[COFF] Background on Bell Labs and impact on patents produced after 1956 consent decress

[steve jenkin via COFF]

I'd never understood how important the Patent group was at Bell Labs.
Or how busy... [  ~500 patents a year ]

The CRC / Unix group were very astute in pitching them a typesetting system.

Some things I didn't know:

	- all pre-1956 patents, including for transistors, became royalty-free after the consent decree

	- Shockley wasn't the only key transistor research to leave Bell Labs,
		Teal left for (then small) Texas Instruments.

Whilst this is an economics paper looking at a non technical issues,
the summaries provided neatly encapsulate the Research Machine that was Bell Labs.

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pg 8
Figure B4. : Number and Share of Telecommunications Patents

    chart shows ~1,000 telecomms patents issued by Bell Labs 1955-1970

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How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree
    https://www.aeaweb.org/articles?id=10.1257/pol.20190086
    Watzinger, Fackler, Nagler, Schnitzer

Abstract

Is compulsory licensing an effective antitrust remedy to increase innovation?

To answer this question,
we analyze the 1956 consent decree that settled an antitrust lawsuit against Bell,
a vertically integrated monopolist charged with foreclosing the telecommunications equipment market.

Bell was forced to license all its existing patents royalty-free,
including those not related to telecommunications.

We identify the effect of the consent decree on follow-on innovations building on Bell patents
by using exactly matched non-Bell patents as control group.

We show that the consent decree led to a lasting increase in innovation but only in markets outside the telecommunications sector.

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How Antitrust Enforcement Can Spur Innovation: Bell Labs and the 1956 Consent Decree
    Online Appendices
    https://assets.aeaweb.org/asset-server/files/13359.pdf


Appendix A1. The History of the Bell System and the Antitrust Lawsuit

As described in Section I, the Bell System was the dominant provider of telecommunications services in the United States.

In terms of assets, AT&T was by far the largest private corporation in the world in 1956.

AT&T, together with all companies in the Bell system,
employed 746,000 people
	[ 1.16% adult workforce ]
with a total revenue of $5.3 billion 
	or 1.9% of the U.S. GDP at the time.

    [ US pop. 1956, 111M, adult workforce, 64M ]
    [ <https://www.bls.gov/cps/aa2020/cpsaat01.htm> ]

It was also one of the most innovative companies in the world:
	Between 1940 and 1970, 
	Bell filed on average ~503 patents 
	or 1% of all U.S. patents each year.

The 1950 staff of Bell Labs alone consisted of
    four future Nobel Laureates in physics,
    one Turing Award winner,
    five future U.S. National Medals of Science recipients,
    and ten future IEEE Medals of Honor recipients.

In 1950, Bell Labs employed 6,000 people,
one-third of whom were professional scientists and engineers.

This was 1% of the entire science and engineering workforce in the U.S. at the time.

After the complaint was filed in January 1949,
Bell sought and obtained a freeze of the antitrust lawsuit in early 1952 with the support of the Department of Defense (DoD),
on the grounds that the DoD relied on the research of Bell Labs for the war effort in Korea.

In World War II, the Bell Labs had been instrumental in inventing the superior radar systems of the Allies.

They also engaged in around a thousand different war-related projects,
from tank radio communications to enciphering machines for scrambling secret messages.

In Figure A1, we show two examples of Bell's war-related technologies: 
	radar and cryptography

In these two technologies, Bell filed a total of 251 patents.

In the following years, Bell Labs continued to work for the DoD,
for example by operating the Sandia National Laboratories,
one of the main development facilities for nuclear weapons.

----

In May 1954, AT&T presented and in June 1954 submitted to the Department of Justice
a checklist of concessions that would be an acceptable basis for a consent decree.

The only major remedy suggested was the compulsory licensing of all Bell patents for reasonable royalties.

The case ended with a consent decree on January 24, 1956, containing two remedies.

First, the Bell System had to license all its patents issued prior to the decree royalty-free to any applicant,
with the exception of RCA, General Electric, and Westinghouse, 
	who already had cross licensing agreements with Bell (the so-called B-2 agreements).

All subsequently published patents had to be licensed for reasonable royalties.

As a consequence of the consent decree, 7,820 patents in 266 USPC technology classes
and 35 technology subcategories 
or 1.3% of all unexpired U.S. patents became freely available.

Second, the Bell System was barred from engaging in any business other than telecommunications.

----

Historical accounts also report
that there was an exodus of important Bell researchers from Bell Labs around the time of the consent decree.

In 1953, for example, Gordon Teal, the inventor of a method to improve transistor performance, joined the then small Texas Instruments Inc.

Similarly, William Shockley, one of the inventors of the transistor, left Bell in 1956 to start Shockley Semiconductors Laboratory.

So, secular changes at the Bell Laboratories unrelated to the consent decree might have led to more spin-offs
and, consequently, to more follow-on innovation by small and young companies. 

In our data,
there are 5,613 former Bell employees with 35,589 patents,
4,477 co-inventors of former Bell employees with 28,569 patents,
and 12,068 co-inventors of co-inventors who were never active at Bell and who filed 87,148 patents in total. 

This pattern suggests that the increase in follow-on innovation was even negative for former Bell employees.

We define a high-quality patent as a patent with a value of more than $3.07 million,
the median dollar value of a Bell patent according to Kogan et al. (2017).

For example, shortly after the Bell consent decree there were two other consent decrees issued
that used compulsory licensing as a remedy:
    IBM in 1956 and
    of RCA in 1958. 

One potential concern might be that our estimates do not capture an increase in follow-on innovation,
but merely reflect a substitution effect.

Due to the free availability of Bell technology, companies might have substituted away from other,
potentially more expensive technologies. 

We find no effect, implying that the citation substitution is either small or homogeneous to patents of these companies and the control group.

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--
Steve Jenkin, IT Systems and Design 
0412 786 915 (+61 412 786 915)
PO Box 38, Kippax ACT 2615, AUSTRALIA

mailto:sjenkin at canb.auug.org.au http://members.tip.net.au/~sjenkin