Question

In the mid-nineteenth century, the burgeoning American sewing machine industry was paralyzed by what contemporary observers termed the 'Sewing Machine War'—a web of acrimonious patent infringement lawsuits among competing inventors and manufacturers. Elias Howe Jr. held the master patent granted in 1846 for the fundamental lockstitch mechanism, which utilized an eye-pointed needle combined with a reciprocating shuttle. However, Howe lacked the industrial manufacturing capacity to produce machines at commercial scale. Concurrently, manufacturers such as Isaac Merritt Singer, Allen B. Wilson of Wheeler & Wilson, and William O. Grover of Grover & Baker had developed vital ancillary innovations, including the four-motion feed mechanism, the continuous wheel feed, and the vertical needle arm. Because none of these commercial manufacturers could produce a functional, market-ready sewing machine without incorporating Howe’s lockstitch, and Howe could not manufacture a viable commercial device without utilizing their specialized feeding mechanisms, the industry became ensnared in endless retaliatory litigation.

In 1856, Orlando B. Potter, an attorney and president of the Grover & Baker company, proposed a radical legal compromise: rather than exhausting their capital on protracted courtroom battles, the four principal patent holders should pool their complementary patents into a single collective trust. The resulting agreement created the Sewing Machine Combination, recognized by legal historians as the first formal patent pool in United States history. Under the charter of the Combination, twenty-four interdependent patents were consolidated under joint administration. All four founding members received cross-licenses permitting them to manufacture sewing machines freely using any patent held within the pool.

To monetize the technology and maintain market order, the Combination instituted a centralized licensing system for outside manufacturers. Each external licensee was required to pay a license fee of fifteen dollars per machine manufactured, an amount later reduced to five dollars as production volumes expanded. Crucially, the charter mandated that a designated three-dollar sum from each fifteen-dollar license fee be channeled into a centralized litigation defense fund, which was maintained to aggressively prosecute any nonmember manufacturer who infringed upon any patent in the pool. In recognition of his foundational patent, Elias Howe was granted a special arrangement: he received a direct royalty dividend of five dollars for every machine sold domestically within the United States, and he was explicitly exempted from contributing any capital toward the collective litigation fund. Furthermore, the Combination established strict nondiscriminatory licensing protocols for qualified third parties, while simultaneously imposing uniform minimum retail price thresholds on all licensed machines to prevent destructive price deflation. The Combination functioned continuously until 1877, when the final extension of Howe’s original patent expired, dissolving the pool.

According to the passage, the litigation defense fund established by the Sewing Machine Combination was financed by which of the following?