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The German Market for Patents during the “Second Industrialization,” 1884–1913: A Gravity Approach

  • Carsten Burhop and Nikolaus Wolf
Abstract

Using newly collected patent assignment data for late nineteenth- and early twentieth-century Germany and a standard econometric approach from the international trade literature—the gravity model—we demonstrate the existence of border effects on a historical technology market. We show that the geographic distance between assignor and assignee negatively affected the probability of patent assignments, as well as the fact that a state or international border separated the two contracting parties. Surprisingly, we show that the effect of a state border within Germany was nearly as large as the effect of an international border.

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2 Jaffe, Adam, Trajtenberg, Manuel, and Henderson, Rebecca, “Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations,” Quarterly Journal of Economics 108, no. 3 (1993): 577–98.

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4 Maurseth, Per Botolf and Verspagen, Bart, “Knowledge Spillovers in Europe: A Patent Citation Analysis,” Scandinavian Journal of Economics 104, no. 4 (2002): 531–45.

5 Lamoreaux, Naomi R. and Sokoloff, Kenneth L., “Inventors, Firms, and the Market for Technology in the Late Nineteenth and Early Twentieth Centuries” in Learning by Doing in Markets, Firms, and Countries, ed. Lamoreaux, Naomi R., Raff, Daniel M. G., and Temin, Peter (Chicago, 1999), 1960; Lamoreaux, Naomi R. and Sokoloff, Kenneth L., “Market Trade in Patents and the Rise of a Class of Specialized Inventors in the Nineteenth-Century United States,” American Economic Review 91, no. 2 (2001): 3944.

6 Nicholas, Tom, “Spatial Diversity in Invention: Evidence from the Early R&D Labs,” Journal of Economic Geography 9, no. 1 (2009): 131.

7 Nicholas, Tom, “The Role of Independent Invention in US Technological Development, 1880–1930,” Journal of Economic History 70, no. 1 (2010): 5782.

8 Moser, Petra, “Do Patents Weaken the Localization of Innovations? Evidence from World's Fairs,” Journal of Economic History 71, no. 2 (2011): 363–82.

9 Nicholas, Tom, “Independent Invention during the Rise of the Corporate Economy in Britain and Japan,” Economic History Review 64, no. 3 (2011): 9951023.

10 Streb, Jochen, Baten, Jörg, and Yin, Shuxi, “Technological and Geographical Knowledge Spillovers in the German Empire, 1877–1918,” Economic History Review 59, no. 2 (2006): 347–73.

11 Burhop, Carsten, “The Transfer of Patents in Imperial Germany,” Journal of Economic History 70, no. 4 (2010): 921–39.

12 Gilgen, David, “Die Schaffung eines globalen Marktes für Innovationen—Chancen und Grenzen globaler Institutionen, 1880–1914,” in Deutschland als Modell? Rheinischer Kapitalismus und Globalisierung seit dem 19. Jahrhundert, ed. Gilgen, David, Kopper, Christopher, and Leutzsch, Andreas (Bonn, 2010), 315–59. Gilgen's work is based on aggregate data (i.e., the number of patents granted to Germans in the United States during a certain year), whereas we use microdata (i.e., the assignment of a certain patent from a certain firm to another firm during a certain year). Moreover, Gilgen uses the national state as geographic entity, whereas we geo-code each patent.

13 Anderson, James E. and van Wincoop, Eric, “Gravity with Gravitas: A Solution to the Border Puzzle,” American Economic Review 93, no. 1 (2003): 170–92, is the seminal article in the field of international trade in goods and services. They show that international borders reduce trade by 20 to 50 percent.

14 Wolf, Holger C., “Intranational Home Bias in Trade,” Review of Economics and Statistics 82, no. 4 (2000): 555–63; Wolf, Nikolaus, “Was Germany Ever United? Evidence from Intra- and International Trade, 1885–1933,” Journal of Economic History 69, no. 3 (2009): 846–81.

15 Hummels, David and Skiba, Alexandre, “Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture,” Journal of Political Economy 112, no. 6 (2004): 13841402.

16 There are numerous studies on the linkage between the state, universities, and the chemical industry. See, e.g., Borscheid, Peter, Naturwissenschaft, Staat und Industrie in Baden, 1848–1914 (Stuttgart, 1976); Murmann, Johann Peter, Knowledge and Competitive Advantage: The Coevolution of Firms, Technology, and National Institutions (Cambridge, UK, 2003); Wetzel, Walter, Naturwissenschaften und chemische Industrie in Deutschland: Voraussetzungen und Mechanismen ihres Aufstiegs im 19. Jahrhundert (Stuttgart, 1991).

