November 16, 2017

 You put in the patent application and in it, there has to be enough information for anyone
who wants to replicate it, can. Therefore, the monopoly is for a precisely defined period.
 Pharmaceutical companies patent very early on so that they aren’t beat to getting the
patent at the very end.
 Generics are copies of brand name drugs but can only be produced once the brand name
drug has gone off patent.
 The importance of patents to stimulating economic growth is still debated. Some say that
you need to make patents stricter.
 In the pharmaceutical sector, if you make the intellectual laws stricter, would
pharmaceutical companies still produce here? Canada is only 2% of the market share. If
you want companies to do research in Canada, patent laws don’t do very much.
Tightening up the patent protection relative to the rest of the world wouldn’t make that
much of a difference. What would make a difference is a tax-based incentive.
 Fifth-generation computing. Japanese government pumps a lot of money into this and
then along comes Intel which comes up with a little chip but the Japanese government
had already spent money on something that had already become obsolete before it even
hit the market.
o Japanese had a sector that tried to pick winners – we were being told to do the
same thing before their economy tanked for 15 years.
o Honda was thinking about expanding into automobiles as it already produced
scooters. Mittee said don’t do it but Honda did it anyways. When there was an
analysis done on Mittee’s picks, they were really good at picking losers. The
simulation in the economy was not because of the government.
o You don’t want to disparage intellectual activity. Patents are essentially the best
that we have to promote innovation as you receive a monopoly. Other alternatives
to patents have large downfalls.
o Why would you want to spend money on a risky innovative activity just to cover
your cost and make a normal profit? However, it is to allow innovators to get rich
by having a monopoly on their product for a number of years. You cannot
disparage the idea of patents which goes back to James Watt.
 Watt came up with an external condenser which would make the steam engine more
efficient and it did not violate the patent. Watt did not patent the steam engine, he
patented a steam engine with an external condenser which is what he actually patented.
Watt wasn’t going anywhere and got financing from Roebuck who financed him for a
number of years until he went bust because his bank went bust due to the EIC. Roebuck
sells his share in Watt’s patent to Mathew Bolton who was another industrialist. Factories
in this time were powered by water. One thing Bolton knew was that his factors were
more productive in the spring when the streams and rivers were running faster. Bolton
knew that if he could find a reliable and stable source of energy then he could maintain a
steady rate of production throughout the year and his best bet was Watt’s machine if it
lived up to expectations.
o Bolton was prepared to by Roebucks share on the condition that they just the
patent extended which was given in 1769. By 1775 the machine was still nowhere
 near a commercial version. Roebuck had owned about 2/3 shares of the patent. To
get the patent extended, you needed an act of parliament.
o They wanted to get an extension for 25 years which required the act of
parliament. The debate in parliament was the same back then as it is now. Would
it promote productive or unproductive entrepreneurship?
o Bolton was not prepared to spend more money into Watt’s R&D unless the patent
got extended.
o If the bill did not pass parliament, then Bolton would not have invested.
o Edmond Burke was the founder of modern conservative theory. He made the
argument that what you are doing is giving a monopoly which raises prices and
promotes welfare losses. You could take these debates and replace the word steam
engines with pharmaceuticals and it would be the same.
o 1775 he got the patent which would last him until 1800. They finally figured out
how to make a commercial sized version of the steam engine. No one wanted a
desktop size steam engine. The problems were problems of engineering as you
can’t simply scale up to produce a larger steam engine.
o Once it was produced, they went about commercializing it. He then started suing
anyone who was trying to come up with their own version of the thing. He was
using his patent to block other people from doing what he had done by taking the
Thomas Savery’s engine and adding to it. He was blocking other developments.
The people that he sued were people that were trying to copy his exact steam
engine – pirating it as they now knew the engineering a commercial size engine.
o The people that he sued were people who were trying to simply copy his machine.
They did not limit access to their machine. They ran a business strategy and the
first market was in mines as mines flooded so you needed to pump the water out
to get at the coal in the mines of Cornwall. This was the first market area they
went after. They didn’t try and sell the machine at a monopoly price. They would
set up the machine and the miner would rent the machine from them. Rent was
calculated by what you would be the cost saving switching from Newcommen’s
machine to Watt’s and you pay 1/3 to Watt and Bolton as rent. 2/3 remained with
the miner so you can’t say that they charged a monopoly price as they only
charged a portion of the cost saving.
o The suggestion that Watt used his patent to block innovation rests on two things.
