Bell Telephone Patent Was No Poster Child For The Patent System

from the learning-from-history dept

As part of a research project on the history of government regulation, I'm reading a 1975 book about the history of the telephone industry. One of the most interesting things I've been learning about is the central role of the patent system in the telephone's early development. In 1877, Alexander Graham Bell was granted a patent that effectively gave him a 17-year monopoly over the entire telephone industry. I found the story particularly interesting because it's strikingly at odds with the standard policy argument for the patent system. It's generally claimed that without patents, inventors wouldn't be able to recoup the costs of their inventions. The story of the Bell patents undermines this argument in two ways. First, it's pretty clear that someone else would have invented the telephone within a few years if Bell hadn't done so. Indeed, inventor Elisha Gray famously submitted a preliminary application for his own telephone design a few hours after Bell. But I think an even more serious difficulty for the pro-patent argument is what happened after the Bell patents expired in 1894. Patent supporters assume that competition will rapidly drive the price of a new invention down to the point where an inventor is unable to recoup his investment. But in fact, despite an explosion of new competitors in the 1890s, the American Bell Company maintained its high rates, and its revenues continued to grow every year from 1894 to 1899. It seems that even in competitive markets, there's plenty of room for innovators to turn a profit.

I suspect that part of what was going on was simply that the United States was a big country, even in the 19th century, and there was plenty of room in the market for a number of companies to grow simultaneously. Also, American Bell was demonstrating that innovation is a process, not a burst of innovation. American Bell stayed ahead of its competitors largely by continuing to improve their technology, including adding new long-distance routes and switching from noisy one-wire circuits to much higher-quality two-wire ones. Once it could no longer rely on its patent monopoly, they were forced to stay ahead of competitors by continuously improving their technology. Obviously, consumers are much better off when companies have to compete for their business, rather than simply resting on the strength of a patent monopoly. I've got more discussion of the Bell patent story, and some quotes from the book, at the Technology Liberation Front.


Reader Comments (rss)

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  1.  
    identicon
    none, Jan 24th, 2008 @ 5:16pm

    Typo?

    what happened after the Bell patents inspired in 1894 ?

     

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  2.  
    icon
    Ron (profile), Jan 24th, 2008 @ 5:21pm

    What Happened

    Nothing. That was 80 years before the patent was issued.
    "In 1977, Alexander Graham Bell was granted a patent that effectively gave him a 17-year monopoly over the entire telephone industry."

     

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  3.  
    icon
    Ron (profile), Jan 24th, 2008 @ 5:26pm

    Sorry

    The nit-pickies can be fun sometime, but...
    While it may be true in theory that the consumer fares better when there is a competitive market, it seems we are not really that well off now. My cell bill is $80 for a fairly basic package from ATT, when I had a land-line the bill was $100 with a few options. Now, I guess the land-line business really had little competition; ATT and Verizon, but my mobile service has 5 major competitors and it seems that instead of competing on services and price we see more of a price fixing atmosphere.

     

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  4.  
    identicon
    Mark Tomlinson, Jan 24th, 2008 @ 5:29pm

    "In 1977, Alexander Graham Bell was granted a patent that effectively gave him a 17-year monopoly over the entire telephone industry".

    Seems odd. I could swear I was using a telephone as early as 1965.

     

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  5.  
    identicon
    Tim Lee, Jan 24th, 2008 @ 5:42pm

    Re: Sorry

    Funny, my cell phone bill averages about $45/month. And last time I had a land line, in 2003, my bill was $23/month. Somehow I doubt you were or are getting a "fairly basic" package.

     

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  6.  
    identicon
    AC, Jan 24th, 2008 @ 6:07pm

    Another Telephone Patent History Book

    Try reading the newly published (January 2008) "The Telephone Gambit" by Seth Shulman.

    FWIW. There is a difference between innovation and invention. Edison and the incandescent light bulb is a good example.

     

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  7.  
    identicon
    Hellsvilla, Jan 24th, 2008 @ 6:30pm

    Re: Re: Sorry

    Funny, my cell phone bill averages about $45/month. And last time I had a land line, in 2003, my bill was $23/month. Somehow I doubt you were or are getting a "fairly basic" package.

    *cough, cough, bullshit, cough, cough

     

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  8.  
    identicon
    angry dude, Jan 24th, 2008 @ 6:36pm

    another anti-patent drivel from techdirt "expert"

    "First, it's pretty clear that someone else would have invented the telephone within a few years if Bell hadn't done so."

    I give you an F grade for your logic, Mr. Lee

    You forgot one important condition: the existence of a patent system which motivated both Bell and Gray, as well as many other folks to spend their time and money tinkering with magnets and wires...

     

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  9.  
    identicon
    Anonymous Coward, Jan 24th, 2008 @ 7:09pm

    Re: another anti-patent drivel from techdirt

    Angry dude is just prejudiced by years of bitterness from an inability to monetize his amazing invention, the nokiapsule

    http://www.metacafe.com/watch/281402/a_peek_into_the_future/

    10GB memory!!

    as posted by angry dude at

    http://techdirt.com/articles/20070614/130621.shtml

    which it would seem he invented solely so he could have something to make a video about for his high school multimedia class

    "The idea is to do away with the size and enhance the features."

