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From Fourth International, vol.3 No.8, August 1942, pp.248-251.
Transcribed, Edited & Formatted by Ted Crawford & David Walters in 2008 for the ETOL.
The public exposures of the Nazi-US patent pools have for the first time focussed widespread attention on the present rôle of patents. Since the lid first blew off in March, in connection with the Standard Oil-IG Farbenindustrie patent exchange agreements, the public has had the opportunity to learn a good deal about the ways in which the American monopolies use patents to restrict production.
It is well to emphasize at the outset that patents are only a subsidiary means of achieving the formation of monopolies and cartels. The most important and basic force making irresistibly for monopolies and cartels is the “normal” functioning of the capitalist system with its constant accumulation and centralization of capital. Theoretically, anyone is free to manufacture aluminium for the basic aluminium patents have expired; yet it would be folly for any small capitalists to hope to enter the industry for Alcoa could easily crush any competition. Patents play no part, or very little in steel, shipbuilding or locomotive building, yet the capital needed to enter these fields is so large that it remains limited to gigantic concerns. The patents on artificial rubber held by the Standard Oil Company are not operative for the “duration,” yet the initial investment to manufacture artificial rubber is so huge that this industry from its birth will be part of the domain of large-scale monopoly capital.
Still, patents are an important subsidiary method of hastening the process of monopolization. Lenin names three subsidiary sources of monopoly: control of raw material, the banks and colonial policy. To these today must be added the control of patents by the monopolists, above all in America and in Germany.
The competitive period of capitalism is today half a century irrevocably behind us. In the process of competition, capitalism destroys competition. Competition is turned into its opposite: monopoly. A point is reached in each industry where only one firm remains: an absolute monopoly; or so few remain that they are able to form a cartel: for long periods of time to come to an agreement to cease their competition, fix prices, limit production, allocate exclusive regional and international markets, and keep out any newcomers who would enter the business. Decadent capitalism no longer faces an expanding market, but one that is limited. This market must be divided, either by agreement, such as in a cartel, or by economic or military force when one group of capitalists no longer is satisfied with the existing division of the market. The methods are used alternately.
The rôle of patents has undergone a radical transformation. In form the patent system is much the same as it was during competitive capitalism when its purpose was to encourage invention and thereby aid young capitalism win the world market with cheap goods. Each stage of capitalism has placed a different content into the patent form. The main function of patents today is to bolster the monopolies of the large corporations.
The patent is a legal monopoly and as such is an admirable instrument for the purposes of modern capitalist monopoly. Powerful concentrations of capital and monopolies of today, such as the Aluminium Company of America, the American Telephone and Telegraph Company, General Electric, Westinghouse, Western Union, the United Shoe Machinery Manufacturing Company and International Harvester, had their start in patent control and today rest strongly on patent control.
Patents are weapons of defense and offense in the hands of monopolies. They use patents to strike down would-be competitors. The life of a patent grant is 17 years; upon expiration anyone can use the process. Therefore every concern which is founded on patents is interested in securing a supply of supplementary patents to extend the life of the monopoly. Even though the basic patent would be available for general use, the improved version in the hands of the original patentee enables it to maintain its dominant position.
Monopolies are constantly invading other industries, particularly related industries. The automobile industry dominates the aircraft industry; General Motors manufactures electric refrigerators, oil burners and air cooling devices; the telegraph industry attempted to subjugate the young telephone industry; the American Telephone and Telegraph Company attempted to secure hegemony over the radio industry and sound motion pictures [1]; General Electric is interested in machine tools; Standard Oil in chemicals that can be derived from petroleum.
For all these reasons the monopolies must make sure that all possible patents are kept in their hands – not necessarily for use, but as we shall see, also to keep competitors out.
To attain these ends the monopolies set up huge industrial research laboratories. Only incidentally are these laboratories centers of science and technology. Above all they are patent factories; they produce the raw material of monopoly.
About 1905 the large industrialists began to understand the monopoly uses of industrial research laboratories. Previously the great majority of the large capitalists were content to let the government bureaus and universities handle this work. But the products of government and university research laboratories are not patented. The monopolies therefore – especially when they realized that this provided a new means of evading the Sherman anti-trust law – began developing their own laboratories.
