The Suntory and Toyota International Centres for Economics and Related Disciplines

The Economic Theory Concerning Patents for Inventions

Author(s): Arnold Plant
Reviewed work(s):
Source: Economica, New Series, Vol. 1, No. 1 (Feb., 1934), pp. 30-51
Published by: Wiley-Blackwell on behalf of The London School of Economics and Political Science and
The Suntory and Toyota International Centres for Economics and Related Disciplines
Stable URL: http://www.jstor.org/stable/2548573 .
Accessed: 21/10/2012 20:08
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

Wiley-Blackwell, The London School of Economics and Political Science, The Suntory and Toyota
International Centres for Economics and Related Disciplines are collaborating with JSTOR to digitize,
preserve and extend access to Economica.

http://www.jstor.org

[FEBRUARY

The EconomicTheoryConcerning
PatentsforInventions1
By ARNOLD PLANT
in theUniversity
(ErnestCassel Professor
ofCommerce
ofLondon)
for inventions comprise a special form of
I. PATENTS
property,createdby statutelaw. In the United Kingdom,for
instance,patents " sealed with the seal of the Patent Office
[which] shall have the same effectas if it were sealed withthe
Great Seal of the United Kingdom, and shall have effect
throughoutthe United Kingdom and the Isle of Man " are

grantedunderthePatentsand DesignsActs, I907

to I932,

every patent relating to one inventiononly and having a

durationof sixteenyearsin the firstinstance; subjectto fulfilmentof theconditionslaid down in the Acts.
2. The statutescreatingpatents in the various countries
imposelimitationson the exerciseof the propertyrightswhich
theycomprise,but these are not the only peculiaritiesof this
formof property.Despite the limitations,propertyrightsin
patents are more potent than is generally true of private
of privatepropertyin theeconomic
property.The significance
was
enunciated
system
long ago with great clarityby David
in
the Principlesof Morals.
his
Hum;
Enquiry Concerning
Property,he argued,has no purposewherethereis abundance;
out of the scarcityof the
it arises,and derivesits significance,
objectswhichbecomeappropriated,in a worldin whichpeople
desire to benefitfromtheirown work and sacrifice. Systems
ofJustice,he wenton, protectpropertyrightssolelyon account
of theirutility. Where the securityof propertyis adequately
assured, propertyowners generally see to it, that scarce
" means " are directedto thoseuses which,withintheirknowledge and judgment,are most productiveof what theywant.
Such is the diffusionof privatepropertyand of the desire to
use it, thatit is at any rate generallytrue that thereis not a
1Substantiallya paper read beforeSectionF of the BritishAssociationat Leicester,
SeptemberI933.

30

I934]

ECONOMIC

THEORY

CONCERNING

PATENTS

3I

ofownership
ofthesuppliesof a parsufficient
concentration
alternatives
for
ticulargood,and ofall theeasilysubstitutable
it,to enabletheownersto controlthe pricesof theproperty
nor the disposalof the
theyown. Neitherthe withholding,
property
of any one ownerwill in generalaffectappreciably
in question. Hitherto,thisinthe priceof the commodity
ownersto controlpriceshas beengenerally
abilityofproperty
approved.If we exceptrecenttendenciestowards" planned
withproperty
rights
mostproposalsto interfere
monopolies,"
theconcentration
of
havebeenaimedin thepastat prohibiting
undera singleownership,
commodities
suppliesof particular
ownersfromraisingtheprice
in orderto preventtheproperty
bywithholding
partof thesupply.
of propertyrightsin patents(and
3. It is a peculiarity
copyrights)
thattheydo not ariseout of the scarcityof the
Theyarenota consequence
objectswhichbecomeappropriated.
of scarcity.They are the deliberatecreationof statutelaw;
of privateproperty
and, whereasin generalthe institution
of scarcegoods, tending(as we
makesforthe preservation
looselysay)to lead us " to makethemostof
mightsomewhat
makepossible
rightsin patentsand copyright
them,"property
of a scarcityof the productsappropriated
which
the creation
be maintained.Whereaswe mightexpect
couldnototherwise
wouldnormally
thatpublicactionconcerning
privateproperty
of theraisingof prices,in these
be directedat theprevention
cases the objectof the legislationis to conferthe powerof
raisingpricesby enablingthecreationof scarcity.The beneis madetheowneroftheentiresupplyofa productfor
ficiary
whichtheremaybe no easilyobtainablesubstitute.It is the
thathe shallbe placedin a position
intention
ofthelegislators
to securean incomefromthemonopolyconferred
upon him
thesupplyin ordertoraisetheprice.
byrestricting
creatingthesepatent
4. It maybe assumedthatthestatutes
and copyright
monopolieswould not have been placed, or
allowedto remain,upon thestatutebooksin theabsenceofa
of publicadvantagefromtheiroperawidespreadexpectation
tion. Economistshave of recentyearsfoundnew difficulties
of the
of monopolyuponthemagnitude
in statingtheeffects
stillbroadlyaccepted
nationalincome,but it is nevertheless
ofthe
conditions
tendto promotethediversion
thatmonopoly
froma moreto a less generally
scarcemeansof production
to reviewthe
therefore,
utilisation.It is of interest,
preferred
of thosewho approveof the patentsystem,to
expectations

32

ECONOMICA

[FEBRUARY

and theextent
ofthoseexpectations,
considertheimplications
expectations
Are
those
been
realised.
they
have
to which
have been
devices
which
?
Are
the
in
themselves
reasonable
their
opera?
Has
appropriate
adoptedfortheirrealisation
may
not
which
consequences
in
objectionable
tion resulted
havebeenforeseen
?
5. As we have seen,thepurposeof patentsforinventions
periodover
is, bygivingan inventor
thecontrolfora definite
tomakeiteasierforhimtoderive
thedisposalofhisinvention,
an incomefromit. Withwhatobjects? As soonas we enter
of motive,we are, of course,venturing
intoan examination
I
and
debatable
ground.It will,nevertheless,
uponuncertain
aimis toencourage
agreedthattheultimate
think,be generally
and hope of
the expectation
inventing.This is undoubtedly
advocatesofpatents.The aim
thevastmajority
ofdisinterested
themselves
or not,is to
of all advocates,whetherinventors
makeinventing
paybetter,and thoseat anyratewhoare not
as a consequence.Even
inventors
hope formoreinventions
of the patentsystemwho would describe
thosesupporters
wouldprobably
theirargument
as purelyethicalin character
qua invenagreethattheirultimateconcernis thatinventors,
mayarguethattheir
tors,shouldbe enabledto survive.Theyare notrobbed
concernis to see thatproducersof inventions
ofthatwhichoughttobe,evenifitmaynotbe in commonlaw,
in inventors
is verylikely
theirproperty;andyettheirinterest
beliefthatinventions
are
derivedfroma morefundamental
and utilisathattheproduction
especiallygood in themselves,
to be encouraged,
and that
ought,therefore,
tionofinventions
theway to attainthatend is to extendthe sphereof private
of" inventing,"
and
so as to increasetheprofitability
property
as comparedwith other
of inventions,
of the exploitation
the
to attribute
therefore,
occupations.We aresurelyentitled,
invention.
existence
ofthepatentlawtoa desiretostimulate
of thepatentsystemon
6. In orderto examinetheeffects
necessaryfirstof all to ask what
inventionit is, therefore,
thattakesplace,and we
theamountof invention
determines
of " invention."To give
muststartwitha workingdefinition
ita wideenoughmeaning-muchmorecomprehensive,
bythe
way,thanthatto whichpatentlaw has cometo be appliedis thedevisingofnewwaysofattaining
invention
givenends.
stillfurther,
We mightwidenthedefinition
by includingthe
as inventions,
of newendsthemselves
devisingor suggesting
but thiswouldprobablyinvolvetoo greata departurefrom

