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.

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Comments on “Bell Telephone Patent Was No Poster Child For The Patent System”

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Ron (profile) says:


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.

inc says:

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.

angry dude says:

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…

Anonymous Coward says:

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

10GB memory!!

as posted by angry dude at

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

nonuser says:

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.

Roo says:

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.


angry dude says:

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.

Vincent Clement says:

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.

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