THE TELEPHONE AND THE AUTOMOBILE
The Centennial Exposition of 1876 was held in Philadelphia, a celebration of America’s one hundredth birthday. America wanted it to rival the Great Exhibition of 1851 held in London, where Americans like Goodyear, McCormick, and Colt showed off their wares. The patent office joined in the festivities by sending 5,000 of its more famous models.
Alexander Graham Bell, still unknown, presided over a demonstration of his new telephone. The exhibit went mostly unnoticed, still an unproven technology. That same year, Bell’s patent had issued, but it too had failed to generate any interest. Enthusiastic and optimistic, Bell may have been the only person with an inkling that his telephone patent would turn out to be the most monetarily successful patent of all time, a patent that gave birth to one of the largest companies in the world’s history: AT&T. It also marked the high water mark for the U.S. patent system in terms of encouraging innovation. In the century since, the nation’s economy has relied on the success of large corporations. As these corporations learned how to exploit patents, cries sounded for patent reform. The main complaint was that patents were too easy to obtain and too powerful in the hands of controlling companies. And so reform did come, initially through judicial decisions, but eventually codified into law. But in their efforts to reform, the legislators and judiciary have made it nearly impossible for the solo inventor to protect his inventions.
The issues facing the patent system began to become more apparent when on February 14, 1876, Bell coincidently—or not so coincidently—filed his telephone patent application on the same day as Elisha Gray filed his. Still in his twenties, Bell was working on a way to send multiple telegraph signals down the same wire. Anyone strolling the streets of New York City understood the magnitude of the problem, as unsightly telegraph lines wove a ceiling of steel above the bustling city. When Bell discovered a way to send multiple telegraph signals down a single line, much of this unsightly mess could be eliminated. Solution in hand, Bell had his patent attorney rush to the patent office and file his patent application, allegedly just hours before Elisha Gray submitted his own patent application for an “instrument for transmitting and receiving vocal sounds telegraphically.”
Bell’s application posed a problem. His application had a paragraph, hand-written in the margins, that described the telephone in almost identical language to Gray’s application. Some historians now believe that, based on Gray’s own testimony, Gray filed his application a few hours before Bell. Somehow, they say, Bell managed to see Gray’s application right after it was filed and noticed Gray’s idea about transmitting voice signals electronically. The theory contends that Bell then copied the relevant paragraph and handwrote the same material in the margin of his own application, in essence stealing the idea from Gray.
Without requiring Bell to submit a patent model at the time of his filing to prove that he had actually built the first telephone, or determining whether Gray was really the first to invent the idea, the patent office issued Bell’s patent on March 7, 1876. Why Gray’s application was not considered by the patent office has been debated ever since. The most common explanation is that since Bell allegedly filed his application first, the patent office used its discretion and awarded Bell the first telephone patent. However, this ignores the contention that Gray more than likely filed his application several hours before Bell. Even then, when two applications were filed in close proximity and claimed the same idea, the patent office was required to investigate to see who was the first to invent, not the first to file his application. The patent office failed to do this.
Bell’s patent also issued in less than a month—and three days before Bell had even built his first telephone and made his famous summons to his underling: “Watson, come here. I want you.” Why the patent office issued Bell’s patent so quickly, and without the inclusion of a model, has never been settled.
Even with all the intrigue, Bell’s hastily granted patent withstood hundreds of attacks. Congress in 1885 commissioned a special investigation. The resulting report discovered many of the patent office irregularities and concluded that there was overwhelming evidence of foul play, including the patent office decision to give Bell’s application priority over Gray’s application. Yet nothing came out of it, possibly because several members of Congress stood to benefit financially if the Bell patent remained in force. Western Union also challenged the validity of Bell’s patent. The parties ultimately settled with a technology transfer arrangement, and Bell’s stock instantly doubled. Bell soon became a telephone monopoly providing telephone services to millions.
What would happen if Bell filed his patent application today?