I 934]

ECONOMIC

THEORY

CONCERNING

PATENTS

33

ordinaryusage. We may all agree that a new machine for

makingcigarettesis an inventionbut thata suggestionforthe
in favourof somethingelse
abandonmentof cigarette-smoking
is not. If we definiteinventionas the devisingof new ways of
attaininggiven ends it will be best to make the " given ends"
as concrete as possible by excluding from the categoryof
invention" any change in consumers'taste.
7. This somewhat comprehensivedefinitionof invention
enables us to include, as we surely must, all new ways of
attaininggiven ends, althoughmanymay not be immediately,
if ever, adopted. A new device, employinga recentlydisscientificprinciple,may be mechancoveredand revolutionary
ically excellent,and yet not capable of commercialexploitation. The time and extentof its adoption will depend upon
price conditions. Changes in relativeprices may lead to the
abandonmentof one much utilised process and the substitutionofanother,devisedlong since but neverbeforeadopted.
8. A usefuldistinctionhas been drawnby ProfessorPigou
betweendifferent
typesof change in economicconditions(and
has been applied to inventionsby Dr. J. R. Hicks), distinguishingthose which are "autonomous," occurringspontaneouslyratherthan in response to any environmentalimpulse, from those which are " induced " by environmental
to circumstance.Differchangesand owe theirorigintherefore
the relativeimportent writershave assessed verydifferently
ance, as regards their number,of inventionswhich fall into
these two categories,and when we carrythe analysis a step
withinthesecondcategory,
and attempta classification,
farther,
of the variouscircumstanceswhichmay induce invention,still
more differenceof emphasis is revealed in the views of the
variousauthorities.
9. Spontaneous or " autonomous inventions include
thosewhicharise fromthe existenceofwhatProfessorTaussig
calls the " instinctof contrivance." So far as these are concerned, necessityis not-the motherof invention; the act of
inventingratheris a necessityin itself. The inventorcannot
help it. Just as some people, who may never be recognised
as poets,continueto pour out volumesof verse,so othersmay
spend theirtime or part of it in devising contrivancesor-inventions. Sir Josiah Stamp in his stimulatingessay on Invention(Watt AnniversaryLecture,Greenock,I 928, reprinted
in SomeEconomic
FactorsinModernLife)inclinesto theviewthat
the flowof inventionis largelyexplained in this way. 'The

34

ECONOMICA

[FEBRUARY

he says,' is stillsuigeneris,
and emergesfromtheranks
inventor,'
of engineers,physicists,
and chemists,notindeedas a " sport,"
but as a special product,which is touched by no " economic
spring." The sense of curiosityand the idea of fame play a
greaterpartthanthe economicreward.' Not all of the inventors, however,whose output is involuntary,are impervious
to prospectsof gain. Like artists,somemayturntheirtalentto
profitableuse. The amountand rateof flowmaybe invariable,
but its directionmaybe influencedby inducementsof one sort
or another. Inventingmay be spontaneous,but the natureor
formthatit takes may be controlledby circumstance.It will
probablybe generallyagreed thatthe numberof" involuntary
inventors" whoseoutputis completelyunaffected
by economic
conditionsis at least as small as thatof artistswho workwithout regardto the saleabilityof theiroutput.
More definitelyin the categoryof " spontaneous" inventionsare thosewhichare made by accident,forthe most part
no doubt as the chance by-productof activitydirected to
some otherpurpose. Every scientificworkerknows how frequentlyan enquiryleads to discoverieswhichanswerquestions
fromthose which promptedthe investigation.
verydifferent
Undoubtedly, in the field of invention,contrivancesare
accidentallyhit upon in the same way; but in all probability,
the majorityof these "chance" inventionsare also indirectly
" induced "-one stage removed,as it were-for the greater
part of the activityout of which they arise is influencedby
circumstance.Of a somewhatsimilarcharacter,again, are the
inventionsof" amateurs" who,wheninspectingthespecialised
techniqueof a particularfieldof production,being prompted
by curiosityratherthan hope of gain, are enabled by their
unusual possession of experienceof some other technique to
and new devices which fail to occur to
suggestimprovements
the minds of practitionersthemselves. The timing,at least,
of such inventionsis undoubtedlylargelyfortuitous.
I0. Induced inventionsowe at any rate their nature, if
not theirvolume,to the circumstancesof timeand place. One
the amountof inventionsis clearly
verypotentcause affecting
the rate of growthof scientificknowledge. The greaterthe
volume of new scientificdiscoveries,the more rapid will become the rate of applicationof these discoveriesby inventors
to purposes of production. Inventiondoes not, of course,
wait upon the completionof scientificdiscovery. As William
Edward Hearn wroteseventyyearsago, in what is surelystill

I 934]

