growing proportion of inventors that were choosing to sell off the rights to their patents suggests that patentees were increasingly focusing their attention and resources on the pursuit of inventive activity. Indeed, the data we have on patenting over careers, presented in Table 4, are quite consistent with the view that there was a dramatic increase in specialization at invention over the course of the nineteenth century. The early 1800s were a relatively democratic era of invention, when the typical inventor filed only one or two patents over his lifetime, and when efforts at technological creativity were only one aspect of an individual’s work, if not a sideline altogether. Although such part-time inventors continued to be significant contributors to patenting, their share fell sharply between the 1830s and 1870s, from over 70% to less than 40%. Conversely, the share of patents accounted for by patentees with 10 or more career patents rose from less than 5% to more than 20%. There may have been other contributors to the sharp change in the distribution of patents across patentees, but this evidence that a major increase in the degree of specialization occurred as early as the middle third of the nineteenth century—before the emergence of research laboratories housed in large-scale enterprises—is important (7, 13). The idea that the increase in specialization at invention was facilitated, if not promoted, by an enhanced ability to trade technological information is certainly consistent with the observation that transfers in patent rights became extensive during the period in which the substantial increase in specialization occurred. To establish more directly whether the two developments are related, Table 5 provides comparisons of the extent of long-term commitment to invention between patentees who assigned their patent rights away to companies and patentees who did not. The logic would suggest that patentees who traded the rights to their inventions should have demonstrably greater long-term commitments to inventive activity over their career than those who did not do so. We test this implication by comparing the two groups in our “B” sample by their average number of “career” patents and the average length of the “career” in invention over all patents and over all patentees (weighted and unweighted averages). What stands out is that patentees who assigned their patent rights away to companies registered many more patents over their careers, and also had longer careers, than those who retained the rights to their patents through the date of issue. Industrial sector and the degree of urbanization of the patentee’s county of residence are controlled for in Table 5, but the results are robust to a general multivariate analysis accounting for region and time period as well. ‡   In order for an assignment to be legally binding, a copy of the contract had to be deposited at the Patent Office within 3 months of the agreement. One cannot infer from the peak of the ratio of total assignments to total patents in 1871 that the proportion of patents ever assigned decreased afterwards. The declines over time in secondary assignments and in the proportion of geographic assignments would tend to reduce the ratio if the overall proportion of patents ever assigned remained constant.

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America Table 4. Distribution of patents by patentee commitment to patenting, 1790–1911   No. of “career” patents by patentee   1 patent, % 2 patents, % 3 patents, % 4–5 patents, % 6–9 patents, % 10+ patents, % 1790–1811 51.0 19.0 12.0 7.6 7.0 3.5 1812–1829 57.5 17.4 7.1 7.6 5.5 4.9 1830–1842 57.4 16.5 8.1 8.0 5.6 4.4 1870–1871 21.7 17.1 10.5 16.4 10.5 23.7 1890–1891 23.2 16.0 6.7 10.3 12.4 31.4 1910–1911 39.6 16.3 7.8 9.4 7.3 19.6 The distributions of patents awarded during the respective periods are reported by the number of patents ever received by the patentee over his career. The figures for 1790 to 1842 are from ref. 4, and those for the later three periods were computed from the “B” sample discussed in the text. The incomplete state of this sample leads to underestimates of the shares of the most active patentees, especially for 1910–1911. The significance of the ability to trade in technological information is also indicated by the relationship between the location of the patentee and his career characteristics. Patentees who resided in geographic areas with high assignment rates (which typically had higher patenting rates, and perhaps institutions more conducive to trade in technology), were more specialized at invention, even after controlling for whether their individual patents were assigned. For example, even among patentees who did not assign their patents at issue, those in metropolitan centers had the greatest number of career patents and the longest careers at invention—followed by those in counties with small cities and rural counties, respectively. Also relevant is the finding that patentees who were engaged in sectors with more complex technologies, like electrical/energy and civil engineering, where more substantial investments in technical knowledge would be required for effective invention, were more likely to sell their patent rights off at time of issue. This result is consistent with the view that patentees who had exogenous reasons for specializing more at invention would be more inclined to avail themselves of the opportunity to extract the return to their invention by selling off the rights for commercialization to another party. The finding that the most productive patentees were those who assigned to companies raises the fundamental issue of what precise behavior or relationship was responsible. One possibility is that more and more patentees