First, because Bell and Gray filed on the same idea, Bell’s patent application would be hung up in a patent office proceeding for about ten years while he fought with Elisha Gray about who first invented the idea. But proving that he was the first to invent the telephone would be the least of Bell’s worries. His next hurdle would likely be insurmountable: The patent office’s position would be that Bell’s idea was obvious, that his breakthrough wasn’t inventive enough to rise to the level of being awarded a patent. Why? Because Bell didn’t make an inventive leap that was far beyond what was already known in the scientific literature. As one example, in 1861 a German scientist, Philipp Reis, invented a telephone that faintly transmitted the human voice. Reis demonstrated his idea by talking into a speaking tube so that his voice vibrated a metal diaphragm. This modulated electric current from a battery and varied the resistance of the circuit. Although Reis did not vary the resistance by placing a wire into liquid as Bell proposed, today’s patent office wouldn’t see a patentable difference between the two concepts; both varied the resistance of the circuit. Today, Bell would find himself arguing with the patent office for years, and most likely would be denied his patent.
And what about the telephone during all this legal haggling? After all, the whole goal of the patent system is to provide an incentive to promote new technologies. Most likely, the telephone would have languished in Bell’s laboratory, lacking any private investment to commercialize the concept. Then, as now, investors would have been unwilling to put millions of dollars into a technology that they may not end up owning, or in which a copyist could weasel in and undercut the price without expending the same amount of research and development money. Not knowing what will happen in the patent office is often worse than dealing with the granted patent. It’s clear that with no probability of a patent, financiers would likely not have invested their dollars, telephone technology would undoubtedly have been delayed, and there certainly would have been no AT&T.
This vicious cycle is what happens when the patent office refuses to grant patents and when investors are unwilling to step forward and fund new technologies. When the financial infrastructure shuts down, nobody wants to invent, and innovation is stifled. And that’s what we have today.
The case for protecting the little guy, the struggling inventor, lost most of its traction over the invention of the automobile and the ensuing patent litigation where a single patent was asserted against nearly every automobile manufacturer, including Henry Ford. The patent system had been created to protect the independent inventor at a time when large corporations were a rarity. The irony of automobile patent suits was that it was a single inventor taking on large corporations that turned the tide against the patent system. In a strange twist, a patent model—the Brayton automobile model—ultimately won the case for Henry Ford. Yet it was during the same decade the patent model requirement was eliminated.
The paper patent practice started almost the day after the model requirement was eliminated. And one of the first cases nearly put the Ford Motor Company out of business. Yes, it was a paper patent, used by a single individual who had never made an automobile, that brought the entire motor car industry to its knees, forcing nearly every company to pay a royalty. Only Henry Ford, standing alone and sacrificing all of his profits, was able to free his company from this patent.
Today, these individuals are often referred to as patent trolls because they have no underlying business and obtain paper patents just to extract royalties. It’s difficult to even pen the admission, but this first patent troll was a patent attorney—George Baldwin Selden, holder of the famous Selden patent on a “gasoline road locomotive.” The son of a judge, Selden dutifully followed in his father’s legal footsteps and became a patent lawyer in Rochester, New York. His credits include filing the first patent application for George Eastman on a process for placing a coating on gelatine dry plates. Although maintaining his legal practice appeased his domineering father, Selden’s real passion was tinkering, inventing ways to manufacture barrel hoops and typewriters. His inventing went beyond the ordinary and mundane. Selden was mesmerized with mechanized road travel. On frequent visits to the patent office, Selden toured the Old Curiosity Shop, poring over models and drawings of machinery having anything to do with road travel. He salivated over rubber tires and steam drive carriages, hoping to find a suitable power source for his own horseless carriage.
Selden made little progress on his new road vehicle until 1876, when thirty years old, something clicked. He visited the famed Philadelphia Centennial Exposition where some of the world’s greatest inventions were on display—Bell’s telephone, an electric dynamo, an ammonia compressor for refrigeration, Otis Brothers & Co.’s steam elevator, not to mention some of today’s household staples like Heinz ketchup and Hires root beer. The Mecca of Selden’s pilgrimage was Machinery Hall, an exhibit over a third of a mile long housing the best machinery that the Industrial Age had to offer—the Corliss steam engine with its 56-ton flywheel that soared to the hall’s ceiling, electromagnetic generators, and engines from Otto and Langen. Here, Selden hoped for the spark of an idea, something to propel his new vehicle. What caught Selden’s attention was Brayton’s gasoline engine—a compact compression motor, much sleeker in design than the bulky Otto engine, and one small enough to power his vehicle. Upon his return, Selden began in earnest to work on a modified Brayton engine that he could incorporate into his road locomotive. For specifics, he ordered details of the Brayton engine from the Vienna Exhibition of 1873. After hours experimenting with this engine, he made his decision: His patent application would include his own modified Brayton engine. If he’d only waited a year, he might have learned about Otto’s new four-cylinder engine, the design that ultimately found its way into the modern automobile. Selden wasn’t the only one trying to invent a horseless carriage. Inventors in America and in Europe were feverishly trying to find their own solutions. As a seasoned patent attorney, Selden knew he couldn’t wait. He wanted to be the first to file his patent application. So Selden filed his application, describing the use of a Brayton-type engine, and submitted a non-working patent model.
