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INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER
HEARINGS
BEFORE THE
TEMPOEARY NATIONAL ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
SEVENTY-SIXTH CONGRESS
FIRST SESSION
PURSUANT TO
Public Resolution No. 113
(Seventy-fifth Congress)
AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA-
TION WITH RESPECT TO THE CONCENTRATION OF
ECONOMIC POWER IN, AND FINANCIAL CONTROL
OVER, PRODUCTION AND DISTRIBUTION OF
GOODS AND SERVICES
PART 3
PATENTS
PROPOSALS FOR CHANGES IN LAW AND PROCEDURE
JANUARY 16, 17, 18. 19, AND 20, 1939
Printed for the use of the Temporary National Economic Committee '
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1939
TEMPORARY NATIONAL ECOiNOMIC COMMITTER
(Created pursuant to Public Kcs. 113, 75th Cong.)
JOSEPH C. O'MAHONE Y, Senator from Wyoming, Chairn.an
HATTON W. SUMNERS, Representative from Texas, Vice Chairman
THURMAN W. ARNOI-D, Assistant Attorney General
•V/ENDELL BERGE, Special Assistant to the Attorney General
Representing the Department of Justice
WILLIAM E. BORAH, Senator from Idaho
WILLIAM O. DOUGLAS, Chairman
•JEROME N. FRANK, Commissioner
Representing the Securities and Exchange Commission
GARLAND S. FERGUSON, Chairman
•EWIN L. DAVIS, Commissioner
Representing the Federal Trade Commission
WILLIAM H. KING, Senator from Utah
ISADOR LUBIN, Commissioner of Labor Statistics
•A. FORD HINRICHS, Chief Econorfist, Bureau of Labor Statistics
Representing the Department of Labor
•CHRISTIAN JOY PEOPLES, Director of Procurement
Representing the Department of the Treasury
RICHARD C. PATTERSON, Jr., Assistant Secretary
Representing the Department of Commerce
B. CARROLL REECE, Representative from Tennessee
CLYDE WILLIAMS, Representative from Missouri
LEON HENDERSON, Executive Secretary
•Alternates.
U
CONTENTS
Testimony of — ?•«•
Baekeland, George, vice president, The Bakelite Corporation,
New York City 1 1077-1105
Bush, Vannevar, president, Carnegie Institution of Washington,
Washington, D. C 870-911
Carlton, Clarence C, vice president, Motor Wheel Corporation,
Lansing, Mich 1045-1070
Coolidge, William D., director of research laboratory, General
Electric Co., Schenectady, N. Y 911-924
Farnsworth, Philo T., vice president, Farnsworth Television,
Inc., Philadelphia, Pa 98L-1006
Flanders, Ralph E., president, Jones & Lamson, Springfield, Vt. 925-937
Graham, John A., president, Motor Improvements, Inc., Newark,
N. J 938-942,945-947
Graham, Maurice H., inventor, Minneapolis, Minn 1070-1077
Jewett, Frank B., president. Bell Telephone Laboratories, New
York City 948-979
Langner, LawTence, patent attorney, New York City 1007-1040
Statement of —
Coe, Conwav P., Commissioner of Patents, Department of Com-
merce 838-867, 1 043- 1 044
Patterson, Richard C, Assistant Secretarv, Department of Com-
merce 836-838
Examination of the patent laws and operation of industry under them.. 836
Patent system bearing on every industry an integral part of govern-
^ ment 839
Monopoly of patent a benefit not in conflict with antitrust laws 840
Industrial development under the patent system 841
Rate of filing of patent applications 843
Distribution of ownership of patents 845
Procedure in examination of patent applications : 848
Reform in patent procedure sought 853
Purpose of patents the enlistment of capital and labor in new enter-
prise - — 857
Suggestions for correction of abuses in patent system 860
Assignment of patents to corporations by emplcyees 865
Introduction of new ideas into industry....:. 871
Research 1 871
The interference practice 880
Patents necessary to attract capital to new enterprise. -- 881
"Suppression of patents" 884
Patent pools 887
Tendency of compulsory licensing to discourage invention 890
Recommendations of the Science Advisory Board on patent reform 892
Bearing of patents on standard of living 894
Need for scientific advisors in patent trials 896
Value of patent system in reducing unemployment 897
Need for single court of patent appeals , 900
Lack of serious economic threat in foreign held patents 902
Inventions and employment — 904
Proposed single court of patent appeals 906
Charge of suppression of patents often unfounded 908
Foreign patents 9 JY
History and description of General Electric Research Laboratory 911
Value of scientific research 9^"-
III
IV CONTENTS
Page
History of Jones & Lamson Tool Co 926
Value of patent protection to industry 928
More jobs created than displaced by patented devices 932
Need for more easily accessible capital for small industries 934
Formation of company to establish new industry 938
Patent infringement litigation discloses evils in present patent system. 940
Origin of United States patent system _ 960
Organization and purpose of BeU laboratories 951
Patents responsible for development of telephone 958
Number of patents held by Bell System and their use . - . . 963
Relationship between issuance of valid patents and proposed single
court of patent appeals 969
Distribution of title to Bell System patents 971
Fundamental and subsequent development patents of Bell System — 971
Opportunity for independent inventors 976
Birth and development of Farnsworth television idea 982
Application for patent covering basic idea of Farnsworth television. _ 990
Impossibility of obtaining financial backing without patent system. __ 995
Patents on useless inventions 997
Alleged suppression of patents in television field 1000
Radio Manufacturers Association Television Standards Committee.. 1002
Comparison of provisions of foreign send United States patent systems. 1007
U. S. patents held by foreigners and foreign patents held by Americans. 1043
The Automotive Parts & Equipment Manufacturers Association 1045
Role of patents in improvement of automobile parts 1049
Patents incentive to production of new inventions. 1050
Licensing of patents.., 1052
Effect of abolitionof patent^syetem on competition 1057
Patents not used to establish monopoly. .. 1058
Effect of patent system in increasing employment. 1064
Patent system responsible for development of automotive industry.. 1065
An indep>endent inventor 1071
Interest of industrial concerns in independent inventions 1073
Inability of inventor to enlist capital without patent protection 1075
Background of Bakelite Corporation's founder 1078
Discovery of thermosetting plastics 1079
Importance of Bakelite in automobile manufacture 1 080
Use of Bakelite in 35 major industries 1081
Bakelite patents 1082
Necessity for patents in protecting research work 1 089
Lack of incentive to invent without patent protection 1099
Search for suppressed patent unsuccessful 1103
Approval of proposed single court of patent appeals 11 04
Schedule and summary of exhibits v
Monday, January 16, 1939 : ._. 835
Tuesday, January 17, 1939 869
Wednesday, January 18, 1939 925
Thursday, January 19, 1939 : 981
Friday, January 20, 1939 1043
Appendix ^ 1107
Index .-^. I
SCHEDULE OF EXHIBITS
Number and summary of exhibits
Intro-
duced
at page
163. Diagram of the cotton gin, patented Mar. 14, 1794, by Eli
Whitney
164. Diagram of the reaper, patented June 21, 1834, by Cyrus H.
McCormick !_._
165. Diagram of the telegraph, patented June 20, 1840, by
Samuel F. B. Morse • '__
166. Desc. ption of vulcanized rubber, patented June 15, 1844,
by Charles Goodyear
167. Diagram of the steam power brake, patented Apr. 13, 1869,
by George Westinghouse, Jr
168. Description of improvement in treating and molding pyrox-
yline, patented July 12, 1870, by John W. Hyatt, Jr., and
Isaiah S. Hyatt
169. Diagram of barbed wire fences, patented Nov. 24, 1874, by
Joseph F. Glidden
170. Diagram of the telephone, patented Mar. 7, 1876, by Alex-
ander Graham Bell
171. Diagram of apparatus for electric welding, patented Aug. 10,
1886, by p:iihu Thomson
172. Diagram of the electric motor, induction tvpe, patented
May 1, 1888, by Nikola Telsa
173. Diagram of tlie manufacture of aluminum, patented Apr. 2,
1889, by Charles M. Hall
174. Diagram of a machine for producing linotypes, type matrices,
etc., patented Sept. 16, 1890, by Ottmar Mergenthaler
175. Diagram of the photogravure printing plate, patented Apr.
11, 1893 by Frederic E. Ives
176. Diagram of an electrical furnace, patented May 19, 1896, by
Edward G. Acheson
177. Diagram of a glass-shaping machine, patented Aug. 2, 1904,
by Michael ,1. Owens
178. Diagram of a flying machine, patented May 22, 1906, by
Orville Wright and Wilbur Wright
179. Chart: Applications filed and patents granted, for years
1836 to 1937, including designs and reissues
180. Chart: Applications filed and patents granted, for years
1921 to 1937, excluding designs and reissues
181. Chart: Ratio of patents to population, for years 1840 to 1930-
182. Chart: Ratio of patents to technological workers, for years
1850 to 1930
183. Chart: Percentage of patents issued to large corporations
for vears 1921 to 1938, excluding designs and rei^^sues
184. Chart': Number of patents issued to large corporations, for
vears 1921 to 1937, excluding designs and rei.-sues
185. Cliart: Patents issued to lat:ge corporations, for years 1921
to 1937, with ratio of i^atents to total assets
186. Chart: Number of distribution of patents as issued, for years
1921 to 1937, to individuals, to foreign corporations, to
small corporations, and to large corporations
187. Chart: Percentage of distribution of patents as issued, for
years 1921 to 1938, to individuals to foreign corporations,
\o small corporations, and to large corporations
842
842
842
842
842
842
842
842
842
842
842
842'
842
842
842
842
844
844
844
844
845
845
845
846
846 1127
V
VI
SCHEDULE OF EXHIBITS
Number and somniary of exhibits
188, Charts: Patents acquired by purchase by corporations dur-
ing the period of January 1931 to June 1938 ,
Chart: Estimated unexpired patents owned by corporations,
owning from 1 to 9000 patents each, large, foreign, and
small — subsidiaries not included with parent corporations.
