Was America’s Industrial Revolution Based on Trade Secret Theft?

By James Pooley
July 5, 2017

When I was in Geneva trying to engage developing countries about the value of robust IP laws, occasionally I heard a response like this: “What hypocrites you are! The U.S. economy got its start by stealing from abroad. Why should today’s poor nations be denied the same opportunity to catch up?” The argument stung enough that I thought I should check out the real story. Here’s what I found.

On an early September day in 1789, Samuel Slater, 21 years old, boarded a ship in London to begin a voyage to New York. His family didn’t know he was doing this. He presented himself as a simple laborer, a farm hand. He was lying. Hidden in his pocket were his only official papers, identifying him as a recently-released apprentice to a cotton mill.

Slater had been apprenticed seven years before to Jedediah Strutt, a friend of his father, who operated the Cromford Cotton Mill in Derbyshire. For textiles, Derbyshire was the Silicon Valley of its time. It employed Richard Arkwright’s transformational “water frame” technology of cotton spinning, allowing thread to be spun on dozens of spindles in a single operation. Young Slater had proven to be particularly adept at maintaining and adjusting the machinery, and showed great promise to his employer.

But Slater had two other important attributes: he was ambitious, and he had an extraordinarily good memory. Earlier in 1789 he had heard news that textile manufacturers in America were struggling. The young country was the leading supplier of cotton to the world, but that was in bales of raw material. The high-profit processing center was in England, where Arkwright had made a staggering fortune. But like other monopolies, this one was in imminent danger of disruption.

Most English businesses of the time protected their technology in the traditional way, through guilds and closely controlled apprenticeships where secrets of production could be reliably shared. But the government provided additional help to the textile industry. By 1774, fifteen years before Slater slipped out of the country, England had criminalized both the export of textile machinery and the emigration of textile mechanics. Slater, because he had been trained in the craft, committed a criminal act just by leaving the country.

Slater first came to New York, where he pulled out his apprenticeship papers and got hired at a textile plant. But when he reported for work he was disappointed to find that the machinery was hand-operated and used old technology. A few weeks later he learned that there was a manufacturer in Providence who had been trying, and failing, to replicate the English mechanized cotton-spinning factory. Slater wrote a letter offering his services, emphasizing his experience operating Arkwright’s water frame.

Moses Brown, the proprietor, decided to take a chance, and brought in Slater as a partner. Working only from recollection, making much of the necessary tooling himself, and experimenting with adjustments of his own invention, within a year Slater managed to create America’s first automated textile mill.

Slater’s factory was a huge success, and the technology spread rapidly. By 1815, within a 30-mile radius there were 140 mills operating over 130,000 spindles. This was the launch of the American textile industry, and arguably of the American industrial revolution, upending the client-server relationship between agricultural, extractive America and manufacturing England.

Samuel Slater is remembered well but variously. In the United States, Andrew Jackson dubbed him the “Father of American Manufactures.” In his hometown of Belper in Derbyshire, he is less fondly known as “Slater the Traitor.” (It also bears mention that Slater’s wife, Hannah Wilkinson Slater, became the first woman in America to receive a U.S. patent, covering her invention of cotton sewing thread.)

Is it reasonable to say that the U.S. got an unfair head start on the Industrial Revolution by stealing secrets from Britain? I don’t think so. Industrial espionage had been practiced in Europe throughout the 18th Century, with the British and French particularly active, even using diplomats to get access to valuable commercial information. Moreover, Britain, like some other European countries, frequently granted “patents of importation,” which didn’t require the applicant to be an inventor, if the invention was new within the country’s borders. In this way, governments regularly encouraged people to “steal” ideas from abroad and bring them home.

This opportunistic behavior by nations was seen as acceptable only because of the mercantilist attitude of the time, where national interest was all that mattered. It would be another hundred years before international treaties were established to guarantee respect for foreign intellectual property laws, creating the more integrated environment for IP that promotes global commerce today.

Looking back, we can’t really conclude whether Samuel Slater’s actions would have qualified as trade secret misappropriation under modern laws. We don’t know, for example, how much of his work that first year resulted from his skills and general knowledge about the physics of spinning cotton and about pre-existing mechanical techniques. All of that was his to use freely. And we don’t know to what extent the success of his mills was due to improvements that he came up with on his own.

But there may be a broader lesson to be drawn from the Slater story, one that resonates in the modern, information-based economy. Some scholars think that Massachusetts, near where Slater’s mills were established, lost the march to Silicon Valley because non-competition agreements were regularly enforced against employees there and in other Eastern states. Many of those employees decamped to California, where the law prohibits such restrictions. Undoubtedly some confidential information has been lost along the way. But consider the results. Perhaps we should look to Slater as demonstrating the universal economic value of labor mobility.