In 1921 there were 500 industrial research laboratories spending $25,000,000annuallyand employing 6,600 persons. In that year only about three per cent of the patents issued went to large corporations. In 1938 there were 1,700 industrial research laboratories, with 32,000 workers, spending $200,000,000 a year. In that year the percentage of patents issued to large corporations increased to 17 per cent, while those issued to individuals dropped from 72 per cent in 1921 to 43 per cent in 1938.
Eighty-five industries maintain research facilities through trade associations. The product of these industrial research laboratories are available to all members of the association.
There are 170,000 manufacturing plants in the country. About one per cent of these have laboratories. Those that have laboratory facilities are of course the largest concerns.
Among the largest, if not the largest, industrial research enterprise is the Bell Laboratories, which is a unit of the AT&T It employs over 4,600 workers. General Electric, Westinghouse, du Pont, General Motors, Chrysler, RCA, International Harvester, Standard Oil, Union Carbide and other concerns have comparable institutions.
In these patent factories, the inventor is no longer the individualist artisan of the period of competitive capitalism, but a proletarian. The product of his toil belongs not to him but to the capitalist. The equipment used in the manufacture of patents are huge aggregations of expensive scientific equipment, without which the researcher would find it impossible to work.
At the same time the very nature of invention has been transformed. The work of invention has become cooperative in character. No longer does an inventor make a whole new product by himself – just as the shoe worker no longer produces the entire shoe. The labor of invention has been now subdivided into specialities. In the production of a patent, a number of specialists cooperate: the metallurgist solves his problem, the physicist his, the mechanical engineer his, the time and motion study man his, etc. The finishing touches are put on the work by the patent attorney and the end result of this cooperative labor is a patent, owned by the corporation.
Invention has lost its apparently accidental character and has become planned and predictable. [2] Startling inventions are no longer expected. The problems of invention are no longer the sweeping and basic ones of the past, which often founded entire industries. The aim of the research laboratory is the minute accretion of improvements over preceding processes. It is no longer the discovery of the steam engine, but the improvement of a screw in some hidden part of the machine. [3]
The entire new situation of the modern inventor and the new organization of invention was admirably summarized in the following dialogue at the Hearing of the TNEC on Patents:
Question: Are your research workers under obligation to give the company the patents which they may derive on the discoveries they make?
Mr. Baekland (Vice-President of the Bakelite Corporation): Oh, yes. We supply them with the equipment, we direct what work they are to do ... The great technical advances that we have witnessed have been the results of research work, either by individuals or by organized research in the laboratories of large companies ... New products, new useful things, new ways of doing things, can only come from carefully applied work done in research laboratories ...
Question: In other words, we couldn’t make the advances which are being made without the extensive and expensive equipment which is supplied by these large laboratories?
Mr. Baekland: That is true.
Question: It is the collective and cooperative enterprise rather than the enterprise of individuals which is bringing the greatest returns to civilization?
Mr. Baekland: Very likely.
The remaining “independent” inventors have an independence far more apparent than real. The only market for the invention of the “independent” is the monopoly, the patent cartel or the large corporation. He cannot hope to go into business for himself as in the days of competitive capitalism. Since his invention is nearly always an improvement over some patented process, those who control the basic patents dominate the independent inventor.
For example, if the United Shoe Machinery Manufacturing Company, which has a complete monopoly of the field, does not take the independent’s improvement in the method of manufacturing shoes, the inventor’s market is exhausted.
The fact that the research laboratories have become the most important sources of inventions and patents and that the independent inventor is forced to sell his patent to the corporations is reflected in the following figures on the concentration of patent ownership:
|
Distribution of Ownership of Patents |
||||
|---|---|---|---|---|
|
|
|
1921 |
|
1938 |
|
Individuals |
72 |
42.9 |
||
|
17,571 Small Corporations |
23* |
34.5 |
||
|
Foreign Corporations |
2* |
5.4 |
||
|
493 Large Corporations, Including Subsidiaries |
3* |
17.2 |
||
|
*Approximation, very close. |
||||
In the above figures a number of facts must be noticed. “Small” corporations include any running up to capitalization of $50,000,000; the firm capitalized at $49,999,999 is a “small” concern! The patents belonging to “individuals” are, in the overwhelming majority of cases, on some unimportant trinket. The important patents generally belong to the corporations, above all the large corporations.