were employees of companies, and that their higher productivity did not reflect greater inventiveness but instead access to the superior resources (for example, funds and legal assistance) provided by the company. Although it is undoubtedly correct that patentees increasingly became employees of their assignees over time, there are several reasons to doubt that this trend explains our results. First, only one of the 34 patentees in our “B” sample with 20 or more career patents assigned all of his patents at issue. Indeed, only about half of these highly productive patentees assigned more than 50% of their patents at issue. Second, as shown in Table 6, patentees who assigned to companies manifested considerable “contractual mobility,” defined as the number of different assignees (other than the patentee himself) that the patentee dealt with over his career. The data suggest that the most highly productive patentees, those with 20 or more career patents, were not tied to single assignees. When one computes the figures over inventors, only 20.6% of the patentees used only one assignee over their career. When one computes the analogous figures over patents, the proportion falls to 17.8%. These numbers seem small enough to undercut the argument that productive patentees were tied to their assignees, but these patentees appear even more independent when one recognizes that the percentages in the table pertain only to those patents that were actually assigned. Given their remarkable contractual mobility (roughly 40% had four or more assignees over their careers), it is difficult to believe that the high productivity at patenting we observe was due to a stable employment relationship. On the contrary, the evidence is more consistent with the view that highly productive patentees behaved entrepreneurially and were generally in a position to switch assignees frequently. Conclusion We can now provide an overview of the growth of a market for technology in the late-nineteenth century United States. Trade in technology began to expand rapidly as early as the second third of the century as new channels of information emerged and patent agents increasingly took on the role of intermediaries. By 1870, these developments had already had a major Table 5. Mean values on career patenting, by urbanization and industrial sector   Rural Urban Metro center Agriculture/ foods Electric/ energy Engineering/ construction Manufacturing Transportation Miscellaneous/ unknown “Career” patents 15.1 24.3 37.6 13.1 51.9 37.6 20.4 28.4 25.6 % assigned 63.1 54.1 74.4 40.4 81.3 90.5 69.9 27.2 79.9 Length of career 22.2 24.5 26.7 21.2 28.5 26.2 25.6 23.3 22.6 (n) (847) (709) (1918) (257) (676) (310) (1266) (557) (407) “Career” patents for   Patentees who assign to companies 33.3 35.9 55.2 21.3 88.3 47.4 31.6 34.2 40.8 Patentees who did not assign 8.7 18.9 20.9 11.2 21.1 9.4 12.0 28.8 11.0 Length of “career” for   Patentees who assign to companies 33.9 27.2 30.0 29.3 32.1 35.7 30.5 23.4 27.4 Patentees who did not assign 18.2 23.4 23.8 19.2 25.6 20.7 21.3 24.1 17.7 These estimates were computed from the “B” sample described in the text. The urbanization classification refers to the county in which the patentee resided. Urban counties are those in which the largest city had a population greater than 25,000, but less than 100,000. Metro centers are counties where the largest city had a population of more than 100,000. “Career” patents refer to the total number of patents awarded to the patentee over the years we have reviewed to date, and length of “career” is the number of years between the award of the last patent identified and the first. Patentees with only one career patent identified were treated as having a career of 1-year duration. The unit of observation for these mean values is the individual patent, but the qualitative results are the same if the means are computed with individual patentees as the unit of observation.

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America Table 6. Contractual mobility among patentees, by their number of “career” patents   No. of Different Assignees No. of “career” patents by patentee % assigned 0 1 2–3 4–5 6+ Total No. % No. % No. % No. % No. % No. %     Distribution of patentees 1 19.7 159 80.7 31 15.7 7 3.6 — — — — 197 35.1 2–5 21.1 129 59.2 54 24.8 30 13.8 4 1.8 1 0.5 218 38.9 6–10 31.4 31 44.2 15 21.4 21 30.0 3 4.3 — — 70 12.5 11–19 47.6 4 9.5 13 31.0 14 33.3 6 14.3 5 11.9 42 7.5 20+ 44.1 3 8.8 7 20.6 10 29.4 7 20.6 7 20.6 34 6.1 Total   326 58.1 108 19.3 82 14.6 20 3.6 13 2.3 561       Distribution of patents 1 20.1 160 80.8 31 15.7 7 3.5 — — — — 198 5.6 2–5 24.0 357 55.6 166 25.9 104 16.2 11 1.7 4 0.6 642 18.5 6–10 30.4 225 41.2 126 23.1 173 31.5 23 4.2 — — 546 15.7 11–19 47.4 49 8.2 189 31.8 183 30.7 95 16.0 79 13.3 595 17.1 20+ 66.8 107 7.2 266 17.8 541 36.3 272 18.2 306 20.5 1,492 43.0 Total   898 25.9 778 7.74 1,007 29.0 401 115 389 117 3.473   These estimates were computed from the “B” sample described in the text. The first panel presents the distribution of the 561 inventors in our samples, by the total number of patents received and the total number of different assignees (exclusive of the patentee) appearing at issue for those patents. The second panel presents the distribution of patents, by the total number of patents received by each patent’s patentee, and by the number of different assignees appearing at issue. effect on the behavior of inventors, who responded to the opportunities for gain represented by the growth of the market for inventions and began to specialize in, and become more productive at, invention. The greater complexity of technology and the rising fixed costs of inventive activity made such specialization increasingly desirable, but inventors