Property Rights, Progress, and the Aircraft Patent Agreement

ECONOMISTS are used to thinking that property rights are a good thing. Transferable property rights allow resources to be channeled to their most highly valued use, and they allow owners to reap the fruits of their investments. However, property rights also have costs, especially when the rights pertain to ideas and inventions. The aim of this paper is to explore the difficulties that a system of rights to ideas generates, with special reference to the U.S. patent system and to events in the aircraft industry. A patent pool among aircraft manufacturers was established in 1917, substantially amended in 1928, challenged by the Department of Justice in 1972, and dismantled in a consent decree signed in 1975. It was also the subject of at least four major public investigations during the years 191735. The pooling agreement made an important subset of each member's aircraft patents available to all other members and stemmed from a patent dispute that originated in 1908 between the Wright brothers and another aviation pioneer, Glenn Curtiss. Patent rights in the agreement were royalty free, except in cases where, in the opinion of a board of arbitration, the patent involved a significant advance. Royalty payments were determined by the board. The government's charge in 1972 was that the agreement reduced com-