Chart: Estimated unexpired patents owned by large, foreign,
and small corporations owning less than 1 ,000 patents each
Chart: Patents issued to large, small, and foreign corpora-
tions for period of Jan. 1, 1931, to June 30, 1938
Organization chart of the U. S. Patent Office
Chart: Procedure in obtaining patents
Chart: Examination procedure of patent application.*
Patent 2,058,139, diagram on a reading lamp, showing what
Patent Office does and does not allow an inventor to claim.
196. Chart: Indicating the sequence and possible duration of
events relating to an invention from its conception to the
expiration of the patent
Chart: Number of applications pending up to 5 years for
years 1932 to 1938
Chart: Patent monopoly permitted under present law, and
as it would be under the proposed 20-year bill
Chart: Patent monopoly on Steimer patent and divisions
showing 44-year interval between filing and expiration of
patent, and as it would be under the proposed 20-year bill.
200. Chart: Patent interferences decided on evidence, for years
1924-33
Chart : Unusual interferences of patents
Chart: Patents in litigation, by sections of country, shown
on map of the United States
Chart: A case history of the litigation on one patent
Chart: Patent litigation for years 1934 to 1938
Chart: Government fees in patent litigation
205-A. Diagram of manner of buoying vessels, patented 1,849 by
Abraham Lincoln. .
206. Pamphlet: Report of the Committee of the Science Advisory
Board, on the relation of the patent system to the stimula-
tion of new; industries
207. Photostatic copy of Letters Patent
208. Genealogical chart of the Robbins and La'svTence shop
209. Chart: 1924 to 1938 sales record of Motor Improvements,
Inc., and relation to patent litigation
Tabulation: Number of patents granted by the United States
to residents of large foreign countries, 1930 to 1937 and
supported by similar list of smaller foreign qountries
Tabulation: Number and proportion of pateTUs granted by
some foreign countries to citizens or residents of the
United States
Tabulation: Comparison of patents granted to residents of
the United States by other countries with patents granted
by the United States to residents of other countries
213. Tabulation: Patents granted by various countries showing
proportion granted to foreigners 1
214. List: Parts of an automobile (excluding the body proper)
and automobile equipment. _-.
Unnumbered. Brief bibliography on short-term, minor or petty
patents (Gebrauchsmuster)
Letter, dated Jan. 24, 1939, from F. R. .lewett, vice prosident
of .the American Telephone & Telegraph Co., to Hon.
Joseph' C. O'Mahoney, chairman, Temporary National
Economic Committee, submitting information relative
to the long-life vacuum tube. Entered in the record on
Feb. 8, 1939
189
190.
191.
192.
193.
194.
195.
197.
198.
199.
201
202
203
204
205
210.
211.
212.
244.
Intro-
duced
at page
846
847
847
847
848
848
848
849
849
850
853
853
855
855
856
856
857
859
863
892
928
928
947
1044
1044
1044
1044
1048
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
MONDAY, JANUARY 16, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The Temporary National Economic Committee met pursuant to
adjournment on Friday, December 16, 1938, at 10:30 a. m. in the
Caucus room of the Senate Office Building, Senator. Joseph C.
O'Mahoney presiding.
Present: Senators O'Mahoney (chairman) and Kin^; Representa-
tive Williams; Messrs. Henderson, Ferguson, Lubm, Patterson,
Davis, Peoples, and Thorp.
Present also: Senator Homer T. Bone, of Washington, chairman of
the Senate Patents Committee; Representative William I. Sirovich, of
New York, chairman of the House Patents Committee. Counsel:
Justin W. Macklin, First Assistant Commissioner of Patents; Henry
Van Arsdale, Assistant Commissioner of Patents; Leslie Frazer,
Assistant Commissioner of Patents; John A. Dienner, special counsel
for committee; George Ramsey, of New York, assistant to Mr.
Dienner; R. F. Whitehead, Solicitor for the Patent Office; and Grattan
Kerans, Administrative Assistant to the Commissioner.
The Chairman. The committee will please come to order. Vice
Chairman Sumners is detained by reason of a caucus of some kind in
the House of Representatives.
The Chair will recognize Admiral Peoples, representing the Treasury
Department upon the committee.
Mr. Peoples. Members of the committee. It becomes my sad
duty to announce the sudden and untimely death of Mr. Herman
Oliphant, who was a member of this committee. He .was a man of
the highest integrity, of unbounded energy and devotion to duty, and
of unrivaled attainments in his chosen field. At the time of his
death he played a truly indispensable part in carrying out the work
of this Government and his passing causes irreparable loss to this
committee and to the Nation.
Perhaps because he rose from humble beginnings he never dis-
associated himself and his ideas from the common people. Endowed
with unusual vision and mental gifts of the very highest order, he
devoted himself unstintingly to the public good without thought of
personal gain or of the effect of his ceaseless labors upon his physical
well-being.
Here is a man of whom it can truly be said that he gave his life in
the service of his country.
S3o
336 CONCENTRATION OF ECONOMIC POWER
It is with a sense of deep personal loss that I speak briefly of Mr.
Oliphant's passing, for all those who worked with him had real ad-
miration and real affection for him as a man, and I offer, Mr. Chair-
man, the following resolution, and move its adoption by the committee:
Be it resolved by the Temporary National Economic Committee in meeting as-
s(Thbled, That the committee has learned with profound sorrow and deep regret
of the announcement of the death of Mr. Herman Oliphant, a member of this
committee, and that the committee deplores his untimely passing; and be it further
Renolved, Tliat the record of these proceedings be prepared and transmitted
to the family of our deceased member.
Senator King. Mr, Chairman, I second the motion.
The Chairman. You have heard the resolution. The motion is
made and seconded that the resolution as presented by Admiral
Peoples, alternate of Mr. Oliphant upon this committee, representing
the Treasury Department, be adopted. All in favor will indicate
by rising.
It is unanimously adopted.
The Chairman. The Chairman now takes the opportunity of wel-
coming to membership upon this committee the Honorable Clyde
Williams of the House of Representatives from the State of Missouri,
who has been appointed by the Speaker of the House of Representa-
tives to take the place made vacant by the resignation of Congressman
Eicher, recently appointed to the Securities and Exchange Com-
mission.
Congressman Williams, we are glad to have you with us, and we
are sure that your presence is going to help us struggle along with
this problem.
Congressman Williams. Thank you. I am glad to be v/ith you.
The Chairman. The committee has been called this affprnoon in
pursuance of the decision reached at the last public hearing for the
purpo^'^ of presenting additional testimony with respect to patents.
This hearing is under the direction of the Department of Commerce.
The Chair will recognize Secretary Patterson to open the hearing.
examination of the patent laws and operation of industry
under them
Mr. Patterson. Mr. Chairman and members of the committee:
From Deceniber 5 to December 16, 1938, the Department of Justice
presented evidence before this body concerning the patent experience
of two major industries.^ At that time, according to the statement
of the Department of Justice, interest was centered upon the question
of "the relationship between patent practices and the free and open
market which it is the purpose f the antitrust laws to maintain."
This earlier hearing was "not concerned with the patent law as such
or with the details of its administration." To be sure significant
evidence was introduced with regard to certain practices in connec-
tion with the administration of the patent law, but this was an inci-
dental byproduct of the basic inquiry.
The discussion of the patent laws is resumed today from a some-
what different angle. We are concerned primarily with such ques-
tions as: Wii at is a good patent law; does the present law fulfill its
const' tutional purpose; and, m the light of our modern business
' Soc Hearings, Part 11.
COXCENTRATIOX OF ECONOMIC POWER §37
structure, do any changes need to be made in its substantive or pro-
cedural provisions witli a view to its improvement?
The patent system has its basis in the Constitution. The Depart-
ment of Commerce through the Patent Office is the administrative
agency in the Government to which has been delegated responsibility
for the proper issuance of patents. Our interest, however, goes far
beyond mere matters of procedure. We believe in the importance of
invention — that the "progress of science and useful arts" is one of, if
not the most important dynamic element in our national economic
advance. In the long run, new processes and new products offer our
greatest hope for progressive rise in the standard of living and for
increased opportunities of leisure time. We believe that an effective
patent system is an important factor in fostering invention and further-
more in bringing about the partnership of new ideas and speculative
capital, which is so necessary to make the discovery bear fruit.
While we thus unhesitatingly accept the basic concept of a patent
system, we are greatly concerned with the problem of making it reach
its maximum social value. We must prevent, as far as possible,
abuses of any kind which may creep into its operation or which may
be committed under the guise of the patent right. During recent
years we have tried to deal with these situations by improving and
strengthening the administrative process. However, we now believe
that some of the difficulties can only be met by legislative action.
The basic purpose of the system was declared in the Constitution:
To promote the progress of science and useful arts, by securing for limited
times to authors and inventors the exclusive right to their respective writings and
discoveries.
In judging its operation and any proposed changes, these fundamental
terms must be kept always in mind.
