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The Patent System and U.S. Economic Growth
How has the patent system supported US economic
growth?
The men who led the Revolution and wrote the
Constitution were not wild-eyed revolutionaries.
They were eminently practical people who managed
to create the longest-living democratic system
on the planet.
Clearly, they must have done something right.
And one of those things was the patent system,
which began to spark innovation and economic
growth on a scale never before seen in the
world.
Only two months after America’s first patent
law was signed in 1790, Thomas Jefferson noted
that it had given a spring to invention beyond
his conception.
Within 13 years, America surpassed Britain
in the number of new inventions patented,
and by 1870, the U.S. was patenting more than
five times the number of inventions as Britain,
even though their populations were roughly
equal in size.
It was easy to see why America quickly became
the unrivaled leader of the Industrial Revolution.
Observers that were once dismissive of American
innovation efforts eventually took note of
how the U.S. patent system seemed to be stimulating
invention and economic growth at an unheard-of
pace.
Particularly, Sir William Thompson, a British
inventor and scientist attending the 1876
Centennial Exhibition in Philadelphia, observed
the amazing array of American inventions,
including Bell’s telephone, the Westinghouse
airbrake, Singer’s sewing machines, and
Edison’s improved telegraph.
Thompson concluded that:
“If Europe does not amend its patent laws,
America will speedily become the nursery of
useful inventions for the world.”
Even the British jurist Sir Henry Sumner Maine,
who had once argued that “the establishment
of the masses in power is the blackest omen”
for the future of invention, changed his tune.
He conceded that the U.S. patent system was
“one of the provisions of the Constitution
that have most influenced the destinies of
the American people” and that it had made
the United States “the first in the world
for the number and ingenuity of [its] inventors.”
As historians Lamoreaux and Sokoloff noted,
“[Foreign] observers attributed much of
the country’s rapid technological progress
to its distinctive patent system.
Quite revolutionary in design at inception,
the U.S. patent system came to be much admired
for providing broad access to property rights
in new technological knowledge and for facilitating
trade in patented technologies.
These features attracted the technologically
creative, even those who lacked the capital
to directly exploit their inventions . . . and
also fostered a division of labor between
the conduct of inventive activity and the
application of technical discoveries to actual
production.
It is no coincidence that Britain and many
other European countries [later] began to
modify their patent institutions to make them
more like those of the Americans.”
The patent system’s central role in fostering
innovation can be seen in the patenting spikes
that occur with every major industrial breakthrough.
Let’s take a look at some examples.
The 1880s saw a major surge in patenting,
with the annual number of new patents issued
jumping from 12,000 in the 1870s to approximately
20,000 in the 1880s.
This patent boom corresponded with rapid advances
in the emerging railroad, telegraph, telephone,
and electric light and power industries.
A similar increase occurred in the early 1900s
during the birth and early-stage growth of
the automobile and aircraft industries.
Patents granted at this time doubled from
20,000 per year to 40,000 per year.
That number remained stable until around 1960,
when plastics, synthetic materials, and the
aerospace and computer industries pushed patenting
levels to 60,000 per year.
There they remained until the mid-1980s, when
the personal computer and emerging high-tech
industries propelled us toward the age of
the Internet.
Patenting levels then increased from approximately
80,000 to 100,000 each year.
With the rise of the Internet, social media,
and smartphones over the last two decades,
the number of patent applications filed each
year with the USPTO has surged fourfold.
In 2014, the USPTO received 578,802 patent
applications, 300,678 of which received a
patent.
Clearly, whenever the U.S.has undergone a
major industrial renaissance during which
technology reshapes whole industries--and
creates entirely new ones--patenting levels
rise dramatically.
The patent system has also facilitated new
start-up businesses.
It is worth noting that virtually every innovative
new industry of the last 150 years was launched
by an entrepreneurial start-up company.
The Founders would not be surprised by this.
They created the world’s first democratized
patent system, and the result was the most
successful economy on the face of the earth.