The Author

James Pooley

James Pooley is a former Deputy Director of the World Intellectual Property Organization (WIPO). Having returned to Silicon Valley, Mr. Pooley established a private law practice where he specializes in high-level litigation counseling and strategy.

For more than 35 years, Jim has represented clients as lead trial counsel and strategic advisor in high-stakes patent and trade secret disputes. His broad litigation experience, combined with his service as an international diplomat and business executive, make him uniquely qualified to handle today’s global IP challenges. Jim testified before the Senate Judiciary Committee on the Defend Trade Secrets Act, and has worked with congressional staff on the legislation. His most recent book is Secrets: Managing Information Assets in the Age of Cyberespionage, available here.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 17 Comments comments.

  1. Appearance of ... July 5, 2017 12:33 pm

    Well, three cheers for the Statute of Limitations in any event!

  2. angry dude July 5, 2017 8:21 pm

    who cares ?

    what is certain is that financial success in the current anti-patent environment is based on trade secrets. period.

  3. Poesito July 5, 2017 11:30 pm

    Good story. It could be viewed as a cautionary tale about the trade secret approach. How could the technology of a big machine in a building where many people work be considered to be protected as a trade secret? I believe the Brit’s had a functioning patent system at the time although it may not have been very accessible to ordinary citizens.

  4. Luis Figarella July 6, 2017 7:11 am

    Thank you Jim. I read a book (whose name escapes me) about Lowell’s company in Waltham, and how in fact when the city of Lowell was founded, the plot’s value was determined by the water flow within them, not their size/location.

    Book stated Lowell coming back from England, hid machine plans in the back of a couple of valuable paintings, to avoid the inspector’s checking.

    Great writeup!

    LuF

  5. Edward Heller July 6, 2017 9:43 am

    Rex v. Arkwright, 1 Carp. P.C. 53 (1785) http://www.sciencedirect.com/science/article/pii/0172219086901353

    But of course, Arkwright patented his cotton machines in two patents, one of which was subject to the famous case above referenced. Under U. S. law, those specifications should have disclosed to the average worker of ordinary skill in the art how to make and use those machines. Thus, theoretically, all the information necessary for one of ordinary skill to make the machines was disclosed in those specifications.

    The fact that such ordinary workers could not actually build the machines from the information disclosed in the specification was the reason that the jury in the above-referenced case held for the crown in a patent revocation action for an insufficient specification.

    So it is odd to hear today that America stole secrets from Arkwright when Arkwright himself was claiming that he had disclosed the machines in his patent specifications to a degree sufficient to make and use them.

    And that is the rest of the story.

  6. Rick Derris July 6, 2017 11:24 am

    Michelle Lee would’ve argued that Arkwright’s water frame was nothing more than an abstract idea and the whole thing should’ve been tossed aside so that Google could’ve sold more adspace.

  7. Joachim CS Martillo July 6, 2017 3:11 pm

    Fordham University Professor address this subject in Trade Secrets: Intellectual Piracy and the Origins of American Industrial Power, Yale University
    Press, 2004.

  8. Night Writer July 6, 2017 3:46 pm

    @6 Rick Derris: Exactly!

    We don’t want no stinking trade secrets. Trade secrets tie down employees and create many strange isolations.

  9. Paul Cole July 7, 2017 6:40 am

    Crompton Mill, was, of course, operated by Arkwright, so that Samuel Slater had been trained in the best technology of his day. There is an unforgettable quote in R v Arkwright 1 WPC at p 68, in 1785, where Mr Arkwright’s patent was held invalid for insufficiency, and it was said:

    “He admits in that he has not properly specified how the machine was made, and he says that he purposely (in prevention of an evil, that foreigners might not get them) omitted to give so full a description of his inventions in the specification attending the last patent as he otherwise would have done.”

    I had always thought that the “foreigners” were the owners of rival mills down the road in the UK, and had not appreciated that the thieving foreigners he had in mind were you folks in the newly independent US.

    More recently in the early days of the EPO there was decided case T219/85 HAKOUNE/Inadequate description where the invention concerned marking a gemstone by cathode bombardment of the gemstone through a patterned mask. Cathode bombardment had previously been disclosed as a means of cleaning the surface of a gemstone prior to metal coating, and the specification did not disclose what different bombardment conditions were needed for etching as opposed to mere cleaning. A memo from the applicant’s technical staff came to light which said:

    “Details of the actual production process have been kept secret to prevent them being copied straight from the patent.”

    Needless to day, the application was refused for lack of enabling disclosure. The Arkwright approach did not work in 1785, and has not worked since.

  10. American Cowboy July 7, 2017 1:50 pm

    Paul points out: “Details of the actual production process have been kept secret to prevent them being copied straight from the patent.” Needless to day, the application was refused for lack of enabling disclosure.