ECONOMIC

THEORY

CONCERNING

PATENTS

35

the best theoreticaldiscussion" Of the Circumstanceswhich

ch. xi):
Determinethe Extentof Invention" (in his Plutology,
" The knowledgethatis imperfectforthe purposesof speculaguide forthe daily business of life."
tion is oftena sufficient
"Even at the presentday," he adds, "many processesof our
most successfulartshave not yet receiveda scientificexplanation.... But in all empiricalarts,the limitof improvementis
soon reached."
I I. A second influenceon the nature,if not on thevolume,
of new inventionis specialisationand the divisionof labour.
The specialisationwhich has been made possible by the
greatincreasein the numberof scientificworkershas in itself
discovery. Similarly,
tended to increase-the rate of sc'ientific
the divisionof labour in productionhas exertedan influence
on invention.Adam Smithmade thepointperhapstoo forcibly
(WealthofNations,Book I, ch. i) when he observedthat " the
inventionofall machinesby whichlabouris so muchfacilitated
and abridged,seems to have been originallyowing to the division of labour." W. E. Hearn and, followinghim, W. S.
bothcriticisedtheextravagance
Jevons(PrinciplesofEconomics)
of Smith's language, calling attentionto the number of important inventionswhich have emanated from unexpected
quarters. Yet theydid not denythe obvious truththatspecialisation in product and the division of labour make possible
the detailedconsiderationof technologicalprocesses,and that
inventionsof new processes do arise out of such continuous
and intimate considerationof detail. Whether there is in
consequence a net addition to the volumeof invention,as
distinctfroma change in its nature,is anothermatter.
I 2. It is true that the growingmechanisationof industry
withdrawsever more of the active and trainedminds from
actual machine operation and may in that way reduce the
numberof inventionsthat would otherwisebe made in that
field,but it would be a veryincompleteaccount of the effects
of the division of labour on inventionthat stopped there.
Specialisationhas, of course, released the more able and ingenious and mentallyalertworkersfromroutinetasks forthe
performanceof just such special tasks as inventing. It has
made possible the career of professional" inventor." It has
moreoverresulted in the increased wealth of communities,
which has made possible the increase of knowledge by the
endowmentof research,and the spread of knowledgeand the
trainingof abilityby the endowmentof education. These in

36

ECONOMICA

[FEBRUARY

turnhave increasedon theone hand thefieldforinvention,and

on the otherhand, the numberof activeinventors.
I3. Increasingwealth,the divisionof labour, the progress
of science, then, are clearly circumstanceswhich induce in
thesevariouswaysthe inventionof new processesand devices.
It remainsto add anothercircumstance,which provides the
incentiveforthe making of particularinventions,and thatis
the existenceof favourableprice conditions. Dispute there
maywell be as to the effectof price changes,and of the consequent emergence of new opportunitiesfor profitand new
probabilitiesof loss, on thevolumeof inventionthattakesplace
as a whole in a given period,but as to the importantdirective
influenceof price conditionsupon by far the greaterpart of
inventiveeffortthere can be no doubt at all. Hearn wrote:
" The principal circumstancewhich affectsthe progress of
inventionsis thestrengthofthemotivefortheiruse. When the
demand is sufficiently
strong,the supply generallyovertakes
it. . . ." The price conditionswhich induce inventionin
particularfieldsare those which offera special returnto inventorsin those fields. The inventionsmay be induced either
by the possibilityof quite exceptionalprofitsto thosewho can
cut costs stillfurtherduring times of flourishing
trade,when
an industryis alreadyprofitable,
or by theimminenceofcertain
loss to entrepreneurs
who have fixedinvestmentsin industries
which are depressed,and whose only hope is an innovation
which will reduce expenses below receipts. During the postwar years,forinstance,inventionshave been induced by price
conditionsin both the coal industryand the rubberindustry
on the one hand, and in the motor-carand radio industrieson
the other.
I4. Hitherto,the interestof economistsin the relationbetween inventionsand industrialfluctuationshas been concentratedmainlyon thepartplayedby inventionsin the causation of fluctuations.(Cf., e.g. Mr. D. H. Robertson's Study
of IndustrialFluctuations,and Professor Pigou's Industrial
Fluctuations.)The problemof the reverseeffectsof business
fluctuationson the flowof inventionsis a no less fascinating
subject of study,about whicha numberof unarguedand contradictorystatementshave been made. It is importantto
distinguishbetweenthe makingof an inventionand its adoption. Sir JosiahStamp,in the paper alreadyreferredto, says:
"On the whole I inclineto the view thatthe periodsof rapid
and importantinventiontendto be periodsoflargerdifferential

1934]

ECONOMIC THEORY CONCERNING

PATENTS

37

profits."The view is not supportedin the paper by evidence

or argument. ProfessorPigou in his IndustrialFluctuations
(ch. iv, p. 43) is concernedmainlyto refutethe proposition
that fluctuationsin generalbusinessactivitymay be initiated
by variationsin the rate at which ordinaryminor inventions
and improvementsare made. He argues that even in the
case of major inventionsit is the decisionto exploitinventions
ratherthanthemakingof theinventionsitselfthatis themajor
cause of disturbance,the time and intensityof exploitation
being largelydeterminedby the state of business confidence.
" There is," he says,"

....

a strong probability that invention

as a whole will fluctuateverymuch less than inventionin any

given representative
occupation,"-i.e. he implies that there
is a transfer
of inventiveactivityfromone industryto another,
expansionsin one fieldbeing compensatedmoreor less by declines in inventionelsewhere; and he states definitelythat
" thereis evidence thatin slack periods technicaldevicesand
improvementsaccumulate in the sphere of knowledge, but
are not exploitedtill timesimprove." The natureof the evidence is not stated. It presumablyrelates to the statistics
concerningthe rate of exploitationratherthan of invention
itself. Such an accumulationof inventionsduringdepressions
is compatiblewithincreasing,stationaryor decliningabsolute
ratesof invention,being purelyrelativeto the rateof exploitation, which one might reasonably expect to decline when
businessconfidenceis at a low ebb. It is of interestto notice,
however,that elsewherein the same study (p. I2) Professor
Pigou asserts that "in periods of depressionthe amount of
intelligence
put into productionis, in general, larger, partly
because relativelyinefficient
business men are compelled to
sell out to others,but mainlybecause those who remainin
business 'are put on theirmettle,and exertthemselvesto the
utmostto inventimprovedmethods,and to avail themselves
of the improvementsmade by others."' This would imply
an increased rate of both inventionand exploitationduring
depressions,at leaston thepartofthosewho remaininbusiness.'

