Business Breakthroughs and the Rebuilding of Europe

On this day in economic and business history...

Patents are older than you might think. The earliest records of the British Patent Office date back to 1617, a year after William Shakespeare's death. However, these are not the first patents; to find the first true example of patented knowledge, we must go even further back, to April 3, 1449. That day, King Henry VI granted John of Utynam exclusive rights to a manner of manufacturing stained glass. Bob Zeidman writes of this patent in The Software IP Detective's Handbook:

[John of Utynam] was an artist skilled in a technique for making colored glass that he learned in Flanders [France] but that was not known or practiced in England. Henry VI ... wanted John to create stained-glass windows for [Eton and King's College of Cambridge] and to teach others how to create them. In return for John's services the king commanded that none of his subjects could use such arts for a term of 20 years without John's consent. The original meaning of the word patent was a document that was open to general inspection. ... It was more than 100 years before a second patent was granted, this one to Henry Smyth on April 26, 1552, for making Normandy glass.

The modern patent system is enormously greater in scope than that seen in Renaissance-era England. The United States alone counts more than 8 million issued utility patents since numbering began in the 1800s. In 2007 more than 6 million patents were thought to be active and enforceable around the world, and more than 2 million patent applications were filed globally in 2011.


Birth of the auto industry
A number of patents have given rise to new industries and new business empires. One such patent was granted exactly 436 years after the very first: Gottlieb Daimler's "grandfather clock" engine gained patent protection in Germany on April 3, 1885.

The one-cylinder engine design was a high-speed, lightweight, four-stroke contraption. It introduced the floating carburetor that would enable consistent and problem-free petroleum-combustion. A year later, a liquid-cooling mechanism that is still common on automobiles today would be added. Installed into a steampunk-esque wooden motorcycle frame, the grandfather clock engine managed a 10-mph pace while using the world's first modern transmission system. Thus began the Daimler auto empire, which eventually combined the fruits of this early engine innovation with another German development that would be patented a year later: the Benz Patent-Motorwagen, which is often considered the first true automobile.

Commodities on the block
The first formal commodity exchange in the U.S. formed on April 3, 1848, when the Chicago Board of Trade was founded as a cash market for grain trading. That day, 82 merchants, farmers, and businessmen gathered at an office on Chicago's Water Street to elect Thomas Dyer as their first president. Other exchanges would open throughout the 19th century, most notably the Chicago Produce Exchange, which was renamed the Chicago Mercantile Exchange shortly before the turn of the 20th century. Trading in commodity futures thus predates financial futures by more than a century: Modern financial futures trading did not take shape until the 1970s following the development of the Black-Scholes model and the introduction of computers to trading processes.

The Chicago Mercantile Exchange and the Chicago Board of Trade would merge in 2007 to form the CME Group. CME has since absorbed the parent of the New York Mercantile and Commodity Exchanges. It became the steward of the Dow Jones Industrial Average in 2010 when it acquired a 90% interest in the Dow Jones Indexes subsidiary of the Dow Jones Company. Today, CME operates what is by far the largest derivatives marketplace in the world, with many trading days experiencing at least 10 million contract trades.

Marshalling Europe's reconstruction
President Harry Truman signed the Foreign Aid Act into law on April 3, 1948, establishing the necessary government framework to administer Secretary of State George C. Marshall's ambitious European Recovery Program, which aimed to rebuild a friendly continent ravaged by World War II. The Marshall Plan, as it is popularly known, ran for four years at a cost of $13 billion -- roughly 5% of U.S. GDP in its first year of implementation, or less than 1.5% of GDP per year.

The U.S. was already boosting Europe's recovery through various means, but the Plan represented a targeted effort at economic reconstruction. Industries and agriculture were targeted, financial stability pursued, and trade expanded. During the Marshall Plan's four-year run, European nations targeted for aid enjoyed cumulative growth in gross national product of between 15% and 25%. The effort was so successful that Truman expanded its scope to less-developed countries around the world with the Point Four Program a year later.

The impact on the American was also notable. The Dow began a bull market the year after the Plan's initiation that wouldn't end until 1956, by which point the index had grown 222%. This was part of a longer secular market cycle that lasted until 1966, during which time the index's value grew by more than 500%, American GDP more than doubled, and real corporate earnings grew by 65%. A revitalized Europe demanded American products, and the engines of American production were more than happy to oblige.

Too much Pac-Man

It's here. The day everyone's been talking about has finally arrived. The day to come out and help us celebrate the fact that the Atari PAC-MAN video game is now ready to be played at home.

Thus proclaimed Atari on April 3, 1982 -- which the company called "National Pac-Man Day" -- with a massive ad blitz across major national media outlets, celebrating the launch of the Atari 2600 version of the famous pixel-chomper. At the time, it was probably the most high-profile event in the young video game industry's history -- but it would soon come to represent a peak from which the industry would plunge into financial misery.

Atari spent $15 million on advertising for the console Pac-Man, which seems like a lot for 1982 until you understand that Atari was the colossus of the early-'80s video game industry, with peak annual revenue of about $2 billion. The company had 12 million Pac-Man cartridges made, which was 2 million more than the total installed base of Atari 2600s at the time. The game was a big hit in arcades, so Atari reasoned that another 2 million gamers would buy a 2600 just to avoid the lines and the loss of quarters.

However, Atari rushed the porting from arcade to console, and the product was too rough around the edges for many fans to accept. Only 7 million cartridges sold. Later that year, Atari released a game based on the hit movie E.T., again producing millions of cartridges in anticipation of a monster hit. The game was so wretched that it remains atop lists ranking the "Worst Video Game Ever," and millions of unsold cartridges from both of these flops wound up buried in a New Mexico landfill.

The early-'80s video game market was oversaturated with consoles, bad games, and just too many games in general. This period also saw the rise of the PC as an alternative gaming platform, further splintering the gaming market. Console makers had little control over the games available in this period, and what in-house talent there was often lacked anything resembling the incredible skill of today's game developers. It was too much, too lousy, too costly, and too confusing. Industry revenues cratered following the two huge Atari flops of 1982, falling from more than $3 billion in 1983 to $100 million in 1985. Atari went bankrupt, and many other console producers and game developers also left the market.

The game industry crash, as crashes often do, led to a major strategic realignment among the major players that remained. Many gamers flocked to PCs during the shakeout, and it wasn't until Nintendo released its Entertainment System in 1985 that the console market began to revive. Due to Nintendo's tight publishing control -- a strategy learned from the overproduction of bad Atari 2600 titles -- many publishers switched to the rival Sega system, moved to PCs, or both. Console developers still maintain a similar strategy of control, which has made the PC (and now the mobile device) a more open platform for game development.

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The article Business Breakthroughs and the Rebuilding of Europe 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 Nintendo. The Motley Fool owns shares of CME Group. 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.

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