Our purpose in this hearing is twofold. First, we wish to present to
you the experience of the Patent Office, pointing out certain conditions
and problems which have directly emerged from its operations.
Second, we hope to picture for you certain aspects of the patent
system at work. For this purpose we have arranged for several
witnesses to appear, typical of successful, independent inventors who
have controlled the manufacture of their products, independent in-
ventors who have turned over the results of their invention to other
enterprises for exploitation, and inventors who function in research
groups attached to large corporations. We shall present several
businessmen who have had significant experience with the patent
system, and one or two other witnesses whose general knowledge and
expei'ience in this subject should be helpful to the committee,
Mav I emphasize that this is not a completed report. At certam
points it will not even be a rounded or completely balance.; presen-
tation of a given problem. We do feel that the evidence to be intro-
duced is pertinent to any consideration of changes hi the patent law,
some of V, hich will be suggested by the testimony of the Commissioner
of patents. Perhaps the committee may feel that certain of the
conditions or problems discussed should be subjected to further exam-
ination and research. I can assure you that the Department of
Commerce stands ready to pursue any problem as far as the com-
mittee feels it to be important.
g38 CONCENTRATION OF ECONOMIC POWER
The first witness whom I wish to introduce is Mr. Conway P. Coe,
Commissioner of Patents since 1933. Commissioner Coe has a wide
range of subject matter which he wishes to cover and I hope that it
will be possible for him to present his evidence with a minimum of
interruption at this session. I am sure that there will be points in
his testimony on which the committee may wish to question him in
some detail and that we will arrange for him to return to the stand at
a later stage in the hearings for as prolonged a discussion of these
matters as the committee may wish.
The Chairman. Thank you, Mr. Secretary,
The chairman desires at this point to make note of the presence
here of the Honorable Homer Bone, senior Senator from the State
of Washington, who is the chairman of the Senate Committee upon
Patents. We feel very grateful that Senator Bone has seen fit to be
present at the hearing this morning.
Mr. Coe, are you ready to present your statement?
Mr. Coe. Yes, Mr. Chairman.
The Chairman. Will you be good enough to take the stand? May
I say in advance of your beginning to the members of the committee
that I understand Mr. Coe has a rather lengthy survey which he desires
to enter if possible without interruption. I think it will be a good
rule if this afternoon we refrain from interrupting the statement of
the Commissioner b^- questions until he has concluded his prepared
statement. If that is agreeable to the committee, Commissioner Coe
mo}' proceed.
STATEMENT OF CONWAY P. COE, COMMISSIONER OF PATENTS
Mr. Coe. In the last 5 years of my service as Commissioner of
Patents I have devoted myself to a careful study of almost every
aspect of our patent system. This I have done not merely for my
own information but with the purpose of increasing the usefulness of
the system to the American people. In the course of this long and
serious study I have utilized every available source of information.
I have had correspondence and conferences with many persons familiar
with the system; with its critics as well as its champions. I have
discussed it with inventors; with representatives of every class of
industrial organizations; with little men and magnates of business;
with patent lawyers and Federal judges; with officials of different
executive departments of the Government, and with Members of
Congress. My investigations Iiave extended even beyond our own
shores. I have had the benefit of the knowledge, experience, and
judgment of the officials of various foreign countries, including those
of leading industrial nations such as England, Germany, France,
Japan, Italy, Canada, and Belgium. I mention these facts onlv to
indicate that my interest in the nature, operation, and efi"ect of' the
patent system is neither recent nor casual. Let me not be under-
stood as intimating that nothing more can be added to my knowledge,
but rather as recognizing the many and difficult problems involved
in any attempt at appraising the value of the patent system to our
national economy.
At the beginning of my statement I wish also to make so clear as to
prevent misunderstanding, first, that I am not only willing but eager
to nd our patent system of any and every abuse identified with it, and,
secondly, that I shall welcome the adoption of any eff^'-^nal rome'^-'
CONCENTRATION OF ECONOMIC POWER §39
Indeed, I am prepared to propose specific improvements before this
statement is completed.
For nearly a century and a half the American patent system has
had the esteem of our citizens. It has been regarded not merely as a
lawful institution, but also as a benefactor to the Nation. I am
confident that your committee appreciates the wholesome influence
which our patent system has exerted on the economic and social life
of the American people. I am quite certain that you wish to preserve
all that is good while correcting whatever is evil. For I know that
you could not regard as wholly wrong and vicious a system that has
brought so many benefits to our people during our entire national
existence.
PATENT SYSTEM, BEARING ON EVERY INDUSTRY, AN INTEGRAL PART OF
GOVERNMENT
Mr. CoE, It is hardly necessary to tell you that nearly every major
industry in the United States and, for that matter, in the civilized
world, owes its existence to inventions once protected by patents.
However, it may be well to remind, if not to inform, you that American
agriculture is indebted to the gin, the reaper, the tractor, and many
other machines that facilitate larger production of the crops which
our farmers must exchange for their own numerous needs. Com-
munication depends on the telegraph, the telephone and the radio,
aRd other inventions necessary to their successful operation. In the
field of chemistry there are vulcanized rubber, celluloid, and bakelite
as the expressions of immense investments of money and employ-
ment of thousands of workers. Modem transportation, though an
industry in itself, depends to some degree on scores of other industries
based on patents. In short, every industry in America depends to
some degree on others for its operation and all of them are beholden
to patents. Every individual in the United States, young or old,
rich or poor, is in some form from birth to death, a user and a bene-
ficiary of patents. Indeed, it would be all but impossible for any
of us to free ourselves from this daily dependence on patents, for our
very escape beyond the confines of civilization would itself require
the use of some patented invention.
The American patent system was established at a time when
mechanical inventions had already begun to affect not only the
industrial conditions, but also the economic, social, and poUtical
status of Europe and the new Nation just erected on this contnient.
The significance of the inventions put to work in England and the
States of the Confederation was realized by the American statesmen
of that era. It is agreed that their recognition of the value of these
new economic factors prompted them to write into the Constitution
the provision of article I, section 8, empowering Congress "to promote
the progress of science and useful arts by securing for limited times
to authors and inventors the exclusive right to their respective
writings and discoveries." This provision, by the way, is impressive
not only because it is included in the Constitution as one of the
major grants of power to Congress, but* equally because it Ibestows
on patentees a complete monopoly, and therefore raises a question
as to the constitutionaUty of an attempt to compel the owTier of a
patent to share with others the title, use, and avail of his property.
840
COXCENTUATION OF ECONOMIC POWER
I do not presume to determine the point; but I must comtemplate
it as an issue to be met here or hereafter.
The autliors of our patent system, judging by the language of
article I, section 8, held the exdusiveness of the rights vested in a
patentee as a powerful aid to progress in arts and sciences. No
American among his contemporaries or his successors has achieved a
greater reputation as an opponent of monopoly than Thomas JefTerso]i.
Yet he not merely sanctioned, he eloquently advocated the form of
monopoly represented in patents. I cite his commentary on an early
act of Congress, presumably that of 1790, in the administration of
which he collaborated with Henry Knox, Secretary of War, and
Edmund Randolph, Attorney General.
An act of Congress authorizing the issue of patents for new diseoveries has
given a spring to invention beyond my cor.ception. Being an instrument of
granting the patents, I am acquainted with their discoveries.
Please, Mr. Chairman, note how ancient is this criticism-
Many of them, indeed, are trifling, but there arc .^ome of great consequence
which have been proved of practice, and others which, if they stand in the same
proof, will produce great effect.
In the arts, and especially in the mechanical arts, many ingenious improve-
ments are made in consequence of the patent-right giving excliinive use of them
for 14 years.
Certainly an inventor ought to be allowed a right to the benefit of his invention
for some certain time. Nobody wishes more than I do that ingenuity should
receive liberal encouragement.
That is the end of the quotation from the Jefferson statement.
MONOPOLY OF P.ATENT .\ BENEFIT NOT IN CONFLICT WITH ANTI-TRUST
L.\W'S
Mr. CoE. It occurs to me that a great deal of misapprehension results
from the failure to distinguish between tlie monopoly or privilege vested
in a patentee and tiie sort of monopoly tiiat British sovereigns once con-
ferred. It is only when we appieciate this distinction tiiat we can
understand how JelTcrson could consistently advocate the monopoly
of pn tents for inventions while condemning the traditional form of
monopoly.
Americans generally detest monopoly in the true sense of the term
because it makes possible the ruthless exercise of power. Indeed, the
American Revolution was precipiiatcd by popular resentment of the
monopoly on tea held by the East India (\). it would, therefore,
have been exceedinuiy strange if, only :t lew yenrs Inter, the delegates
sent lO the Constitutional Convention by Massachusetts and the
other Colonies had been willing to sanction an equivalent form of
hionopoly under the iww government they were creating. In the
sixteenth and seventeenth centuries a king or queen of England could
rew\ard a favorite by granting him a monopoly on salt or some other
necessary of life. This, bene ficiaiy of royal favor was not, of course,
the discoverer of salt. That came ready-made from the hands of the
Creator eons before the advent of man. W^liat the darling of his or
her majesty received was the power to compel others to use salt solely
of his supplying and only on ternis of his dictation.
