Patent rights: breakthrough vs incremental improvements.

Arguably, Watt's steam engine is one of the greatest inventions of the time. For over a century, from the late 1700s till the early 1900s Watt's condenser-based design dominated power generation in a variety of industries, from mining to transportation to electricity generation. Remarkably, the success of Watt's business venture with Boulton was based entirely on the patent:

The profits for Boulton & Watt resulted from the royalties they charged for the use of their engine. Watt’s invention was protected by the patent for the separate condenser he took in 1769, which an Act of Parliament had prolonged until 1800. The pricing policy of the two partners was to charge an annual premium equal to one-third of the savings of the fuel-costs attained by the Watt engine in comparison to the Newcomen engine. This required a number of quite complicated calculations, amounting at identifying the hypothetical coal consumption of a Newcomen engine supplying the same power of that Watt engine installed in the mine. (Alessandro Nuvolari, 2001. doi: 10.1093/cje/beh011 )

As a matter of fact, the enforcement of an almost absolute control on the evolution of the steam technology during the duration of Watt’s patent was a crucial component of Boulton and Watt’s business strategy.

Despite Watt's crucial contribution to the technology, engineers and entrepreneurs who were constrained by his patent rights resented the legal monopoly. Similarly, the mobile industry today resents Apple's attempts to enforce its iPhone/iPad patents.

Once the inventive breakthrough is accomplished, everybody wants a piece of the action. As the result of massive technical attention and investment, engineers create a multitude of incremental improvements, targeting cost reduction and increases in performance.

tags:  patent, example, invention, business, model, energy