I have not ventured in this report to detail the facts which indicate
that some of our greatest manufactures have deliberately abandoned the
foreign trade because foreigners would not pay the high prices to which
they were accustomed at home where they had legal control of the market,
but I have endeavored to demonstrate that if the law united an arbitrary
control of an export trade with a more lucrative monoply at home, the
export trade would naturally suffer by the union.
The tactics practiced by the combination sewing-machine companies as
exposed by the officers of those companies since the foundation patents
lapsed, confirms the Conclusion.
It occurred to me when I commenced this report that it would be to the
interest of patentees to control foreign markets in order to make
[Page 9]
sure of the permanent export after
the seventeen years of monopoly expired; but it is certain that a
mechanic who improves a machine and suddenly has the markets of one
great country to supply is seldom qualified or in a position to enter
upon a contest in foreign markets which can be controlled only by
competing in price as well as quality, and it is not to be presumed that
he will withdraw his attention and capital from the most profitable
branch of his business for a possible benefit to be attained after
seventeen years. His interest is in fact so remote that he cannot be
relied upon to supply foreign markets cheaply or to control the
manufacture for foreign countries.
I have, therefore, ventured to suggest a repeal of that provision of the
law which gives patentees control of the export trade in the articles
which our country is most capable of supplying, and though I have been
unable to find in the several publications concerning patents, or in the
discussions which have taken place with reference to the policy of
granting patents, any distinction drawn between manufacture for use
within the country where the patent is granted, and the manufacture for
export, yet I am quite convinced that the distinction is of vital
importance to our supremacy in a large class of manufactures, and the
very class which the country ought to retain. I believe, so far as the
law prohibits free manufacture for export, that it cannot be justified
by the principles upon which patent-laws are based; that the prohibition
is of little real benefit to patentees, and that it has already been the
cause of immense injury to American industry.
If it is doubted whether the export trade would be materially affected by
freeing it from the arbitrary control of individuals, and permitting the
energy of the whole nation to engage in the international competition, I
would be glad to submit some facts with reference to the course
heretofore pursued by patentees bearing on that point.
If the propriety of striking out the word “make” in the patent-law has
been discussed in any publication, I would be glad to be advised of the
title of the publication, and if such discussion is in a public
document, I would be thankful if a copy of it could be forwarded to
me.
[Inclosure.]
REPORT.
The recent circular to diplomatic and consular officers which enjoins
attention to the methods by which trade with foreign countries may
be most judiciously fostered, recites that the United States are in
a condition to supply cheaply and easily many products and
manufactured articles suitable to the wants of different countries.
It is to this important part of the subject of the circular that the
attention of the Department is at this time invited, in the hope not
only that certain American manufacturers may be induced to alter,
before it is too late, a course prejudicial to their own interest
and to the interest of their country, but also that the Department
will be pleased to recommend a repeal of that provision of an
otherwise just law which enables any citizen or any foreigner to
exclude all other inhabitants of our country from competing in a
foreign trade for which our resources are specially adapted and
which is open to the competition of all the rest of the world. A
legal wrong established, and to which everybody has become
accustomed, is often overlooked or supposed to be so connected with
some important right that it cannot be abolished, but the object of
this report is to point out a wrong injurious to our manufacturers
and foreign trade, destructive to the interest it is supposed to
foster, and which may be abolished without prejudice to any natural
right.
A grant for seventeen years of an exclusive right to use and vend the
invention or discovery throughout the United States and the
Territories thereof, is the wise pro vision
[Page 10]
established by our law for securing a just
reward to its author, and is, beyond doubt, the most equitable
method of ascertaining the real value of an invention, and of
collecting the amount honestly due from the public interested in it.
By this method the reward is exactly proportioned to the value of
the improvement, and the tax is levied upon those within the limits
of the United States who are benefited by it. The sole object of the
law is to induce the ingenious to promptly disclose their
discoveries, and to compel the beneficiaries within the jurisdiction
of the law to remunerate them when they use their devices, and this
object is attained when the patentee is granted the exclusive
privilege to use and vend throughout the United States and
Territories.
