• Why is Basel (Switzerland) one of the richest places in the world

• Why the WWF would not exist without pharmaceuticals

• The fallout from a national patent monopoly

Answer: the French patent monopoly of the fuschine dye lead to manufacturing moving to Basel and leading to modern pharmaceuticals which are a pivotal part of the economic history of Switzerland. Fritz Hoffman (1868 - 1920)  was a founder of Hoffman-La Roche which today is Roche, a leading pharmaceutical company. Luc Hoffman (1923 - 2016) was Fritz’s grandson and co-founded the WWF.

In some corners of the internet (Twitter) Matt Yglesias caused a minor fuss by suggesting that copyright should be shorter on the grounds that in the US Life+70 years is a poor trade off for society benefits vs incentives for individual artists.*

This might seem very esoteric to many of us and maybe who cares that Mickey Mouse cartoons are still under copyright but the roots of the debate are actually, in my view, very important to how scientific progress might happen (or not) and have had major historical outcomes including why Basel (and Switzerland) are so rich today, why the World Wildlife Fund (WWF) exists and at what pace might we invent new pharmaceuticals or other medical inventions. Let me lead you through why this might be.

Switzerland is rich and I think there are strong arguments that it is one of the best if not the very best country in the world as it has so very high scores across wealth, health, happiness, peace and freedom. (Perhaps its only blemish would be after-tax gini coefficient is fairly average amongst the OECD)

-2nd (vs Norway) on the Human Development Index (HDI) 

-5th on GDP / Capita (IMF, World Bank)

-10th on Peace Index

-4th on Life expectancy

-3rd on Happiness Index

-2nd on Human Freedom Index

Observers may point to its culture, its federated system of government, and how it fared in the World Wars. All of these are factors contribute, but one overlooked part of its economic history might be the strength of its pharmaceutical/chemical industry and that in turn rests upon innovation, patents and litigation.

In 1856, William Perkin discovered the dye “mauve” and he filed for a patent. He was actually trying to isolate quinine and thus working in the great tradition of accidentally discovering something else (cf. more recently Viagra). Perkin’s discovery paved the way for the new dye industries. One of the most important new dyes was aniline red or fuschine (important for French high clothing fashion at the time).  The French firm, Renard Frere patented the fuschine invention in Britain and France in 1859 and so had a monopoly.

The ability to patent (although even in the 1850s firms were worried about the strength of patents and relied on trade secrets) was an important incentive to develop dyes but it was also a potential barrier to using the invention to develop more dyes or, of course, if you wanted to compete in manufacturing the same product.

In fact, innovation was spurred to look at other process and second (and then third and fourth) generation dyes were based on other chemicals (azo then alizarin - in fact alizarin substitutes for a “natural” product which raised the question still debated today as to what extent a patent can be granted onto an “invention” based on nature eg. DNA).

This is important as the modern pharmaceutical industry occurs at this time as an offshoot of the dye industry which it eventually overtakes.

The patents surrounding this started off the litigation and patent wars between countries and companies which still echo today (and have cousin debates eg copyright) because so much profit was at stake for companies and for countries both innovation and tax and industry.

This also coincides with the emergence of the “corporate lab” and the notion of incremental innovation being patentable if there is something “new in the art”. 

In house teams of scientists collaborated to overcome technical challenges and large number of large pharmaceutical companies today (arguably a majority of the top 20) can trace roots to a company formed in this period or shortly after (Bayer, Pfizer,Eli Lilly, Roche, Novartis, AstraZeneca, Glaxo SmithKline, Sanofi).

So why the rise of German companies in the 1860s and 1870s? Government supported education, training and industrial policy… yes… lots of competent chemists…. Yes and then there was essentially no enforcement of British and French patents (for fuschine dye) which German companies could copy and mass produce.

During this period, French chemists who could not manufacture dye due to French patents moved over to Basel where there was no such patent enforcement. Thus the Swiss dye industry was given a major boost yet in fact Basel could not compete with the scale coming from Germany in the base chemical supply of fushcine and alazarin, so the Basel companies pivoted (not a new silicon valley idea) to high end dyes and, importantly, pharmaceuticals.

Basel during this time is thus also an example of an industrial cluster. The competition but the innovation spillover between Ciba, Geigy, Sandoz, Hoffman La Roche and the ability to copy French and British inventions gave a huge boost to this industry.

