The role of intellectual property and its strategic use during the Electric Revolution
Alta Scuola Politecnica XVI Cycle | Dynamics of Innovation
1. Intellectual Property
1.1 Introduction
Intellectual property (IP) is a concept that started surfacing in the 19th century. Its importance was first recognized in 1883 during the Convention for the Protection of Industrial Property held in Paris, followed shortly after in 1886 by the Convention for the Protection of Literary and Artistic Works of Berne (WIPO, 2004). Since the very beginning, the relevance of intellectual property has been increasing steadily, showing how crucial it is for the survival and success of companies and entrepreneurs, as well as for progress and innovation.
1.2 Definition of Intellectual Property
When talking about intellectual property, we are referring to “the intangible products of human creativity, ingenuity and effort” (Spence, 2007). Being intangible, these assets are quite tricky to protect and deal with. There are different kinds of intellectual property rights, each protecting different intangible assets and with different characteristics. The World Intellectual Property Organization (WIPO) identifies two categories of intellectual property rights (IPRs): on one hand we have those referring to industrial property, such as patents and trademarks; on the other hand there is copyright, which protects literary and artistic works (WIPO, 2004). Not only the definition of IPRs is difficult per se, but also another layer of complexity is added by the differences in regulations across the globe. As the economic growth of modern nations depends quite largely on these intangible assets, however, an international effort is being made to harmonize both the regulations relating to intellectual property and the structures and mechanisms that take place to enforce them (Spence, 2007).
1.3 Economic Impact
The growing impact of intellectual property in today’s economy is quite evident when we look at the data. A good example is the distribution of the value components of the S&P 500, an index that measures the U.S. stock performance of 500 of the world’s most influential and relevant companies. Chart 1 clearly shows a shift, depicting the growing importance of intangible assets over tangible ones. If we look at Europe instead, valuable data was collected and published by the European Patent Office and the OHIM (Office for Harmonization in the Internal Market) in a 2013 report. The study, conducted over the 2008–2010 period, found that IPR-intensive industries were responsible for the generation of almost 39% of the European Union’s GDP.
1.4 Enabling and Encouraging Innovation
Along with its economic impact, intellectual property also plays a huge role in the innovation process. As the ability to innovate is closely linked to the advancement of humanity and the improvement of our living conditions and well-being, it is essential to keep encouraging this process by protecting those who are responsible for it. And this is what IPRs do: they allow creators to have rights and control over the use of their inventions and to profit from them. Intellectual property rights are fundamental because innovating is an expensive process. By preventing competitors from taking advantage of their innovation for a set period, inventors can have the time to recover their investments. In return for this exclusivity, once the time period is over the invention becomes public and free for anyone to use. In this way further innovation can take place and progress can occur (Parr, 2018).
2. The Electric Revolution
2.1 Background
Building a working intellectual property regime is essential to stimulate and encourage innovation. A country that was able to grow and develop by doing this, achieving wealth and prosperity, is the United States (Parr, 2018). This evolutive process started in the last quarter of the 19th century and is part of the Second Industrial Revolution, a period in which incredible inventions and discoveries made history and shaped the present that we live in today. The undisputed protagonist of this time is electricity, which many inventors dedicated their creative forces to discovering and controlling. Electricity revolutionized the technological opportunities available to the point of the term “electric revolution” being created. During the electric revolution, IP played a fundamental role. As Rosenberg points out, “the electricity industry was, in all respects, a new industry, a product of 19th century scientific progress” (Rosenberg, 1998). Therefore rules were not in place to regulate this new and rapidly evolving landscape, but were being made progressively to adapt to this new reality. A key role was played in particular by patents.
2.2 Patents
Patents are a kind of intellectual property right that protects inventions, either products or industrial processes. They give a patent holder the right to exclude others from any use of the patented subject for 20 years. This means that no one but the inventor can exploit it commercially by manufacturing, using or selling it (Parr, 2018). The inventor can of course choose to license the patent to others. The reason why this intellectual property right played such a key role in the electric revolution was that securing every new invention meant capturing a huge market share. And without any doubt the greatest inventors and businessmen of this time knew that, and therefore played their cards very strategically. As soon as a new technology was created, its inventor would fill in as many patent requests as possible to make sure that every aspect of their creation would be off-limits for their competitors. In this way they would be able to keep experimenting with their new technology and improving it in order to gain even more advantage over their competitors.