But a patent is no such monopoly. It is a reward for the invention
or discovery of something new, something before unknown, something
added to the sum total of human knowledge, utility, well-being;
COXCENTRATION OF ECONOMIC POWER §4]^
something which the inventor or discoverer, despising the hire of
money or fame, might have withheld from his fellow men. By the
monopoly that goes with a patent, then, the Government recompenses
and, for a limited time, protects the inventor or discoverer who gives
to the world the use and benefit of his invention or discovery. This
is a kind and a degree of mutuality that negatives monopoly in the
old or the current concept. Monopoly in the latter sense of the term
gave to an individual or a group complete dominion of sometliing
already existent. A patent awards monopoly to the producer of
something original, something superadded to the. common store. So
it is that two things bearing the same name need not be of the same
nature.
It has been contended that there sometimes occurs a clash between
the antitrust laws and the patent statutes. I might suggest that
since the first antitrust legislation in 1890, the patent laws and the
antitrust laws have coexisted without any irreconcilable conflicts
between them. They have each of them at least one common objec-
tive, namely, the retention by the public of a right once acquired by
it. As a matter of fact, patents accomplish more than the retention
of the acquired rights. Their influence is creative; they operate to
multiply and expand acquisitions by the pubUc.
INDUSTRIAL DEVELOPMENT UNDER THE PATENT SYSTEM
Mr. CoE. Naturally, there will be differences of opinion as to the
influence of the patent system upon our industrial development from
the beginning of our Nation down to the present. There are some who
will continue to assert that science would have progressed as steadily
and that our industrial advancement would have been just as rapid
without the patent laws. On the other hand, there are those who, with
equal sincerity and far greater logic, insist that the industrial suprem-
acy enjoyed by the United States today is attributable to the liber-
ality of our patent laws. It must be admitted that inventions were
few in the centuries between the first recordings of history and the
sixteenth and seventeenth centuries of our own era. I cannot dog-
matically declare that civilized mankind's inventiveness and progress
have come because of the institution of patents, but I can, and do,
assert with emphatic positiveness that most of our indispensable in-
ventions and much of our material progress have come since the
establishment of patent systems.
It is strange, but no less true, that citizens of other nations, perhaps
because of their remoteness, can appraise our institutions better than
we can. One of the foreign visitors attracted to the Centennial Ex-
position held in Philadelphia in 1876 was a Mr. Bally, a Swiss manu-
facturer. At that period Switzerland was a comparatively industrial
nation, having world-wide recognition as a producer of watches and
other manufactures but did not yet possess a patent system of any
description. On his return to his own country, Mr. Bally addressed
his fellow industrialists, presumably an early counterpart of our
National Association of Manufacturers. In that address he extolled
the American patent system and urged its emulation by the Swiss
Government. He testified to what he described as "the zeal and
activity of Americans" but recognized also the importance of their
patent system as an aid to their industrial progress and a help to
g42 CONCENTRATION OF ECONOMIC POWER
their successful competition with Europeans. He gave examples of
the success of American rivalry with the older industrial countries of
Europe, and said:
I am satisfied from my knowledge that no people has made, in so short a time,
BO many useful inventions as the American, and if today machinery apparently
does all the work, it nevertheless, by no means, reduces the workman to a machine.
He uses it as a machine, it is true, but he is always thinking about some improve-
ment to introduce into it; and often his thoughts lead to fine inventions or useful
improvements.
Switzerland, with all its celebrity in the manufacture of watches,
had experienced the effect of this American competition. Many
Swiss makers of watches had been obliged to reduce their production
or even cease manufacture. Then he declared:
We must introduce the patent system. America has shown us how. May
our sister republic serve as our model in this.
The Swiss people responded to his appeal by establishing a patent
system in 1888.
Among the patents granted prior to 1877 were some covering inven-
tions that have put mankind under lasting obligation to their authors.
Their influence and benefits are still among our heritages. Because
these classic patents serve to remind us of our indebtedness not only
to the inventors who received them but to the system which encour-
aged them, and because they afford a text for certain statistical
studies that have been made for the benefit of your committee, I
shall now present drawings and descriptions of some of these basic
inventions.
On the right-hand side of each chart we have listed some facts
about the industries which have developed from the basic inventions.
In some cases the inventors first sold them to manufacturing corpora-
tions, and in other instances to service activities. The data represent
estimates based on available statistics, but since the ramifications of
most of the inventions are inextricably woven into the whole industrial
fabric, a segregation of the economic magnitude of any one is extremely
difficult to set forth.
I shall not discuss these charts in detail, individually, as I think
they are self-explanatory and, Mr. Chairman, I would like to intro-
duce them as a group and to refer specifically to only two of these
charts, namely, the patent to Bell and the Goodyear patent.
(The charts referred to were marked "Exhibits Nos. 163 to 178"
and are included in the appendix on pp. 1107-1122.)
Mr. CoE. I refer to the Bell patent for two reasons, first of all to
call your attention to the extreme simplicity and crudeness of it.
The Chairman. To what chart are you refprring now?
Mr. CoE. To the chart ^ illustrating the Bell patent, and I refer to
that specifically in order to call your attention to the crude character
and simplicity of a so-called basic invention and to show you the
many refinements that are necessary to convert a basic invention into
a commercial enterprise.
The second thing about the Bell chart I wish to mention is its
extreme simplicity and almost triviality. If the Patent Office at that
time had adopted that high standard of invention which excludes all
things trivial, it would probably have refused the patent to Bell, since
in its basic characteristics it is hardly more than a toy which would
fail to amuse a very young child.
' "Exhibit No. 170," appendix, p. "1114.
CONCENTRATION OF ECONOMIC POWER 343
On the occasion of the centennial of the patent system in 1891, its
effects and benefits were made the subject of an address. by Carroll
T. Wright, the first United States Commissioner of Labor. Mr.
Wright was a competent witness. Before entering the Federal service
he had been commissioner of labor of Massachusetts. He had given
many years to observation and study of our industrial economy. He
was old enough to have seen the rise of some of our chief industries
from inventions. One such case was the vulcanization of rubber by
Goodyear, to whose patent I have just referred, which is shown in the
next chart. ^
After that Commissioner Wright declared:
The inventions of Goodyear, whereby rubber gum could be so treated as to
be made into articles of wearing apparel have resulted in the establishment of
great industries as new creations. We need not in this place consider the great
benefite through the use of water-proof clothing. The mere fact that great
industries have arisen where none existed before is sufficient for our purpose.
How much more would Commissioner Wright have been amazed
could he have looked but 15 years into the future and beheld the
vast importance of the rubber industry, representing as it did a
tremendous investment of capital and a source of employment for
many thousands. He would have been doubly amazed had he been
able to witness that industry today.
Doubtless some of the ancient civilizations, such as those of Egypt,
Assyria, and China, produced many useful inventions, capable of
higher development and wider adaptation, but these were lost to
them and remain unknown to us precisely because these people had
no arrangement or practice such as we have in our patent system for
perpetuating, improving, and supplementing the discoveries of each
succeeding generation, thereby assuring the growth and synthesis of
the arts, sciences, and mechanics. Our system has preserved the
earliest of the inventions made by our own people and those of other
lands; it has kept what is old that this might inspire the new; it
has established a treasury on which the world may make drafts for
what remains useful long after it has ceased to be novel. In other
words our Patent Office is a sort of a national suggestion box to w^hich
inventors and manufacturers have recourse when they are seeking
ideas capable of solving their particular problems. And it is daily
serving this very purpose. Some hundreds of inventors, represen-
tatives of industry, and scientists resort to its records every day.
The Chairman. Will you pardon me for interrupting to make note
of the presence here of Congressman Sirovich who is chairman of
the House Committee on Patents and who has just arrived to listen
to your discussion? I would like to have the records show that we
have present now the chairman of the Committee on Patents of both
the Senate and the House.
RATE OF FILING OF PATENT APPLICATIONS
Mr. CoE. The mere statement that the United States has granted
more than 2,000,000 patents prompts not merely curiosity but even
concern as to their incidence on our national economy. We are
moved to ask many questions respecting them. What manner of
men are our inventors? Are they relatively more or less numerous
» "Exhibit No. 166," appendix, p. 1110.
o^4 CONCENTRATION OF ECONOMIC POWER
now than formerly? What becomes of their inventions; that is,
where is lodged the ownership of these? Is control of the majority
of patents acquired by our great corporations? Have foreign in-
terests become possessed of large numbers of patents essential to
American industry?
The facts for which these inquiries call are graphically presented
in several charts I have caused to be prepared.
The next shows the number of applications filed and the patents
issued from 1836 to 1937.
(The chart referred to was marked "Exhibit No. 179" and is in-
cluded in the appendix on p. 1123.)
Mr. CoE. The chart also indicates the time of certain events which
affect the fihng of applications, such as the Civil War, the Spanish-
American War, the World War, the recent depression, and the fee
increase in the Patent Office.
You see that this chart indicates that in 1929 the all-time peak of
94,738 applications of all descriptions were filed. "Exhibit No. 179" in-
cludes apphcations on designs and reissues. This was necessary
because in the early records of our Patent Office there was no separa-
tion or division between the several types of applications.
This chart is an enlargement of the latter part of exhibit No. 179
and is limited only to apphcations and patents on mechanical in-
ventions.
(The chart referred to was marked "Exhibit No. 180" and is in-
cluded in the appendix on p. 1123.)
Mr. CoE. This chart indicates that in 1937 we received 65,000
apphcations and issued 37,700 patents.
The next chart is a diagram showing the number of applications
filed and the patents issued for each 10,000 resid0nts of the United
States for each of the census years 1840 to 1930.
(The chart referred to was marked "Exhibit No. 181" and is in-
cluded in the appendix on p. 1124.)
