Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry
Members of a patent pool agree to use a set of patents as if they were jointly owned by all members and license them as a package to other firms. Regulators favor pools as a means to encourage innovation: Pools are expected to reduce litigation risks for their members and lower license fees and transactions costs for other firms. This paper uses the example of the first patent pool in U.S. history, the Sewing Machine Combination (1856-1877) to perform the first empirical test of the effects of a patent pool on innovation. Contrary to theoretical predictions, the sewing machine pool appears to have discouraged patenting and innovation, in particular for the members of the pool. Data on stitches per minute, as an objectively quantifiable measure of innovation, confirm these findings. Innovation for both members and outside firms slowed as soon as the pool had been established and resumed only after it had dissolved.
We wish to thank the Wisconsin State Historical Society for granting access to the Singer Archives, and Eric Hilt, Jim Bessen, Paul David, Ross Thomson, and seminar participants at the Santa Fe Institute, the Stanford Junior Faculty Lunch, and Stanford's Social Science History Workshop for helpful comments. Luke Brennan and Marina Kutyavina provided valuable research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
The Journal of Economic History, Volume 70, Issue 04, pp 898-920. December 2010