Although there were no working automobiles, with the widespread use of engines, the idea of a horseless carriage was percolating, both in the U.S. and in Europe. A hundred years before, in 1769, a Frenchman named Cugnot constructed a steam tractor. Various types of steam carriages followed, including one currently housed in the British museum in London. Then came the electric motor, followed by the first electric car built in Scotland in 1839. When Brayton’s and Otto’s gasoline powered engines entered the scene, they offered a viable alternative to propel a vehicle—with significantly more power. To Selden’s credit, nobody had yet invented a practical way to put a high-powered engine in a horseless carriage and make it work. And like any good patent attorney, Selden soon realized that it’s much easier to conjure up a set of drawings than to actually build a motorized vehicle. With lack of funding to finish his motor and horseless carriage, and with his own patent litigation practice keeping him out of the shop, Selden knew valuable time was slipping away. He had to file his patent application, regardless of whether he could build a working vehicle.
In 1878, Selden went to work on his patent application. It didn’t matter that his engine was still unfinished, or that he didn’t really understand how to put a gasoline engine into a horseless carriage; under the new patent rules issued just a year before, he could give it his best guess. Selden took existing ideas—a doctored-up Brayton engine, clutch, transmission, and steering wheel—and hurried to see a patent draftsman to prepare a set of drawings for his new road vehicle. When the draftsman suggested it might be a good idea to submit a model, Selden told him that the drawings would suffice. Why not? Just a year before, the rule requiring a model submission was eliminated. And this created perhaps the biggest thorn in the side of the U.S. patent system—the paper patent.
The beauty of Selden’s legal strategy was that it didn’t matter whether he could make this road vehicle work. What Selden did know was that someday, somebody would figure it out. And Selden, the savvy patent attorney, knew he could manipulate the patent office rules so that he could keep his application pending until that day came. He could then change his claims to cover the yet-to-be-discovered horseless carriage. And so, with a little creativity, and lots of vague language, the world’s first horseless carriage was created on paper and lodged with the patent office in 1879.
Falling squarely within permitted rules, Selden’s legal maneuvering enabled him to keep his patent application secretly pending for another sixteen years, patiently waiting as the gasoline automobile became a reality. He was like a lion awaiting his prey. By 1895, when America’s automobile industry burgeoned, Selden sprang to action, changing his original claims to cover essentially every vehicle with an internal combustion engine that used liquid hydrocarbon fuel. Because of how the patent laws were written, when Selden received his U.S. Patent No. 549,160, it had a future life of seventeen years. Remarkably, Selden had manipulated the patent system so that the time from filing his application to its expiration date amounted to nearly thirty-four years.
By the time Selden’s patent issued, the automotive industry was beyond a fledging start-up. It was a legitimate industry. Daimler and Benz of Germany developed their motors in 1885. On the U.S. front, Olds and Ford began their ventures in 1894 and 1895. Dozens of other car companies sprang into existence—Buick, General Motors, Reo, Maxwell-Briscoe, Winton. It was like our later dot-com explosion.
Immediately, Selden went on a legal rampage, targeting the unsuspecting automobile companies. After joining forces with The Electric Vehicle Company, who took an exclusive license, Selden began enforcing his patent in the courts. At first, the loose association of automobile manufacturers thought they could beat Selden’s patent, assuming that Selden’s manipulation of the patent office rules would invalidate the patent. If that didn’t work, they planned to argue that Selden’s idea was not inventive—as he had just combined old, well-known elements. That strategy proved fatal for the Winton Company and its close ally, the Hydrocarbon Motor Vehicle Manufacturer’s Association, whose request for dismissal of their patent infringement suit was denied by Judge Alfred Coxe in 1900. A month later, the same thing happened to the Buffalo Gasolene Motor Company. So, both cases headed for trial.