1I cannot trace any attempthithertoat statisticalinvestigationof the relationship

betweendisturbancesin industrialactivityand variationsin the rate of invention.
ProfessorPigou, having in mind, of course, the reverseconnection,considersthat
"it is not in fact possible to demonstratea close statisticalcorrelationbetweenthe
making of industrialinventionsand neighbouring
disturbancesin general industrial
activity." That may wellproveto be true. I am myselfmuchdisposedaftersomewhat
close and prolonged study to hope that the detailed recordsof patent applications
availableovera long periodin thisand othercountriescan be made to throwlighton
thisand the otherrelatedquestions. The returnsare availableseparatelyfordifferent

38

ECONOMICA

[FEBRUARY

I5. In the meantimecertainconclusionsmay be hazarded

thateverypricechange,
concerninginducedinventions; firstly,
in certainfieldsand opportunities
by creatingcost difficulties
in others,providesa double stimulusto inforprofit-making
vention,and secondly that the larger the price change the
greaterwill be the stimulusto invent. Thirdly,duringperiods
of disturbanceof the general level of prices, a more general
stimulusto inventionsand to theexploitationof existinginventions may be expected, for we know that individual price
relationshipsare disturbedwhenever,for monetaryreasons,
the general price level shifts. Fourthly, any government
measures designed especially to reward inventors,whether
by subsidisationor by the patent system,i.e. the grant of
monopolyrightsover the utilisationof theirinventions,may
be expected,because of theirinfluenceupon price conditions,
to affectthe flowof inventions. It is with the patent system
thatwe are here primarilyconcerned. Despite the publication
of a large body of specialist literature,in the nineteenth
centuryin particular,on the meritsof patent systems,they
have received scant attentionby economistsin the standard
treatises.
I 6. The patentsystemmay,on the one hand, be expected
to affectthe makingof inventionsin two ways. The firstis to
divertinventiveactivityintothosefieldsin whichthemonopoly
grantwill be expected to prove most remunerative.It may,
secondly,affectthe total amount of inventiveactivity. The
patentsystemmay, on the otherhand, exerciseanothereffect
of perhaps equal importance. It may influencethe abilityor
willingnessof entrepreneursto make use of new inventions
aftertheyhave been made.
I7. It will be convenientto considerfirstthe effectof the
patentsystemon the amountof inventiveactivity. Considerable differenceof opinion on this aspect of the question is
revealed by the scant referencesmade by economistswho go
out of theirway to praise the patentsystem. On the one hand
thereis the view,perhapsbest representedin our own timeby
categoriesof industry(in thiscountry,forinstance,over a long period,thereare I46
categories),thoseconcerningprovisionalapplicationsprovideexcellentevidenceof the
date at which inventionsare made, and the subsequenthistoryof the patentscan be
used fora studyof the timingof the ac-tualexploitation. In particularinstances,the
influenceof adversityas well as of prosperitywithinan industryupon the display of
inventiveness
can easily be tracedbeyondreasonabledoubt. With due care it may be
possible also to draw conclusionswith regard to the relationbetweenthe display of
and industrialfluctuationsin general. The work is progressing,but
inventiveness
further
discussionmustbe reservedforanotheroccasion.

I 934]

ECONOMIC

THEORY

CONCERNING

PATENTS

39

Professor J. B. Clark in his Essentialsof EconomicTheory

(ch. xxi), thatwithoutthe patentsystemtherewould be very
littleinventing,and verylittleadoptionof inventionsby producers, at all. " If an inventionbecame public propertythe
momentthat it was made," he says, " therewould be small
profitaccruingto any one fromthe use of it and smallerones
frommakingit.... The systemwhichgave a man no control
overtheuse ofhis inventionswould resultin a rivalryin waiting
to distanceothersin originating
forothersratherthanan effort
improvements.This factaffordsa justificationforone variety
of monopoly. . . . Patents stimulateimprovement,and the
general practiceof the nationsindicatestheirrecognitionof
view we may
thisfact." For the expressionof a verydifferent
and Money-Makers),
turnto ProfessorF. W. Taussig (Inventors
who throwsdoubt upon what he designatesas the view of the
older utilitarians,that " men contrivedsimply because this
was conduciveto gain,and would notcontriveunlessprompted
by the experienceand prospectof gain," and suggestsinstead
that inventionmay arise mainlyas a spontaneousmanifestation of a human " instinctof contrivance." If this is so, "we
may be led to conclude," he adds, althoughit is not his conclusion, "that the patent system,for example, is a huge
mistake." Later, he observes that " the defendersof patent
legislationoftendescanton thepublicbenefitfrominventionsas
iftherewerea special moraldeserton thepartof theprojectors
and patentees. They put their case badly. What deserves
emphasisis the influenceof calculatedprofitin directingthe
inventor'sactivity,spontaneousthoughit be, into channelsof
generalusefulness." The patentsystemis commendedbecause
it directsratherthan increasesinventingactivity. Professor
Pigou puts the same view still more definitely(Economicsof
Welfare,2nd edition, Part II, chapter viii): " The patent
laws aim, in effect,at bringingmarginalprivatenet product
and marginalsocial net product more closely together. By
offeringthe prospectof rewardforcertaintypesof invention
theydo not, indeed, appreciablystimulateinventiveactivity,
which is, for the most part, spontaneous,but theydo direct
it into channelsof generalusefulness." The only supporting
evidenceis a referenceback to ProfessorTaussig.
I8. The economistsof the early nineteenthcenturywho
consideredthe question were as definiteas ProfessorJ.B.
Clark that inventionswould practicallycease if the patent
systemwere abandoned. JeremyBenthamwas in no doubt at

40

ECONOMICA

[FEBRUARY

all (RationaleofReward): " With respectto a greatnumberof

inventionsin the arts, an exclusive privilege is absolutely
necessaryin order thatwhat is sown may be reaped.... He
who has no hope thathe shall reap will not take the troubleto
sow." JohnStuartMill's argumentwas similar. (Principlesof
Book V., ch. x, s. 4.) As ProfessorTaussig
PoliticalEconomy,
assumedthatthepatentsystemwas responsaid, theutilitarians
sible forthe greaterpart of inventingactivity. The question
which they one and all failed to ask themselves,however,is
what these people would otherwisebe doing if the patent
system were not divertingtheir attentionby the offerof
monopolisticprofitsto the task of inventing.By what system
of economic calculus were theyenabled to conclude so definitelythatthegain ofanyinventionsthattheymightmakewould
not be offsetby the loss of otheroutput? By no stretchof the
imaginationcan the inventingclass be assumed to be otherwise unemployable. Other product which is foregonewhen
scarce factorsare diverted in this way completelyescaped
theirattention.
In the view of Bentham,the patentsystem" produces an
infiniteeffect,and it costs nothing." Jean Baptiste Say,
although subsequentlymore critical,made a similarmistake
in his Traite(Prinsep translation,Book I, ch. xvii): " Privileges of this kind no one can reasonablyobject to; for they
neither interferewith, nor cramp any branch of industry,
previouslyin operation." The withdrawalfromthemof scarce
resourcesis ignored. To John Stuart Mill, again, the only
public loss was merelythepostponingofa partofthe increased
cheapnesswhichthe public owe to the inventor.
Manufacturers,although some of them were inventors
themselves,who gave evidenceadvocatingthe abolitionof the
patent system before a Select Committeeof the House of
Lords in I 85 I, were no doubt enabled by self-interestto
perceivethelossmoreclearly.-I. K. Brunel,forinstance,believed
thatbecause of the patentlaws people spent theirtime trying
to invent,who would do betterforthemselvesat otherthings.
In particular,he maintainedthat workerswasted theirtime
and ruined themselves,tryingto thinkout patentableinventions,when developmentwould be much quicker if theywere
and refinenot thus distractedfrommaking improvements,
mentsof a non-patentablekind. In the 'sixtiesJamesStirling,
famous in anotherconnectionfor his rebuke of John Stuart
Mill at his capitulationto a sentimentally" soft school of

