Over the years, Royal Philips Electronics has been responsible for an impressive series of breakthrough inventions, such as compact audio cassettes and compact discs. What is less well-known is that the company was set up in 1891 to exploit somebody else's invention--Thomas Edison and Joseph Swan's carbon filament lamp. Commercial success generated considerable revenues that enabled the firm to produce its own inventions and eventually become one of the world's most innovative corporations. How could Philips get such a good head start? From 1869 until 1912, Holland had no patent law. This meant that local entrepreneurs could copy foreign inventions for their own profit, as long as they could figure out how the inventions worked.
Ericsson, the well-known Swedish phone company, was formed in 1876, the same year Alexander Graham Bell made his first phone call. After it received some of the new devices to repair, Ericsson figured out how to make them, and by 1878 the company was selling its own phones to the Swedish public. Bell had neglected to file a patent on his invention in Sweden. The rest, as they say, is business history.
In 1960, Texas Instruments filed a patent in Japan on the integrated circuit, arguably one of the most important inventions of the second half of the 20th century. The Japan Patent Office took 29 years to grant the patent, by which time Japanese companies, free to read the patent specification 18 months after filing, acquired the technology, improved it, and came to control 80 percent of the US market for computer semiconductors.
A little further back in time, Richard Arkwright's cotton spinning machine, patented in England a few years before the independence of the United States, was copied by entrepreneurs in the United States who did not have to worry about patents because there was no patent law until 1790. Intriguingly, the machine's obvious lack of novelty by 1791 did not stop a businessman from receiving a US patent for it. Once again, in a world of highly varied national patent laws--or in some cases, no laws at all--one country's invention was also another country's economic gain.
Setting aside the rights and wrongs of such "borrowings," the point is that such behavior, of which many more examples could be given, broke no international rules. Furthermore, the freedom to use such technologies often benefitted not only the imitator companies, but also the national economies in which they were based. Indeed, none of the benefiting countries remained copiers for long; eventually, they became some of the world's most technologically advanced manufacturers.
Might it be that the freedom to imitate was, and continues to be, an essential step toward real innovation? Evidence suggests that this was probably true in the past for Holland, Sweden, Japan, the United States, and more recently, the Asian tiger economies. If so, it might also be true for today's developing countries. In 1970, India weakened its patent system in order to achieve greater national self-reliance. This period of protection from foreign competition allowed the country's pharmaceutical sector to grow and prosper into the largest in the developing world, with a growing capacity to perform cutting-edge research.
Tripping over Agreements
The above question is timely because current international patent rules make it very difficult, if not impossible, for states to repeat the kinds of behavior described. Until recently, international law permitted national and regional patent systems to vary widely. Efforts on the global level by the wealthier countries to iron out these differences began in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). The result was the 1994 Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), whose main effect was to make the intellectual property (IP) systems of developing countries more like those of developed ones. …