Mr. CoE. As you will see, in the ratio of applications to general
population, there has been a decline since about 1920 as well as in
the number of patents issued, but you might well a^k — you might
well state or conclude that since in comparatively recent years we
have turned out more graduates from our engineering schools and
colleges perhaps our inventions are coming from that source more
now than formerly.
. The next exhibit is similar to "Exhibit No. 181", but shows the ratio
of applications filed and patents issued fof each 100 technological
workers, and the same result is shown on this chart, namely, that there,
has been a decline in the number of inventions per technological*
worker since about 1870, and that in 1930 we were issuing about three
patents for each technological worker.
(The chart referred to was marked "Exhibit No. 182" and is in-
cluded in the appendix on p. 1124.)
Dr. LuBiN. May I ask how you define a technological worker?
Just whom are you referring to? *
Mr. CoE. We have included in that all— I think I have the statis-
tics here — all designers, draftsmen, professional inventors, electricians,
engineers (civil, mechanical, and electrical), surveyors, chemists,
metallurgists; all workers engaged in mechanical pursuits, such as
machine operators, foremen, repairmen, plumbers, contractors,
masons— not including general office workers.
CONCENTRATION OF ECONOMIC POWER g45
These two charts generally indicate, therefore, that as a Nation
whether you consider it from the standpoint of our entire population
or from our technological workers, we are not increasing in our inven-
tiveness per capita.
The next few charts will indicate the distribution of unexpired
patents, beginning with the year 1921,
DISTRIBUTION OF OWNERSHIP OF PATENTS
Mr. CoE. Here is a graph of the percentage of patents issued to
large corporations as compared with all patents issued during the last
17 3'ears.
(The chart referred to was marked "Exhibit No. 183" and is in-
cluded in the appendix on p. 1125).
Mr. CoE. The defijiition of a large corporation, as used in this
chart, is one having total assets of ^1)50,000,000 or over. The patents
of subsidiaries are included. This chart indicates that as of 1938
we were issuing — that is not the total ownership — but the Patent
Office issued 17.2 percent of all patents to corporations having assets
of over $50,000,000, w^hereas 82.8 percent were issued to individuals,
small corporations and foreign corporations.
This next exhibit is similar to "Exhibit No. 183," except that the dis-
tribution of patents is expressed in terms of numbers instead of in
percentages.
(The chart referred to was marked "Exhibit No. 184" and is in-
cluded in the appendix on p. 1125.)
Mr. CoE. The next chart shows the ratio of patents to the total
assets of the large corporation.
(The chart referred to wj.s marked "Exhibit No. 185" and is in-
cluded in the appendix on p. 1126.)
Mr. Cqe. The chart expresses the number of patents issued per
billions of dollars of total assets, therefore, taking only the last black
line in 1937 we were issuing 16 patents to large corporations per each
billion dollars total assets.
The Chairman. Will you state that again, Mr. Commissioner,
please?
Mr. CoE. Yes. In 1937 we issued patents — we issued 16 patents
to large corporations per each billion dollars total assets of that
corporation.
The Chairman. This then is a subdivision of the 17.2" percent?
Mr. CoE. Percentage compared with the total relation of patents
to their total assets.
Dr. Lubin. Do you have that broken down at all later on?
Mr. CoE. Yes, we have — not exactly in this relatioi^-. but more
specifically.
Dr. Lubin. .What I am trying to get at is this: The A. & P. stores
would probably be among the $50,000,000 and over corporations.
You wouldn't expect them to have any patents. Consequently, if
you add them to this group and give a figure of patents issued per
billion dollars of total assets, I don't know if it would mean much,
would it?
Mr. CoE. Of course we have included in this only the patent taking
corporations, not the service corporations.
124491— 30— pt. 3— -2
g46 CONCENTRATION OF ECONOMIC POWER
Dr. LuBiN. I mean A & P may have just one patent or two in all
their history; they don't need them; we don't expect them to take
out patents.
Mr. CoE. If they took out patents they are in; if they didn't, if it is
purely a service corporation, they would not be.
Dr. LuBiN. So the figure per billion dollars' worth of assets wouldn't
be as much.
Mr. CoE. Not as much as some of the others.
Here is a chart showing the allocation of patents to large corpora-
tions, small corporations, foreign corporations, and individuals.
(The chart referred to was marked "Exhibit No. 186" and is
included in the appendix on p. 1126.)
Mr. CoE. A previous chart contained this blue section which shows
patents issued to large corporations having more than $50,000,000.
The yellow portion of the chart indicates the proportion of patents
that have been issued by the Patent Office to small corporations, that
is corporations having anything less than $50,000,000 assets. The
red part indicates the patents issued to foreign corporations, and the
white part above it, to mdividuals.
The next chart is identical with "Exhibit No. 186" except that the
distribution of patents among the groups is in terms of percentages.
(The chart referred to was marked "Exhibit No. 187" and is
included in the appendix on p. 1127.)
Mr. CoE. Large corporations, 17.2 percent; small corporations,
34.5 percent; foreign corporations, 5.4 percent; and to individuals
42.9 percent.
I indicated that the previous charts were limited to the number of
patents issued to these various groups, and you might well ask, "Well,
how would those proportions be changed if you included those ac-
quired by purchase, and, therefore, the total ownership?" This chart
is an answer to that: Patents issued to individuals and subsequently
acquired by purchase by corporations during the period January 1931
to June 1938, that is determined by actual count.
(The chart referred to was marked "Exhibit No. 188" and is in-
cluded in the appendix on p. 1127.)
Mr. CoE. The total patents issued during that period was 334,970.
The large corporations had issued to them 48,427 of that total, whereas
the^ acquired by purchase during that period, 1,124. Small corpo-
rations had issued to them 117,101, and they acquired by purchase
7,448. Foreign corporations had issued to them 15,403 of the total,
and they acquired by purchase during that period 976. While this
chart would give you the exact distribution of patents according to
complete ownership, taken out by issue or by purchase, you will see
that the "Exhibits Nos. 186 and 187" would not have their course
materially affected if they were changed to include the total purchased.
The Chairman. Mr. Commissioner, would it be proper to state at
this point that while corporations may receive patents they may not
apply for them?
Mr. CoE. Yes, sir; that is entirely right. Under the American
patent law and practice, the application must be filed by the individual,
and the ownership can only be acquired by a corporation by transfer
of title from the inventor.
The Chairman. So the significance of "Exhibit No. 188" is that cor-
DOrations acquire by far the largest percentage of their patents while
they are in the application stage.
(X)XCKNTRATION OF ECONOMIC POWER g47
Mr. CoE. Yes, sir.
Before I discuss these next charts, I want to caution against the
deduction of broad conclusions from the data given on them. They
are intended only to be generahzations ; they are not to be taken as
representing the relative importance of the several categories of large,
small, and individual. For example, those charts that we just saw
did not show the allocation of so-called key or basic patents. They
did not indicate the relative number of patents exploited by the
respective groups. Third, included among the patents owned by
individuals in this upper group, 42 percent, are many that are ex-
ploited by corporations in which the owners occupy high positions in
the companies and simply permit the corporations to exploit their
own patents. Fourth, in the individual groups are many patents
which are owned by individuals but which are exploited by corpora-
tions under various Ucense agreements and contracts. I therefore
simply want to warn that while the charts do convey certain informa-
tion as to distribution of patents in the various groups, you cannot
predicate too broad conclusions on them.
Here is a tabulation showing the number of patent-holding cor-
porations in each of the classes, large, foreign, and small, grouped by
their estimated holdings on June 30, 1938.
(The chart referred to was marked "Exhibit No. 189" and is in-
cluded in the appendix on p. 1128.)
Mr. CoE. In this chart and the subsequent series of charts the hold-
ings of the subsidiaries are not combined with those of the parent
corporations. You will see that there is one corporation in the
group having between eight and nine thousand patents, of the large
corporations ; there is one having between five and six, one between
four and five, two between three and four thousand, three between
two and three thousand, and seven between one and two thousand,
and 435 of the large corporations that is those having total assets of
more than $50,000,000, have less thar one thousand patents. In that
group we also find one foreign corporation having between two and
three thousand patents, two having between one and two thousand.
Of the so-called smaller corporations under $50,000,000, total assets,
there are four having between one and two thousand patents, and the
vast majority of them having less than one thousand patents.
The next chart is really a break-do wa of this last line of "Exhibit
No. 189" including the corporations owning 1,000 patents or less.
(The chart referred to was marked "Exhibit No. 190" and is m-
cluded in the appendix on p. 1128.)
Mr. CoE. I will not go down through this Ust of ownership because
I think the tabulations are self-explanatory, but I will call your
attention to the fact that 338 of the so-called large corporations have
less than 100 patents; that of the total foreign corporations, 3,233
foreign corporations, 3,213 have less than 100 patents; that of the
small corporations, 17,195 of a total of 17,567 have less than 100
patents.
This chart indicates the number of corporations of each class own-
ing a very small number of patents. , ,
(The chart referred to was marked "Exhibit No. 191" and is m-
cluded in the appendix on p. 1 129.)
Mr. CoE. It tabulates those taking out an average of not more
than one patent a year. This chart was prepared by an actual count.
848
CONCENTRATION OF ECONOMIC POWER
Of the large corporations, 181 averaged no more than 1 patent a
year. Of the small corporations, 14,855 averaged no more than 1
patent a vear; that is 85 percent of the total of small corporations
averaged less than 1 patent a year, and 40 percent of the total of large
corporations averaged less than 1 patent a year. Of the foreign
corporations, 92 percent have taken out in the last Di years less than
1 patent a year.
