The Idea Factory: Bell Labs and the Great Age of American Innovation

by Jon Gertner

  Brown asked Tanenbaum to advise him on what each choice could mean to Bell Labs’ future. By mid-1981, as the trial was in full swing, it was clear to both men that spinning off Western Electric would not satisfy the government. So there were really only two options: AT&T could agree to spin off the local operating companies, or it could continue with the trial and see what happened. Charlie Brown leaned toward a settlement. The problem, as both Tanenbaum and Brown saw it, was Judge Greene. His preliminary comments from the bench suggested he was not sympathetic to the phone company’s arguments in favor of the status quo. In mid-trial, Greene had gone so far as to say that from what he had heard, the government’s evidence “demonstrate[s] the Bell System has violated the antitrust laws in a number of ways over a lengthy period of time.”24

  Some of the most farsighted thinkers at Bell Labs had long believed that the phone monopoly might not endure. Mervin Kelly, for one, constantly had that possibility on his mind, from the mid-1940s onward. Their reasoning was neither legal nor philosophical. Popular technologies spread quickly through society; inevitably, they are duplicated and improved by outsiders. As that happens, the original innovator becomes less and less crucial to the technology itself. “I think they knew that,” says John Mayo, a legendary engineer who began working at Bell Labs in the 1950s and rose to become its president some years after the litigation had ended. An intriguing question, at least to Mayo, is why the leadership that preceded him at Bell Labs—Jewett, Kelly, Fisk, Pierce, Baker, and the rest—nonetheless decided to invest so heavily and so consistently in research and in exploring what he calls “the unknown.” They were not forced to; other government-run phone companies around the world did not. Arguably, Bell Labs could have existed as a highly competent development organization without doing much in the way of basic or applied research. In Mayo’s view, “it’s not clear what possessed them to do such a unique thing, because in the long term it clearly was not something that assured their future.”

  Morry Tanenbaum puts it somewhat differently. “Technology would have destroyed the monopoly anyway,” he says. Tanenbaum notes that Bell Labs’ most significant research and development efforts—transistors, microwave towers, digital transmission, optical fiber, cellular telephone systems—all fit a pattern. They took years to be developed and deployed, and soon became essential parts of the network. Yet many of the essential patents were given away or licensed for a pittance. And those technologies that weren’t shared were duplicated or improved upon by outsiders anyway. And eventually, the results were always the same. All the innovations returned, ferociously, in the form of competition.

  BACK IN 1974, just after the Department of Justice filed its suit, Bill Baker was asked what it would mean to Bell Labs if the government won. “Well, I think that Bell Laboratories as we know it now would just disappear,” he replied. As he saw it, parts of Bell Labs would have to be chopped away. “As Western Electric and Long Lines or the operating companies go off,” he noted, “parts of the Labs would doubtless spin off with them, and Bell Laboratories would cease to exist.” Baker also remarked that his beloved research division would ultimately face extinction, too. “There’d be no reason for it,” he said. It could not be properly funded without the operating companies, which comprised two-thirds of the phone company’s assets.25

  Baker remained president of Bell Labs until he retired in 1979. Though he still kept an office at Murray Hill—and kept his secret schedule, too, with frequent trips to Washington—he handed the reins to his deputy Ian Ross. On Friday morning, January 8, 1982, news leaked out at Murray Hill that AT&T’s president, Charlie Brown, and the Justice Department’s William Baxter had struck an agreement. On its face, the pact was simple: AT&T would agree to divest its local phone companies, which would all become separate corporations in their own right. At the same time, AT&T would be released from the old consent decree, made in 1956, that prevented it from entering into other industries. “AT&T would be free to enter such previously prohibited fields as data processing, communications between computers, and the sale of telephone and computer terminal equipment,” the New York Times reported. Also, it would retain its long-distance service.