17 For the history of the patent laws of different German territories, see Heggen, Alfred, Erfindungsschutz und Industrialisierung in Preußen, 1793–1877 (Göttingen, 1975); Seckelmann, Margrit, Industrialisierung, Internationalisierung und Patentrecht im Deutschen Reich, 1871–1914 (Frankfurt am Main, 2006), 57106. The long lasting and complex negotiation process that preceded the enactment of the patent law in 1877 is documented in Fleischer, Arndt, Patentgesetzgebung und chemisch-pharmazeutische Industrie im Deutschen Kaiserreich, 1871–1918 (Stuttgart, 1984).

18 Wimmer, Wolfgang, “Wir haben fast immer was Neues”: Gesundheitswesen und Innovationen in der Pharma-Industrie in Deutschland, 1880–1935 (Berlin, 1994); Burhop, Carsten, “Pharmaceutical Research in Wilhelmine Germany: The Case of E. Merck,” Business History Review 83 (Autumn 2009): 475503.

19 Reinhardt, Carsten, Forschung in der chemischen Industrie: Die Entwicklung synthetischer Farbstoffe bei BASF und Hoechst, 1863–1914 (Freiberg, 1997).

20 Wimmer, “Wir haben fast immer was Neues.”

21 Abelshauser, Werner, ed., Die BASF: Eine Unternehmensgeschichte (Munich, 2002); Burhop, “Pharmaceutical Research in Wilhelmine Germany”; Reinhardt, Forschung in der chemischen Industrie; Reinhardt, Carsten and Travis, A. S., Heinrich Caro and the Creation of the Modern Chemical Industry (Dordrecht, 2000).

22 Pohl, Manfred, Emil Rathenau und die AEG (Berlin, 1988); Feldenkirchen, Wilfried, Siemens: Von der Werkstatt zum Weltunternehmen (Munich, 2003); Strunk, Peter, Die AEG: Aufstieg und Niedergang einer Industrielegende, 2d ed. (Berlin, 2000); von Weiher, Sigfrid and Goetzler, Herbert, “Weg und Wirken der Siemens-Werke im Fortschritt der Elektrotechnik, 1847–1980: Ein Beitrag zur Geschichte der Elektroindustrie,” Zeitschrift für Unternehmensgeschichte, Beiheft 21 (Stuttgart, 1981).

23 §1 PatG “Patente werden erteilt für neue Erfindungen, welche eine gewerbliche Verwertung gestatten. Ausgenommen sind: 1. Erfindungen, deren Verwertung den Gesetzen oder guten Sitten zuwiderlaufen würde; 2. Erfindungen von Nahrungs-, Genuß- und Arzneimitteln, sowie von Stoffen, welche auf chemischem Weg hergestellt werden, soweit die Erfindungen nicht ein bestimmtes Verfahren zur Herstellung der Gegenstände betreffen.”

24 Damme, Felix, Das deutsche Patentrecht (Berlin, 1906), 92.

25 §19 (2) PatG “Tritt in der Person des Patentinhabers oder seines Vertreters eine Änderung ein, so wird dieselbe, wenn sie in beweisender Form zur Kenntnis des Patentamtes gebracht ist, ebenfalls in der Rolle vermerkt und durch den Reichsanzeiger veröffentlicht. Solange dies nicht geschehen ist, bleiben der frühere Patentinhaber und sein früherer Vertreter nach Maßgabe dieses Gesetzes berechtigt und verpflichtet.”

26 Damme, , Patentrecht, 387.

27 Kohler, Josef, Handbuch des deutschen Patentrechts in rechtsvergleichender Darstellung (Mannheim, 1900), 581–82.

28 Burhop, Carsten and Lübbers, Thorsten, “Incentives and Innovation? R&D Management in Germany's Chemical and Electrical Engineering Industries around 1900,” Explorations in Economic History 47, no. 1 (2010): 100–11.

29 Seckelmann, Margrit, Industrialisierung, Internationalisierung und Patentrecht im Deutschen Reich, 1871–1914 (Frankfurt am Main, 2006), 257–60.