    That is a great idea angrydude

     

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  10.  
    identicon
    nonuser, Jan 24th, 2008 @ 7:11pm

    Elisha Gray

    I read there's a new book out from a researcher who thinks the Bell/Gray story was not so much about coincidence of invention as it was about out and out theft. According to this author, Bell didn't have a working invention when he filed, but seems to have been given access to Gray's filing by a dishonest employee at the patent office. After Bell returned to his lab, he abruptly changed his approach, and shortly thereafter he was talking to Watson on line one.

     

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  11.  
    identicon
    Roo, Jan 24th, 2008 @ 7:12pm

    There's no mystery here

    Bell's success after the expiration of the phone patent was due to the "network effect". If you're doing a research project, then you'll want to get clear on this phenomena. It helps to explain how some classes of products are subject to very different demand (and supply) curves than we might otherwise experience.

    For example, when you buy a car, the total available demand for cars is reduced by one unit; at least for some period of time. But in the late 19th century, the purchase of each phone INCREASED the demand for phones as there was then, one more person to talk to. This concept is also at the heart of the anti-trust actions against Microsoft.

    Roo

     

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  12.  
    identicon
    R. H., Jan 24th, 2008 @ 7:51pm

    Re: Sorry

    My brothers cellular bill from AT&T with the cheapest national cellular plan, unlimited data, and 1500 text messages is only eighty-something dollars a month. My Mothers plan which is only cellular is under $50. Her plan is about as basic as you can get with AT&T under contract.

     

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  13.  
    identicon
    angry dude, Jan 24th, 2008 @ 8:00pm

    Impostors be damned !!!

    Hey coward

    I know who you are and you don't know who I am

     

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  14.  
    identicon
    Ted L Nancy, Jan 24th, 2008 @ 8:12pm

    Re: Impostors be damned !!!

    Wow. Lots of drama on TechDirt Today.

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Anonymous Coward, Jan 24th, 2008 @ 8:13pm

    Yay, you've successfully made the talk about patents even more boring!

     

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  16.  
    identicon
    angry dude, Jan 24th, 2008 @ 10:35pm

    I'm gay.

    Dear TechDirt,

    I hate you. I have no friends and am failing all my classes. I make comments on things I know nothing about and flame everyone else. Unlike in real life I can't get a wedgie here so I'll keep reading and flaming despite declaring constantly how much this place sucks.

    Please Notice Me,

    Angry Dude

    PS: My mom gave me herpes.

     

    reply to this | link to this | view in thread ]

  17.  
    identicon
    Chronno S. Trigger, Jan 25th, 2008 @ 6:10am

    Re: Re: another anti-patent drivel from techdirt

    Ha ha. 10G ram, Bluetooth, Internal battery that charges off of body heat, GPS. I don't think this is his patent. Even Angry Dude isn't that dumb.

    To Angry Dude, you could respond with "this isn't my patent" instead of threats.

     

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  18.  
    identicon
    Vincent Clement, Jan 25th, 2008 @ 7:19am

    McNeil, the maker of Tylenol and Bayer, the maker of Aspirin, still produce Tylenol and Aspirin despite the availability of cheaper generics. They have expanded their Tylenol and Aspirin lines to include the whole "Cold and Flu", "Cold and Sinus", "Cold, Cough, Stuffy Nose", "Cold, Dry Cough, Stuffy Nose and Sinus", "Childrens", "Infants", and so on.

    So despite the competition from generics, both McNeil and Bayer have continued to innovate.

     

    reply to this | link to this | view in thread ]

  19.  
    identicon
    inc, Jan 25th, 2008 @ 7:45am

    Re: Sorry

    How do you figure competition does not drive down prices? Have you owned a cell phone for longer then a couple years? The prices for the first cell phones were astronomical. The have steadily been dropping while more and more features have added. Personally I hate the sleazy back door fees they tack on.

    The fact is that competition does drive down price as it forces businesses to provide better and smarter way to attract customers' money. That's the bottom line.

    Open a business in the web hosting industry and you will see what you could once charge $50 a month for hosting with 5MBs of space you can now pay $3 a month with 1.5GB of space and a whole host of better performing technologies.

     

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  20.  
    identicon
    z, Jan 25th, 2008 @ 3:48pm

    Meucci invented the telephone

    Actually Bell could patent the phone because Meucci didn't have the $10 fee that was required to renew caveat 3335 that he filed in 1871 with the title "Sound Telegraph". Congress recognized it in 2001 with resolution HRES 269 IH.

     

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  21.  
    identicon
    Cixelsid, Jan 30th, 2008 @ 9:20am

    Re: I'm gay.

    Comedy gold, man, comedy gold!

     

    reply to this | link to this | view in thread ]

  22.  
    identicon
    Jose_X, Jun 19th, 2010 @ 11:29pm

    As news of basic experimentation and theoretical formulations spread http://en.wikipedia.org/wiki/Maxwell%27s_equations#History , everyone all of a sudden had lots of ideas and a desire to make a bundle.

    Too bad a long broad monopoly was awarded.

     

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