I934]

ECONOMIC

THEORY

CONCERNING

PATENTS

41

political economy," emphasised the dangers of an overstimulationof inventionsby the patent system. Yet at the
beginningofthiscenturyProfessorJ.B. Clarkwas stillwriting:
"If the patentedarticleis somethingwhich societywithouta
patentsystemwould not have secured at all-the inventor's

monopoly hurts nobody. . .

His gains consist in something

which no one loses, even while he enjoys them." No inkling

herethatthepatentinducementto inventdivertsscarcehuman
effort
fromotherproduction,and thatthe subsequentexploitaof
tion patentsagain interfereswith the dispositionof scarce
factorswhich would obtain under competitiveconditions.
I 9. If the views of ProfessorsTaussig and Pigou, thatthe
amountof inventiveactivityis in the main unaffectedby the
inducementofferedby patent monopolies, come to be substantiated,the traditionalcase for the systemwill have been
destroyedwithoutfurtherneed for criticism; but it would
surely be unreasonable to accept their view withoutstrong
supportingevidence. It seems unquestionablenot only thata
veryconsiderablevolume of inventiveactivitymust definitely
be induced by price conditions,but also that that activityis
divertedby price movementsfromother types of endeavour
as well as fromotherfieldsof invention. Entrepreneursfaced
or with new opportunitieswill divertnot
with new difficulties
only theirown attention,but thatof everytechnicianwho can
be spared, fromthe business of routineproductionto thatof
urgentinnovation. They will not relyexclusivelyupon those
typesofprofessionalinventorswhoseautonomousoutputpours
out in a streamof unvaryingsize, and some of whom may be
whichtheentrepreneurs
prepared,inreturnfortheinducements
can offer,to transfertheirspontaneousactivityto theirservice.
It cannot be assumed that all who are capable of innovation
spend theirwhole lives in inventing. Many of them are also
able administratorsand productioncontrollers; some in the
past have been clergymenand barbers,and in our own time
thereis a steadyflowof techniciansfromthe researchlaboratoriesof pure scienceintothoseof industrialinventionand out
again. Price changes, particularlyif prices appear likely to
take a new "set," may thereforebe expected to lead to an
increaseof inventionand a decline in otheractivity.
The patentsystemmakes possible this typeof price movement. It enables thosewho have the monopolyof the rightto
use a patentedinventionto raise the price of using it for the
whole termof the patent,withinthe limitsfixedby the elas-

42

ECONOMICA

[FEBRUARY

ticityof demand,and in-thatway to derivea largerprofitfrom

the inventionthan they could otherwiseobtain. The effect
must surelybe to induce a considerablevolume of activityto
be divertedfromotherspheresto the attemptto make inventionsofa patentabletype.
2o. It will be convenientat thisstage to considerbothkinds
of diversiontogether,i.e. from other kinds of activityinto
invention,and fromone kind of inventiveactivityto attempts
to make such patentableinventionsas will, in the expectation
of the inventoror of those directinghis efforts,
produce the
greatestpossible remunerationunder a regime of monopoly.
It will be recollectedthatProfessorsTaussig and Pigou declare
the meritof the patentsystemto be the inducementit offers
for the productionof inventionsof greater" general usefulness " thanwould otherwisebe made.
It will be clearfirstofall thatthereis one class of inventions,
on the makingof which the patentsystemcan exertno effect
at all, namelythosearisingspontaneously,
whetherby accident
or as manifestations
ofan " instinctof contrivance,"in persons
whose inventingis uninfluencedby all economicstimulus. It
is hardlylikelythatthisclass is veryimportantin volumeor in
kind.
The makingof all othercategoriesof patentableinventions
may, however,be induced by the patentsystem. It does not
follow, of course, that they will necessarilyall be made in
response to this inducement,for in the absence of patentsa
sufficientprice incentivemight be present,in open market
conditions,to directinventiveactivityto the same field; but
in so far-asthe inducementis furnishedonlyby the expectation
of a patentmonopoly,a diversionof resourcestakes place and
other productionis foregone. What grounds are there for
concludingthatthe outputinduced by this typeof monopoly
has any greaterclaim to be regardedas " generallyuseful"
thanthatwhichwould have been induced in its absence by the
price conditionsof the open market? I suggest that such a
conclusionrunscounterto all generalpresumptionsconcerning
the dispositionof scarce productiveresourcesin a r6gimeof
monopolistic control as contrastedwith open competition.
The nearerthatmarketconditionsapproximateto pure comor
petition,the less likelydoes it become thatany entrepreneur
propertyownerwill findit possible to influencepricesby withholding supplies, and the more likelyin consequence does it
becomethatall resources,beingput to theuses whichmaximise

I934]

