INVENTOR-ENTREPRENEURS: PATENTS AND PATENT LICENSING IN THE EARLY REPUBLIC - Ingenta Connect
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Technology and Innovation, Vol. 22, pp. 55-63 2021 ISSN 1949-8241 • E-ISSN 1949-825X Printed in the USA. All rights reserved. http://dx.doi.org/10.21300/21.4.2021.6 Copyright © 2021 National Academy of Inventors. www.technologyandinnovation.org INVENTOR-ENTREPRENEURS: PATENTS AND PATENT LICENSING IN THE EARLY REPUBLIC Arthur Daemmrich Lemelson Center for the Study of Invention and Innovation, National Museum of American History, Smithsonian Institution, Washington, DC, USA Independent inventors have limited routes to secure financial returns on the time and capital they invest to develop and realize a new idea. Research into two centuries of inventors has identified their options as licensing patents once they are issued, selling inventions (and patents) to existing companies, forging consulting arrangements with operating firms, or raising funds and starting a business. This article explores patent licensing as an entrepreneurial approach using a case study of the largely unknown licensing program undertaken by Samuel Hopkins after receiving the first U.S. patent. A license agreement signed between Hopkins and Eli Cogswell, a potash manufacturer in Vermont, offers a case study of how an inventor-entrepreneur worked in the early American republic. It also provides insights into the links between intellectual property and entrepreneurship, the mindset of inventor-entrepreneurs, and the challenges of bringing a new technology to market at a foundational moment in U.S. history. Key words: Invention; Patents; Patent law; Licensing; Entrepreneurship; Samuel Hopkins INTRODUCTION and then turn to the 1787 U.S. Constitution, which Historians, economists, legal scholars, and oth- included a clause that democratized access to pat- ers writing about invention and entrepreneurship enting (1). These laws were written in an effort to frequently reference intellectual property (IP) rights overcome the tendency to keep new technologies as as integral to functioning innovation ecosystems. trade secrets. However, patents are not self-enforcing, They also commonly use patent files and records of and IP agencies historically never policed market- IP litigation as primary sources. Regrettably, for the places. Ultimately, inventors have always needed the majority of inventor-entrepreneurs from the 18th and support of an ecosystem of lawyers, entrepreneurs, 19th centuries, we have few records that document risk-taking financial backers, and others to ensure how they used IP rights to make a living. For their that IP is respected and can be licensed, traded, or part, histories of IP typically start with a patent statute sold (2). enacted in 15th century Venice, reference British pat- Inventors, the people who create new materi- ents granted under the 1624 Statute of Monopolies, als, technologies, and services, have been identified _____________________ Accepted: March 1, 2021. Address correspondence to Arthur Daemmrich, Smithsonian National Museum of American History, Lemelson Center, MRC 604, 12th and Constitution Avenue, NW, Washington, D.C. 20560-0001, Tel: +1-202-633-6396. USA. Email: daemmricha@si.edu 55
56 DAEMMRICH and mostly celebrated throughout human history Throughout the Middle Ages, however, inventors (3,4). Independent inventors had a striking rise in largely kept breakthroughs secret since they had no the U.S. in the 19th century, supported by what the way to profit from disclosing new technology and economic historian Zorina Khan has termed “the instead worried about provoking the guilds and gov- democratization of invention” (5). Routes to suc- ernmental authorities that controlled manufacturing cess for 19th and 20th century inventors included and trade. The emergence of organized systems to building businesses, licensing IP, selling patents, protect IP was inextricably linked to concepts of fair- and forming ongoing consulting relationships with ness and competition in commerce, shifting notably larger firms (6,7). Entrepreneurs, likewise, have been in the late 18th century to a more formal bureaucratic with us throughout human history, though—unlike review of invention claims. ‘inventor’—the meaning of ‘entrepreneur’ has evolved The first modern patent granted for an inven- considerably (8). As described by the Irish-French tion was issued in 1421 by the Republic of Florence economist Richard Cantillon in the mid-18th cen- to the noted architect Filippo Brunelleschi for a sea tury, the entrepreneur was someone who exercised craft designed to transport marble and other heavy business judgment in the face of uncertainty. English stone (12). Brunelleschi was motivated by the ambi- classical economists, including Adam Smith, saw tious project to build the cathedral Santa Maria del entrepreneurs as accumulators and suppliers of finan- Fiore in Florence, which he had designed. Called Il