The Economics of the Patent System

E. Kaufer

• Publisher: Taylor & Francis
• Year: 2012
• eBook ISBN: 9781135645878
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

How effective are patents for stimulating economic activity? This volume provides an overview of existing national patent systems and suggests a revised system.

The Economics of the Patent System

Erich Kaufer*

University of Innsbruck, Austria

1. The Patent System in Historical Perspective

In medieval Europe, royal letters closed by a seal were called “litterae clausae;” those that were sealed but open were “litterae patentes.” Litterae patentes thus were open documents granting their holder certain rights, privileges, titles, or offices. From this came the nomenclature for modern invention patents, called “letters patent” or simply “patents” in English usage. Litterae patentes were also called “litterae breves,” from which the French term “brevets d’invention” evolved. See [94].

1.1. Patents of Invention: From Discretionary Privileges to Formal Statutes

In Egypt and other ancient cultures, no patent-like institutions have been discovered, and it is likely that none existed, since scientific and technological knowledge was closely held within priestal castes and guarded through secrecy. Patents were also unknown in Greece and the Roman empire, where manual labor was carried out largely by slaves and was not deemed worthy of educated men. Consequently, those who, through their education, were the most likely source of technological progress had little or no interest in it.

Marking the transition from one historical epoch to another is necessarily arbitrary. However, the year 529 A.D. has good claim to being the start of the Middle Ages. For one, in that year the Emperor Justinian closed Plato’s Academy at Athens, called by Hegel “the establishment of pagan philosophy.” At the same time, St. Benedict founded at Monte Cassino a new monastery whose rule, “ora et labora,” viewed manual labor as cooperation with God in the task of creation. The departure from antiquity’s contempt of manual labor is shown inter alia in Hugo of St. Victor’s new (1130 A.D.) systematic view of science. To the tripartite ancient classification of sciences into “logic,” “theory,” and “ethics,” Hugo added the “artes mechanicae,” whose practice was a divinely-ordained foil against infirmities of the human body.

In the Middle Ages, the pace of technological change accelerated dramatically. See [31, pp. 158–181]. Italian cities like Florence, Lucca, Milan, and Venice became leaders in artisan production. However, secrecy, often enforced in the Italian city-states by draconian penalties, was used to protect technological advantages and avoid the disclosure of important know-how. See [155, pp. 28–29]. This propensity changed with the emergence of a patent system.

In tandem came changes in the way the process of “invention” was perceived. The practice of granting property rights in what we now call inventions had its historical roots in mining law [98, 121, 155]. During the Middle Ages, the term “invention” had a meaning much closer to what we would now call “discovery,” e.g., of new ore resources, than the meaning accepted under modern patent law. In medieval Latin, “invenire” meant (accidental) discovery, while “ars” was used to connote derived technological know-how. Medieval orders in the archives of Innsbruck, Austria, consistently refer to “Perkwerks Erfyndung,” that is, to the “invention” of mining sites.

The Alps were an ore mining area from at least the time of the Celtic settlement. In such mining areas, there was a long common law tradtion concerning the mining, timber use, and water use property rights of those who were first to “invent” an ore site. As new ore locations were found in Saxony, Silesia, and Bohemia, the miners brought their unwritten common law with them. The law then became incorporated into the decisions of specialized mining courts and into the “Constitutiones Juris Metallici” promulgated by King Wenceslaus II in the year 1300 [184].

When surface ore deposits were exhausted and mining efforts had to go deeper, it became increasingly difficult to draw ground water from the mines. Around the year 1500, for example, the Fugger silver mines in Tyrol employed up to 600 people carrying water up ladders in buckets. One of the earliest alternatives to this labor-intensive approach was to dig water draining galleries. Those who financed the digging were protected by special privileges allowing them to receive a designated share of the mined ore and preventing rivals from digging competing galleries “sine stollonarii licentia speciali” (without a special license) from the gallery owner [184, p. 148]. Accompanying these rights was the obligation to maintain and extend the galleries in tandem with the progress of ore mining.

Similar privileges were then extended to those who devised so-called “Wasserkuenste” (literally, “water arts”), that is, mechanical means for drawing the water from the mines. The law concerning the “first to invent an ore site” was applied directly to the first person to invent a mechanical draining device. Usually, the inventor received a fixed reward after he had put his idea into practice. If the device was expensive, the inventor was paid an advance sum to finance the construction. It was also common to complement the fixed reward with a time-limited claim on some share of the mine’s output. Others were prevented from imitating the draining technology “sine … licentia speciali.”