ECONOMIC

THEORY

CONCERNING

PATENTS

43

the incomesof theirowners,will yieldtheirgreatestaggregate

product. In perfectcompetitionall productionwill take place
at lowest cost per unit produced. How can it be argued that
any departurefromsuch a condition,induced by the grantof
monopolypowerto raisepricesand increasea sectionalincome
byrestricting
output,willachievegreater" generalusefulness"?
The onlyconceivablelineforsuchan argumentto takewould
seem to be that ultimately
the inventionsof a patentabletype
which will be made in responseto the grantof a temporary
monopolywill possess a sufficiently
greatergeneral-usefulness
than would resultfromthe other inventionsor otheroutput
immediatelyforegone,to outweighthe immediateloss. There
surelyexistsno scientificreasonformakingany such claimfor
patentableinventionsin general,as comparedwith alternative
output. It is conceivablethat exceptionalcases may arise, in
which a new mechanism becomes socially desirable for a
specificand veryspecial purpose,and thatprolongedresearch
and experimentseem inevitablefor its perfection,while no
remunerationis likelyto be forthcoming
in the interimfrom
modelswhichare notwhollysuccessful. In such cases, special
inducementsmight be necessaryto secure the end in view.
Thus, forexample,ifa flyingmachinewere needed capable of
non-stopflightsroundthe Equator, and machineswithsmaller
ranges were of no utility,entrepreneurs
mightnot be forthcomingand theremightbe a case fora special fundto finance
the making of the invention. A patent systemapplicable to
inventionsin general clearlycannot be justified,however,by
exceptionalcircumstancesof this kind. Economics, in short,
has not yet evolved any apparatus of analysis which would
enable us to pronounceupon the relativeproductivity
of this
particularinfantindustry-the productionof inventions; nor
does it provideany criteriaforthe approvalof thismethodof
special encouragement.
The contentionstillremainsforconsiderationthatthe
2I.
patentsystemis necessaryin orderto secure the exploitation,
ifnottheproductionofinventions.The mainargumentis that
will be reluctantto investin plantwhichothers
entrepreneurs
may also acquire for purposes of competition. It need not
detain us for long. It cannot be assumed that patentable
inventionsin generalnecessitatenew investmentin such large
unitsthatfearsof duplicationwill providea frequentdeterrent
to entrepreneurs.It is stillexceptionalfora singlespecialised
productiveunitto be sufficient
to meetthe bulk of thedemand

44

ECONOMICA

[FEBRRUARY

fora product. Neithercan it be assumed thatinventorswould

lost the monopolyover
cease to be employedifentrepreneurs
theuse of theirinventions.Businessesemploythemto-dayfor
the productionof non-patentableinventions,and theydo not
do so merelyfor the profitwhich prioritysecures. In active
competition,the condition in which new devices are most
promptlyimitated,no business can affordto lag behind its
competitors.The reputationof a firmdependsupon its ability
to keep ahead, to be firstin themarketwithnew improvements
in its productsand new reductionsin theirprices.
A hundredyears ago it was also argued as a meritof the
patentsystemthatit providedan inducementto inventorsto
make public the natureof theirinventionsso thattheywould
eventuallybe generallyavailableforwiderexploitation.When
businessesweresmall,and processesmightremainone-manor
familyaffairs,secrecy and monopoly might indeed persist
longerin open competitionthanunder the patentsystem,just
as it is reputed to do still within the Maskelyne familyof
conjurers. But the conditionsof industrialproductionhave
changed in this respect. With large-scalemanufacture,few
valuable processescan now be conductedon so small a scale
that prolongedsecrecyis feasible. Possibly-it is a question
requiring intimate technical experience-there may exist
chemicalprocessesin which the natureof the productdefies
and
of themethodof manufacture,
analysisand reconstruction
in which the nature and proportionsof the ingredientscan
be maintainedas the secretof a few people; but
effectively
such cases, if theyindeed existoutside the pages of detective
fictionand sensationalliterature,must surelybe exceptional,
and unlikelyto be eradicatedby the inducementsof temporary
patentprotection.
basis of the patentsystemis indeed as
22. If thetheoretical
uncertainas this analysis suggests, the actual provisionsof
patentlegislationcannotbut be arbitrary.It is impossibleto
share JeremyBentham'senthusiasm. To him " an exclusive
privilege is of all rewards the best proportioned,the most
natural, and the least burthensome." . . .

" [A

patent]

uniteseverypropertywhichcan be wishedforin a reward. It

exemplary,
characteristic,
is variable,equable, commensurable,
tocompensation,
subservient
frugal,promotiveofperseverance,
popular, and revocable." I propose to referto a numberof
featuresof the patentsystemas it existswhichare of particular
relevanceto the precedingdiscussion.

I 934]

ECONOMIC

THEORY

CONCERNING

PATENTS

45

23. There is firstthe questionof the typesof innovation

whichare coveredby the patentlaw. A verygreatdeal of
invention
goes on outsideits range,withoutanyinducement
beyondthatprovidedby theoperations
of the open market.
One needonlypointto theso-calledfashiontrades,in which
therateofinvention
reachesprobably
itshighestpoint,and to
the non-patentable
refinements
and improvements
everyday
beingaddedtoall kindsofindustrial
product.In thelastthree
hundred
yearstherehasbeenan enormous
amountoflitigation
inthiscountry
concerning
thenatureof" a newmanufacture."
To the studentof economicsit makes instructive
reading.
for
"Biological inventions
"-innovations in plant-breeding
the productionof special types,forinstance,whichare of
undoubtedeconomicsignificancein the agriculturaland
pastoralindustries-areexcluded.Theymaybe freely
adopted
by competitors.Yet theycontinueto be made. Medical
practitioners,
partly
no doubton accountoftraditional
altruism
and partlyas theresultof thelead, if notthedrive,of their
professional
associations,
make verylittleuse of the patent
laws; and yetthe workof medicalinvention
goes on. The
wholefieldofscientific
discovery
lies outsidethescopeofthe
system,althoughinventors
and manufacturers
mayowe the
fortunes
theyhavemadefrompatentedproductsin themain
to the workersin pure sciencewhosediscoveries
theyhave
applied. The taskofdistinguishing
a scientific
discovery
from
its practicalapplication,whichmay be patentable-as for
to themost
examplein thefieldofwireless-is oftenbaffling
and
discontented
subtle lawyer. Associationsof interested
scientists
do notfailto presstheirclaimsforinclusion.There
are thenotorious
Ruffini
forthegrant
proposals,forinstance,
ofmonopolies
toscientists
covering
theirpublisheddiscoveries.
in thefieldof minorindustrial
thereis
Similarly,
inventions,
tosupplestrongpressure
foran extension
ofthepatentsystem,
ment the registration
of designsby a short-period
patent
on the
protection
of particular
arrangements
of mechanism,
linesoftheGermanGebrauchsmuster.
How can it be shown
" classofinnovations
thatthe" patentable
possessesso much
greaterusefulnessthan all these othersthat it should be
speciallyencouraged
bymonopoly
?
itself.Itoperates
ofreward
24. Secondly,
thereis thesystem
in
in favourofonlyone or one groupofthemanyparticipants
the progressof an invention
fromthe birthof the scientific
discoveryto the emergenceof the patentmonopoly.The
D

