01 June 2012


'International Patent Control and Transfer of Knowledge: The United States and Japan before World War II' [PDF] by Shigehiro Nishimura in 9 Business & Economic History Online (2011) seeks to
 clarify the role and effect of the international patent control carried out by the General Electric Company in the interwar period on knowledge transfer between the United States and Japan, and to examine the effects of this process on Japan’s innovative behavior. In previous studies on GE’s international patent control, I showed that in order to transfer technological knowledge safely, GE made its Japanese affiliated companies set up a patent department and transferred functional capabilities of patent control to them. After the organization of an international patent control system, GE transferred a good deal of technological knowledge continuously and utilized it in Japan until the outbreak of the Pacific War. In the interwar era, GE obtained about 12,000 patents that were applied for and registered in the United States. In Japan, GE applied for and registered about 3,000 patents in the name of affiliated companies. Therefore, GE transferred about one-fourth of its U.S. patented inventions to Japan, and made patent portfolios in both countries. In this essay, I will compare GE’s U.S. and Japanese patent portfolios and analyze how they were linked.
Nishimura concludes -
What kind of technological knowledge [was] transferred over the Pacific Ocean, and to what degree? What kind of knowledge transfer has an effect on the long-term innovative behavior of Japanese companies, and to what extent?
In the interwar era, GE obtained about 12,000 patents that were applied for and registered in the United States. In Japan, GE applied for and registered about 3,000 patents in the name of affiliated companies. Therefore, GE transferred about one-fourth of its U.S.-patented inventions to Japan, and the company constructed patent portfolios in both countries.
Knowledge flow during the interwar period was made possible by a scheme in which GE contracted with its affiliated companies—namely, Tokyo Electric, Shibaura Engineering Works, and Toshiba in Japan—to control foreign patents in each territory for each other. Global networks of such a scheme fostered and secured international knowledge transfer, and this is seen in the case of Japan as well. Tokyo Electric and Shibaura received large amounts of technological knowledge covered by patents; further, knowledge transferred to Japan stimulated inventive activities in Japanese companies along with organizational capabilities for patent control. The result of technology interaction with affiliated companies appeared in the growth of patent applications. Accumulated R&D capabilities in Japanese companies served as one of the foundations of revival and high-rate economic growth after World War II. 
During the interwar period, under the international patent control scheme, GE received the benefit of knowledge flow to Japan. GE applied for patents invented by Japanese engineers, which were limited to those applied for during the period 1922 to 1941, and numbered ninety-seven. Among those patents, twelve were classified under USC 313 “Electric lamp and discharge device.” This class included a famous invention, an inside-frosted bulb, which was invented by Kitsuzo Fuwa. At almost the same time, Marvin Pipkin introduced the same invention in the United States. Besides this class, seven patents each were classified under USC 361 “Electricity: electrical systems and devices” and USC 501 “Compositions: ceramic.” The number of patents classified under USC 501 is comparatively very low; however, this class contains inventions by U.S. engineers. Therefore, GE’s patents were complemented by knowledge created by Japanese affiliated companies in some fields.
One can also point out the simultaneity of inventions in different countries. During the interwar period, GE and its Japanese affiliated companies put their development resources into similar fields. Electric lamps and discharge devices and radio vacuum tubes were “hot” fields, as were electrical equipment and apparatus meant for more voltage. While some fields found favor with single companies, in other fields the companies devoted their energies to the same specific technology at the same time. This phenomenon was probably caused and mutually affected by international knowledge transfer instituted by patent control contracts.
The same issue features 'The German Connection: Merck and the Flow of Knowledge from Germany to the United States, 1880-1930' [PDF] by Jeffrey L. Sturchio and Louis Galambos. The authors  comment that -
The pharmaceutical industry in Germany was very advanced in the second half of the nineteenth century, and it took advantage of this situation to export to the large, growing market in the United States. E. Merck of Darmstadt developed a distribution branch in America that eventually evolved into the large U.S. pharmaceutical firm Merck & Co., Inc. The authors chart the business and tech- nical knowledge that flowed from Darmstadt to the United States and analyze the impact of World War I on those relationships. They suggest that E. Merck’s strategy and culture as well as its technical/scientific knowledge helped build a foundation for Merck & Co., Inc.’s development as a leading American research- oriented company in the 1930s. 
