The Myth
The enforcement of the Selden automobile patent 'did certainly slow… [Henry Ford] down' [1] while the enforcer, the Selden assignee, 'the Association of Licensed Automobile Manufacturers' (ALAM) did not 'orchestrate the efficient improvement of automobile technology' while it collected 'hundreds of thousands of dollars in royalties – raising costs and reducing the output of automobiles.' [2]
Facts from John Howells and Ron Katznelson
'Freedom to operate' analysis is a reason why the enforcement of the Selden patent had no measureable deterrent effect on automotive development. Shortly after its creation in March 1903, ALAM began advertising in the press to warn prospective buyers of automobiles that they faced an infringement suit under the Selden patent should they buy from an unlicensed manufacturer. ALAM also sent letters warning unlicensed, new manufacturers that they infringed Selden’s patent, and in October 1903, it brought suit against the Ford Motor Co. The myth amounts to the assertion that threats of suit and actual litigation can retard development. The same allegations are made today of so-called 'patent trolls'. In this language, the Selden assignee was the classic instance of a patent troll.
The economic evidence is overwhelming that the public threats made by ALAM to bring suit and the actual suit brought against the Ford Motor Co. in 1903 (and decided for Ford on appeal in 1911) had no discernible effect on the industry or the Ford Motor Co. In the period of enforcement 1903 to 1911, new entrants to the industry rose faster than after and the number of makes of automobile peaked at over 200. Productivity and quality advances in automobile manufacture occurred at a greater rate in this period than after and the Ford Motor Co. steadily increased its share of the market while making the fundamental advances of the assembly line and the Model T (1908). It is as if the industry chose to ignore the threats of ALAM – it had reason to.
George Selden invented an automobile that employed a modified Brayton engine, in which air is compressed in an external compressor and injected into a constant pressure combustion chamber – this was not the internal combustion engine in use by 1903. He applied for a patent in 1879 and in 1895 was granted US patent 549,160. Under contemporary patent office practice this delay of 16 years was lawful. Selden had repeatedly proposed new language for his patent claims and the patent office had allowed some of these provided the patent 'disclaim' specific prior art otherwise captured by the new language. When the patent issued it claimed 'a liquid hydrocarbon engine of the compression type' that Selden and ALAM would argue encompassed the now-dominant internal combustion engine as power source for the automobile. Yet the apparently-broad language of this claim was allowed by the patent office provided it was construed in the context of the disclaimed prior art that allowed a narrow construction of the claims. The narrow construction limited the patent scope to Selden’s original Brayton engine invention which by 1903 was economically worthless.
As early as 1901 the above analysis of how to read the claims of the Selden patent was published in Horseless Age, the technical journal of the automobile industry. Henry Ford obtained a patent attorney’s Opinion on the Selden patent which drew the same conclusion that if valid, the Selden claims should be construed narrowly, rendering it worthless. In 1911, it was indeed the finding of the appeal court that the Selden patent claims should be construed narrowly to cover an engine of the Brayton type.[3]
Also contrary to the myth, ALAM did spend royalty income on important industry-wide standardisation work and this survived ALAM dissolution on Ford’s victory in 1911.
For a fuller analysis, see: John Howells and Ron D Katznelson, 'Freedom to Operate analysis as competitive necessity—the Selden automobile patent case revisited' (2024) 19(6) Journal of Intellectual Property Law & Practice 493, available here: https://doi.org/10.1093/jiplp/jpae018
Conclusion
The Selden patent case illustrates how business responds to threats of suit: it conducts a prior art analysis, commonly known as 'freedom to operate' analysis, and if the threats are not backed by a valid patent it ignores them.
[1] Robert P Merges and Richard R Nelson, "On the Complex Economics of Patent Scope," Columbia Law Review 90, no. 4 (1990): 890 footnote 217.
[2] Federal Trade Commission, "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy," (Washington DC: Federal Trade Commission, 2003), p3.
[3] Columbia Motor Co. v. CA Duerr and Co. 184 F. 893, 896 (2nd Cir. 1911).