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* TODO: Chapter 10
* koko teksti http://www.dklevine.com/general/intellectual/against.htm
== Chapter 1: Introduction ==
Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
Chapter 1: Introduction
In late 1764, while repairing a small Newcomen steam engine, the
idea of allowing steam to expand and condense in separate
containers sprang into the mind of James Watt. He spent the next
few months in unceasing labor building a model of the new engine.
In 1768, after a series of improvements and substantial borrowing,
he applied for a patent on the idea. August 1768 found Watt in
London about the patent and he spent another 6 months working
hard to obtain it. The patent was finally awarded in January 1769.
Nothing much happened, in terms of production, for a few years
until, in 1775, after another major effort supported by his new
business partner Matthew Boulton, Watt secured an Act of
Parliament extending his 1769 patent until the year 1800. The great
statesman Edmund Burke spoke eloquently in Parliament in the
name of economic freedom and against the creation of unnecessary
monopoly – but to no avail. The connections of Watt’s partner
Boulton were too solid to be defeated by simple principle.
Once Watt’s patents were secured, a substantial portion of
his energy was devoted to fending off rival inventors. In 1782, Watt
secured an additional patent, made “necessary in consequence of ...
having been so unfairly anticipated, by [Matthew] Wasborough in
the crank motion.” More dramatically, in the 1790s, when the
superior and independently designed Hornblower engine was put
into production, Boulton and Watt went after him with the full force
of the legal system. In contrast to Watt, who died a rich man, the
inventor Jonathan Hornblower was not only forced to close shop,
but found himself ruined and in jail.
Prior to the start of Watt’s commercial production in 1776,
there were 510 steam engines in the U.K., most using the inefficient
Newcomen design. These engines generated about 5,000
horsepower. By 1800, when Watt's patents expired, there were still
only 2,250 steam engines used in the U.K., of which only 449 were
the superior Boulton and Watt engines, the rest being old
Newcomen engines. The total horsepower of these engines was
35,000 at best. In 1815, fifteen years after the expiration of the Watt
patents, it is estimated that nearly 100,000 horsepower was installed
in the U.K., while by 1830 the horsepower coming from steam
engines reached 160,000. The fuel efficiency of steam engines is not
thought to have changed at all during the period of Watt’s patent;
while between 1810 and 1835 it is estimated to have increased by a
factor of five. After the expiration of the patents in 1800, not only
1Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
was there an explosion in the production of engines, but steam
power finally came into its own as the driving force of the industrial
revolution. In the next 30 years steam engines were modified and
improved, and such crucial innovations as the steam train, the
steamboat and the steam jenny all came into wide usage. The key
innovation was the high-pressure steam engine –development of
which had been blocked by Watt by strategically using his 1775
patent. Many new improvements to the steam engine, such as those
of William Bull, Richard Trevithick, and Arthur Woolf, became
available by 1804: although developed earlier these innovations
were kept idle until the Boulton and Watt patent expired. None of
these innovators wished to incur the same fate as Jonathan
Hornblower.
Ironically, not only did Watt use the patent system as a legal
cudgel with which to smash competition, but his own efforts at
developing a superior steam engine were hindered by the very same
patent system he used to keep competitors at bay. An important
limitation of the original Newcomen engine was its inability to
deliver a steady rotary motion. The most convenient solution,
involving the combined use of the crank and a flywheel, relied on a
method patented in 1780 by James Pickard, which prevented Watt
from using it. Ironically, Watt also made various attempts at
efficiently transforming reciprocating into rotary motion, reaching,
apparently, the same solution as Pickard. But the existence of a
patent forced him to contrive an alternative less efficient mechanical
device, the “sun and planet” gear. It was only in 1794, after the
expiration of Pickard’s patent that Boulton and Watt adopted the
economically and technically superior crank.
The impact of the expiration of his patents on Watt’s empire
may come as a surprise as well. Despite the fact that “many
establishments for making steam-engines of Mr. Watt's principle
were then commenced” nevertheless “it would appear that the object
principally aimed at was cheapness rather than excellence, for they
fell short as to performance of the Soho [Boulton and Watt]
engines.” As a result we find that “Boulton and Watt for many years
afterwards kept up their price and had increased orders.”
In fact, it is only after their patents expired that Boulton and
Watt really started to manufacture steam engines. Before then their
activity consisted primarily of extracting hefty monopolistic
royalties. Independent contractors produced most of the parts, and
Boulton and Watt merely oversaw the assembly of the components
by the purchasers.
2Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
In most histories, James Watt is a heroic inventor,
responsible for the beginning of the industrial revolution. The facts
above suggest a different interpretation. Watt is one of many clever
inventors working to improve steam power in the second half of the
eighteenth century. After getting one step ahead of the pack, he
remained ahead not by superior innovation, but by superior
exploitation of the legal system. The fact that his business partner
was a wealthy man with strong connections in Parliament, was not a
minor help.