  The agreement didn’t immediately realize Baker’s worst fears. Some of the engineers at Bell Labs would have to leave to assist the local phone companies, but most could stay. Western Electric and Bell Labs would officially remain part of AT&T. So for the moment at least, the company’s vertical structure was intact. But the divestiture itself—figuring out how to split up the world’s biggest company—would take two years in itself. Surely the residual effects wouldn’t be understood for years, or even decades, after that. It was almost impossible to see what would happen in the long run.

  Media reports at the time focused mainly on whether phone customers would be better off with more competition or would pay higher rates to their new local phone companies. Americans would now be allowed to buy their own phones and pick their long-distance provider—a prospect that some politicians worried could lead to mass confusion. Still, in the aftermath of the announcement, most business forecasts for the new arrangement were upbeat. “What they’ve really done,” one communications analyst told the Times about AT&T, “is taken the most capital intensive, politically intensive, labor intensive part of their business and given it to someone else.”26 A former FCC chairman, Richard Wiley, simply noted, “The settlement was a brilliant master stroke on the company’s part.”27

  The fate of Bell Labs was more complicated. Looking back on the decision with thirty years of hindsight, Morry Tanenbaum would regret that AT&T didn’t let the case go to the end of the trial—not for the sake of AT&T, but for the sake of Bell Labs. “Because things couldn’t have turned out worse than they did.” At the time, however, he notes that Bell Labs’ management perceived a silver lining in the breakup. The Labs would no longer be forced to give away its technologies—as it had done, for instance, with the transistor. Now it could push its innovations to get into whatever businesses it wanted. “The agreement should unleash us,” Sol Buchsbaum, a Bell Labs vice president, said at the time.28 Judge Greene seemed to echo these sentiments. In 1984, just after the divestiture was complete, Greene noted, “Bell Laboratories, that greatly acclaimed resource for both basic research and applied technology, will now be able to use the talents of its inventors, scientists, and engineers in the information industry in all of its varied aspects.”29

  The business philosopher Peter Drucker saw a murkier picture. “Does Bell Labs have a future?” he asked as he sorted through the implications of the decision just after the breakup. Like John Mayo and Morry Tanenbaum, Drucker believed that Bell Labs’ technical contributions over the course of fifty years had essentially made its continued existence untenable. “Bell Laboratories’ discoveries and inventions,” he wrote, “have largely created modern electronics.” As those discoveries and inventions had spread around the world, however, they had made telephone technology indistinct. To Drucker, telecommunications was now just a part of the immense field of information and electronic technology. There were many competitors and many competing ideas in this field. And therefore, going forward, no single lab could on its own provide the new technology for the entire electronics and information industry.

  At the same time, he noted, the reverse was true: The scientists and engineers at Bell Labs had been producing too many ideas over the past half century for a single company to handle:

  In a wide array of areas, from the transistor to fiber optics, and from switching theory to computer logic, the Bell System has been no more adequate as a conduit for Bell Labs’ scientific contributions than an eye dropper would be to channel a mountain freshet. The main users have been others—that is, non-telephone industries—with Bell Labs getting little out of its contributions other than an occasional footnote in a scientific paper.30

  Drucker saw two possible roads ahead. On the one hand, Bell Labs could become a standard industrial lab, much like the ones th
at supplied technology to General Electric or RCA. Or the Labs could take a “far bolder, but also far riskier course” by going into business for itself, making money from its patents and products. It could become a kind of unique and monolithic brain trust, one that did research for AT&T but also for any company or part of the government that was willing to pay for access to its people and resources. “Nothing like this has ever been done,” Drucker noted. “And no one knows whether it could succeed.”

  It was a tantalizing idea: Bell Labs would remain intact as a citadel for problem-solving. And it would be a citadel of capitalism, too. But perhaps this was too tantalizing. Drucker wondered if the notion was simply too experimental and too radical, and that it therefore could not actually come to pass. A conventional future, he concluded, seemed far more likely.

  Eighteen

  AFTERLIVES

  Mervin Kelly did not live to see the breakup of his beloved Bell System.