In France, by 1875 La Fuschine (which had patented fuschine) was bankrupt and passed out of existence.

But, Germany did introduce strong patent protections and at about the right time from the German corporate point of view. These protections came in 1877 enough time for German companies to innovate from the first inventions of 1856/1857.

This is one important complex trade off to consider. The ability for Germany to outcompete France and British dye stuff industry here is due to this delay in patent protection. Arguably this allowed much faster innovation. 

This would be the heart of case for lowering patent (or by analogy copyright) protection. This enabled a great amount of innovation (and positive wealth for Germany / society).  Japan copied this tactic for semiconductors in the 1950s/1960s.

But, if there was no protection indefinitely - there would be no further incentive to create more innovation or derive new inventions built on current innovations.

So there are claims - although perhaps one should not overstate them as of course many other factors as well - that the Swiss chemicals and pharma industry is the unexpected child of French patent law and in particular this gave Basel a significant boost.

This boost we can still see in the economy of Basel today (top 10 city by GDP/ capita)as it is one of the richest regions in the world, in one of the richest countries in the world.

Interestingly, Britain fell behind in the dye industry in this period partly due to having a patent system that could not cope with the consequences of chemical invention and then the German lead enabling German companies to file patents before British companies. This lead to the proposals of compulsory licensing / revocations (still apparent in national laws today, and for instance used in threat by the US against Bayer on Cipro in 2001).

Back to Switzerland and fastforward, so Hoffman La-Roche along with Ciba, Geigy, Sandoz (now all Novartis) became 4 (now 2) of the most successful companies in world in the 1900s. Luc Hoffman (former chair of Roche, and large shareholder) essentially used his profits derived from his wealth to co-found the WWF.

And so, my argument is that French patent law in 1857 was a pivotal casual factor in being able to have the WWF founded!

Codas:

I will have a nod here to an aspect that Milton Friedman would approve. Hoffman used his profits from Roche to found WWF. He didn’t use Roche itself as a vehicle to protect wildlife.

Arguably, Roche maximises its long term value by inventing new medicines the side effects of this are profits.

Circling back on copyright and patents. My non-expert view is that US copyright on balance is too long because there is too much benefit to individual deceased estates at life + 70 years and the cost to society from orphaned works, lack of derivatives etc. is high. Life + 20 would seem more reasonable. Or even 50 years total from publication, with 20 year extension possible

Patents for fast cycle inventions seem about right at 20 years, this covers a lot of software and a lot of devices. (Although I do think software family patents are anti-innovation)

Patents for long cycle inventions - and drugs take 8 to 12 years on average to invent - might not provide enough protection. For instance, there’s argument that the prices are not high enough for new antibiotics. The industry engages in lots of (fairly unproductive from a society view) patent extension legal tricks to extend the effective patent life beyond 10 years (10 years development time). Much better would be to stop legal tricks (including paying off generic makers) and to agree 20 years from launch (maybe keeping the paediatric extension work at 6 months), but that also stop very minor technical improvements (eg use of enantiomers or extension release innovations) from granting patent extensions in the years. In reality, this would not happen for political reasons and for the difficulty in judging what is incremental or not innovation but it would be better system. There’s quite a lot of complexity around pharmaceutical innovation which would qualify it from being a totally different class of invention in my view both because of its life extension qualities, the difficulties in legal form keeping up with advancing science (patent on modified DNA…), the effects of drug class protections on innovation, and the big differences between transformational invention (new class of drug) and incremental innovation (identifying a new crystal form of an established drug).

Links:

Freedom Index: https://www.cato.org/human-freedom-index/2020

Happiness INdex: https://en.wikipedia.org/wiki/World_Happiness_Report

Matt Yglesias: https://www.slowboring.com/p/dr-seuss-ip

Peace Index: https://www.visionofhumanity.org/wp-content/uploads/2020/10/GPI_2020_web.pdf

Life expectancy: https://www.worldometers.info/demographics/life-expectancy/

Swiss Chemical industry: https://link.springer.com/chapter/10.1007/978-94-017-3253-6_2

History of Dyes: https://www.britannica.com/technology/dye/Reactive-dyes

Luc Hoffman: https://en.wikipedia.org/wiki/Luc_Hoffmann

Basel GDP: https://en.wikipedia.org/wiki/List_of_Swiss_cantons_by_GRP