The evidence suggests that Watt’s efforts to use the legal
system to inhibit competition set back the industrial revolution by a
decade or two. The granting of the 1769 and, especially, of the 1775
patents likely delayed the mass adoption of the steam engine:
innovation was stifled until his patents expired; and very few steam
engines were built during the period of Watt’s legal monopoly.
From the number of innovations that occurred immediately after the
expiration of the patent, it appears that Watt’s competitors simply
waited until then before releasing their own innovations. Also, we
see that Watt’s inventive skills were badly allocated: we find him
spending more time engaged in legal action to establish and preserve
his monopoly than he did in the actual improvement and production
of his engine. From a strictly economic point of view Watt did not
need such a long lasting patent – it is estimated that by 1783 –
seventeen years before his patent expired – his enterprise broke
even; so every dollar that came after was pure gravy.
While the view of Watt’s enterprise we are proposing here
may appear iconoclastic to many readers, it is neither new nor
particularly original. Frederic Scherer, a strong and prestigious
academic supporter of the patent system, after going through the
details of the Boulton and Watt story, concluded his 1986
examination of their story with the following illuminating words
Had there been no patent protection at all,…Boulton and
Watt certainly would have been forced to follow a business
policy quite different from that which they actually followed.
Most of the firm’s profits were derived from royalties on the
use of engines rather than from the sale of manufactured
engine components, and without patent protection the firm
plainly could not have collected royalties. The alternative
would have been to emphasize manufacturing and service
activities as the principal source of profits, which in fact
was the policy adopted when the expiration date of the
patent for the separate condenser drew near in the late
3Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
1790s…. It is possible to conclude more definitely that the
patent litigation activities of Boulton & Watt during the
1790s did not directly incite further technological
progress…. Boulton and Watt’s refusal to issue licenses
allowing other engine makers to employ the separate-
condenser principle clearly retarded the development and
introduction of improvements.
Indeed, the story of James Watt contains most of the
important elements of our argument against intellectual property.
The new idea accrues almost by chance to the innovator while he is
carrying out a routine activity aimed at a completely different end.
The patent comes many years after that and it is due more to a
mixture of legal acumen and abundant resources available to “oil the
gears of fortune” than anything else. Finally, after the patent
protection is obtained, it is mostly used as a tool to prevent
economic progress and hurt competitors.
The wasteful effort to suppress competition and obtain
special privileges we have seen in Watt is one of the greatest
dangers of monopoly. It is commonly referred to as rent-seeking
behavior. Watt’s attempt to extend the duration of his 1769 patent is
an especially egregious example of rent seeking: the patent
extension was clearly unnecessary to provide incentive for the
original invention, which had already taken place. On top of this, we
see Watt using patents as a tool to suppress innovation by his
competitors, such as Hornblower, Wasborough and others. Finally,
there is the slow rate at which the steam engine was adopted before
the expiration of Watt’s patent. By keeping prices high and
preventing others from producing cheaper or better steam engines,
Boulton and Watt hampered capital accumulation and slowed
economic growth.
Intellectual property, as it is currently conceived, still has all
these damaging social effects – because its enforcement has been
strengthened, its term extended and its reach expanded, current law
is much worse. While the randomness in the procedure for obtaining
a letter of patent that characterized Watt’s period may have been
reduced, it has not disappeared. It has shifted from the stage at
which a patent is awarded to the stage at which it is litigated in
court. A patent is now routinely issued to anyone that files an
application with the USPTO. Anything and everything – including
such allegedly “new” and “useful” ideas as the peanut butter and
jelly sandwich – has been patented in recent years. The brutal legal
fight, the peddling of all kinds of influence from legal to legislative,
4Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
and the complete randomness of it all, are, nowadays, characteristics
of a different stage in the life of a patent. If the underlying invention
is good for anything, either dozens of people will claim to have
invented it and sue the actual innovator, or the patent holder will sue
anyone anywhere who has come up with something similar, or who
has the funny idea of competing with him.
In addition to the corrupt rent-seeking, the legal suppression
of innovation and the reduced economic growth attendant upon
Watt’s monopolies, we may also add a significant loss of personal
freedom. These social harms are not the necessary evils that we, as a
society, must be willing to pay for innovative activity to occur. The
opposite, indeed, is true: they are unnecessary evils, a residual of the
middle ages from which free market societies emerged, a holdover
of the days when governments and royalty granted monopolies to
favored courtiers. Another world, a fairer and more decent world, is
possible – that of competitive innovation.
Economists, beginning with Adam Smith – a friend and
teacher of James Watt – have carefully documented the problems of
monopoly. Because there are no countervailing market forces,
government-enforced monopolies are particularly dangerous.
Intellectual property is one type of government-enforced monopoly.
Never the less, economists have generally argued in favor of patents
and copyright protection. Despite the many problems with
government grants of monopoly power, the argument is that,
without the promise of monopoly that patents and copyrights entail,
there would be insufficient incentive to innovate and create.