On the Patent Office is imposed the duty of making the initial
decision whether a patent shall issue for any new and useful art,
machine, manufacture, or composition of matter, or any new and
useful improvement.
Some notion of the organization and procedure involved in the
determination of patentability will be afforded by the next set of
charts and the explanations I shall offer.
This chart does not require any discussion. It is inserted in the
record merely to indicate the general organization of the United
States Patent Office.
(The chart referred to was marked "Exhibit No. 192" and is in-
cluded in the appendix on p. 1129.)
PROCEDURE IN EXAMINATION OF PATENT APPLICATIONS
Mr. CoE. Here we have an outline of the procedure in obtaining
patents, showing the appellate procedure froni 65 examining divisions
which make the initial decision as to patentability. From an adverse
decision there is an appeal to a Board of Appeals of three judges. If
the decision of that Board is not satisfactory to an applicant, he inay,
as he elects, go either to the Court of Customs^ and Patent Appeals
to have the decision reviewed, or he can go under R. S. 4915 and file
a suit against the Commissioner of Patents in the district court, and
from that court appeal to the Court of Appeals.
(The chart referred to was marked "Exhibit No. 193" and is
included in the appendix on p. 1130.)
Mr. CoE. This chart is a diagram illustrating the procedure of an
examining division of the Patent Office examining the application
and searching the prior art preliminary to the initial decision as to the
granting of a patent.
(The chart referred to was marked "Exhibit No. 194" and is
included in the appendix on p. 1130.)
Mr. CoE. Let us assume, for example, that an application is filed in
the Patent Office on an electric light in which the applicant describes
in the claim chandelier, bowl support, and reflecting bulb of the
character shown at the left. That application would be assigned to
one of these 65 division^. Division 30, which has the subject of illumina-
tion. In that division there are a primary examiner and nine assistant
examiners, and to each of the assistant examiners are assigned certain
of the subclasses in the illumination art. So that to search this inven-
tion, the application would first go into Division 30 in the general class
of illumination.
The examiner would search the light support, chandelier, and
electrical subclasses, 78, 76, and 52. He would come down to sub-
class 128 which contained a shade or bowl support, because obviously
this invention has support for the bowl. So far he hasn't found
whether there is anything new or any novelty in the frosted bulb tip,
I
CONCENTRATION OF ECONOMIC POWER g49
and that isn't in his division because that is not under the general
subject of illumination. He has to go into the class of electric lamps,
so he continues his search into Division 54 and class 176 which has
many different subclasses, and he finally finds himself in a subclass
that is incandescent lamps with reflectors or refractors, and there he
would find whether this frosted tip was new or old.
Here is a graphic illustration of the prosecution steps leading to the
granting of a patent.
(The chart referred to was marked "Exhibit No. 195" and is in-
cluded in the appendix on p. 1131.)
Mr. CoE. An inventor lias invented this lamp you see in the upper
left-hand comer. He goes into the Patent Office, as all inventors do,
claiming much more than he is entitled to. In this case he claims
that he should have a patent on these elements: socket, bulb, reflector,
reflector close to the tip of bulb; and a shade. The examiner makes
a search on that, in the process I have indicated in "Exhibit No. 194",
and he finds a prior patent that has those elements, namely, a socket,
a bulb, a reflector, a reflector close to the tip, and a shade (e). So he
refuses to grant the patent on the ground that the invention does not
disclose any novelty, whereupon the applicant amends his case for the
first time to include a spaced screen (f) which he had originally shown
but had not yet claimed because that was a little more specific than
the protection he wanted to get when he started.
So he amends his case and comes back to the Patent Office and asks
for reconsideration in that amended form. The examiner repeats
the search I have indicated. He finds that there is no such shade,
and he grants the patent then, including in addition to the five
elements originally claimed, also the spaced screen (f), and that he
did not make a mistake in granting that patent is indicated by the
fact that the patent was in suit and has been held valid by the courts.
Senator King. May I interrupt. He didn't get a patent for the
socket, bulb, or reflector?
Mr. CoE. No; he did not. In other words, what he got his patent
on was all of these in combination, including that, so this was entirely
free to the prior art to be used. [Referring to figure in lower left-
hand corner of "Exhibit No. 195".] In other words, he wanted to get
a patent that would permit him to stop the use of this [referring to
figure in lower right-hand corner of exhibit No. 195], but that was old
and the Patent Office does not permit to be removed from the public
domain something held by it, an illustration of my point that the
patent system operates to retain in the hands of the public rights
once acquired by it.
Here is a chart indicating the sequence and possible duration of
events relating to an invention from conception of the invention to
the expiration of the patent, and the extension or duration of the
application stage by continuing applications.
(The chart referred to was marked "Exhibit No. 196" and is
included in the appendix on p. 1132.)
Mr. CoE. Each of these blocks in the upper chart indicates a period
of 1 year. The conception takes place at this point. A year after
conception the inventor has reduced the invention to practice, that
is taken it out of his mind and put it into some form, not a commer-
cially usable form, but he has demonstrated by making a machine
that it can be reduced to practice.
850
CONCENTRATION OF ECONOMIC POWER
Now it takes him a year, we will say, from that time of his first
reduction to practice in the development of the commercial form,
to where it can be actually put on the market and sold and be of some
benefit to the public. The present statutes then give him 2 full
years in which to publicly use the invention before the application is
filed, and so we have here 4 years that have now elapsed before the
application is even brought into the Patent Office.
The next 3 years are taken up in the prosecution of the application.
Three years have been generally regarded as a rather liberal period for
the prosecution of most patent applications. The prosecution having
been concluded and the patent issued at this point, then the patent
life runs for 17 years and expires at the right-hand end of the chart.
I just mention at this point that there you see what is a reasonable,
orderly procedure, nothing exciting about it, it is a very common
occurrence, but there has been a lapse of 24 years between conception
and the expiration of the patent monopoly, and I want to emphasize
that point here because in the minds of many men, including myself,
from the standpoint of the public this is the most important date in
the patent grant, namely the expiration date, because that is the time
when the pubUc is invited in to partake of the feast, and up to that
time the public has been excluded.
Now the lower half of this chart indicates what may happen to this
3-year reasonable prosecution period arising out of what is known as
the filing of divisional applications. Instead of filing at this point
in the upper chart (the left end of line) an application on one single
invention, the appUcant now files an application covering four inven-
tions grouped together in that application. The Patent Ofiice, since
it refuses to grant a patent covering more than one invention, requires
the apphcant to divide out of his original case all of the inventions
except one. So he retains in the one patent A, the one invention, and
that patent issues at this point, but he has previously filed an applica-
tion containing inventions B, C, and'D. The B patent issues 3 years
from that point and he has an appUcation now on inventions C and D.
I At this stage, 3 years later, the C patent issues and the divisional ap-
plication on invention D is presented and 3 years later the patent on
mvention D comes up. That indicates how in the normal procedure
of the prosecution of each patent, 3 years having been consumed in
each case, by the time D is issued a total of 12 years has elapsed; that
is, the enlargement of this period from 3 years to 12, and when the D
tJatent issues, with all the time it was in the Patent Ofiice it had the
benefit of this original filing date.
I am not exaggerating the point when I say that this 3 years is fre-
quently exceeded in the prosecution of cases, as is indicated in the next
chart which shows that at the present time there are 1,924 applications
in the Patent Office more than 5 years old, there are 5,994 cases in
the Patent Ofiice 3 to 5 years old, a total of about 8,000 cases today
that are more than 3 years old.
(The chart referred to was marked "Exhibit No. 197" and is in-
cluded in the appendix on p. 1133.)
Senator King. May I ask one question, please, in violation of the
rulo? What objection can there be to granting four patents if they are
germane or relate one to the other? If one perfects or rounds out the
original, then you have B, C, D, and E all relating to A, connected
with it and perfecting it. Why can't you consider the four applica-
tions and giant four patents simultaneously?
CONCENTRATION OF ECONOMIC POWER §5^
Mr. CoE. We do that, Senator, when these other inventions are
species of the first invention, but I am speaking now of a case where
they are separate and distinct inventions.
Senator King. No relation to each other.
Mr. CoE. They have to stand as separate inventions. They are
not simply a species of the broad invention.
The Chairman. The same question occurred to my mind, and I
don't think it is yet answered. Assuming that appUcations A, B, C,
and D, illustrated on "Exhibit No. 196" are all independent devices; is
there any reason why you can't issue them contemporaneously to the
same person?
Mr. CoE. Senator, there are a great many technical and classifica-
tion difficulties in the way of that.
The Chairman. But the chart which you have presented to us
would carry the inference that if an apphcant presented at one time
applications for four different patents, he could get only one at a
time, and according to your chart the issuance would be spaced over
3-year periods.
Mr. CoE. That is only when he comes in and files those inventions
in a single application. You see, if he comes in separately, they would
all issue probably about the same time.
The Chairman. Assume that the applicant joins all four separate
devices in one application, is there any reason why the Patent Office
shouldn't divide them into four separate applications at one and the
same time and have them handled contemporaneously and all issued
at the end of, say, 3 years?
