Monday, December 13, 2004

Becker, Posner, and Rasmussen on Patents

Harry Rasmussen the former Maserati owner...who hopes to be one again. Seattle Times reporter Alwyn Scott--Shifting Fortunes; Pain and gain in the global economy--is telling the story of how an inventor, working in a stifling bureaucracy, managed to become a multimillionaire by simply improving telephones:

An end run around bureaucracy ends up in pay dirt.

Amid [AT&T's Pacific Northwest] Bell's bureaucracy, Rasmussen glimpsed a way for his innovation to thrive. In the late 1960s, new houses sprouting around Seattle were being wired for multiple phones.

Trouble was, Bell wouldn't install phone jacks until after houses sold and it could charge for them. That left holes in the walls and dangling wires. Contractors complained it hampered home sales.

At work, Rasmussen sat in front of the person whose job it was to solve the problem. Hearing the details, Rasmussen sketched out a solution: a snap-on faceplate with a punch-out center. Contractors could cover up the holes while homes were on the market. After the new owners decided which rooms needed phones, Bell installers could put jacks into the same faceplates.

This time, Rasmussen didn't present his idea directly to Bell. He asked a plastics-molding company to make a prototype, then sent it to his colleague and signed the cover letter with his wife's maiden name. Lois made the stationery by hand with the rub-off letters that were popular before the arrival of desktop publishing.

Rasmussen was in the office when the package arrived. The others were incredulous: "How does this guy know exactly what we need?"

The first order, for 30,000 faceplates, paid for the plastic mold. No one at Bell knew Rasmussen was behind it.

And so, in 1969, while still at Bell, Rasmussen leapt into business for himself. He borrowed $850 through a friend at a credit union, asking him to "lose the paperwork for six months," so he could set up Crest Industries.

From faceplates and jacks, other ideas flowed quickly. He designed a small switch-box attachment to turn ringers off at extension phones, which were starting to crop up in middle-class homes. His design replaced Bell's brick-sized switch and would eventually sell more than 10 million. Rasmussen says he netted $3 for every one.

Being inside the monopoly helped. He could thumb through staff directories of local Bell companies and send sales letters for his products to just the right people. Once, when Bell demanded a face-to-face meeting, he sent Lois' brother in his place.

Only to lose everything when offshore imitators who brazenly violated his patents (even bragging to his customers about what they were doing) underpriced him. Unable or unwilling to fight a lengthy legal battle he started all over again, this time Rasmussen did the outsourcing. And he's decided copyright offers him better protection than patents: patents really provide protection, or just technical details for competitors to copy? I understand that many businesses are choosing not to patent for that reason. Harry Rasmussen said he didn't bother to patent some of his inventions. He also said he obtained copyrights instead, which were more powerful, particularly with software.

This very well told series puts some meat on the bones of the arguments made today by Gary Becker and Richard Posner at their new blog.

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