During the 14th and 15th centuries, the Republic of Venice attracted numerous persons skilled in building “Wasserkuenste” for mines. Water mill capacity had to be expanded, water had to be pumped from the lagunes, and the canals had to be dredged. Venice also sought to develop ore mining on the Italian “Terra Ferma” it had conquered. Northerners meeting these demands characteristically requested special privileges protecting them against established local competition. In 1323, the first known privilege was asked by a master milling engineer Joannes Teuthonicus from Germany, who promised to build so many grain mills that the whole demand of Venice could be satisfied. He was promised a sum of up to 80 ducats for the construction of a model mill and a “just compensation,” to be determined by the judgement of two experts, if his mill proved to be useful. Thus, the Venetian administration did not issue a privilege for the mere discovery of a new mechanical idea. Rather, it insisted that a model be built which would serve as a basis for judging whether the idea would work and be useful. It is uncertain whether Joannes actually received the grant, but in the following decades, a number of grain mill construction privileges were in fact granted. In addition to fixed fees for the construction of mills, the Venetian government promised the privilege holders a specified minimum amount of work orders at a fixed price for a limited period of time.

In 1409, Venice granted the German Henricus von Heslingen a privilege to exploit an ore mine and use needed water and timber according to the common law prevailing in Germany. In the following decades, Venetian ore mining grew rapidly, necessitating a more formalized legal status. In 1488 the Venetian Senate promulgated the Statuto Mineraria. A German language copy—evidently for use by German miners in the service of the Republic—exists in the archives of Innsbruck [83]. Careful inspection reveals it to be in large measure a copy of the Schladminger Bergbrief—a Tyrolean mining order from the year 1408 [82].

Meanwhile, institutions were also evolving to deal with “inventions”—often called “edificium et ingenium” in the Latin texts—of a more specifically technological character. They took two rather different forms. One important example was the privilege granted by the Venetian Senate in 1460 to a young German, Jacobus de Valperga, who had devised a new type of water pump. The grant stated that as long as Jacobus lived, no one could make the pump without an express license from Jacobus. Violation carried a penalty of 1,000 ducats and destruction of the offending machinery. However, Jacobus was obliged to grant licenses if reasonable royalities were offered. Thus, the focus was on preventing imitation of Jacobus’ machine without his permission, and the privilege was limited by what we would now call a compulsory licensing provision. In contrast, another privilege granted in the same year to master engineer Guilielmus Lombardus reserved to Guilielmus exclusive monopoly rights in making certain furnaces, with no provision for “compulsory” licensing. The Venetian administrative practice distinguished between an invention privilege and a trade privilege. Jacobus asked for protection guaranteeing him license revenues from all who used his invention. Guilielmus, on the other hand, received a guarantee that no one could compete with him in selling the product that incorporated his invention.

Monopoly privileges, with or without licensing provisions, were not the only way Venice sought to foster technical advance. Venice’s large and important naval weapons factory, the Arsenale, is not known to have conferred them. As the precursor of today’s nationalized enterprise, the Arsenale instead attracted technically skilled persons by offering high salaries and benefits such as free housing.

As the 15th century progressed, Venice experienced a period of severe financial difficulties, partly because of its wars to extend its claims on the Italian Terra Ferma and partly because of threats from the Turks. It therefore placed increasing emphasis on monopoly privileges as a substitute for government subsidies. In 1474, only a year after the Senate decided to build the Arsenale Novissimo, a formal patent code was promulgated. Its preamble states:

We have among us men of great genius, apt to invent and discover igenious devices…. Now, if provisions were made for the works and devices discovered by such persons, so that others who may see them could not build them and take the inventor’s honor away, more men would then apply their genius, would discover, and would build devices of great utility to our commonwealth [52, p. 11].¹

The code specified that the subject invention had to be proven workable and useful, if only by means of a model. This requirement dated back at least to the case of Joannes Teuthonicus. Also, no imitation was permitted for ten years without express permission from the inventor. However, the Republic retained the right to use the invention for its own purposes. An otherwise unauthorized use carried a penalty of one hundred ducats and destruction of the offending device. But the administrative practice that followed also included provisions for compulsory licensing and the revocation of patents not used commercially. Thus, the patent code, based in large part upon the decision in the matter of Jacobus de Valperga, must be seem as an instrument designed to attract engineers to the Republic. It was not an instrument to stimulate artisan production by granting monopolistic trade privileges.

The 1474 patent code saw little direct use. From 1474 through 1490, only three patents were issued, and one of them referred to the Senate’s 1474 decree, probably because it conferred substantial monopoly privileges in using public water. But those privileges served as models for later privilege applications. Over the period 1490–1550, covered in a penetrating study by Mandich [97], 120 privileges were granted, most involving water mills, wind mills, pumps, dredging machines, and similar mechanical devices. These privileges did not refer expressly to the 1474 code, but followed similar principles. Some resembled in spirit the grant to Jacobus de Valperga. But even in those cases, the pat...

Table of contents

• Cover Page
• Half-Title Page
• Title Page
• Copyright Page
• Original Title
• Original Copyright
• Contents
• 1 The Patent System in Historical Perspective
• 2 An Overview of the Patent System's Operation
• 3 The Pure Theory of Patent Protection
• 4 The Pro and Contra of Patent Protection
• References
• Index