cial capital (9). In the early 1940s, Josef Schumpeter Badalone (“sea-going monster”), the ship featured a gave entrepreneurs a new conceptual framing as system of gears and paddles. Brunelleschi claimed risk-takers, people integral to the rise and success his vessel could “bring in any merchandise and load of capitalism (10). … for less money than usual, and with several other This article focuses on the “Schumpeterian” entre- benefits.” In an assignment of rights often cited as preneur, specifically an individual intending to use the precursor to modern patents, Florence’s ruling new technology to gain an advantage in the market- council granted Brunelleschi three years of exclu- place. It presents a case study of the licensing of the sivity in exchange for making the machine available first U.S. patent, issued in 1790, to develop a new his- to the public. Specifically, no new “machine or ship torical perspective on innovation finance. Specifically, or other instrument designed to import or ship or I document the steps followed by the inventor-entre- transport on water any merchandise” was permitted preneur Samuel Hopkins to undertake what appears without Brunelleschi’s consent (13). Machines violat- to have been the nation’s first patent licensing pro- ing the patent were to be burned. Il Badalone appears gram. The article begins with an institutional history not to have worked well in practice, as it sank and lost of IP systems and then portrays the inventor-entre- a load of 100 tons of marble in 1428 at a significant preneur Samuel Hopkins and the first U.S. patent financial cost to the architect-inventor-entrepreneur granted in 1790 before analyzing the patent licens- Brunelleschi himself. ing program that Hopkins undertook once his IP was An organized patent system that included appli- secured. Additional details and context come from cations from individuals, a systematic review process a focus on the license signed by the Vermont-based by authorities, and the granting of official patents was businessman and entrepreneur Eli Cogswell. The established by the Venetian Republic in 1474. The rel- article concludes with a summation of the strategies evant Act stated: followed by Hopkins as he sought to build a licens- [E]ach person who will make in this city any ing business. new ingenious contrivance, not made hereto- fore in our dominion, as soon as it is reduced to PROPERTY RIGHTS FOR INVENTIONS perfection, so that it can be used and exercised, Royal privileges and franchises were granted shall give notice of the same to the office of our throughout history, and IP histories often begin with Provisioners of Common. It being forbidden Greek and Roman era resolutions to cases of liter- to any other in any territory and place of ours ary piracy and other intangible property theft (11). to make any other contrivance in the form and
PATENT LICENSING IN THE EARLY REPUBLIC 57 resemblance thereof, without the consent and individual act. With rights granted to a person, not a license of the author up to ten years. (14) corporation, patents were now owned by individuals and could be more readily licensed, sold, or assigned The resulting IP system established an incentive to others. mechanism for inventors and set punishments for In 1790, the first U.S. Congress wrote the unauthorized use or infringements. The Venetians new nation’s first patent statute, building on the also created the first public registry and had granted Constitution’s Article 1, which stated that Congress over 120 patents by 1550 (15). had the power “to promote the progress of science Venice’s patent system contrasted with long- and useful arts, by securing for limited times to standing controls by guilds over craft knowledge authors and inventors the exclusive right to their and manufacturing practices. Interestingly, the respective writings and discoveries” (21). The new best-known historical example of stifling inventor-en- statute allowed anyone to apply for a patent on “any trepreneurs also comes from Venice, where municipal useful art, manufacture, engine, machine, or device, authorities enforced control over the famous Murano or any improvement therein not before known or glassmakers by prohibiting them from disclosing used.” Inventors were to submit a written descrip- their methods outside of the Republic. In a famous tion and working model if possible. Sufficient detail case, the glassmaker Petrus Caldera was banned from was required so that any person skilled in the specific the guild in 1313 for working outside of Venice; he area could “make, construct, or use” the invention was only readmitted after paying a significant fine (22). However, the legislation did not create a patent (16). office proper. Inventors submitted their descrip- Over the next century, grants of patents and tions and models to the Secretary of State, who then monopolies were used more to attract foreign busi- determined, alongside the Secretary of War and the ness or to reward