required some assurance that they would be able to extract a return to their efforts by ceding the products of their creativity before they could comfortably concentrate their resources and energies on invention. The increased volume of trade in patents provided that assurance. The market for technology did not, however, develop uniformly across the nation. As the regional breakdowns indicate, patents were more likely to be assigned where patenting rates had long been high—the East North Central, the Middle Atlantic, and especially New England. In these areas, high patenting rates seem to have made investment in institutions that facilitated trade in technology a more attractive proposition, and the resulting greater ability to market inventions served to stimulate more invention. Hence regions that started out as centers of patenting activity tended to maintain their advantage over time. It was primarily in these regions, moreover, that the market for technology continued to evolve and mature. Although the volume of trade in patents was already high by 1870, over the next 40 years the nature of that trade changed in important ways. As time went on, for example, inventors on average were able to dispose of their patents earlier than before, selling an increasing proportion in advance of issue. Another change was in the identity of the assignee. While at first patentees often chose to assign partial patent rights to local businessmen to raise capital for the support of inventive activity or commercial development, they increasingly opted for relinquishing all stake in their inventions, assigning complete rights over to a company or another party. This might seem to suggest that the change in behavior was produced by inventors becoming employees of firms, but we do not think that this was mainly what was going on. The number of employment relationships between assignees and patentees was undoubtedly increasing during the late-nineteenth and early-twentieth centuries, but the contractual mobility revealed by our examination of individual patentees over their careers suggests that productive inventors were still free agents for the most part. Rather, it appears that the growth of intensely competitive national product markets, coupled with the existence of the patent system, created a powerful incentive for firms to become more active participants in the market for technology. This greater concern on the part of firms to obtain the rights to the most advanced technologies further enhanced the evolution of institutions conducive to trade in intellectual capital, and the growing market for technology elicited a supply response from independent inventors. Inventors who assigned to companies were the most specialized and productive of all. Of course, the development of this market did not solve all of the information problems associated with trade in technology nor make transactions involving patents frictionless. Anecdotal evidence suggests that many difficulties remained— that inventors were not always able to find buyers for their patents at remunerative prices or mobilize capital to support their inventive activity. Many would later decide it advantageous to exchange their independence for financial security and a supportive intellectual environment. At the same time, more and more companies would find it desirable to augment their internal technological capabilities, increasing their employment of inventors and sometimes creating formal research divisions. It is important, however, not to let our familiarity with large firms and their extensive research facilities obscure our understanding of the history of technological change. During the nineteenth century, it was primarily the development of institutions that facilitated the exchange of technology in the market that enabled creative individuals to specialize in and become more productive at invention. We acknowledge the excellent research assistance of Lisa Boehmer, Nancy Cole, Homan Dayani, Yael Elad, Gina Franco-Cruz, Svetlana Gacinovic, Jennifer Hendricks, Charles Kaljian, Anna Maris Lagiss, David Madero Suarez, Huagang Li, John Majewski, Yolanda McDonough, and Edward Saldana. We are also grateful for valuable advice and comments from B.Zorina Khan and David Mowery. The work has been supported by grants from the National Science Foundation (SBR 9309–684) and the University of California, Los Angeles, Institute of Industrial Relations. 1. Schmookler, J. (1966) Invention and Economic Growth (Harvard Univ. Press, Cambridge, MA). 2. Griliches, Z. (1990) J. Econ Lit. 28, 1661–1707. 3. Sokoloff, K.L. (1988) J. Econ. Hist. 48, 813–850. 4. Sokoloff, K.L. & Khan, B.Z. (1990) J. Econ. Hist. 50, 363–378. 5. Khan, B.Z. & Sokoloff, K.L. (1993) J. Econ. Hist. 53, 289–307. 6. Hounshell, D.A. (1984) From the American System to Mass Production 1800–1932 (Johns Hopkins Univ. Press, Baltimore).

OCR for page 32
Proceedings of the National Academy of Sciences of the United States of America 7. Mowery, D.C. (1995) in Coordination and Information, eds. Lamoreaux, N.R. & Raff, D.M.G. (Univ. of Chicago Press, Chicago), pp. 147–176. 8. Khan, B.Z. (1995) J. Econ. Hist. 55, 58–97. 9. Machlup, F. (1958) An Economic Review of the Patent System (U.S. Government Printing Office, Washington, DC). 10. Simonds, W.E. (1871) Practical Suggestions on the Sale of Patents (privately printed, Hartford, CT). 11. Sokoloff, K.L. (1986) in Long-Term Factors in American Economic Growth, eds. Engerman, S.L. & Gallman, R.E. (Univ. of Chicago Press, Chicago), pp. 679–736. 12. U.S. Patent Office (1891) Annual Report of the Commissioner of Patents for the Year 1891 (U.S. Government Printing Office, Washington, DC). 13. Chandler, A. (1977) The Visible Hand (Harvard Univ. Press, Cambridge, MA).