Mr. CoE. There are many reasons why the Patent Office can't do
that, Senator. For example, he may not be having claims on all his
inventions in there and the Patent Office can't prepare his claims for
him. All he has done is shown these various inventions at the time,
and therefore he gets the benefit of the filing date. If it were easy
for the Patent Office, assuming that it had congressional authority to
break down this current application, that might be done, but the ap-
plicant has to have the right of claiming his invention and defining
the terms in which he asserts his inventorship.
Senator King. Recurring again, with the permission of the chair-
man, to the question which I raised, and which the chairman raised,
may 1 invite your attention to "Exhibit No. 195". You alluded to that
and mentioned the fact that an apphcation was made for B, though
prior to that time the claim had been made for the socket, the bulb,
the reflector, the reflector close to the tip of the bulb, the shad^e, and
so forth. Suppose that a person came in and made an appUcation for
all of those specific requirements or parts of a finished product, could
you not treat that as one application and grant a patent?
Mr. CoE. Yes. In other words, that is what was automatically
done, Senator. He got his patent on all of those things, but we didn't
consider one of those a distinctive invention. You can see how remote
some inventions are. Take the automobile. In the same apphcation
you could have a method of making a rubber tire, a battery, a horn,
all wholly distinct and unrelated inventions that were scattered
through the various arts and the various divisions in the Patent Office.
Mr. Davis. Commissioner Coe, is it not a fact that a division of an
application for patent is frequently required because the different
features contained in the application are considered and handled by
different divisions in your office?
g^2 CONCENTRATION OF ECONOMIC POWER
Mr. CoE. Yes, that is one of the criteria as to the classification of
inventions, it is one of the tests we put as to whether or not they are
separate inventions. That is, if in one division you have a nuniber
of applications that have come in directed to one certain invention,
that bi an indication that the inventors and the art regard that as a
separate invention and it is not to be mixed up and confused with a
lot of other divisions.
Mr, Davis. Instead of directing a division of an application, do
you ever have the chiefs of the different classification divisions act
cooperatively in considering and deciding upon an application?
Mr. CoE. I am not sure! understand your question, Judge, but let
me say that this question of division of inventions is not an easy
one to decide and the Patent Office is engaged in frequent disputes
with an applicant as to whether or not there are two inventions or one,
and we have a classification division that decides that question.
Dr. LuBiN. Mr. Coe, may I ask a question? If I get your point,
tht inventor, should he so desire, could file application for four inde-
pendent inventions at the same time, four patents, and on that basis
you could grant all four at the end of 2 years or as soon as you finished
the search and found him entitled to it.
Mr. Coe. Yes.
Dr. LuBiN. But in order to prolong the life of that monqpoly, he
dosen't ask for four separate patents, he asks for one patent which
includes those four separate things.
Mr. Coe. Yes; one patent on that, frequently knowing that the
Patent Office cannot embrace all of that subject matter in one patent.
That does have, the effect of postponing the date of issue, and, there-
fore, its expiration.
Doctor, I want to answer your question. I have a few more charts
on this thing and maybe some of these questions will clarify them-
selves.
The Chairman. I think, if I may be pardoned for violating the
rule which I laid down myself, I understand your point now to be this,
that an applicant may file with the Patent Office an application which
actually contains four different devices, each one of which is patent-
able. Because of your rule that only one subject will be covered in a
patent, you say to the applicant, "We cannot issue you a patent for
A, B, C, and D. Choose which one you will have." Thereupon, he
makes a choice and he allows the other three to await some future
time when he asks for the issuance of a patent upon one of the remain-
ing three, and later on one of the remaining two, and later on on the
last one. Is that it?
Mr. Coe. Yes; but all the time, Senator, getting the effective date
of those cases carried back.
The Chairman. In other words, the patent monopoly can be ex-
tended by the operation of this device which you have illustrated by
these charts.
Mr. Coe. The divisional and continuation practice is one, and I
sh.'ill also refer to the interference practice as another.
Senator King. However, upon the granting of a patent for A, if he
luid four devices, the statute of limitations or the monopoly granted
by the law would terminate at the end of 17 years.
Mr. Coe. The patent on A would terminate; yes.
Senator King. He couldn't prolong the fife of A by subsequently
or simultaneously filing devices for B, C, and D?
CONCENTRATION OF ECONOMIC POWER §53
Mr. CoE. He doesn't prolono; the life of A unless he gets a case
where a broad patent issues after a specific patent.
Representative Reece. If I may divert further, when the applicant
has filed an application which the Patent Office, upon consideration,
decides embodies four patentable ideas rather than one, would it be
feasible, do you think, to have the Patent Office vested with authority
to decide that the application had been improperly filed, whereupon
the applicant would have the right to file new applications embodying
each of the separate patentable ideas, the date beginning to run on
each one of them from the date of the new filing?
. Mr. CoE. You mean you would'bave the efTective date of the divi-.
sional applications from the filing of the divisional applications, and
not carrying back to your original, prior case? Of course, that is
what is done, and that is the effect of these divisional cases, that they
get the benefit of the early filing date.
The first part of your statement is exactly what the Patent Office
does. They say "This is an improperly filed application, and you have
to divide these out." If he agrees with us or we luive a final decision
to that effect to force him to, he then files these divisional applications.
This chart is next.
(The chart referred to was marked "Exhibit No. 198" and is included
in the appendix on p. 1133.)
REFORM IN PATENT PROCEDURE SOUGHT
Mr. CoE. The upper diagram of this chart is a tlieoretical situation;
the lower diagram suggests a corrective for this situation, which I
would like to discuss at a later moment. Similar to "Exhibit No. 196",
it indicates the first filing of the four inventions in one application,
the issuance of A patent and its expiration, the issuance of B patent,
C and D, with D patent expiring out here, 44 years after the first
presentation to the Patent Office.
Then, to show that this theoretical explanation is not an impossible
thing or something we have just imagined, it is illustrated in the upper
section of this chart, based on an actual case in one of the patents,
actually of a series of inventions originally filed.
(The chart referred to was marked "Exhibit No. 199" and is included
in the appendix on p. 1134.)
Mr. CoE. One patent will expire in 1954, 44 years after the date of.
filing. While I have these charts, and because it will be the subject of
later discussion, I might just ask you to let your eyes glance down to
the lower half of the chart, which w ould indicate the effect of a so-called
20-year proposal, which would require all of those patents to expire at
the end of 20 years from the date of filing.
Senator King. Wliy should not that be done if they relate to the
same subject, what the lawyer would call "germane" to the major
application? • , , 1
Mr. CoE. There is no reason I know why this should not be done.
Which do you mean— this 44-year expiration? The reason that
shouldn't be done, in my judgment, is this, that 44 years is pTojcctiug
the expiration of a patent into the future almost a half century, durmg
which time the art has ordinarily progressed far beyond t&fe value of
the patent and the pubHc gets a wholly worthless thing at the time of
the expiration.
g^4: CONCENTRATION OF ECONOMIC POWER
Senator King. The point I made is, I do not quite understand the
reason why, although you did explain it but I didn't quite get the
point, when A was granted, if B, C, and D, were germane, and 1 use
a phrase which you as a lawyer understand — connected with, or a part
of or directly related to — it all should not expire contemporaneously.
Mr. CoE. There is no reason at all. Senator, why they should not.
Senator King. Why should they not be granted at the same time?
Why should B, C, and D be held in vacuo during that period?
Mr. CoE. We do just exactly what you are suggesting except where
they are independent inventions, and in that case we haven't the
authority to grant a patent covering more than one.
The Chairman. Let me suggest, Mr. Commissioner, that you give
a more detailed explanation of the diagram which appears on the
upper part of "Exhibit No. 199". 1 think that explains rather clearly
what you are endeavoring to develop.
Senator King. Before you do that, if I may be pardoned, why should
not the Commissioner, when he filied A, B, C, and D, examine to
determine whether they are related, and if he determines that they
are not, that B, C, and D are independent, relating to a different
invention entirely, why should he not say, "I am going to treat, how-
ever, the application of B, C, and D as of this date," and let the statute
of limitations, if I may use that term, expire at the end of the 17 years?
Mr. CoE. If I understand your question, Senator, that is exactly
what we propose in this procedure.
Senator King. That is satisfactory, but I got the idea that he might
determine that B and C and D might be held there in suspense, so
that ultimately they might not expire for 44 years.
Mr. CoE. No, Senator. If he lets this first patent issue before he
files the separate divisional applications then he couldn't get a patent,
because it has been disposed of, but in each case he files the divisional
application before the issuance, so he has a continuance of pendency
of the subject matter before the Patent Office.
Now, in the actual case that we have cited, on the top of "Exhibit
No. 199", an application containing four distinct inventions was filed
on February 12, 1910. A divisional application dividing the B appli-
cation was filed in December 1924. The B patent issued in December
1925, and expired at this point here. The A invention was prosecuted
27 years, and issued on March 9, 1937. The C invention was issued
in March 1928, and the D patent in January 1931.
In this case it is true that there were many interferences and appeals
that accounted for that 27-year prosecution.^ It was a perfectly
normal procedure. I won't criticize it as something that shouldn't
have happened, because it is the way the rules are made today. We
do think that that is a condition which should be corrected.
Dr. LuBiN. Mr. Coe, on the 20-year basis could those interferences
and appeals still be in the picture?
Mr. CoE. I am going a httle later to discuss the problem. I do
not think the 20-year proposal can be applied fairly and equitably
with our present ititerfonMico practice, and therefore^ there will have
to be a concurrent reform of interferences to make way for the fair
application of the 20-year proposal.