friends of royalty than to spur Attorney General, whether the invention merited a invention and entrepreneurship. In many instances, patent (23). Patents that were issued evolved into a the first importer of a technology held rights to form of property that could be licensed, traded, or exclude others equivalent to a domestic inventor sold. Yet, how quickly they did so and with what (17). In fact, the term “invention” encompassed tech- implications for creating a distinctive inventor– nology imports; its definition shifted to refer only to entrepreneur hybrid has not previously been widely novel technologies in the 18th century. In other cases, known. monarchs used patent privileges as a fundraising mechanism; James I notoriously granted supporters SAMUEL HOPKINS AND THE FIRST U.S. PATENT exclusive rights to import codfish or export calfskins, The first patent issued in the U.S. was granted to while Elizabeth I granted patents not only for new Samuel Hopkins on July 31, 1790, for a new method industrial inventions but also for exclusive privileges of making potash and pearl ash. At the time, potash of selling salt, iron, paper, currants, and playing cards, was used in bulk as a fertilizer and as a detergent among others (18,19). for cleaning fibers in textile production. In smaller The playing card monopoly led to a famous 1603 volumes, it was used to make soap, saltpeter for gun- legal decision, Darcy v. Allen, which invalidated the powder, and a variety of other products. Pearl ash Queen’s grant of a monopoly. The English Parliament was a finer material produced by removing impu- built on the case when it asserted a more restric- rities from potash; it was used in glassmaking and tive approach to granting patents in 1623 under as a colonial-era leavening agent. Signed by George the Statute of Monopolies. Enacted in 1624, the law Washington, the patent had the attesting signatures of prohibited most royal monopolies but specifically Attorney General Edmund Randolph and Secretary preserved the right to grant “letters patent” for inven- of State Thomas Jefferson. tions of “new manufactures” for up to 14 years (20). Hopkins himself left few historical records, The Statute drew upon the legacy of the Venetian resulting in some confusion about his identity (24). patent system and notably anchored invention as an Detailed archival work by the historian David Maxey
58 DAEMMRICH has identified him as a Philadelphia Quaker who in General Court of Massachusetts in 1787 for sharing midlife left an established position and his wife and an improved kettle design (26). Demand was increas- six children to spend several years in frontier areas of ing among the textile, soap, and glass industries in Pennsylvania, New York, and Vermont before return- Great Britain in the late 18th century, resulting in a ing to the city (25). Born in 1743, Hopkins apprenticed ready market for otherwise cash-poor colonists. In with the established merchant Robert Parrish before 1789, potash exports went for nearly $95 per ton, working as a shopkeeper in Philadelphia. Details of while pearl ash paid some $115 per ton (27). Annual how he came to invent an improved method for mak- exports when Hopkins secured his patent were 4,627 ing potash are lost to history, but in the course of his tons of potash and 2,024 tons of pearl ash (27). Of several years away from Philadelphia in the 1780s, course, significant amounts of potash also were used he appears to have developed practical knowledge locally as fertilizers and by local soap and glass pro- about building and operating a brick and stone fur- ducers. Efforts to scale up production in the colonies, nace and come up with a new method that increased however, often failed when new potash works caught potash output. fire or novel processes failed to deliver results. Hopkins’ invention of a new method for making The patent credited Hopkins for an improvement potash came at a time when applied technology— to potash production that was “not known or used especially in chemistry—had significantly outpaced before.” Specifically, the patent enumerated a four- scientific knowledge, resulting in dozens of new com- step process. First, “raw Ashes” from the burning of pounds that were poorly characterized. Potash, later wood underwent a second burning in a furnace. In termed potassium carbonate (the element potassium the second step, the ashes were dissolved in boiling was identified in 1807 and is named in part for pot- water (a shift from the prior practice of dissolving ash), was one of several colonial-era extracts from them in cold water). Third, the “ley,” a lye-rich liquid forest products. Tar, rosin, and turpentine were pro- composition of potassium hydroxide that included duced through extraction and distillation. Potash and various semi-dissolved solids, was drawn off and pearl ash, by contrast, were made by first burning allowed to cool, with impurities floating on the top hardwood trees in the open and then