  A celebration of Kelly’s retirement as president of Bell Laboratories was held at the Savoy Hilton, a grand hotel overlooking New York’s Central Park, in January 1959. That evening, Kelly’s former Bell Labs deputies—Bill Baker, Jim Fisk, and John Pierce, among others—presented him with a silver tray inscribed with their names. Their former boss promised he would use it for his evening cocktails. He meant it in all seriousness. Kelly and his wife enjoyed a drink before dinner each night in their wood-paneled library in Short Hills. “It will thus be a frequent reminder of all of you,” Kelly wrote in a note to Baker.1 The retiring boss meanwhile gave Baker the impression that he was embarking on a new life of leisure. He would spend his days on his two main passions, gardening and golf. Of course, that had never been the way he lived. “Relaxation did not come easy to him,” his son-in-law, Robert Von Mehren, remarks. Indeed, Kelly took a long European vacation with his wife. Then he got back to work.

  A retiring executive of Bell Labs had entrée to a vast world of genteel opportunity. Kelly soon accepted seats on the corporate boards of several large technology companies; he also joined a variety of committees that advised the science and engineering departments at MIT, Harvard, and the University of Rochester.2 Kelly’s contacts within the U.S. government and military, meanwhile, still reached to the highest levels. If he’d wanted to, he could have moved in a more political direction, too. Yet he decided against it, just as he had decided against becoming the president’s science advisor a decade before. Other than a part-time advisory post in Washington—as a special advisor to James Webb, NASA’s top administrator—Kelly chose to focus on the one thing he knew better than anyone: industrial research.

  Repeatedly during his career, Kelly had fended off job offers—offers from big companies that would pay him more money than AT&T could. In the end, he had always decided against leaving Ma Bell. “He wouldn’t have left that laboratory for anything, no matter what anybody offered him,” his wife recalled. “It was just his whole life.”3 But now Bell Labs was no longer his whole life. And this time, when an offer arrived directly from IBM’s chairman, Thomas Watson Jr., Kelly accepted. He agreed to work as a consultant, reporting directly to Watson, for several months a year. “He was trying to take the pulse of what we were doing and then relate his opinions to Mr. Watson,” Robert Gunther-Mohr, who worked with Kelly at IBM, recalls. Kelly’s job was to tour IBM’s research offices around the country and in Europe. He would visit the labs, interview promising scientists, and then evaluate the company’s technical pursuits and staff. The job played to his strengths—a lightning-fast grasp of technology and an instantaneous decisiveness. What’s more, IBM’s business now revolved around silicon integrated circuits, the latest iteration of the transistor revolution Kelly had begun decades before. Kelly would sit with the IBM scientists at labs around the world and listen to their presentations with his eyes closed. He still smoked compulsively. His fingers were now yellowed from the habit.

  Kelly could perceive the obvious differences between IBM and Bell Labs. IBM was a computer company, first and foremost, and not a communications company. “We were moving faster than Bell Labs would,” Gunther-Mohr says, noting that Bell Labs had a thirty-year schedule for applying its inventions to the phone network. IBM was attempting to best its competitors as quickly as possible. At the same time, though, IBM had the same concerns as any other technology company. Which lines of research were worth funding? Which were worth discarding? And in which direction would (or should) the future turn? Kelly would never show his hand during his lab visits. And he would leave for posterity no records of his evaluations. Instead, he would take his observations to IBM’s headquarters in Armonk, New York, and share them in private conversations with Watson, the IBM chairman. It was Kelly’s habit to single out researchers whose work or manner impressed him. “His evaluation and identification of people had a profound effect on their careers,” Emmanuel Piore, IBM’s chief scientist, once remarked. Yet it seems likely these men and women never knew it. An unseen hand, Kelly’s own, had plucked them out as IBM’s future scientific leaders.