    And that, of course, is the crux of the matter. Is public policy better served by protecting inventors who provide enabling disclosures in the form of solid patent disclosures, or innovators who come up with an advance (OK, call it an invention) and make money from commercializing the invention in a way that keeps how to make and use the invention obscured from potential competitors.

    Historically, there has been general agreement that society got the better deal from the patent disclosure, It is in recent years, that that agreement has broken down, led by many in the software world who say that trade secrets (and to a lesser extent copyrights) is preferable. And that latter group seems to have a lot of influence in the courts and increasingly in the Congress.

  11. Anon July 7, 2017 2:08 pm

    AC,

    It is not just with patents that Corporatocracy has been on the rise.

    Witness Citizens United.

    Patents may be closer linked to being the canary in the coal mine.

  12. Poesito July 7, 2017 3:14 pm

    EH @ 5 + PC @9: So in 230+ years the technology has changed a bit but the patent game remains much the same.

  13. Edward Heller July 7, 2017 3:21 pm

    American Cowboy, there ought to be a compromise because clearly Arkwright had a point, did he not? Disclosure of his trade secret process would have enabled anyone in the world to copy his machines to the detriment of England. Thus a loss in England requiring an enabling disclosure undermine did the English economy.

    The policy of exclusive rights in exchange for enabling disclosure is well understood – that at the end of the period of exclusive rights the public be enabled to make and use the invention. But why does that require that the enabling disclosure be published at the time of grant? Why can it be published on the date the patent term expires?

    Exclusive rights can be extended to what is disclosed and equivalents, but no more. Exclusive rights cannot embrace subject matter already in the public domain or within the skill of the art – effectively what is already known. That is why a written description of the invention, describing what it is (as opposed to how to make and use it) is vitally necessary. But this need for a writ the specification to define over the prior art and the scope of coverage is independent of and distinct from any need to enable the public to make and use the invention.

    In point of fact, I think I agree with Arkwright.

  14. Ned Heller July 7, 2017 3:52 pm

    Poesito, the patent system is essentially the same since 1604 when patents were limited to patents for invention not previously known or used (in England). There have been developments of course, such as the advent of a need for written description (Arkwright’s specification was insufficient), and examination of claims in both England and the United States circa 1836. Also I would say that the development of the on sale bar in Pennock v. Dialogue in 1828 was a major change. Finally we see recognition by the courts in several English cases and in Le Roy v. Tatham and O’Reilly v. Morse that one cannot patent abstract ideas or laws of nature or natural phenomena.

    I think the summarize the significant developments in patent law in England in the United States for the last 400 years. It has nothing to do with the change in technology from 1600 until 2017. The patent system is not like a living Constitution, evolving to accommodate changes in society. The principles are developed slowly and with care over time by courts deciding particular cases. The patent system, developed by courts, particularly in the United States, has proven to be extremely important to the development of the United States economy.

    The recently problem we have had, in my personal opinion, is caused by the rise in the United States of people who think they know a better way, particularly those who want to harmonize with Europe, and with big international businesses that want to effectively do away with the patent system entirely. These forces together brought us re-examinations, and all forms of post-Grant reviews.

    Europe is big company focused and always has been. Their system simply do not work for the small inventor. Harmonization will predictably hurt startup, universities and the small inventor.

    Big international businesses actually view patents as harmful because they protect alternative, potentially replacement, technologies from appropriation or independent development. Patents throw a monkey wrench into their business models, and they seek therefore to undermine the system as much as possible.

  15. American Cowboy July 7, 2017 4:51 pm

    I agree with Ned and would add that the big international businesses have enough existing market share, capital or access to it, and political influence that they can withstand most forms of competition, particularly from small startups…. unless of course the small startup can stop them from competing for a new market made possible by an invention patented by the startup. Thus, they see patents in a more negative than positive light.

  16. Joachim Martillo July 8, 2017 8:14 am

    BTW, in re #7 (Joachim CS Martillo July 6, 2017 3:11 pm). I forgot to include the name of the author of Trade Secrets: Intellectual Piracy and the Origins of American Industrial Power. Doron Ben-Atar wrote the book. Christine Macleod challenged Ben-Atar’s thesis in a critical review. I’m trying to find it.

    I would argue that intellectual piracy by the rich and incumbent corporations destabilizes the state by increasing wealth concentration while patents tend to provide a counterbalancing effect that increases political economic stability.

    It is quite possible that alleged “bad” patents have an overall net positive effect politically and economically.

  17. Paul Cole July 10, 2017 4:05 am

    Time is a great healer.

    It seems that the Slater Mill which is a preserved historic site is now a place of amazing beauty and interest well deserving a visit, although not quickly accessible for travellers from the UK, see http://www.slatermill.org/.

    Interestingly the UK town of Belper is now twinned with Pawtucket in the US, see

    http://www.bbc.co.uk/news/uk-england-derbyshire-15002318.