reheating ashes or falling to the bottom. Fourth, the liquid mixture in iron kettles or cauldrons to produce the carbonate was boiled, leaving behind potash or, with additional form. Potash was manufactured at the edges of newly rounds of burning in a cast iron pot, pearl ash. In cleared lands and offered an immediate, but largely language probably taken directly from Hopkins’ one-time, cash payout to settlers. Potash and pearl application, the patent noted that “burning the raw ash production thus moved westward and northward Ashes in a Furnace, preparatory to their Dissolution from Connecticut and Massachusetts throughout the and boiling in Water, is new, leaves little Residuum; 1780s and 1790s, following the ever-shifting frontier. and produces a much greater Quantity of Salt” (28). Potash was known under several names and pro- Neither the furnace that Hopkins had developed duced and marketed in a variety of formulations in for the secondary burning of ash nor the kettle used the late 1700s, including caustic potash (KOH), vit- to boil the liquid is described in the patent, but riol of potash (K2SO4), and muriate of potash (KCl). both were of great interest to potential licensees. When produced at the edges of fields, the potash As part of his licensing strategy, Hopkins provided typically contained a mixture of these potassium step-by-step descriptions of his process and detailed compounds, resulting in marketplace confusion, plans for building a brick and stone furnace (also especially for buyers seeking purer formulations. referred to in some places as an oven) in a self-pub- Improvements to potash production consequently lished booklet, “An Address to the Manufacturers were sought on both sides of the Atlantic. The London of Pot and Pearl Ash” (29). Hopkins offered up two Society of Arts gave medals starting in the 1760s distinct processes, one for summer operations in for practical treatises advising on improved meth- which water was used to create the “ley” for repeated ods for potash production. In the colonies, Cale boiling and a separate dry process for wintertime Wilder and William Frobisher were thanked by the that involved repeated burnings of ash without the
PATENT LICENSING IN THE EARLY REPUBLIC 59 leaching process. Critically, the booklet details mate- entrepreneurial licensing program. First, he traveled rials needed, including 1,500 salmon bricks (a less widely speaking about his method and distributing expensive brick fired for a shorter time and typically his pamphlet. In addition to the detailed explana- used in interior walls); 3,000 normal bricks; lime for tion of his method and instructions for building the the exterior; a variety of metal plates, hooks, and furnace, the pamphlet reproduced both the 1790 doors (one to put wood into the furnace, another to Patent Act and the text of Hopkins’s issued patent remove ash); two potash kettles 2½ feet in diameter (29). Second, he corresponded with and met lead- with flat bottoms; and grates. The figures showed a ers seeking to develop the country’s industrial base, floor plan and four perspective sketches (29). The including Thomas Jefferson and the influential mer- furnace had three chimneys and would have been chant Henry Drinker. Hopkins shared information on the order of 7½ feet wide, 3 to 4 feet deep, and 4 about his successes and sought endorsements for to 5 feet tall (Hopkins’ plan involved digging out a his licensing business. Third, he employed his son- foundation two feet below ground to avoid frost in in-law, the attorney William Shotwell, and other winter). licensing agents. Fourth, in the spring of 1791, In modern chemical parlance, Hopkins had Hopkins traveled to Canada to seek IP protection improved the method for reacting potassium hydrox- for his invention in a region holding an abundance of ide with carbon dioxide. The potassium hydroxide hardwood forests. His overtures to Lord Dorchester, was obtained by pouring water over ashes from governor-in-chief of the colonies of Quebec, Nova burned wood, a process that Hopkins improved Scotia, and New Brunswick, met with some success, through a second burning of the ashes. When the and, alongside several other inventors of potash pro- water was boiled off, the potassium hydroxide reacted duction methods, Hopkins was granted a six-year with carbon dioxide to form the desired potassium privilege that excluded others from making potash carbonate. Today, chemists would write the reaction except under his license (26). as 2KOH + CO2 --> K2CO3 + H2O. Hopkins’ booklet was his primary form of adver- tisement. The only surviving copy unfortunately lacks LICENSING THE FIRST AMERICAN PATENT illustrations, but beyond its detailed description Hopkins sought to make money from his inven- of the process to build and operate a potash fur- tion and employed four strategies when launching his nace, it also offers insights into Hopkins as a hybrid Figure 1. Original agreement from 1791 to license Hopkins’s patent.
