Business And Piracy Lessons From The 18th Century

Eli Whitney is a name that most of us remember from elementary school as the inventor of the cotton gin. The gin (an abbreviation of “engine”) was instrumental in creating a dominant American cotton industry. It made him famous, but did it make him rich? His story still carries a powerful lesson on the limits of intellectual property laws.

We tend to think of intellectual property piracy in modern terms, such as the theft of digital music or movies. Piracy, even if it was called something else, has actually been around for centuries. The precursor of today’s Copyright Act was prompted by a thriving business in copying player piano rolls. Further back in time, names we recall as originators of the Industrial Revolution, such as Watt and Fulton, suffered similar copying of their inventions. For many important innovators, patents could not prevent bankruptcy.

History is fuzzy on whether Whitney’s invention of the cotton gin was a happy accident, or a calculated and long campaign to solve an intractable problem. One of the few cotton species that could thrive in the American South had a severe disadvantage: the sticky seeds inside cotton balls were almost impossible to remove by hand. It was so difficult, in fact, that it cost more to feed and clothe slaves to remove the seeds than could be realized by selling the product.

Whitney’s gin was simple. He built a barrel type device with hooked nails inside that pulled cotton fibers through a screen. The seeds were too big to go through the mesh and fell away. With this device, the amount of cotton that could be cleaned went up by orders of magnitude and America became the world’s leading cotton producer.

A device with such enormous economic impact should have made Whitney the Rockefeller or Gates of his time. Unfortunately, that was not to be. The gin was so simple that it was easy to copy, and Southern plantation owners did just that. Knock-off cotton gins were built everywhere.

Whitney and his business partner had patented the gin, so they brought dozens of lawsuits to defend their intellectual property monopoly. For various reasons, not the least of which was that Yankees were unpopular in the American South (Whitney was from New England), these lawsuits failed to stem the piracy. Every cent that Whitney made from selling cotton gins went into litigation expenses. In fact, it was Whitney’s other notable contribution, popularizing interchangeable parts to build rifles, which helped finance the litigation.

Whitney remained one of the most famous Americans of his day, and lived comfortably for most of his life, but he was by no means rich when he died. His tale ended up better than countless other creators of major inventions in history, who ended up in bankruptcy or as paupers.

That remains true today. For every inventor who hits the jackpot, there are hundreds, maybe thousands, of others who either fail to commercialize their patent, or find that someone else has, legitimately or illegitimately, “borrowed” their idea. Bill Gates didn’t invent the personal computer, or even a windowed operating system. Steve Jobs didn’t invent MP3 players or cel phones. But each of them took existing technologies and made them successes through superior business and marketing acumen. No wonder that there is an adage in Silicon Valley that “you can tell the pioneers by the arrows in their backs.”

Does this mean that creators should not obtain intellectual property protections such as copyright or patent? No. They can still be valuable in the right circumstances, but their limitations must be recognized up front. A huge downside is that the legal system is an expensive tool. Few inventors or inventions have the resources to support large infringement suits. In addition, legal systems do not handle international problems very well, and the expenses are even higher. Large numbers of counterfeit items from China are difficult to stop, even when you are Apple or Microsoft.

If anything, history shows that ordinary business concepts can be more important than legal remedies. Often the money spent on litigation is better directed at marketing or R & D. Inventors are not usually the ones who enjoy the most success. Others learn from their mistakes, improve the technology, and wind up as victors. If you are the first, be ready for those who come after you.