then, we have an invention completed within the meaning of the patent law, so as to give the inventor priority over all others, provided he followed up the invention with reasonable diligence, by reducing the same to practice, and claiming in due season the fruits of his discovery. Has Morgan done so? ... Upon the proof, I find him to be the first inventor.
Second page of Rice paper bag machine patent drawing, witnessed by Charles H. Morgan, 1860
Morgan was awarded patent number 37,726 on February 17, 1863. By the time the court made its ruling, Armstrong had assigned his (now invalid) patent to the Union Patent Paper Bag Company.
EXPANDING INTO WORLD MARKETS
Having seen the world markets available to a Clinton business owner in his experience with Erastus Bigelow, Morgan also moved to secure his rights overseas and expand the paper bag business to European markets. British inventor George Tomlinson Bousfield of Loughborough Park, Brixton, had secured a provisional patent for a paper bag making apparatus on September 29, 1858, based on a certificate from the Office of the Commissioners of Patents for Inventions of the United Kingdom of Great Britain and Ireland. Through Bigelow’s London attorneys, Messrs. Carpmael & Co., Morgan contacted Bousfield and acquired rights to Bousfield’s British patent, numbered 2172.
Together with his partners Whitney and Priest, Morgan found someone they thought would be willing to build a European business with the paper bag machines, George Shaw Harwood of Stroud in Gloucestershire. In February 1860, Morgan had Bousfield’s patent assigned to Harwood. Once the transfer was legally made, as the agreement with Harwood stated, “they will place a complete bag machine built according to said Patent on board a suitable vessel bound to England, and consigned to the said Harwood.”
Harwood would then “take suitable measures to introduce said bag machines into public notice and use in England, to build all machines required for use there, and to grant licenses for the use of said machines as extensively as he shall find it advantageous to do so.” He agreed to keep the patent current by paying all required fees to the British government, and could seek out patents for the machine in other European countries, splitting the costs with Morgan, Whitney and Priest.
In exchange for use of the first machine, Harwood agreed to pay the partners an annual royalty or tariff of $150, and another $150 for each additional machine he built and licensed to others for the duration of the patent’s 14-year term. He also guaranteed that, within two and half years from the first machine’s arrival in England, the partners would receive an annual income of $1,500. If he could not maintain this level of business, he would reconvey the patent rights to them while continuing to pay royalties on the machines he had under license.
The agreement designated a merchant in Boston to receive the semiannual royalty payments, which “shall be deemed seasonably made if remitted from England by first mails leaving upon or after said first day of January and of July in each year.”
The experiment was short-lived, failing for reasons that remain unclear. A letter in August 1860 from Morgan to Harwood acknowledges his letter of apology and asks that he return the machine to Philadelphia where he hoped to put it into operation. Morgan requested that Harwood assign the English patent back to him “unless you are now willing to carry out the contract.”
Other letters indicate that as early as May 1860, Whitney was prepared to buy the English machine “and the extra former made for Mr. Harwood” for $490.
THE PHILADELPHIA STORY
Once the business was equally divided between the two Morgan brothers, Henry moved from Chatham, New Jersey to Philadelphia sometime in late 1859, ready to start up their new enterprise on January 1, 1860. Charles followed with his family about nine months later, as Morgan’s last letter from Clinton is dated September 15, 1860. Their father Hiram also made the move south, sharing his significant mechanical skills as the new business’ first employee.
The move from busy but small-town Clinton to the metropolis of Philadelphia must have required a few adjustments for the Morgan family. Harriet had left her family behind in New England, but Hiram lived with them, and Charles’ younger brother Cyrus was already in nearby Camden, New Jersey, helping Henry settle in.
Morgan Brothers described themselves on their letterhead as “Manufacturers of all kinds of Patent Machine Made Paper Bags for Grocers, Tea Dealers, Druggists, Confectioners, &c.; and Carte Envelopes for Photographers.”
Morgan Brothers letterhead
The paper bag manufacturing business was still young. Three of Morgan’s patent infringers were located in Philadelphia, but none claimed to be a paper bag manufacturer. Armstrong was listed in the stationery business, Lewars was an agent of the Philadelphia & Germantown Railroad, and Pettee was simply described as “inventor.”
The 1860 Census counted two paper bag manufacturers in the city of Philadelphia. Between them, they employed five men and nine women, paid them $2,460, spent $12,200 on raw material, had $11,000 in capital invested and produced products valued at $21,500. Given that Henry had moved to the city just before the census was taken, and his only employee was his father, it is safe to assume that Morgan Brothers’ unnamed competitor had a far larger enterprise. It may well have been the company noted in Pettee’s patent reissue listing, the North American Paper Bag and Envelope Manufacturing Company, although that was not listed in the city business directory.
The brothers launched their company hoping to capitalize on the growth potential of a profitable business using superior technology. Morgan Brothers was the only paper bag manufacturer listed as such in the 1861 Philadelphia City Directory, within a list of 17 paper box manufacturers. Morgan Brothers was not listed among the six envelope makers.
Before Charles moved to Philadelphia, Henry had written, asking about offering a 25 percent discount for volume purchases. Charles’ reply offers a window into their early business plans:
The matter of 25% discount is difficult for me to decide without processing all of the necessary facts. I think we estimated the product of our business [annual sales] would be about $18,000. And on this we estimate that the profits would be $3,000 or so ....
Still I think it better for us to make a discount of 20% for cash and deliver the goods at our door, than to deliver them in New York at 20% off and take a four months note, for taking a four month note is making a discount of 2%. And the extra bailing, cartage and shipping will nearly equal 3%.
25% off will make the profit on #1 and #2 [bags] pretty well and about 50% of our bags are about those sizes. Another question comes up, will not the price of paper run higher on account of the prospects of dry weather? but as your acquaintances are more favorable for judging of this matter I shall cheerfully commit to your decision. By all means hike up the quantity of our goods.
To prime the market pump, they were willing to offer a substantial quantity discount to attract customers willing to make large purchases, pick up at the factory or pay freight charges, and pay cash on delivery. This analysis suggests they would not sacrifice profits on smaller orders, choosing to reinvest those funds back into the business.
To secure their supply chain and control costs, it is very likely Morgan Brothers extended their paper bag business to include a paper mill. Several of Charles Morgan’s obituaries refer to operations outside