46

ECONOMICA

[FEBRUARY

scientificdiscoveryitselfmay be the culminationof the

researchand of the tentativehypotheses
of manyscientific
workers:thepossibility
of applyingit in a particular
device
mayoccuralmostsimultaneously
tolargenumbers
ofindustrial
technicians;priorityin the formulation
of the provisional
patentapplication
maybe a matterofdaysor ofminutes.But
one application
alonecan satisfy
therequirement
ofthismanmadelaw thatthepatentshallbe grantedto " thefirstinventor,"whoreceivesa monopoly
oftheuse ofitforsixteenyears,
in thiscountry,
withthepossibility
ofan extension
foranother
ten. The grantof a monopolyrendersalmostnugatorythe
laboursof all the rest,forany refinements
theymaysubsequentlyinventin thistypeofdevicewill,ifpatented,
be much
reducedin value by the requirement
thatacknowledgment
shallbe made,in thepatentspecification,
oftheprior" invention." Lotteriesin open competition
theremaywellbe; but
thelottery
ofthepatentsystem
awardsbutoneprize,andthata
whilethosewhosubscribemostofitsvaluemaybe
monopoly,
precludedfromqualifying
fortheprize.
The existenceof a monopolyin factoperatesto divertthe
attention
ofinventors
fromwhatmaywellbe themostfruitful
fieldforfurther
innovation.In the case of inventions
which
cannotbe patented,
a particularly
usefuldeviceat onceattracts
the attentionof otherspecialistswho seek,maybecompetitively,to refineand improveit and to adaptit to thewidest
possibleuse. The blockingeffects
ofpatentmonopolies
check
these surelybeneficialtendencies,;competitors,
insteadof
helpingto improvethebest,arecompelledin self-preservation
to apply themselvesto the devisingof alternatives
which,
thoughpossiblyinferior,
will circumvent
the patent. It is a
particular
case,butone whichis verywidespread,
ofthemaldistribution
of resourceswhichis consequentupon theexistenceofmonopoly.
The termofthepatentgrantmustinevitably
be arbitrarily
evenifeachinvention
determined,
wereseparately
considered.
A fixedperiodofyearsforall and sundryexpediently
avoids
countlessdifficulties,
therangeofwhichmaybe gaugedfrom
theefforts
ofthecourtstodetermine,
inthecaseofapplications
forextensions,
the" natureand merits" of an invention;in
orderto decidewhether
thepatenteehas been " inadequately
" and theperiod,ifany,forwhichan extension
remunerated
shall be granted. Economistswill well appreciatewhy the
of i862, whichincludedLord Overstone,
RoyalCommission

I 934]

ECONOMIC

THEORY

CONCERNING

PATENTS

47

was stronglyopposed to any extensionswhatever.Yet ifthere

were a parallel provision,that any person interestedmight
apply at any timeduringthe lifeof a patentforits revocation
on the grounds that the patentee was already more than
adequately remunerated,some interestinglegislationwould
certainlyensue, and the decisions of the Courts, however
lacking in principle,mightwell be preferableto the existing
fixedminimumterm.
25. Special interestattachesto the provisionswhich have
been gradually insertedin the patent laws during the past
hundredyearswith the object of mitigating" abuses " of the
system,meaningtherebysuch use of the monopolypower as
appeared obviouslyin conflictwiththe generalinterest.From
the I 840's, side by side withthe movementforthe simplificationofthepatentlaw,therecontinuedfora generationa strong
agitationfor the abolition of the whole system. It had the
supportof The Timesand of The Economist.The strongRoyal
Commission of i 862-4, though precluded by its terms of
referencefromdoing morethanrecommendamendments,was
clearly opposed to the whole system. Professor Thorold
Rogers read two papers against both patentsand copyrights
before the British Association in I864 and I865; while
carriedon a conMembers of Parliamentand manufacturers
tinuous propaganda. The movementwas not confined to
England; in thelate 'sixtiesa numberofeconomistsin France,
including M. T. N. Benard and Michel Chevalier, wrote
against patents; in Germany,Bismarckattackedthe system
in I 868 in theNorthGermanFederalParliament; in Holland,
thepatentlaw was repealedin I 869. In England, however,the
Act of I852 gave suchan impetusto thepatentingofinventions
that in the 'seventiesthe attemptat abolition was gradually
abandoned in favourof the more easily practicablepolicy of
mitigatingits mostobvious evils. The officialexaminersystem
of search foranticipationsof new claims was introducedand
graduallyextended; the cost of securingpatentswas reduced,
forthe benefitof poor inventors,and paymentsreducedin the
earlyyearsso thatinventorsshould not be compelledto allow
theirprotectionto lapse beforetheyhad had a reasonabletime
in which to arrange for the exploitationof their invention.
Internationalconventions were arranged to secure more
reciprocityin the treatmentof foreign inventions,and to
reduce in that way the competitionto which manufacturers
under licence were otherwiseliable fromforeignproducers

48

ECONOMICA

[FEBRUARY

outside thejurisdictionof the laws of this country. I propose

in the remainderof thispaper to confinemyselfto two onlyof
which have been introducedinto the patent
the modifications
legislationof thiscountry,viz. thesectionsgoverningthegrant
of " compulsorylicences" and the more recentlyintroduced
"licences of right."
26. Provision has been made for fiftyyears now for the
grantof compulsorylicencesin the eventof certainallegations,
which could be made by any person interested,being found
by the competenttribunalto be true. From the first,one of
thegroundshas been thatthe patentis not beingworkedin the
United Kingdom, and that satisfactoryexplanationsof the
ofprofailureto do so are notforthcoming.This manifestation
inrelationtothequestionofthe
particularly
tectionis ofinterest,
effectof such provisionson the amount of output which the
patenteewill findit profitableto produce,but it need notdetain
us here.Anothergroundhas fromthefirstbeenthatthedemand
forthepatentedarticlein the United Kingdomis notbeingmet
to an adequate extentand on reasonableterms. The Board of
Trade originally,then subsequentlythe Judicial Committee
of the Privy Council, and now the Comptrollerof the Patent
Office(subject to appeal to the Courts) have in consequence
had thrownupon themthe dutyof deciding,in cases in which
the law confersa monopolyupon an inventorin orderthatby
restrictingthe use of his inventionhe may derivean income,
whetherthe output is " adequate " and the terms " reasonable." The competitiveoutputbeingruledout,whatmonopoly
outputand price can be more " reasonable" than thatwhich
pays the monopolistbest ? The handlingof this problem by
the appointed tribunalsonce more makes instructivereading
for the student of economics: but the responsibilityof the
tribunaldoes not rest there. It is called upon, in addition,to
settlethe termsupon which compulsorylicences are granted.
The Royal Commission of I862 had recommendedagainst
compulsorylicencespreciselybecause it regardedthe practical
of fixingthepropertermsas insuperable. " On this
difficulties
question of price" theyurged "individual opinions must be
would notbe satisfactory
expectedto varywidely." Arbitration
"where neitherprecedentnor custom,nor fixedrule of any
kind could be appealed to on eitherside." The Patents and
Designs Acts to-daymake an amusing endeavourto help out
the unfortunateassessor by directinghis attentionto certain

