Patents, industry control, and the rise of the giant American corporation

Abstract

We examine how some early corporations used patents to control competition, thus creating monopoly or cartel positions, with super-normal profits. We thus highlight one economic rationale for the rise of the giant corporation, expanding the Chandlerian paradigm. Based on evidence from the House of Representatives', 1912 “Oldfield hearings” and three industry case studies, we demonstrate how patent pools and restrictive licensing of fundamental patents led to the stifling of innovation and to negative competition and welfare effects. Focusing on pooling and licensing agreements is particularly important, as these, unlike patents themselves, are not normally open to public scrutiny.