Against Intellectual Monopoly

largely responsible for the development of the
important Swiss chemical, and then pharmaceutical, industry after 1864.

    In that year, a judicial sentence favoring the French company La Fuchsine,
in a fight over the scope of patents it held on the colorant of the same name,
established its almost complete grip on the French dye industry. This put
the many French companies constituting the paint and coloring industry
on notice, resulting in a large movement of firms to Switzerland, where
patents were instead illegal. From 1864 onward and for about two decades,
La Fuchsine (or Poirrer, after the 1868 acquisition) dominated the French
market thanks to its patents. During the same period it innovated little,
if at all, while its Swiss and German competitors, unprotected by patents,
did. La Fuchsine was therefore completely unable to compete outside of
France and, once its patents expired, it disappeared into oblivion, together
with its analogous patent holders in Britain (among which Perkin was
the most well known). In case this reminds you of how the Hollywood
movie industry was created by migrating entrepreneurs running away from
Edison's patents, you have begun to see the pattern. The migrating French
firms located in and around Basel were rapidly followed by other chemical
companies. The movement was so dramatic that just before the First World
War, Haber observes that in France there was no production of chemical
products, either organic or inorganic.14
    Haber explicitly attributes the absence of a French chemical industry to
the presence of patents stifling competition and making innovation impossible. He points out that, in a similar way, the slow growth of the coloring
industry in the United States before the First World War was largely due to
patent protection: most patents were held by the large German companies,
such as Bayer, BASF, Hoechst, and IG Farben. The chemical industry in the
United States was so underdeveloped that during the First World War the
United States was forced to import dyes from Germany via submarines to
bypass the British blockade.

    This would be humorous, if it were not sad: German chemical companies competed heavily at home and across most European markets, where
chemical products could not be patented. This situation forced them to
innovate frequently and to develop production processes able to guarantee very high productivity. Such intense competition already gave them a
competitive edge relative to the Anglo-Saxon companies living in a world of
generalized patenting. To this initial advantage was added the opportunity
to patent products in the United Kingdom and the United States, allowing the German chemical companies to erect insurmountable barriers to
entry in the chemical market. Do not get us wrong here; we are not claiming that the German companies did not use patents in building up their
worldwide dominance. They did, and there is no doubt whatsoever that
the chemical industry worldwide was an assemblage of more or less loosely
held together cartels until the late 1930s, cartels in which the big German
chemical companies played a major leading and coordinating role. Still, the
fact that they wiped out their French and Anglo-Saxon counterparts in the
worldwide market, and that they did so in spite of having a lot less patent
protection, speaks volumes in regard to the specific issue that concerns us
in this chapter.'5
    So, before the First World War, medicines and other chemical products
were scarce and expensive in England. This led, in 1919, to the modification of the English Patents Act of 1907 and the addition of Section 38A,
which introduced mandatory licenses for medicines. Again, the report of the
Sargent Committee of 1937 pointed out the shortage of medicines and its
relationship to strong patents in England. In the Patents Act of 1949, Section
41, No. 2, a new special procedure was introduced to favor mandatory licensing of food and drug products. The British government spent about forty
years fiddling around with its patent laws, without ever abolishing them, in
the vain hope of lowering the prices of medicines and creating incentives
for its pharmaceutical industry to catch up with that of the Germans. It did
not succeed, as we all know: the German companies kept innovating, even
if their new products were not protected by patents at home and the British
pharmaceutical industry never came close to being competitive.