934]

ECONOMIC

THEORY

PATENT S

CONCERNING

49

guiding considerations. The firsttwo are worthyof notice

here:
[Patents and Designs Act, I 907 (as amended)

Section24

(I)

(b)]

"(i) he shall, on the one hand, endeavour to secure,the

widest possible user of the inventionin the United
Kingdom consistent with the patentee deriving a
reasonable advantage fromhis patent rights;
"(ii) he shall, on the otherhand, endeavourto secure to the
patenteethe maximumadvantage consistentwith the
inventionbeing workedby the licenseeat a reasonable
profitin the United Kingdom."
Possibly those responsibleforthis formulamightbe satisfied
if the assessor contrivedto induce both the full competitive
outputand the maximummonopolyprofitat the same time.
It is enlighteningto examinethe extentto whichsince I 9 I 9
the Comptrollerhas attemptedto interpretthese instructions.
applications,manyof
By the end of I 93 I, out of less thanfifty
whichwere subsequentlywithdrawn,nine grantswereactually
made. Three were howeverdischargedon appeal, and in the
case of the remainingsix it appears that it was not necessary
forthe Comptrollerto fixterms.
The same-dutyof fixingterms,failingagreementbetween
the parties,fallsupon the Comptrollerin the case of Licences
of Right. In the same period, 7,533 patentswere endorsed,
but in only seventeencases was an applicationmade for the

of terms. At the end of

settlement

I93I,

threeof these

applications had been withdrawn,one was suspended -by

requestof the parties,and thirteenwere still pending. In no
case, therefore,had the Comptroller been persuaded to
attemptthe featof followingthe instructionsof the Act.
2 7. Licences ofRightfurnish
us withan economiccuriosity.
The I 9 i9 Act, presumablywiththe object of inducingmonopolist patenteesnot to restrictso narrowlythe supply of the
inventionduringthe lifeof the patent,offersthe remissionof
halfthe feessubsequentlypayable to all patenteeswho request
thattheirpatentbe endorsed" Licences of Right," the effect
be entitledas of rightto a
being thatany personmaythereafter
licenceto use the inventionupon termsto be agreed or settled
by the Comptroller. The large number of endorsements7,533 to the end of I93 i-is striking,although of course a
smallpercentageof the totalnumberof patentsin forceduring

50

ECONOMICA

[FEBRUARY

being
the period(about 20,000 new completespecifications
addedeachyear). The factthatin all casesthelicencefeehas
bythe
recourseto arbitration
without
beenfixedbyagreement
wouldsuggestthatthepatenteesecuresa royalty
Comptroller
fromthatwhichhe believeswill adjustthe
not fardifferent
totaloutputto the amountwhichmaximiseshis monopoly
profit.
of
thattheadjustment
If we wereto maketheassumption
volume of output to given price conditionstakes place
havebroadlythesameprofirms
and thatdifferent
promptly,
ductioncosts,thepositionwouldthenbe thatthevolumeof
outputwouldremainmoreorlessthesameas thatwhichwould
emergeunderthe ordinarypatentsystem,whilethe patent
half its revenueto littlegood
officewould have forfeited
is concerned.We cannot,
public
general
the
as
purpose,so far
firms
costsofdifferent
production
that
either
assume
however,
are identical,or thata sole licenseewill rapidlyexpandhis
outputand sales to the pointof maximumnet revenue. It
appearsveryprobablethatthe Licence of Right
therefore
byenablinganyproducerto tryhishandat producing
system,
the operationof competitive
the patentedarticle,facilitates
whichhavelowest
outputin thefirms
forcesin concentrating
overa
ofproduction
therapidspreading
costs,and encourages
so thattheaggregateoutputis in fact
numberof producers,
increasedmorerapidlyto the pointof maximummonopoly
profit(if the patenteefixeshis termsto his best advantage)
be likely(ifitdoesnotin factexceedthat
thanwouldotherwise
amountfora time,to thelossofcertainlicensees).This device
servesto increaseoutput,forwithoutit the
certainly
-almost
wouldprobablynotas rapidlydecideto grantas
monopolist
manylicencesto theproducerswhosecostsare lowest.
so
injuringthe monopolist'sinterest,
Without,therefore,
himself
he
at
the
point
toremain
longas licencetermscontinue
selects,thelicence-ofrightsystemtendsto correctone ofthe
i.e. theslownessofthe
tothepatentsystem,
objections
practical
it
articles.
If, therefore,
of
patented
of
the
output
expansion
wouldconassumedthattheComptroller
couldbe reasonably
to evadethealarmingtaskof fixingterms,
tinuesuccessfully
the
therewould be muchto be said in favourof modifying
patentsystemso that licencesof rightbecamethe normal
inwhichthedevicewas first
practice.In thecaseofcopyright,
applied,theproblemof termscouldbe settled-ifcrudelyofso muchpercent.ofthepriceofthebook
a royalty
byfixing

1934]

ECONOMIC

THEORY

CONCERNING

PATENTS

5I

or gramophonerecord or piano-rollas the case might be.

So simple a solutionis hardlyapplicable to inventions,and if
disputes between patentees and licensees became frequent
rule would need to be devised.
some other rough-and-ready
28. Expedients such as licences of right, nevertheless,
cannotrepairthe lack of theoreticalprinciplebehindthewhole
patent system. They can only serve to confinethe evils of
monopolywithinthe limitscontemplatedby the legislators;
and, as I have endeavouredto show, the science of economics
as it stands to-dayfurnishesno basis of justificationfor this
enormous experimentin the encouragementof a particular
activityby enablingmonopolisticprice control.
There is to-daywidespreadalarmat thatincreasinglyrapid
rate of obsolescence of industrialequipment,which is the
reverseaspect of the quickeningof technicalprogress. Everywherewe encounterthe protestsof ownersof specialisedplant
and of specialised workers at -the changes which convert
and specialisedskillinto" surpluscapacity." In so far
property
as the new enterprisescompetefortheirresources,capitaland
labour, in open competitionwith existingbusinesses,economistshave stronggroundsforthe presumptionthatthe gains
from their success will outweigh the losses. If, however,
innovationis especiallyencouraged,to theloss ofotherproduction,by monopolyprice conditions,is it not conceivablethat
there may be relatively" too much inventionof the wrong
kind," and, in consequence, " too much " obsolescence and
displacementof specialisedability? Can it be thatthe patent
systemis in partresponsibleforour presenteconomictroubles?