Each technical contribution, no matter how small, is awarded a monopoly by the patent office. To manufacture an item, for example, the vacuum tube may often require a large number of these patents. As the ownership of the patents necessary in the production of the item may often be dispersed into many and not seldom opposed hands, the atomization of patents handicaps and sometimes paralyzes production. One of the methods of overcoming this barrier is the patent pool. This is a device for the exchange of patent rights among those participating. From the patent pool it is a short step to an agreement to “stabilize” the industry by establishing non-competitive monopoly prices, by keeping out interlopers through refusing them membership in the pool, by restricting production and dividing the market either on a technological or territorial basis, nationally and internationally. Or the companies coming together to set up a cartel may use a patent cross-licensing agreement or pool as a camouflage to avoid the anti-trust laws. Thus a cartel is brought into being.
A classic example of how the patent pool operates is offered by the glass container industry. This industry is dominated by the Hartford-Empire Company which owns all patents on glass container machinery. This concern does not manufacture machines but carries on research and experimentation. Its capital is represented mainly by its 700 patents. Its entire income is derived from license fees and royalties received for allowing manufacturers to use its patents. The Hartford-Empire uses its patents as a weapon to “organize” the industry by establishing non-competitive prices for glassware, keep out intruders and divide the market among its licensees. In the testimony before the TNEC a “policy” letter of the Hartford-Empire was introduced. It stated:
“Consequently we adopted the policy ... of restricted licenses; that is to say (a) we licensed the machines only to manufacturers of the better type, refusing any licensees who we thought would be price cutters; and (b) we restricted their field of manufacture in each case to certain specific articles with the idea of preventing too much competition ...”
GE, through the International General Electric Company, has entered, according to the US Tariff Commission, into “numerous agreements with foreign companies which provide for the exchange of patent licenses and manufacturing information, and for the establishment of territorial limits to competition between the parties of the agreement.”
By an international patent exchange agreement with the Krupp Company of Germany, General Electric obtained the right to the Krupp patents on tungsten-carbide, used in hardening machine tools. It secured the agreement of Krupp not to invade the American market and not to license any other company in the United States to use the German concern’s patents. In return, the GE agreed to recognize Krupp’s right to dominate the tungsten-carbide market abroad and use GE’s patent. As a consequence of its monopoly the GE subsidiary, the Carboloy Company, was able to raise its price on tungsten carbide from $48 to $453 a pound. The price was subsequently reduced to $205. The Carboloy Company granted patent licenses to five small producers only on the condition that they would not undercut GE prices.
The question has often been asked: Do monopolies suppress inventions? When this question is put to representatives of monopolies it evokes indignant denials. But the facts give the lie to the spokesmen of Big Business. It is true that certain inventions are used immediately after being discovered, but others are put into use only after a long intervening period, if at all.
The chronic conditions of the modern market is overproduction (apart from war time). This was evidenced by the 11-year depression. Why produce more with the market glutted; why introduce better machinery? The share of the market already allocated to each concern has been fixed by the cartel, where a monopoly does not exist. Secondly, large scale capital has money invested in its equipment and methods of production. This equipment might be made obsolete by new patents. For these reasons, there is plenty of cause for the capitalists to look with hostility at putting new inventions into use.
The attitude of monopoly capital to new inventions is suggested by the following testimony before the TNEC:
Mr. Cox: Is it your policy to take out patents to block the development of machines which might be constructed for the same purpose as your machines?
Mr. Smith (official in Hartford Empire): Only insofar as to protect our own machines ... If we think that a new idea might be developed over a course of the year by someone else, and we think the idea may affect our machinery and our licenses we may from time to time try to protect that idea ...
The Chairman: So in order to protect the inventions you now have it is naturally in your interest to secure whatever hold you can upon any competing idea or competing machinery?
Mr. Smith: Correct.
Mr. Cox: Not always with the view to using those ideas immediately, Mr. Smith?
Mr. Smith: Yes and no. Sometimes, yes, we use them; Sometimes we don’t.
The Federal Communications Commission Investigation of the Telephone Industry reported (1934):
“The Bell System has at all times suppressed competition in wire telephony or telegraphy through patents ... Moreover the Bell System has added to its telephone and telephonic appliance patents any patent that might be of value to its competitors. The policy resulted in the acquisition of a large number of patents covering alternative devices and methods for which the Bell System had no need.”