30 Burhop, , “The Transfer of Patents in Imperial Germany,” 927. The importance of secure property rights for the emergence of a patent market in the United States has been highlighted by Khan, B. Zorina and Sokoloff, Kenneth L., “‘Schemes of Practical Utility’: Entrepreneurship and Innovation among ‘Great Inventors’ in the United States, 1790–1865,” Journal of Economic History 53, no. 2 (1993): 289307; and by Khan, B. Zorina, “Property Rights and Patent Litigation in Early Nineteenth-Century America,” Journal of Economic History 55, no. 1 (1995): 5897.

31 Burhop, , “The Transfer of Patents in Imperial Germany,” 927–28.

32 The patent office did not publish the data for 1888.

33 See Burhop, , “The Transfer of Patents in Imperial Germany,” 930–32 for more details.

34 See ibid., 928–30, on this point.

35 Griliches, Zvi, “Patent Statistics as Economic Indicators: A Survey,” Journal of Economic Literature 28, no. 4 (1990): 16611707; Grupp, Hariolf, Dominguez-Lacasa, Iciar, and Friedrich-Nishio, Monika, Das deutsche Innovationssystem seit der Reichsgründung (Heidelberg, 2002); Metz, Rainer and Watteler, Oliver, “Historische Innovationsindikatoren: Ergebnisse einer Pilotstudie,” Historical Social Research 27, no. 1 (2002): 4129.

36 Censoring could be a problem for all patents issued after 1899 since the maximum lifetime of a patent was fifteen years.

37 This problem has been highlighted, for example, by Helpman, Elhanan, Melitz, Marc, and Rubinstein, Yona, “Estimating Trade Flows: Trading Partners and Trading Volumes,” Quarterly Journal of Economics 123, no. 2 (2008): 441–87.

38 We do not use the name of assignors or assignees as an important descriptive category since our research focuses on the geographic dimension of patent assignments, not on the organization of innovations in firms and industries. In contrast to recent findings from business history, the patent market was not highly concentrated. The average person or firm included in our dataset sold 1.4 patents and acquired 1.6 patents. The five most important firms contributed only 4 percent of all trading activity. The most active firms on the patent markets were firms from the electrical-engineering industry, whereas the most active inventors were the large firms from the dyestuff and chemical industries. See Degener, Harald, “Schumpeterian German Firms before and after World War I: The Innovative Few and the Non-Innovative Many,” Zeitschrift für Unternehmensgeschichte 54, no. 1 (2009): 5072.

39 Anderson, James E., “The Gravity Model,” Annual Review of Economics 3, no. 1 (2011): 133–60.

40 Baier, Scott L. and Bergstrand, Jeffrey H., “The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity,” Journal of International Economics 53, no. 1 (2001): 127; Eaton, Jonathan and Kortum, Samuel, “Technology, Geography, and Trade,” Econometrica 70, no. 5 (2002): 1741–79; Anderson, and van Wincoop, , “Gravity with Gravitas,” 170–92; Grogger, Jeffrey and Hanson, Gordon H., “Income Maximization and the Selection and Sorting of International Migration,” Journal of Development Economics 95, no. 1 (2011): 4257; Head, Keith and Ries, John, “FDI as an Outcome of the Market for Corporate Control: Theory and Evidence,” Journal of International Economics 74, no. 1 (2008): 220; Gosh, Swati and Wolf, Holger C., “Is There a Curse of Location? Spatial Determinants of Capital Flows to Emerging Markets,” in Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, ed. Edwards, Sebastian (Chicago, 2000), 137–58; Keller, Wolfgang, “Geographic Localization of International Technology Diffusion,” American Economic Review 92, no. 1 (2002): 120–42.

41 Deardorff, Alan V., “Local Comparative Advantage: Trade Costs and the Pattern of Trade,” University of Michigan Research Seminar in International Economics Working Paper no. 500 (2004).

42 Streb, Baten, and Yin, “Technological and Geographical Knowledge Spillovers in the German Empire.”

43 Anderson and van Wincoop, “Gravity.”

44 Disdier, Anne-Célia and Head, Keith, “The Puzzling Persistence of the Distance Effect on Bilateral Trade,” Review of Economics and Statistics 90, no. 1 (2008): 3741.

45 Wolf, , “Was Germany Ever United?846–81.

46 Applying formula (3) we can calculate the effect of borders on trade as 100 * (1 − exp(−0.228) for state borders, and 100 * (1 − exp(−0.277) for external borders.

47 The distance equivalent of the state border effect can be calculated as exp (−0.228/− 0.089).

48 The distance equivalent of the external border effect can be calculated as exp (− 0.277/− 0.089).

49 Wolf, “Was Germany Ever United?” Table 2.

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