Innovation, Intrigue, Subterfuge, and the Birth of an Industry

On this day in economic and financial history...

Who invented the telephone? The name on the first telephone patent, which was granted on March 7, 1876, reads "A.G. Bell" -- Alexander Graham Bell. The reality of its invention is much more complicated. Bell was only one of several notable inventors to contribute to the telephone's development. The story of how he came to be forever linked with this revolutionary technology while others have faded into the mists of history is one of intrigue, subterfuge, and heated legal combat as much as it is a story of entrepreneurial or inventive brilliance.

The earliest "telephone" was purportedly developed by Italian Antonio Meucci as early as 1856. Unfortunately for Meucci, he lacked the finances to continue developing his prototypes. Despite a patent caveat (essentially a notice to the patent office to expect a full patent application at a later date) filed in the United States in 1871, Meucci's contributions to the development of telephony are largely ignored today because of continued disputes over whether or not he actually understood the principles of electric telephones. Meucci wound up spending years in court battling Bell's legal team, and he died in relative obscurity.


However, Elisha Gray did understand electric telephones -- perhaps better than Bell. Elisha Gray was a prominent postbellum American inventor and one of the founders of Western Electric, which was a major supplier of relays and other equipment to Western Union , the nation's leading telegraph-operator. Gray would have been one of the first people expected to develop a way to use telegraph lines to transmit sound. In 1874, he created a "harmonic telegraph "that could transmit tones, but not the sounds of speech" and conducted a public demonstration of the device late in the year. Gray's key innovation was the use of a liquid transmitter, which became the major point of contention in his later patent battle with Bell.

Bell was also working on a telephone around the same time. During his early inventive days, Bell worked in a Western Union lab -- the same lab where Antonio Meucci had purportedly filed away the sketches for his electromagnetic telephone. Concurrent with his development efforts, Bell engineered a bribery scheme at the U.S. Patent and Trademark Office that would alert him whenever any competing telephone patents were filed. Sure enough, when Gray's lawyer filed a patent caveat on Feb. 14, 1876, Bell's lawyer raced to file a full application on the same day. The two filings contain extremely similar drawings, and at the time, Bell had not yet managed to successfully test his prototype. That would not happen until March 10, three days after Bell received his patent.

Bell later privately admitted to Gray that he was aware of the liquid transmitter described in the caveat at a time when Gray's caveat was not available for public viewing. This, combined with his public admission -- under oath in a subsequent patent lawsuit with Gray -- that he had discussed the caveat with Zenas Fisk Wilber, the bribed patent examiner, seems sufficient to cast doubt on Bell's claim to be the sole father of the telephone. Wilber himself also admitted under oath to showing Bell the caveat in person several days after its filing in exchange for a $100 payoff.

Bell's efforts worked, regardless of his methods. However, Bell did not pursue liquid transmitters for his commercial telephones, as it would have been impractical for mass production at the time. Instead, he returned to electromagnetic transmission, which he quickly developed to commercial viability, and which became the standard for telephone transmission thereafter. As he pursued telephone development more doggedly than Gray throughout the patent battle, he gained full claim over the rights to its earliest patents.

Bell became the founder of the Bell System, and Gray, though he continued to invent, never gained greater prominence. Bell vigorously defended his patents, building AT&T into a national monopoly as a result. AT&T has been an important part of the Dow Jones Industrial Average since 1939. When its initial membership period of 1916 to 1928 is considered, AT&T has been a part of the Dow for a total of 86 years.

Adding insult to injury, AT&T predecessor American Bell wound up acquiring Gray's Western Electric in 1881 for its manufacturing capabilities. When the Bell System was broken up in 1984, Western Electric and Bell's other development subsidiaries became AT&T Technologies, which was renamed Lucent Technologies after a 1997 spinoff. Today, it carries on Gray's and Western Electric's legacy of invention and telecommunications supply as Alcatel-Lucent , which continues to provide hardware, software, and services for telecom purposes around the world.

The telecom industry has become one of the largest and most important elements of the global economy. All told, the industry generated an estimated $2.1 trillion in global revenue in 2012.

The strike that shaped TV's modern landscape
The Writers Guild of America began the longest strike in its history on March 7, 1988. At issue was the payment of residuals for longer programs and a demand for greater creative control. What resulted was a deep erosion of television audiences that hastened the decline of television as an entertainment medium shortly before the Internet began to offer a viable (and far more varied) alternative. The strike lasted for five months, and by the time it ended, between 5% and 10% of American TV audiences had tuned out -- some for good.

The strike had a major impact on the Los Angeles area, costing $500 million in lost economic opportunity. Quality suffered, as you might expect. David Letterman filled the time on his talk show by getting a shave on air. However, the strike did help give rise to two new TV phenomena: the documentary-style news program, whose writers were exempt from the strike, and the reality program, which didn't need any writing. CBS began running 48 Hours shortly before the strike, and News Corp's Fox began showing Cops a year later after commissioning it during the strike, inaugurating the reality-show craze. Animated programs also regained prominence during and after the strike, as animation writers did not take part. Fox's The Simpsons also premiered a year after the writers' strike, and its enduring success created a sustained interest in prime-time animation programs that continues to this day.

A very German genesis
Bayerische Motoren Werke -- that's BMW to you -- was formed on March 7, 1916 from the combination of two aircraft engine manufacturers. After World War I, the punishing armistice treaty forced upon Germany effectively ended the nation's production of aircraft, and BMW had to find a new way to apply itself. This led it to manufacture boat and truck engines, as well as farming equipment. Another strategic shift in the 1920s, to motorcycles and then automobiles, proved more durable. BMW was set on the path to automotive leadership, but it did not abandon aircraft engines. As the armistice prohibited only military aircraft, BMW became a manufacturer of both automobiles and aircraft by the end of the 1920s.

The global Great Depression and the rise of Nazism in Germany diverted BMW for some time, and it was not until the 1950s that BMW again produced cars for the commercial market. It rose to prominence during the 1970s as a German luxury alternative to and has been one of the world's leading automakers ever since. Although BMW trails the largest automakers in production totals, it certainly doesn't lag in mind share.

Ford graduates to the Big Board
Ford went public to tremendous investor interest in mid-January of 1956. It joined the ranks of stocks traded on the New York Stock Exchange two months later, on March 7, 1956. Its IPO had been a spectacle, and so too was its exchange debut, which was marked by ceremonies that (among other things) announced that Ford was already one of the 10 most widely held stocks in the U.S. At the time, it was by far the newest of the Big Three on the Big Board, but it has since become the American auto industry's elder statesman on the New York Stock Exchange following its competitors' bankruptcies in 2009. A share bought on Ford's exchange debut day would have cost about $62. Over the following 50 years, that single share would have paid out total dividends worth $673.45.

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, it's consistently profitable, it recently reinstated its dividend, and it has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now and why. Simply click here to get instant access to this premium report.

The article Innovation, Intrigue, Subterfuge, and the Birth of an Industry originally appeared on Fool.com.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.  The Motley Fool recommends Ford, NYSE Euronext, and Western Union. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Behavioral Finance

Why do investors make the decisions that they do?

View Course »

Socially Responsible Investing

Invest in companies with a conscience.

View Course »

Add a Comment

*0 / 3000 Character Maximum