THE BAND-AID An invention of Earle Dickson

ECONOMICS OF INNOVATION (PART TIME) SEMESTER 2, 2001

The Band-Aid as an Innovation

In 1920, Earle Dickson fashioned a self-adhesive bandage for his accident-prone wife. Dicksons wife was particularly susceptible to injuring her fingers Dickson discovered that the bandages of the time were too big and clumsy to treat these injuries. Dicksons innovation was to place small pieces of sterile gauze in the centre of strips of surgical tape. He then placed a strip of crinoline over the surgical tape (in order to prevent the tape from sticking to itself) and re-rolled the tape. Dicksons invention was to become the Band-Aid.
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At the time, Dickson was working as a cotton-buyer for Johnson & Johnson (J&J) who was already a popular manufacturer of large cotton and gauze bandages.2 J&J was initially unimpressed when Dickson approached them with his innovation however they reconsidered after Dickson demonstrated the ease with which the bandage could be applied. 3 The first Band-Aids were not a commercial success J&J only sold US$3,000 worth of Band-Aids in 1921, the first year it marketed Dicksons hand-made bandages. The initial failure of the Band-Aid has been partially attributed to its initially unwieldy size ( 2 inches by 18 inches).
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By 1924 (when the manufacture of Band-Aids was automated and J& J was producing various different sizes of Band-Aids) it was clear that the Band-Aid was a huge commercial success.
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J&J rewarded Dickson for his innovation by making him a Vice-President of J&J until his retirement in 1957 and then a Director of J&J. However, Dickson did not receive a share of the economic profits derived from the Band-Aid. At the time

The Lemelson -MIT Programs Invention Dimension, Earl Dickson : Band-Aid Adhesive Bandage : http://web.mit.edu/invent/www/inventorsA -H/dickson.html. The BAND-AID Brand Story, http://www.bandaid.com.brand_story.html. The Lemelson-MIT Programs Invention Dimension, Op Cit. Ibid. Ibid.
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of Dicksons death in 1961, J&J was selling over US$ 30 million worth of BandAids a year.
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Economic surplus and the ability to earn an economic profit

2.1 Difficulties faced by Dickson in appropriating surplus from the BandAid From an inventors perspective, Dickson was in the worst possible situation he faced an environment where: there was a severe disclosure problem; and the market incumbents (such as J&J) possessed at least some of the critical complimentary assets required to commercialise the Band-Aid. Independent innovation is generally discouraged in such an environment. 7
(a) The Disclosure problem

Dickson faced the classic Disclosure problem, he had: extremely weak (if any) intellectual property rights Dickson did not seek any intellectual property protection for the Band-Aid before approaching J&J, though it is difficult to see what (if any) aspects of the invention could have been effectively protected by conventional intellectual property rights; and an invention which was by its very nature transparent, once J&J had seen the invention it could immediately copy it without needing any further input from Dickson. Similarly, there was no environment for excludability - even if Dickson had elected to commercialise the Band-Aid himself, as soon as the incumbents saw his invention they could copy it. Dickson had no ability to protect his invention via trade secrets or via the black box strategy used by other inventors such as Bob Kearns The combination of these factors meant that it was virtually impossible for Dickson to demonstrate the value of his innovation and protect his idea from expropriation. Dickson may have been aware of this problem he was initially

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The Lemelson-MIT Programs Invention Dimension, Op Cit. J.S. Gans and S. Stern, The Product Market and the Market for Ideas : Commercialisation Strategies for Technology Entrepreneurs.
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extremely reluctant to approach J&J with his invention and ultimately only did so after the repeated urging of his wife and a workmate.
(b) Importance of Complimentary Assets
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J&J began manufacturing antiseptic surgical dressings in 1886 (being one of the first companies to so) after its founder attended a speech by Sir Joseph Lister (the English surgeon who identified airborne germs as a source of surgical infection). Until this time accepted surgical practice was to use unclean cotton and wood shavings collected from factory floors as surgical dressings. 9 Not surprisingly, the surgical mortality rates of the time exceeded 90%. 10 J&J quickly introduced improved products such adhesive medicinal plasters and mass-produced soft cotton and gauze dressings. J&J also pioneered the production of sterile products and the promoted antiseptic surgical procedures through the publication of textbooks. Importantly, by 1920 J&J had
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well developed marketing and distribution capabilities (substantial quantities of J&Js sterile bandages and surgical products being shipped to hospitals, doctors and pharmacies across the United States and Canada); and

already entered the personal products / care market through products such as baby powders and creams.

Accordingly, J&J held important complimentary assets for the commercialisation of the Band-Aid being: an established and respected brand-name in bandages and surgical dressings and the ability to offer a complete product line of complimentary products to distributors and retailers; well established marketing and distribution capabilities particularly in the marketing and distribution of innovative products; and easy access to raw materials and advanced sterile procedures.

