The Ancient History of Patents

Historically, no system for granting patents of invention existed in the United States or probably anywhere in the world (except possibly Venice for about 100 years ending in the 16th century) until 1836. Prior to that, patents were indeed granted in the United States and elsewhere. But few of these patents underwent any systematic examination. Thus, many were in fact patents of importation, i.e., exclusive rights granted to entrepreneurs for introducing a technology pioneered abroad into a domestic market. The analogy between property rights and patents could only be made after the registration system was replaced by a system of examination, and the public gained access to the record of patents kept at the Patent Office. The first Superintendent of patents, William Thornton who served before patent reform in 1836, had a nasty habit of refusing to provide copies of issued patents to the public. In one case he refused to provide a copy of an issued patent to named inventor's own brother! On Thornton's (now almost incredible) reasoning, this measure was necessary to protect the trade secrets disclosed in the patent applications.

Going back further, to the period from which the term "patent" itself originated, one observes that patents of importation or invention were only one type of a whole array of rights or privileges that the sovereign could grant to subjects in society. Chartered corporations, such as the 1628 charter for the Massachusetts Bay Company shown, were another form of open letter, or "letters patent" that were issued by the sovereign. Land grants were also be made by letters patent, as students of the shameful legal history of the colonization of North America know. On a more positive note, not many citizens today remember or reflect upon how our self-government through a written constitution is related in this way to corporations, and so also (albeit indirectly) to our modern system of patent law. The first written constitutions were colonial corporate charters.

The Economics of Patents and Corporations

What does all of this ancient history have to do with patents now? The point is that patents, property, and corporations are entwined in subtle and interesting ways that have not been fully explored. This should caution us to consider lots of analogies, especially historically motivated analogies. Historical analogies can bear fruit in our understanding of the public and private costs and benefits of implementing a system of exclusive rights in ideas; but we can't too wedded any one analogy. What we're doing here in the United States right now is completely new in the history of the world. It can't hurt to consider the decisions we're making through a variety of lenses. In particular, the legal analogy between patents and corporations is an under-explored and under-appreciated one in current debates about patent reform.

As I described in an earlier post, some academics (including Prof. Paul Heald from the University of Georgia where Bessen and Meurer will be presenting their work) have begun to uncover the underlying economic mechanisms whereby patents and corporations perform similar roles in the structuring of human and physical capital, respectively. In a nutshell, one reason that investors form corporations is to shield (or "partition") invested assets from the investors' own creditors. Similarly, one reason inventors file patents is to partition the ideas they have at one point in time while working for one employer from the stream of ideas that they have had and will have over the course of their productive career.

This "intangible asset partition" role for patents is not one that comes out immediately through the analogy of patents to property rights. Yet is a very important one in accounting for the social benefits of the patent system. There is far less incentive for scientists or researchers to engage in potentially commerically valuable activities when they cannot be sure that they will internalize any benefit from those activities either through employment or part ownership of the profits from their work. And without the intangible asset partition of patents, trade secret lawsuits and contracts are the only way for inventors (and their prospective employers) to control who internalizes the benefits from inventive work.

Are patents more like property or more like corporations? Both. Neither. Why do you ask?