2.3 The Protagonists
Amongst the inventors that made history during this time we can mention Thomas Alva Edison, whose name will forever be linked to what Jonnes calls the “Seven Years’ Incandescent Light Bulb War” (Jonnes, 2003). Edison held the electricity industry in his hands for a long time and fought with all of his strength to maintain his supremacy and control when it was slipping away. He was a proud man and relied only on his own patented technology. We can also remember Nikola Tesla, the inventor of the alternating current induction motor and many other machines that worked with the polyphase technology. Tesla was a man with a dream: to lift the burden of manual labor off the shoulders of men by creating machines that could do the heavy duty work instead of them. He was a brilliant inventor and a visionary, and he didn’t care much about personal gain. He just wanted to make enough money to keep creating. He was actually able to achieve some of his goals and dreams thanks to George Westinghouse, a man that strongly believed in supporting talented inventors. He was a great businessman and took advantage of patents in an incredibly clever way. Let’s discuss his story and business adventures.
3. George Westinghouse
3.1 Early years
George Westinghouse came to understanding the importance of intellectual property the hard way. He was a brilliant kid and he received his first patent at the astonishing age of 19 for a rotary steam engine, swiftly followed by many other incredibly useful and clever inventions. It was a huge disappointment for him when the railroads he had licensed two of his early creations to modified them slightly so they could claim their own patents. Unfortunately they succeeded in doing so, and this turned out to be a valuable lesson for Westinghouse. From that moment on, “ferocious defense of his company’s patents” became his corporate strategy (Jonnes, 2003). His inventive mind led him to design abundantly, receiving almost four hundred patents during his long career. Along with being a clever engineer, he was also an incredible businessman. He founded and managed many successful companies, accumulating success and wealth that he re-invested to foster further creation and innovation.
3.2 Fostering Talent
Despite acquiring an admirable amount of wealth and power, Westinghouse was a man of strong and firm values who stayed humble and true to himself. Having experienced the disappointment of being deprived of the rights upon his own creations, he always made sure to respect others’ intellectual property. Whenever he found a promising invention, he would make sure to be the first one to buy the patents from its rightful owner, working with them to improve it and put it on the market. He was also generous and didn’t hold back in compensating young inventors for their good work, often offering them to collaborate with him in one of his businesses. This attitude earned him a good name in the industry and allowed him to convince many inventors to license their patents to him, knowing that they’d be in good hands. A great example is his relationship with Nikola Tesla. Westinghouse was one of the first to see the potential of an alternating current (AC) system. He started working on it and soon discovered Tesla’s work. The serbian inventor had been designing motors and engines that were still not ready to be commercialized but Westinghouse believed in them and decided to buy his patents at a generous price. They were unused for a long time, but Westinghouse eventually managed to improve them until they could make their debut on the market.
3.3 Strategies
Westinghouse was the first one to not only threaten but also file lawsuits whenever a patent of his was used without permission by a competitor. But this didn’t stop him from being a smart strategist when it came to navigating complex situations. And when others were playing dirty, he wouldn’t hold back. Towards the end of the Incandescent Light Bulb War that we previously mentioned, Edison was fighting even harder to secure his patent so that he would throw out of business many competitors. Amongst those who’d be damaged by his win in court was Westinghouse that, like many others, was manufacturing incandescent light bulbs. He had just been nominated to be the one to provide the Chicago Fair of 1893 with electricity and he couldn’t afford to lose this important commission. In order to circumnavigate the situation and take time, he appealed in court and meanwhile looked for a temporary solution which came in the form of a new kind of light bulb, the “stopper”. This object was far less refined and durable than the Edison original, but it allowed Westinghouse to achieve what he wanted: when Edison won in court, putting an end to the Light Bulb War, he wasn’t affected. He used his own “stopper” light bulbs and completed his task for the fair successfully.
4. Conclusion
Intellectual property is, was and will keep being crucial in the progress of technology and of our society. As history teaches us, a strategic use of intellectual property rights can make or break the success of a company. Every entrepreneur and businessman should be aware of the power and potential of IP, much like George Westinghouse was. Being able to navigate such a complex territory certainly isn’t an easy task, but learning from those who succeeded at it can give anyone a competitive advantage.
5. Reference List
Jonnes, J. (2003). Empires of light. Edison, Tesla, Westinghouse, and the Race to Electrify the World. New York, New York: Random House.
Parr, R. L. (2018). Intellectual property: Valuation, Exploitation, and Infringement Damages. Hoboken, New Jersey: John Wiley & Sons, Inc.
Rosenberg, N. (1998). The Role of Electricity in Industrial Development. The Energy Journal, 19(2), 7–24.
Spence, M. (2007). Intellectual Property. Oxford, United Kingdom: Oxford University Press Inc.
WIPO (2004). What is Intellectual Property? [E-Reader Version]. Retrieved from https://www.wipo.int/about-ip/en/