Band-aids They wouldnt exist if it http://ww.members.tripod.com/earthdude1/bandaids/bandaids.html. Johnson & Johnson, Company History http://ww.jnj.com/who_is_jnj/hist_index.html. . Ibid. Ibid. Brief

werent History of

for Johnson

Listerine &

Johnson,

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Whilst Dickson was not absolutely prevented from seeking to compete with J&J and other incumbents by integrating into the product market (for he did not require regulatory approvals), the existence of these complimentary assets meant that in practice it would be very difficult for Dickson to profitably adopt a competitive strategy. In particular, the existence of such complimentary assets: made it economically difficult for a backyard innovator to reproduce such assets meaning that Dickson was a much weaker potential competitor to J&J; and enhanced J&J (and the other incumbents) status as serious competitive threats to a start-up innovator such as Dickson. 2.2 Potential for Dickson to earn an economic profit Whilst the Band-Aid clearly had great potential to deliver a significant (and enduring) economic profit, given the disclosure problem and the need for complimentary assets, there was relatively little (if any) potential for Dickson to earn a significant share of that economic profit. Ultimately Dickson simply gave his idea to J&J who rewarded Dickson through a promotion to Vice President and ultimately a directorship of the company. Although these appointments did not represent a real share of the BandAids economic profit, there is no suggestion that Dickson was unhappy with the outcome of his commercialisation strategy. It is probably fair to assume that Dickson (as a lowly cotton buyer) would have been unlikely to achieve such promotions without his innovation. However, there were other (albeit limited) commercialisation strategies which Dickson could have considered if he wished to obtain at least some of the BandAids economic profit.

The commercialisation strategy

3.1 Commercialisation strategies which would give Dickson the greatest added value in the ideas market Although the existence of complimentary assets suggests that Dickson would be better placed by contracting in the ideas market (rather than competing in the products market) the strong disclosure problems faced by Dickson undermined his added value in that market.
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One possible source of market power that Dickson did not pursue was the threat to give the Band-Aid away to J&Js competitors if J&J did not agree to pay Dickson a sufficient return for his invention. Similarly, Dickson didnt to generate a bidding war between incumbents. The obvious limitation on these strategies was the likelihood of appropriation of Dicksons idea by a broader range of incumbents (who unlike his employer had no real connection with Dickson and thus greater incentive to steal his idea). Similarly, Dicksons ability to improve his added value in the ideas market by threatening to compete in the product market was also limited Dickson would (at best) pose a weak competitive threat. Reputation-Based Ideas Trading is the strategy suggested for innovators in Dicksons position.
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Arguably, Dickson did loosely adopt this strategy. Under

Reputation-Based Ideas Trading the incumbents incentive to steal the innovators idea is offset by the incentive to become a preferred contracting partner by establishing a reputation for dealing fairly with innovators. By 1920 J&J had developed a reputation for product innovation and was undertaking significant in-house R&D. However J&J had also developed products in partnership with other innovators (eg surgeons). 13 J&J had also established a well-publicised corporate priority credo - consumer first, employees second, community and environment third and stockholders fourth. 14 In this environment, J&J was less likely than other incumbents to treat Dickson unfairly. Similarly, given the potential competitive strength of J&J, the contracting strategy benefited Dickson by softening the product market competition. 15 However, there is no reason why Dickson needed to absolutely give his invention to J&J. In hindsight, Dickson would have obtained significant economic profits by negotiating a nominal royalty or license fee. (For instance a royalty of 0.1% of sales would have delivered Dickson $US 300,000 pa in 1961, yet would only have cost J&J $US 3 in 1921.) 3.2 Commercialisation strategies which would give Dickson the greatest added value in the product market The existence of strong incumbent (J&J), complimentary assets and the absence

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J.S. Gans and S. Stern, Op Cit. Johnson & Johnson, Company History Brief History of Johnson & Johnson, Op Cit. Ibid. J.S. Gans and S. Stern, Op Cit..
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of an environment of excludability undermined Dicksons added value in the product market. Furthermore, the Band-Aid s simplicity gave Dickson little hope (at least initially) of trying to distinguish his product on its specific features eg by developing a dominant design 16. Together these factors meant that Dickson would be a very weak competitor in the product market. Dicksons best hope in entering the product market alone was to establish the Band-Aid as a niche product in the hope that the incumbents overlooked the product. Even if Dickson managed to establish this niche, given the initial slow take-up of the Band-Aid which necessitated heavy promotion (eg J&J provided unlimited free Band-Aids to US scouts), it is likely that without strong financial and promotional backing, Dickson would have profited from a competitive strategy.

16

David Teece, Profiting from Technological Innovation : Implications for integration, collaboration, licensing and public policy.
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Sources
J.S. Gans and S. Stern, The Product Market and the Market for Ideas : Commercialisation Strategies for Technology Entrepreneurs. David Teece, Profiting from Technological Innovation: Implications for integration, collaboration, licensing and public policy, The Theoretical Context of Strategic Management, p 185. Band-Aid website : www.bandaid.com . Band -Aid , http: www.ideafinder.com/history/inventions/story021.htm. Band -aids They wouldnt exist if it werent for Listerine :

http://ww.members.tripod.com/earthdude1/bandaids/bandaids.html . Company History Brief History of Johnson & Johnson ,

http://ww.jnj.com/who_is_jnj/hist_index.html. Inventors website : www.inventors.about.com. Johnson & Johnson website : www.jnj.com. Medicine Related Inventors and Inventions,

http://www.enchantedlearning.com/inventors/medicine.shtml. The BAND-AID Brand Story, http://www.bandaid.com.brand_story.html. The BAND-AID Brand Timeline ,

http://www.bandaid.com.brand_timeline.html. The Lemelson-MIT Programs Invention Dimension, Earl Dickson : Band -Aid Adhesive Bandage : http://web.mit.edu/invent/www/inventorsA-H/dickson.html. Where did Band-Aids come from ?,

http://www.uselessknowledge.com/explain/bandaid.shtml. 75 years of BAND-AID, http://www.savetz.com/bandaid/ .

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