Bolstered by Judge Coxe’s decision, The Electric Vehicle Company filed two more suits, one against the Automobile Forecarraige Company of New York and Ranlet Automobile Company of Vermont. Financially beleaguered, both companies capitulated. The gasoline automobile producers then banded together, hoping their organized forces could beat the patent. But after intense negotiations, the manufactures decided the best course would be to sign up for a license, then join together as an industry and force everyone else to pay the same royalty. Concluding their meeting, the automakers formed an association, the Association of Licensed Automobile Manufacturers, or A.L.A.M., and agreed to pay 1.25% on each vehicle. Left alone, Winton gave up and also joined the A.L.A.M. Small brass plaques began springing up on all automobiles with the inscription “Manufactured Under Selden Patent.”
With twenty-three members, the A.L.A.M. went to work, systematically suing the other start-up automakers. Most, lacking sufficient resources, capitulated. Of the major manufacturers, the sole holdout was the Ford Motor Company. Unlike his competitors, Henry Ford wouldn’t back down. Singlehandedly, he took on Selden and the A.L.A.M., funding his legal battle with profits from the sales of his vehicles. Nine years of litigation followed.
Not until January 1911 did the decision come down, and it was in favor of Ford. The court held that Ford’s vehicles did not infringe the Selden patent. In essence, the court concluded that Selden’s patent covered a gas-propelled vehicle with a Brayton-type engine, not the Otto engine used by Ford. Selden, the court ruled, described only a Brayton-type engine in his patent application.
In a sense, Ford’s victory turned out to be hollow. By 1911, the Selden patent was ready to expire. Selden had already made his money, receiving royalties from nearly the entire automotive industry. Losing the patent at the end of its natural existence had no financial significance.
If the patent office had required models for just a year longer, none of this would have happened—no lawsuits, no attorneys fees, just more inventing. There simply would have been no Selden patent because Selden hadn’t actually built a working prototype. Instead of spending valuable research and development money fending off lawsuits, the motor companies could have made better, more efficient vehicles much faster, perhaps even a decade sooner.
Where else has this happened? Look at Alexander Bell, who was not required to submit a model despite patent office rules calling for such models. If the patent office had stuck to its guns, Bell would not have been awarded his famous telephone patent and the giant Bell monopoly would never have existed. How different might the world be today if free competition could have reigned in the telephone industry from its infancy?
Is this same thing happening today? On a massive scale. By granting patents on concepts that have yet to be physically developed, our patent system allows technologies to be “locked-up”, stunting development by at least a decade. Imagine where our electronics industry would be if we could jump ahead ten years.
This isn’t an exaggeration. Beginning in the 1950s, Jerome Lemelson began filing applications on scanning visual data from a camera and storing them in a computer. These cases were kept alive in the patent office for a half century. When the barcode was eventually developed, Lemelson claimed his “machine vision” paper patent covered every single barcode. His litigation team sued every major company who made or used bar codes, netting him over $1.5 billion in royalties. It wasn’t until 2004, well after Lemelson was dead, that a court threw out the patent on grounds that Lemelson had waited too long to enforce it.
Lemelson is legendary in patent circles. He’s even got his own wing in the Smithsonian. Awarded over 550 patents by the U.S. patent office, Lemelson knew how to manipulate the patent system by flooding the patent office with applications, most never actually built. If he could dream it up, off shot an application, usually prepared by himself. His ideas included automated warehouses, industrial robots, cordless telephones, fax machines, videocassette recorders, camcorders, and the magnetic tape drive used in Sony’s Walkman tape players. He also invented some medical instruments, including a talking thermometer for the blind. Most of these were mere ideas, patent applications filed in hopes that, as with Selden, the market would eventually solve the practical problems for him and in so doing, step into his waiting trap.
As with Selden and Lemelson, a large number of today’s patent trolls would be put out of business if they were required to build their ideas before filing for patent protection. By preventing these innovation blockers from getting patents, valuable resources spent fighting dubious patent battles could be used to invent real products.