60 DAEMMRICH inventor-entrepreneur. Specifically, he offered his potash or pearl ash should be branded. Every “barrel, license for an initial payment of $50 (or a half-ton of cask or package” had to be marked with the patent potash in casks) plus annual payments of $50 start- license number, Eli Cogswell’s name, and a sequen- ing after three years until either $200 or two tons of tial number starting with the first package produced. potash had been paid. The payment plan made it Furthermore, the building in which the potash and affordable for a shopkeeper or other business leader to pearl ash were made had to have an exterior sign with license the technology while also incentivizing them the patent license number that stated, “Pot and Pearl to operate for many years. In addition, Hopkins stated Ash Works, licensed by Samuel Hopkins” (30). that he had agents in Boston, Providence, Norwich, Although the license signed by Eli Cogswell is Hartford, New London, New York, Hudson, Albany, number 310, it remains unknown how many actual and Philadelphia ready to sign agreements and accept licensees Hopkins secured. Available evidence sug- payments (29). gests it was far less than 310; had he done so at his By early 1791, Hopkins had developed a pre- terms of $200 payable over five years, he would printed agreement to license his U.S. patent. Only have netted $62,000, which was equivalent to $1.7 one original agreement has been found, marked at million in 2020. Hopkins’ later life does not offer evi- the top of the first page as number 310, suggesting dence of his having achieved that degree of wealth. that Hopkins intended to license his invention widely. Nonetheless, the approach of paying for the costs of The agreement was discovered in 1957 in a metal box clearing land by selling potash was common, and in the back of a chimney in Castleton, Vermont, the even in more settled communities, farmers would town where the licensee lived in 1791. It then was sell ashes to a village shopkeeper that converted kept in private hands for the next six decades. In them to potash. In 1794, the trader, politician, and September 2019, the Smithsonian’s Lemelson Center Philadelphia-based writer Tench Coxe observed, “the and the Division of Work and Industry at the National expense of clearing an acre of land is fully and com- Museum of American History were able to secure pletely reimbursed by the net sales of the pot ashes or and preserve this original patent license (30). pearl ashes” (33). Oddly, the Hopkins license agree- The terms and conditions offered by Hopkins doc- ment does not include the payment terms. It also ument a focus on quality and branding. The license makes no mention of territory or other exclusivity begins by reiterating the core terms of the Hopkins for Cogswell. Today’s license agreements typically patent, including its date of issue (July 31, 1790), term describe the full terms, including royalty payments; (14 years), and details of the invention itself. It then if confidential provisions are necessary, they are nev- authorizes Eli Cogswell of Castleton, Vermont, to ertheless referenced in the license (34). build a single furnace according to Hopkins’s method Beyond its content, the three-page patent license and to operate it for 7 ½ years, starting on September is historically interesting also for its printing tech- 1, 1791. Cogswell was a man of some wealth and nique. Printed prior to the invention of lithography, standing according to the 1790 census, which reg- the document was most likely made through “inta- istered his title as esquire and had him heading a glio,” in which a skilled craftsman etched the wording household of 10, including his wife, two sons, and into metal plates. Unlike relief printing from move- six other people, presumably workers or extended able type or letterpress, ink on the resulting prints family members (31). Other records of Cogswell ref- is not pushed through the paper. The license mim- erence him as Castleton’s first town clerk in 1777, a ics handwritten documents, which would have merchant, and a “lister” in 1782, a colonial-era title been used for such agreements in previous decades. for someone who kept a list of people being taxed It could have been printed in either Philadelphia and their property (32). A long section of the agree- (where Hopkins lived) or New York City (where it ment then outlines conditions under which Cogswell was signed and closer to Shotwell’s home in Rahway, can dismantle and move the potash production and New Jersey); both cities had shops in the early 1790s states that Hopkins will issue a new license if the facil- that could handle a print run of the license agree- ity burns down. Next, the license specifies how the ments. Interestingly, the printer used non-script type