The patent-law, however, goes one step further than is necessary to
secure the object desired. It prohibits all persons within the
United States, except the patentee, from making patented articles
for foreign markets, although it is quite beyond the power of
Congress to grant a monopoly in those markets, or to secure the
inventor any rights whatever in foreign countries. As a measure to
collect a tax from those in foreign countries who use the invention,
this prohibition is useless. Citizens of every other country may
compete with the patentee, and citizens of the United States may
also compete if they erect their factories and exercise their trade
beyond the limits of the United States. The rights of an inventor
rest upon positive statutes, and such statutes are justified on
grounds of public utility in order to encourage progress in the
useful arts, the State abridges the natural right of its citizens to
use and vend an article within its boundaries; but to prohibit them
from manufacturing for foreign countries abridges their natural
rights without contributing to the progress of the arts, and cannot
be justified on grounds of public utility. The prohibition is of
little benefit to a patentee; it operates as a prohibition upon
enterprise within our country for the benefit of foreign
manufacturers, and its practical effect has been, and will be, to
transfer to a foreign soil industries which have their origin and
their natural seat within the United States.
It may have been presumed that a patentee would be able and willing
to successfully compete for a foreign trade; that ingenuity and
patriotism would be found lodged in the same brain, and that
individual interest would compel him to manufacture or permit others
to manufacture upon terms which would sustain our national credit
and the public welfare. The amount of capital invested and the
number of factories erected in Austria-Hungary, Germany, and other
countries to make patented machines which can be made cheaper and
better in America than elsewhere, proves that such a presumption is
not well founded: A foreigner obtains letters patent as easily as a
citizen, and although the selfish reason why he should desire to
exclude all our citizens from competing with him for the trade of
other countries is evident, it is by no means clear that patriotism
would induce him to use in the interest of our home industries the
exclusive right to manufacture for foreign markets granted by our
government. Even where a patentee is a patriotic citizen of the
United States it can easily be shown that his individual interest is
by no means identical with the interest of the public in the
industries of the country. The laws enable him to demand profits on
his manufactures within our country which it would be vain to expect
in countries where he has no monopoly, and it is but natural for him
to direct his chief attention to that home business from which he
received his greatest immediate profit, and neglect the permanent
export trade which might be established in the interest of the
nation.
A foreign trade is too important and complicated an interest to be
committed to the exclusive custody of one person, however large his
capital, or superior his qualifications for conducting it. Its vast
possibilities may well challenge the energy and resources of a
nation, and to patent away any branch of it to one man who may be
absolutely unacquainted with commerce, and whose abilities and
capital are necessarily occupied in developing his business at home
and fulfilling the obligations which the monopoly in his own country
imposes upon him, is, from a national point of view, as grotesque as
it is deplorable. If a clever mechanic, employed to construct a
machine, suggests a new and useful improvement in its construction,
it practically abolishes machines without the improvement, and the
law intending to reward his ingenuity by giving a temporary monopoly
within its jurisdiction actually designates him as a national
representative to whose arbitrary authority the entire American
foreign trade in those machines is thereafter to be committed, and
prohibits the slightest interference on the part of his countrymen,
while he carries on an unequal contest with foreign enterprise and
accumulated capital in every part of the world. If he has ability
enough to enter upon such a contest, he will be likely to have
independence enough to insist on the business being conducted
according to his peculiar ideas, which, not having been modified by
commercial experience, may be quite impracticable, as for instance
where an American patentee refused to sell his foreign agents a
machine on which he could make 300 per cent. profit, unless he could
also sell wooden stands to support the machine, which were much more
cheaply furnished in the country to which they were to be sent, the
freight on a common and bulky article being more than its cost.
Thus commercial blunders and monopoly prices are driving from our
country industries in which there is more skill, for which there are
better materials, and which can
[Page 11]
be more cheaply conducted there than elsewhere.
Particularly is this true with reference to American labor saving
machines, and in order that the statement may not be considered
vague and disregarded, the American foreign trade in sewing-machines
may be cited as an example. Those machines have been sold here for
years at a much higher price than similar European machines were
offered for, but with the hard times people have been compelled to
exercise more economy, and they are now beginning to accept at a
less cost machines capable of doing the same work made on the
continent. That the heads of sewing-machines can be made in America
and sold in this market at a fair manufacturers’ profit, and at a
price which would have defied Austrian and German competition, if
the factories now established had not been built up under the shadow
of the American monopoly, is the opinion of those engaged in the
business and in a position to judge. The exactcst is best known to
the manufacturers, but the cost of a machine is not such a profound
mystery that it cannot be estimated. Why, then, is the country being
deprived of this foreign trade?
