GoKawiilOn January 24, 1956, the American Telephone and Telegraph Company was the largest private company in the world.
Its revenues amounted to almost 2% of the U.S. gross domestic product. It employed 746,000 people. It owned Bell Labs, the fabled research division that had already produced the transistor, the solar cell, information theory, and radio astronomy, while also actively laying the first transatlantic telephone cable. In the following decades, it would add UNIX, modern cellular telephony, the CCD image sensor, the first active communications satellite, and a long list of other scientific milestones. This singular stretch of intellectual output paved the way for Bell scientists to eventually collect five Turing Awards and ten Nobel Prizes.
By many metrics, life as a regulated monopoly was very good for AT&T.
Yet by the end of the day AT&T had signed away exclusive rights to every single one of its 7,820 unexpired patents, royalty-free, to any American firm that asked. AT&T would also license any future patents it filed at “reasonable rates.” A bleeding-edge, intellectual property treasure hoard was suddenly and irrevocably opened to the free market.
Antitrust officials initially sold the settlement as a triumph. The Justice Department called it a major victory, with one DOJ lawyer hailing it as “miraculous.” Despite AT&T already existing for decades as a regulated monopoly, with its returns constrained to a relatively conservative (by today’s standards) ~7% per annum, government regulators had pursued and established a landmark set of additional restrictions to curtail AT&T’s monopoly power.
Soon, however, public sentiment started to shift. Business Week called the decree “hardly more than a slap on the wrist.” A House congressional subcommittee would later deem it “a blot on the enforcement history of antitrust laws” for its perceived lenience on AT&T’s exclusive supply chains and vertical integration. Both the ratepayers, who subsidized AT&T’s vast research budget through its rate contracts, and many in the federal government believed this unprecedented economic concentration to still be far too dangerous for the Republic to continue unabated.
The now-infamous 1956 patent decree was just one half of a settlement negotiated over seven years between AT&T and the federal government. AT&T wanted to continue manufacturing telephone equipment through its subsidiary Western Electric, but regulators believed the vertical integration was foreclosing competition within the industry. The federal government itself was so conflicted about this issue that Secretary of Defense under President Eisenhower, Charles Wilson, pleaded with litigators that severing AT&T from Western Electric was “contrary to the vital interests of our nation.”
The second half of the settlement barred Bell from pursuing any business other than telecommunications.
A later analysis of the historical record revealed that 69% of Bell’s patents had little to do with telecom. Rather, they ranged from chemistry to semiconductors to metalworking, lighting, optics, and more.
The two halves of the settlement combined to ensure that this rich intellectual corpus, roughly 1.3% of all unexpired American patents at the time, became freely available essentially overnight and had a guarantee from Uncle Sam that the big, bad Bell Labs legal wolf would not come knocking.
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