'An Ingenious Man Enabled by Contract': Entrepreneurship and the Rise of Contract

Abstract

A legal ideology emerged in the 1870s that celebrated contract as the body of law with the particular purpose of facilitating the formation of productive exchanges that would enrich the parties to the contract and, therefore, society as a whole. Across the spectrum of intellectual property, courts used the legal fiction of implied contract, and a version of it particularly emphasizing liberty of contract, to shift control of workplace knowledge from skilled employees to firms while suggesting that the emergence of hierarchical control and loss of entrepreneurial opportunity for creative workers was consistent with the free labor ideology that dominated American thinking on the subject of work.

Based on original archival research, this paper explores the stories behind two influential court decisions about employee inventions in the 1890s. In one, a court held that dye recipes were trade secrets owned by a Philadelphia textile mill rather than the human capital of skilled dyers. In the other, a court upheld a contract assigning future patents to the Duke tobacco companies of North Carolina. The paper examines the disjuncture between the rhetoric and doctrine of the court decisions, which assimilated notions of employee dependence and loyalty with the new laissez faire contract, and the norms of the business world in which creative workers operated. It tells the neglected story of how new legal rules transformed entrepreneurship and what that meant for creative workers. These cases, and others like them, rejected the nineteenth century notion that skilled workers and inventive employees were to use their knowledge and ingenuity entrepreneurially. Henceforward, employee knowledge and creativity were deemed to be transferred by an employment contract from employee to firm. The transformation of the employment contract dramatically changed the nature of entrepreneurship by employees, making it much more difficult for inventors to parlay their technical knowledge and business acumen into a successful firm as had been the model of business development to that point. Independent inventors who negotiated carefully for control of their intellectual property rights could remain entrepreneurial. Others would have to pin their hopes on the fortunes of their corporate employers.