In the case of Watt, the argument goes, he would never have
invested the time and effort to come up with his invention without
the prospect of a patent. But that case is weak. Even after their
patent expired, Boulton and Watt were able to maintain a substantial
premium over the market by virtue of having been first, despite the
fact that their competitors had had thirty years to learn how to
imitate them. Moreover, when Watt first developed his ideas and
models, it was far from certain that he would be able to get a patent:
at that time getting a patent was an uncertain proposition – part of
the reason he had to lobby nonstop for a long time to get it. Indeed,
it may well be that the idea of obtaining a monopoly occurred to
Watt only after he finished his invention – there is no evidence he
gave any thought to patent law during the development process.
Finally, Watt had many competitors, such as Hornblower and
Wasborough; had he not invented the condenser, it seems virtually
certain someone else would have come up with the idea in the 35
years between the time it occurred to Watt, and the time his patents
5Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
finally expired. Why this is rather the rule than an isolated episode
and why the case for the protection of intellectual property is weak
are two things we will argue through both theory and evidence.
This book elaborates on the idea that intellectual property is
generally inhibiting to innovation, growth, prosperity and freedom.
We argue that not only would innovation thrive in the absence of
intellectual monopoly, but that we, as a society, would enjoy greater
growth and prosperity in its absence. We take the view point of the
average citizen-consumer when debating if a policy is desirable, not
that of a would be monopolist. There is no doubt in our minds that a
handful of powerful monopolists would be worse off in a world
without intellectual property; what matters is that everybody else
would be substantially better off.
12Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
Notes
Much of the story of James Watt can be found in Carnegie
[1905], Lord [1923], and Marsden [2004]. The quotation about
Wasborough is from Carnegie. Information on the role of Boulton in
Watt’s enterprise is drawn from Mantoux [1905]. A lively
description of the real Watt, as well of his legal wars against the
Hornblowers – and many other – and of how he subsequently used
his status to alter the public memory of the facts, can be found in
Marsden [2004]. Lord [1923] gives figures on the number of steam
engines produced by Boulton and Watt between 1775 and 1800,
while the The Cambridge Economic History of Europe [1965]
provides data on the spread of total horsepower between 1800 and
1815 and the spread of steam power more broadly. However,
Kanefsky [1979] has largely discredited the Lord numbers, and the
figures we quote on number of machines and horsepower are from
Kanefsky and Robey [1980]. The 100,000 horsepower estimate for
1815 is the average of the figures they give for 1800 and 1830.
These two studies together with that of Smith [1977-78] provide a
careful historical account of the detrimental impact of the
Newcomen’s and of the Watt’s patents on the rate of adoption of the
steam technology. Data of the fuel efficiency, the “duty,” of steam
engines is from Nuvolari [2004]. The story about Pickard’s patent
blocking adoption by Watt is told in von Tunzelmann [1978]. The
quotation about the fortunes of Boulton and Watt after the expiration
of the Watt patents is taken from Thompson [1847] p. 110 and is
quoted in Lord [1923]. Scherer’s quotation about Boulton and Watt
is from the pages 24-25 of Scherer [1984], while Scherer [1965] is
the source of the break-even point estimate reported a little earlier.
As both the Lord and Carnegie works are out of copyright,
both are available online at the very good Rochester site on the
history of steam power www.history.rochester.edu/steam. Later
drafts of this chapter benefited enormously from the arrival of
Google Book Search, which allowed us to check so many original
historical sources about James Watt and the steam engine as we
would have never thought possible before.
Information on U.S. Patent Law can be found at the U.S.
Patent Office at www.uspto.gov/main/patents.htm. The Sony Bono
Copyright Extension Act can be found online at
library.thinkquest.org/J001570/sonnybonolaw.html, while the Berne
Convention on Copyright can be found at
www.law.cornell.edu/treaties/berne/. A useful discussion of fair use,
including parodies, is Gall [2000].
For the statistical evidence about leading drugs keeping a
large share of the market long after generic imitators are allowed to
enter see, for example, Caves et al [1991]
The quote about patents being the reward is taken from The
Economist, June 23rd
2001, page 42, with italics added.
13Boldrin & Levine: Against Intellectual Monopoly, Chapter 1
The U.S. Constitution, not being copyrighted, is online at
various places, such as http://www.law.cornell.edu/constitution.
We are most grateful to George Selgin and John Turner, of
the University of Georgia Terry College of Business, for pointing
out a number of factual mistakes and imprecisions in our rendition
of the James Watt story, as it had appeared in earlier versions of this
chapter and in our 2003 Lawrence R. Klein Lecture, published in
[2004].
14
== Chapter 2 ==
== Chapter 3 ==
== Chapter 4 ==
== Chapter 5 ==
== Chapter 6 ==
== Chapter 7 ==
== Chapter 8 ==
== Chapter 9 ==
== Chapter 10 ==
[[Luokka:Käännöstyöt]]