PATENT LICENSING IN THE EARLY REPUBLIC 61 in several places, specifically when referring to “Pot Pittsburgh and Cincinnati gained market dominance. and Pearl Ash” on the first page and “Pot and Pearl It remained a lively area for invention, with 1,811 pat- Ash Works, licensed by Samuel Hopkins” on the third ents relating to potash granted in the 19th century page, presumably to make them stand out. (5). Within a few decades of Hopkins’s pioneer- SUBSEQUENT DEVELOPMENTS ing licensing program, inventors regularly sold or Although historical records are spotty, Eli Cogswell licensed their patents. Not all were successful. Eli does not appear to have built a sustained business Whitney, for example, found little success when he based on his license from Hopkins. According to one tried to license his 1794 patent for an improved cotton source, Cogswell moved to Ohio in the early 19th cen- gin. Although he later won lawsuits against several tury, where he owned a farm before he passed away operators that used a similar technology to separate in 1831 (35). Others may have had greater success; a seeds from cotton fiber, he was left embittered by the local history of Rutland county lists some 14 differ- experience (38). Other inventors had greater success. ent entrepreneurial producers of potash in the 1780 In an 1827 report, Patent Office director William to 1820 period, though most also worked as shop- Thornton recounted the inventor Gilbert Brewster keepers or in other trades (36). selling his patents on improved machinery for spin- Hopkins himself returned to Philadelphia by late ning wool immediately upon their issue for $10,000 1791 and was listed on city directories as a “pot-ash (equivalent to $256,000 in 2020) (24). manufacturer” and after 1798 as a “gentleman” (26). By 1835, the Patent Office was issuing some 800 Historical records are spotty, but despite his acumen patents annually, but the Patent Act itself was criti- at lining up prominent supporters, Hopkins does not cized for an overly complex process and for its failure appear to have earned significant revenue from his to clearly mandate that new technologies be novel licensing initiative or from his own manufacturing in order to be patented. As a result, adroit individu- efforts in Philadelphia. For example, the maple sugar als were copying inventions on display in the patent entrepreneur William Cooper noted the license terms model room, getting new patents, and then licens- came at a “high price,” and prominent Quaker Henry ing these derivative inventions. According to Senator Drinker warned Hopkins that his descriptions and John Ruggles, an inventor in his own right, unscru- presentations confused potential licensees (26). In pulous actors were earning $500,000 annually by the summer of 1793, Hopkins published a detailed copying other inventions (23). The 1836 Patent Act explanation of how his process differed from other clarified that inventions must be novel, and that the methods of potash production with supporting sig- Patent Office was responsible for examining prior natures of the Philadelphia elite, including David art, thereby creating a system that has underpinned Rittenhouse, Benjamin Rush, James Hutchinson, and the entrepreneur-based economy with minor modi- Caspar Wistar. But by 1800, Hopkins and his wife fications to the present. Famous inventors of the 19th were living in Rahway, New Jersey, with their daugh- century who licensed or sold their patents to other ter and son-in-law William Shotwell. Nevertheless, entrepreneurs, including Charles Goodyear (vul- Hopkins continued to invent, securing patents on the canized rubber), Samuel Morse (telegraph), Elias production of “flour of mustard” in 1813 and 1817 Howe (sewing machine), and even Thomas Edison (37). (over 20 of his inventions), all followed a path tread British demand for North American potash and by Samuel Hopkins with the first U.S. patent (39). pearl ash declined from the mid-1810s onward as buyers switched first to potash produced from CONCLUSION burning kelp in Scotland and then to soda ash man- Patent licensing is often considered a phenome- ufactured by the emerging chemical industry via non of the 20th and 21st centuries and is sometimes the Leblanc process (26). In the U.S., potash pro- criticized in policy circles as enabling “non-practicing duction shifted to western New York, Pennsylvania, entities” or “trolls” to unfairly profit. Historians, econ- and Ohio as glass and soap firms headquartered in omists, and legal scholars have identified numerous
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