A slight acquaintance with the manner in which the business has been
conducted at home and abroad, coupled with the declarations of the
officers of the combination companies since the foundation patents
have expired, prove beyond question that the foreign trade has not
been competed for in a legitimate commercial manner, and that this
neglect is in consequence of its improper connection with monopoly
privileges in America. There, protected by patents, manufacturers
were able to demand and obtain extraordinary prices, and when the
combination patents lapsed, in May last, a reduction to one-half
their former prices was publicly announced, and the published
statements of some of the principal patentees admitted that profit
could be realized even with a greater reduction in price, but they
declared that when their prices were 100 per cent. higher, much of
their profits had been expended in forcing the market by means of
canvassing-agents, bills, and pamphlets; that the cost of selling a
machine was greater than the cost of producing it; that commissions
of from 40 to 60 per cent. had been paid to agents and collectors;
and the president of one company stated that they had spent
$1,000,000 in advertising, and $1,000,000 in litigation. However
necessary such expenses may have been for the protection of the
monopoly at home, they, were not properly chargeable against
machines made for export to foreign countries where canvassers would
be adjudged a public nuisance, and where there was no monopoly nor
litigation to sustain it.
When the law unites a home monopoly with the control of a foreign
trade, it is not wonderful that the industry should escape from the
country to obtain a divorce. The one, based on its special
privileges and defended by expensive litigation, regulates its
prices with reference to extraordinary commissions and expenses; the
other must ever be based on quality and price, and there is no
method of securing and retaining a foreign trade but by furnishing a
good article at a cheaper rate.
Foreign capitalists were not slow in discovering that sewing-machines
could be produced and profitably sold at a much lower price than was
demanded by American manufacturers; they were advised that a royalty
was levied on machines made in America; that the patentees in
America declined to furnish heads for export at less than three
times the cost of producing them; that the principal manufacturers
had rapidly amassed great fortunes, $13,000,000 being the
accumulations of one of them in a few years. These were the
circumstances which encouraged foreign capitalists to build
factories and to embark in an industry notwithstanding the
disadvantages of inferior resources, little skill, and no
experience; and had American manufacturers offered these products in
the foreign markets on commercial principles, these reasons for
building factories on this continent would not have existed. It was
not cheaper capital, or cheaper labor, or greater experience which
established this competition abroad; it may be traced directly to
the large profits which American patentees have been accustomed to
consider as their just right, and which they have attempted to exact
in foreign markets where no such right is recognized or-protected by
law. It is probably true that the royalty paid on machines for
export was only one-third the royalty exacted on those sold at home,
but even then the royalty on each head is stated to have been nearly
one-third the cost of producing it, and a profit of 30 per cent. is
no small inducement to European manufacturers.
Now that the principal patents have lapsed, the combination which
controlled them as well as other American manufactures would
doubtless be glad to secure a steady export trade at moderate
profits, but our country must now pay the penalty of years of
neglect by competing with capital already invested, and which must
continue to produce, however small the profits realized. The law
relaxes its hold on American energy after the mischief has been
done. For seventeen years it has prohibited everyone but the
patentee from competing for this foreign business, the manufacture
abroad has been stimulated, foreign factories have been built, and
are in full operation, the skill has been transferred to them which
should have been employed at home, and the contest between American
and foreign enterprise is no longer equal. Our people cannot now
afford to commence the building of factories to compete with foreign
factories already built. To prohibit our citizens for sevent en
years from competing for
[Page 12]
some special branch of a foreign trade, will generally be found to
be equivalent to excluding them from it forever.
It is therefore respectfully submitted whether in the interest of
American industry the manufacture of patented articles for foreign
markets ought not to be free to every citizen. This is not an attack
on the rights of that most meritorious class who carry forward
improvements in the useful arts. The writer is an earnest and
persistent advocate of those principles of comity and justice which
would secure the equitable rights of inventors at home and abroad,
and in his report on patent laws dated September 30, 1871, and
printed in the “Commercial Relations, 1872,” pages 49, 50, and 51,
it was suggested that “the lack of treaty stipulations and of
established principles of international law concerning the rights of
foreign inventors, may, perhaps, at some future time, be cited in
evidence of the semi-barbarism of the present age.” The injustice of
foreign patent laws cannot be remedied by an act of Congress. The
privileges of inventors in foreign lands rest upon local law, unless
defined by treaty. If the injustice pointed out in that report had
been entirely removed by treaties, the provision of the law granting
a foreign trade to a patentee would be lees unjust and less
instrumental in destroying the manufacturing interest of our
country.
It is not contemplated to curtail in the slightest degree any
exclusive privilege which our law has power to guarantee, but it
cannot grant an inventor an exclusive market in foreign countries.
The patentee is asked to yield to his own countrymen only the rights
which are enjoyed by every other person out of the United States.
