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

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.

3 Thompson Peter and Fox-Kean Melanie, “Patent Citations and the Geography of Knowledge Spillovers: A Reassessment,” American Economic Review 95, no. 1 (2005): 450–60; Henderson Rebecca, Jaffe Adam, and Trajtenberg Manuel, “Patent Citations and the Geography of Knowledge Spillovers: A Reassessment: A Comment,” American Economic Review 95, no. 1 (2005): 461–64; Thompson Peter and Fox-Kean Melanie, “Patent Citations and the Geography of Knowledge Spillovers: A Reassessment: A Reply,” American Economic Review 95, no. 1 (2005): 465–66; Keller Wolfgang, “Geographic Localization of International Technology Diffusion,” American Economic Review 92, no. 1 (2002): 120–42.

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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Business History Review
  • ISSN: 0007-6805
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