In recent years Americans have become accustomed to thinking of knowledge transfer largely in terms of a one-way flow from the United States to the less developed nations in Africa, Asia, Latin America, and the Middle East. Some substantial part of the transfer takes place through U.S. research universities, which have through the twentieth century remained open and indeed welcoming to foreign students; since the 9/11 terrorist attacks, problems in obtaining visas have increased, but the transfer continues nevertheless. Although the knowledge transferred has been broad, the working definition of the knowledge has been narrow and has stressed technology and the closely related sciences. In the following study of two pharmaceutical companies between the 1880s and the 1930s, we take a different tack: we study the flow of knowledge from Germany to the United States; and we define this flow in very broad terms that include technology and the related sciences but also bring in a variety of other business practices and values. 
Though we glance from time to time at some of the other pharmaceutical firms with German origins, we will concentrate on E. Merck of Darmstadt, Germany, and its distribution center, the organization that evolved into Merck & Co., Inc. E. Merck had experienced a significant series of changes in its evolution from a pharmacy (the Angel Pharmacy) that had been in the Merck family since 1668. In 1827, the pharmacy began increased production of various alkaloids, including morphine. By the 1840s, the expanded laboratory had given way to factory production, and by 1855, the firm was employing around fifty factory hands and office clerks and was already using steam power. Expansion of production within Germany was followed by new efforts to export the firm’s products to other countries in Europe and North America. 
In our examination of this process of expansion and transfer of knowledge, we have three general questions that we want to answer: What, other than technical knowledge, did the relationship export to the United States? What happened when World War I severed the relation- ships between Germany and the United States? How did the developments prior to the 1930s relate to the pharmaceutical industry’s role in the Therapeutic Revolution that took place in Europe and America in the 1930s and beyond?
Sturchio and Galambos conclude -
We find especially interesting the transfer of business knowledge, a particular business strategy, and a powerful business culture from Germany to the United States when E. Merck began investing in the large, growing American market. Certainly, scientific and technological informa- tion was transferred, as were important products for medicinal and research use in America. But over the decades in which E. Merck was shipping products, intermittently perforce, to America, the science and technology shifted dramatically. So too did the comparative balance of knowledge and scientific institutional frameworks of the two nations. By the 1930s, the United States was rapidly catching up with the more advanced German medicinal sciences, in part of course because so many American scientists and physicians had received part of their training in Germany. But what persisted long after the United States had reached the level of scientific/technological development of Germany was the E. Merck pharmaceutical model of firm strategy and culture. This suggests that scholars need to look beyond science-based technology when they evaluate the process of knowledge transfer within and between organizations, and within and between societies. Capabilities are based on more than technology and science. They are based as well on organizational patterns of behavior, leadership, and deeply planted value systems. 
As we saw in the Merck history, a war that the businesses had not anticipated temporarily separated the German manufacturer, E. Merck, from its American distribution and manufacturing branch, Merck & Co. If E. Merck had anticipated the war, the firm would not have invested in the United States and certainly not in France. As a result of World War I, the flow of technical information, capital, and skilled labor coming from Germany to the United States was abruptly cut off. Thanks in part to George Merck’s early decision to become an American citizen—a lucky break for the company—he was able to keep control of his firm during and after the war. Part of the responsibility for that outcome can also be credited to the conservative business strategy that George had brought with him from Germany and his early experience in E. Merck. Being in and staying in a relatively conservative position on debt helped George Merck and his son guide the business through the war and postwar experiences. While some transfers of knowledge were probably recreated in the 1920s, the aftermath of the war was an increasingly independent American firm, Merck & Co., Inc. 
That firm became one of the leaders in the American industry in the 1930s and 1940s, as the United States began to experience first-hand the Therapeutic Revolution. When George W. Merck, the new president, expanded the firm and internalized the R&D functions, he was successfully following the E. Merck model. When he continued to stress the quality of the firm’s products and the science-based nature of its laboratories and pilot plant, he was expressing values that had in the previous generation been imported from Darmstadt. So too when he reached out to establish close relations with the institutions developing the medicinal sciences and pharmacology in America. It is in that sense that we conclude that German business practices, culture, and history helped lay the foundation for America’s climb to leadership in world pharmaceuticals after World War II and for Merck & Co, Inc.’s achievements in those decades as an innovative and profitable corporation.