  In the mid-1960s, Kelly’s work for IBM tapered off. And by the late 1960s he was becoming increasingly unsteady. The man who would speak at a mile-a-minute clip, and whose walking pace was nearer to a gallop, could now do neither. “He had to stop driving, which he didn’t like to do, which bothered him quite a bit,” Von Mehren says. He was diagnosed with Parkinson’s disease. In 1970, when Kelly was asked to speak at a conference about the past and future of communications—an event being held in his honor at his old college, the University of Missouri at Rolla—he asked Jim Fisk to go in his stead. Kelly died not long after, in March 1971, at a country club in Port St. Lucie, Florida, where he owned a second home. It was not the Parkinson’s; he choked on a bite of steak. His ashes were sprinkled into the Gulf of Mexico.

  The National Academy of Sciences has long had a tradition of publishing biographical tributes to mark the passing of members. Usually these tributes are concise and informational. Occasionally they are concise and picaresque. Upon Kelly’s death, John Pierce was asked to compose a brief biography. His tribute was lengthy and exhaustive, an examination of Kelly’s upbringing in impoverished circumstances in Missouri and his congenital impatience and character quirks, as well as a discourse on his theories of management and innovation. Pierce researched Kelly’s life with care. The effort led him deep into his boss’s secret military work. “I learned a lot on my own,” he said of his attempts to dig into Kelly’s career, “and then I had to unlearn a lot of that when it was reviewed by other people.”4 The finished tribute, in any event, was appreciative and lively. “During his life,” Pierce began, “I regarded Mervin Kelly as an almost supernatural force. While I saw him many times in the course of my work at Bell Laboratories, usually with others, and a few times in his home, I did not seek him out for fear of being struck by lightning.”

  Pierce later remarked that one thing about Kelly impressed him above all else: It had to do with how his former boss would advise members of Bell Labs’ technical staff when they were asked to work on something new. Whether it was a radar technology for the military or solid-state research for the phone company, Kelly did not want to begin a project by focusing on what was known. He would want to begin by focusing on what was not known. As Pierce explained, the approach was both difficult and counterintuitive. It was more common practice, at least in the military, to proceed with what technology would allow and fill in the gaps afterward. Kelly’s tack was akin to saying: Locate the missing puzzle piece first. Then do the puzzle.

  “It, of course, has the elegance of a Pierce essay,” Bill Baker told Pierce, now living in California and teaching at Caltech, after he had read his published tribute to Kelly.5 Jim Fisk wrote to Pierce to say that the Kelly biography had captured the man they both knew so well. “I’m glad,” Fisk noted, “that you did it rather than anyone else.”6 Baker was then assuming the Labs’ presidency. Fisk was retiring. Pierce filed both letters away with his personal papers.


  AFTER HE TENDERED his Bell Labs resignation to Kelly in 1955, Bill Shockley’s life descended, slowly and inexorably, into paranoia and disgrace. But not right away. In the very beginning, as he departed from New Jersey in the mid-1950s, there was almost unimaginable promise. He arrived back in Palo Alto, the town of his childhood, with an assured belief in the golden possibilities of California. Fifteen years before, the Stanford graduates Bill Hewlett and Dave Packard had founded a successful technology business in the area. Their company, which the men had named Hewlett-Packard, was focused mostly on building precision laboratory equipment. Shockley’s would be the first business to design and engineer transistors. It would thus bring the silicon into what would eventually be called Silicon Valley. Arnold Beckman, a wealthy California entrepreneur, bankrolled Shockley’s efforts and agreed to pay him $30,000 a year to run the lab. Beckman also gave Shockley a sizable chunk of stock options in his own company.7 Shockley assumed he was on his way to earning millions. He was almost certainly the first to understand the enormous financial potential of his invention; he would later recall that two years after the transistor’s invention, as he was writing a textbook on solid-state physics, it had dawned on him that “we had opened up a field” as big as the electronics field that already existed at the time.8 Still, it was the men Shockley hired for his California venture—proof of his uncanny ability to spot talent—who actually went on to create the Valley’s extraordinary wealth. In the process, several became billionaires.