His monopoly is within the country, not out of it, and in claiming
the exclusive privilege to “make,” he excludes his own countrymen
from profiting by a foreign trade to which he has no special legal
right, and from which the inhabitants of no other country are
excluded. English, French, and German manufacturers have free access
to the foreign manger, while the approach from the American side is
guarded by a well-fed monopolist, who will neither compete for the
trade himself nor allow his fellow-citizens to compete for it. If
the patentee foregoes his royalty on exports, he has neither
interest in nor benefit from the foreign trade; if he exacts it he
handicaps American competition; and from a national point of view
the wisdom of permitting a short-lived monopoly to strangle a
permanent and profitable industry would equal that which would kill
the goose which laid a golden egg. The interest which a patentee has
in the export trade is generally remote; the interest which a nation
has is immediate, and ought to be promptly secured.
Patents are sometimes granted for improvements which, even under a
just law, could not be patented abroad, for it by no means follows
that an invention is really new because a man swears it is new to
him. A system which had been in constant and general use for
generations might be patented; the question is not whether it has
been known abroad, but whether a description has been published, and
at this time antiquarian literature is being ransacked for the
published description of a process recently patented in America,
which is alleged to have been in common use in Europe for over half
a century.
It may be said that if the right to manufacture for the foreign trade
were allowed, it might lead to a violation of the exclusive right to
use and vend within the United States. For certain sewing-machines
heretofore manufactured, only one-third the royalty was demanded by
patentees when the machines were exported”, compared with the
royalty paid on those for domestic use. This proves that it is
possible to distinguish between the two, and the law can certainly
provide such safeguards as may be necessary for the full protection
of domestic rights without destroying the rights which all Americans
have in the foreign trade.
Under the law as it now stands, a foreigner who has no intention of
manufacturing in our country, may nevertheless obtain a patent there
in order to prevent American competition in other countries. Upon
what theory can that be defended?
The importance of the principle involved justifies the length of this
report, and the conclusion is submitted with diffidence. All the
authorities on patent law attainable here have been carefully
examined, but no distinction has been found between making for
export or for domestic use. Europeans are divided in opinion as to
the policy of having any patent laws, and in those countries where
they have not been totally abolished they are so framed and
administered as to be of little practical use to a non-resident; but
in the discussions which have taken place it has not been observed
that this principle has entered into the argument. In a recent
publication now at hand, the history of property in inventions, and
the principles upon which patent laws are based, are clearly stated
and the American system, its principles and effects, ably supported
but there is nothing in it to indicate that the attention of its
author had been ever called to the effect which our patent law has
upon our foreign trade. Though unable to cite authority to support
the proposition to strike out the word “make” from our patent law,
it is not known to have ever been condemned by authority. Even if it
had never been thought of or discussed, it would not prove and ought
not to raise a presumption that it is not worthy of discussion. It
is the fundamental principle of patent laws that; it is possible to
discover and disclose new and useful improvements,
[Page 13]
and the principle applies with equal
force when the improvement proposed is in the patent law itself. If
the supremacy to which our country is entitled in the manufacture of
certain kinds of machinery has been destroyed or impaired by one
unadvised word in a statute, it is important that the fact should be
generally known. That this word might produce such an effect will
hardly be thought extraordinary when we consider that it consigns
the international contest to the custody of individuals in no
position to prosecute it with vigor and according to sound
commercial principles, and debars all others from voice or interest
in it.
To recapitulate, it has been attempted to show—
- 1st.
- That certain manufactures, which can be conducted more
skillfully and cheaper in the United States than elsewhere,
are being driven to foreign lands, to the disadvantage of
manufacturers and consumers.
- 2d.
- That the industries of our country have suffered in
consequence, and are likely to suffer in future to an extent
beyond calculation.
- 3d.
- That this national misfortune is to be attributed to a
single word in the patent law; a word which prohibits our
people from exerting their natural energy and enterprise,
and enables any citizen or any foreigner to interpose an
arbitrary veto on a branch of our foreign trade; a word
which is unnecessary to accomplish the end at which the law
aims or could justly aim; a word which establishes a
dog-in-the-manger-system, preventing the prosperity of
others in order to give a privilege to those who are not
able to enjoy it or who use it to a very limited
extent.
- 4th.
- That the word “make” ought to be stricken out of section
4884 of the United States Revised Statutes, and that patents
ought to be granted for an exclusive right to use and vend
for use in the United States and the Territories
thereof.
- 5th.
- That this change would not impair the right of patentees
to tax the inhabitants of the United States who use their
inventions, but would remove a restriction on foreign trade
which prevents our citizens from prosecuting industries
within the country which might be maintained there to the
advantage of the whole world.
PHILIP SIDNEY POST,
Consul-General.