The misunderstanding about who he sued. He sued people who pirated it instead
of paying a licencing fee. His machine was a low-pressure machine which cannot
drive a steam boat or a railway engine which are run by high-pressure steam
engines. Watt never worked on a high pressure engine as he didn’t trust them due
to them being dangerous.
 High pressure engines come in the early 1800’s which could be used on river boats
allowing the boat to move against the current. These river boats became significant
modes of transportation in the US. Steamboats had a habit of blowing up and river boats
that had too much pressure building up would also explode. When people began using
them, it was common for them to explode and kill everyone on it. It took a while for the
high pressure engine became good enough for peddle wheelers to become safe modes of
transportation. All of this was after Watt.
 It is probably the case that people in England were put off of working on high pressure
engines because they went along with watt thinking they were dangerous.
 Watt’s patent runs out in 1800 which is about the time of the development of high-
pressure which brings you to the 1840’s where the railway mania occurred as all of the
tracks were laid. There was a bubble around the whole idea of a railway network. All of it
rested on the new technology which was the high-pressure.
 Watt ran against other people’s patents while working on other low pressure
improvements. In some cases, such as gear structures, someone beat him to the patent
which forced him to change the direction of his research.
 Even though Watt did not block people with his patent, that doesn’t mean other people
didn’t do this to create a larger monopoly.
o The most notorious case of this was the Wright Brothers. They came up with the
airplane which was powerful enough to have a pilot in it. One problem you had
though was stabilizing and steering them where you had to stabilize the aircraft in
flight which was an important part of their patent. This depends on controlling the
flow of air over the wings themselves – the only way to do this would be to adjust
the airflow over the wing. By controlling the airflow, it also helps with steering.
You need some kind of device to change the airflow which is why we have
airplane flaps on the wings. Therefore, you have to be able to change the airflow
by steering it. They did not invent the flap; this was invented by Glenn Curtis who
spent a large part of his career fighting off the Wright Brothers. He also put
wheels on the plane, the brothers had something like ski’s.
o Wright brothers came up with the idea of warping the entire wing. To steer it, the
pilot had ropes that you would pull on which would warp/twist the shape of the
entire wing which would change the airflow allowing the aircraft to turn. You
steered it by pulling on ropes in the direction you wanted to go. Their approach
was to change the airflow over the wings. What they patented was a method of
warping the wings.
o Curtis came up with the method of flaps. Brothers sued him by saying that their
patent does not cover their particular machine that they built but rather any
mechanism at all that changed air flow. Curtis was not violating the patent.
Brothers were trying to extend their patent from what they built to the whole
concept. They went from being heroes to villain’s because they were so blatant
about doing this. They also sued Alexander Graham Bell who was doing aircraft
experiments in Cape Breton. A patent used to only apply in the country you take it
out in.
o The Paris Convention is something that gives you a six month breathing space for
you to file the patent in the other countries. This only applies to countries that
signed on the Paris Convention.
o Bell came up with the idea that maybe you could take off from water. Brothers
threatened to sue him and Bell wasn’t sure if they could successfully sue him as
patent law was so new. Even though Bell lived and worked in the US, his
experiments were being done in Canada. He therefore gave up on the
development in order to avoid being sued.
o After the Brothers, most aircraft development took place in Britain and France.
 o In the US, most aviators were flying British made aircrafts as the Brothers court
cases had managed to disrupt improvements to aircrafts so their industry was way
behind the British and French industry by the first world war.
 By WWI, it was obvious that aircrafts were going to be important. Took a while to figure
out how to use a machine gun on a plane and not shoot the plane – this came down to
timing. The aircraft was going to be important in gathering intelligence on the enemy.
 Assistant Secretary of the Navy was Franklin Roosevelt. He forced the Wright Brothers
and all of the other developers into a Patent Pool. It is an agreement among people who
have bits in the area and they have to agree to licence their bits to people in the same pool
at lower rates which was either agreed upon or stated by the government.
o Came into existence in early 1900’s.
o It became extremely important in radio as people were always working on
different bits that could go in the radio. Anytime someone developed an improved
version of this, they patented the improved vacuum tube. By the time you get to
commercial radios which was around mid 1920’s. Advances were incremental but
moving at an astonishing rate. You start to get the same thing you see in
communications technology today – it is a direct line of decent from early radio
technology.
o The notion of a patent pool was a way of preventing people from blocking
development and advances.
o Intended to reduce unproductive entrepreneurship.