Words have lost their meaning if this does not mean patent repression.
Through patent agreements with American and foreign corporations, GE has achieved a dominant position in the country over the fluorescent lighting industry. According to a suit brought against the GE by the anti-trust division of the Department of Justice, because fluorescent lighting uses less electrical energy as compared to incandescent lighting the General Electric “has suppressed the use of fluorescent lighting. This policy has been carried out for the purpose of aiding the principal utility companies.”
Fluorescent lighting which gives a much better quality of illumination than the incandescent lamps used at present consumes about one-third of the quantity of electric power. What this would mean to the income of the power utilities is easily seen, General Electric has financial interests in various power concerns. There are interlocking directorates between General Electric on the one hand and the Consolidated Edison of New York, Edison Company of Illinois, Public Service Company of Northern Illinois, Southern California Edison and the Consolidated Gas and Electric Corporation on the other hand. To protect the income of the utility companies GE suppresses the use of fluorescent lighting and of course also suppresses the patents for fluorescent lighting.
Magnesium is much lighter, stronger and cheaper than aluminum, and for these reasons is looked upon by Alcoa as a dangerous competitor. The patents for the extraction of magnesium are held by the Dow Company. However, the patents for the alloys of magnesium with other metals is held by the Magnesium Development Company, a joint subsidiary of the IG Farbenindustrie and Alcoa. Unalloyed magnesium has but few uses; for wide use magnesium must be alloyed. According to the terms of the agreement between Alcoa and IG Farbenindustrie, the German concern recognizes Alcoa’s right to control the American market not only for aluminium but also for magnesium, while the IGF receives from Alcoa similar rights to dominate the German markets.
Alcoa imposed a limit on the production of magnesium to 4,000 tons a year and used its power to keep the price 33 per cent higher than that of aluminium. Only the needs of the war has forced a certain expansion of the production of magnesium.
It is true that monopoly does not suppress or curtail the use of all inventions. Those labor-saving technical improvements that would lower wage-costs are welcomed by monopoly. GE hesitates to introduce on a large scale fluorescent lamps, but if a new lathe that cuts labor costs is offered, it will be grabbed at once.
The economic effects of patent monopolies and cartels can only be considered by looking at the effects of monopoly as a whole. Through the monopoly the capitalists are able not only to exploit the workers, but also to victimize the consuming public by monopoly prices. The highly competitive industries, such as farming, are made to pay tribute to monopoly capital. To secure their machinery, power and raw materials, they are forced to pay monopoly prices, but they sell their commodities for prices fixed by competition. Thus the position of the middle class is further weakened.
Capitalism, by developing the research laboratory has developed the form of the future technology. To attain the full and unrestricted use of the research laboratory and modern technology it is necessary first to remove the capitalist control over the laboratory. This can be achieved only by the abolition of the capitalist ownership of all the means of production and the establishment of socialism.
1. The AT&T’s Bell Laboratories’ research work in radio produced patents which led to a clash and stalemate between AT&T and the RCA, then a subsidiary of the General Electric Company. The prize was control of the rising radio industry. Subsequently the two made a series of patent pooling agreements whereby each granted the other an exclusive territory within which to exploit the patents owned by both.
RCA received exclusive rights to wireless telegraphy, broadcasting, photo, facsimile reproduction and television while AT&T secured wire and wireless telephony, wire photo, facsimile and television service.
AT&T research in sound-recording and reproduction for motion pictures brought it again into conflict with the RCA. After a bitter struggle, the two contending forces saw the light and agreed to divide the industry between themselves, with AT&T receiving the lion’s share. AT&T is today an important financial factor in the motion picture industry.
2. Mr. Oliphant : Inventions can be nearly made to order, in terms of engineering ability?
Mr. Farley (Patent Counsel, Ford Motor Company): We feel so. (Temporary National Economic Committee Hearings, Part 2, p.280.)
3. Mr. Kettering (Head of Research Division, General Motors, in answer to a question: “... we don’t work on inventions, we try to solve some industrial problem; try to make a new piece of apparatus.” (ibid., Part 2, p.341)
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