The Chairman. Let me say to the members of the committee that
the Secretary of Commerce has suggested to me that if we allow the
' See review of history of Steimer patents, Hearings, Part II, pp. 438-440.
COXCENTKATION OF ECONOMIC POWER 355
Commissioner to take his own time, he will develop the answers to
all of these questions. We will try to follow our own rule, Mr.
Commissioner.
Mr. CoE. Some of these points I am coming to, but I am not sure
I will cover them all, Mr. Chairman.
In that Steimer history, as a part of that 27-year prosecution, there
were some interferences. Merely to give you a general idea as to the
effect interferences have upon this subject of delay, we have prepared
this chart.
(The chart referred to was marked "Exhibit No. 200" and is in-
cluded in the appendix on p. 1134.)
Mr. CoE. This chart shows that in a total of 2,713 interferences
which were decided on evidence in the period 1924 to 1933, the mini-
mum duration of any of those interferences was 5 months, the maxi-
mum was 10 years and 9 inonths, and the average was 2 years and 6
months. I stated that this is a tabulation of interference cases de-
cided on evidence. During that whole period there were a total of
17,162 interferences, but other than the number indicated on the
chart they went out on record judgments, concessions, motions and
dissolutions and did not go to the testimony stage.
The next chart is somewhat complicated and I do not intend to go
into it in detail, but I do want to put it into the record so it will be
available for future study.
(The chart referred to was marked "Exhibit No. 201" and is in-
cluded in the appendix on p. 1135.)
Mr. CoE. The upper graph illustrates a long delayed interference,
a prosecution during the interference of 10 years and 9 months. Of
that time, 15.3 percent was taken up by the Patent Office; 30.5 per-
cent was taken up by the parties; stipulations consumed 35.9 percent,
and appeals to the court 18.3 percent.
To Dr. Lubin I might suggest that if we had the 20-year bill, all
that stipulation period would in the main fade out.
The middle graph illustrates successive interferences on a single
application, one case being involved in 123 interferences. The lower
graph illustrates a complicated series of interferences between several
applications.
Finally there comes the litigation of patents. When a patent
issues to an inventor we purport to give him the right, the exclusive
right, for a term of 17 years to prevent others from making, using, or
selling the invention covered by it. But we say that with our tongue
in our cheek, for we know better than he that by our present method
of adjudicating patent rights he will find it exceedingly difficult to
prevent the wrongful appropriation of his property and may be coni-
pelled to stand helpless while he is despoiled. As you are aware, if
the inventor undertakes 10 invoke the law for his protection he must
file suit in a United States district court. If the decision of that
court be objectionable to him or to the other party, the case must be
taken to one of the 10 Circuit Courts of Appeals. This m itself is a
heavy financial burden, but one which, perhaps most inventors could
bear with their own means or the help of others. But having taken
this appeal, what has he gained? Hardly more than a ruhng as to
his rights in that particular circuit. He must then, at least theo-
retically, go from one to another of all the other circuits, and if per-
chance from these many litigations there come conflicting decisions.
o-g CONCENTKATIOX OF i:( "OXO.MIC POWER
lie lias the privilege — if lie still lias the wherewithal — to carry his case
to the United States Supreme Court.
My conviction is that the poor inventor, and through him the
public, sutlers injustice precisely for the reason and to the extent
that the monopoly, the exclusive right, purportedly bestowed on
him is not now fiilly safeguarded. \Vliat we need is not to decrease
but to enhance the monopoly called a. patent. Genuine protection
in that form would be the last surviving bulwark standing between
the inventor and the onslaught of mighty corporations.
A patent should function as a leveler whereby an individual or a
company of small means may be enabled to hold his or its rights of
property against the pressure of the strongest adversary. It should
have a protective character hke that of a high-power ride in the
hands of a puny man beset by a wildly charging bull elephant. Un-
fortunately, the patent affords no such safeguards. The charts I
shall now sliow to you reveal some of the complexities of our system
of adjudicating patents.
Here is a map of the United States.
(The chart referred to was marked "Exhibit No. 202" and is
inchided in the appendix on p. 1136.)
Mr. CoE. This map is divided hito judicial circuits, showing the
number of patents in litigation before the district courts and courts
of appeals hi each circuit for a 4-year period from 1935 to 1938.
By reference to the upper right-hand corner, in the second circuit you
will see during that period 1,386 patents were involved in the district
courts, and within the circle of that circuit, 192 patents went to the
court of appeals.
In the tenth circuit, 115 patents were involved in litigation, and
within the circle, 18 went to the court of appeals.
The shaded portions of each of the blocks in each circuit, such as
the upper shaded portion in the second circuit, indicated by a numeral
"270" indicate the number of patents in each circuit which have
been adjudicated in at least one other circuit. So, of all the patents
indicated in that period, about 20 percent have been adjudicated in
more than one circuit.
Here is a case history of the litigation of one patent, showing seven
suits filed in four different circuits, and a continuation of litigation
after decisions of invalidity by two different courts of appeals.
(The chart referred to was marked "Exhibit No. 203" and is
included in the appendix up. 1136.)
Senator King. Could you saj^ delinitely that the same issues were
raised in each case where the validity of the patent was challenged
in more than one district?
Mr. CoE. I can say tliat when the validity is challenged there can
be only one issue, and that is whether it is a valid patent.
Senator King.; I was wondering if there was any other issue involved.
Mr. CoE. I will show you how generally the same result is obtained.
In the first suit the patent was held valid and infringed, and defendant
took a license. In the second suit the claims were held not infringed,
and on appeal the claims were held invalid. There vou have a ruling
of invalidity by this court of aj)peals and a ruling of validitv by the
district court in the some circuit. Certiorari petition was filed and
denied by the Supreme Court.
In the third suit, a preliminary injunction was granted. Appeal
was dismissed without prejudice on plaintiff's motion
CONCENTRATION OF ECONOMIC POWER oc-r
In the fourth suit, over in the second circuit, the patent was held
vahd and mfnnged by the district court; was held invalid on appeal
Certiorari was denied there h}- the Supreme Court.
Suits 5 and 6 were filed in Ohio, dismissed at plaintifT's request;
and suit 7, now out here in the tenth circuit, was filed and claims were
held invalid at the trial. I defy anyone to tell the exact status of
that patent in the United States today.
The next chart breaks down numerically the number of suits filed
and the number of patents involved in both the district and courts of
appeal in the fiscal years indicated at the bottom of the chart.
(The chart referred to was marked "Exhibit No. 204" and is in-
cluded in the appendix on p. 1137.)
PURPOSE OF PATENTS THE ENLISTMENT OF CAPITAL AND LABOR IN
NEW ENTERPRISE
Mr. CoE. It is not the principal purpose of the patent laws of our
own country or of any nation to reward an individual. The purpose
is much deeper and the efTect much wider than individual gain. It is
the promotion of science and the advancement of the arts looking to
the general welfare of the Nation that the patent laws hope to ac-
complish. The iiidividual reward is only the lure to bring about this
much broader objective. Every patent granted benefits society by
adding to the sum total of human knowledge, but that is not enough,
and that alone will not achieve the ukimate goal of the patent system.
An inventor will not be rewarded and society will not be benefited
until the invention passes into commercial channels. And it is just
at this point that patent protection plays its most essential role, that
of transforming the invention from the idea into a commercial enter-
prise. Unfortunately, this step involves the expenditure of money,
and a very pecuUar kind of money at that. It is not only necessary
that capital be available but that speculative capital shall be available,
capital that does not respond to risks and ventures unless there is
promise of more than the ordinary Government-bond reward. Dr.
Thorp, for example, has pointed out the risks of business and the
hazardous character of both new and old enterprises. Capital knew
this long before Dr. Thorp called it to our attention.^ It will know
it until the end of time. As Dr. Thorp has indicated, there is nothing
quite so risky as a new enterprise and yet it is in just such things that
the capital that goes into the commercialization of new inventions
must be invested.
Speculative capital must be encouraged to fall in behind a new
enterprise and this is true whether the enterprise is wholly new or
represents merely an expansion of an established organization. Some
testimony has been offered to this committee by representatives of
large corporations that they would continue to invent, and invent,
and invent, and research, research, and research whether or not they
were rewarded by the patent grant, but, if you will investigate, I
beheve you will find that whenever these large corporations, them-
selves firmly estabhshed, undertake a new development, that develop-
ment is likely to be founded upon patent protection. Whatever
opinions have been expressed to this committee or may hereafter be
expressed as to whether or not the inventor will continue to invent
' Testimony of Dr. Willard Thorp is included in Hearings, Part I.
o^g CONCENTRATION OF ECONOMIC POWER
without the patent system, I think I can present to you indisputable
evidence that speculative capital will not back new inventions without
the patent protection. And in the final analysis this is the crux and
the most important thing in the whole patent question.
About 8 years ago, the Patent Office started a practice of making
applications for patent "special" as a means of inducing the invest-
ment of capital and the employment of labor m the commercialization
of an invention sought to be patented. In order that the application
shall be accorded this special status and thus be expedited, the appli-
cant is required to make oath as to his willingness and abihty to comply
with three conditions.
He must make oath that —
First. He has sufficient available capital and facilities to manu-
facture the invention in quantity.
Second. That he will not undertake manufacture unless certain
that the patent will issue.
Third. That he obligates himself to manufacture the invention in
quantity immediately upon the allowance of claims which will protect
the invention.
Under this practice we have during the period from July 1, 1933, to
June 30, 1938, made 457 applications special. After the patents have
been granted under these circumstances and to determine the good
faith of the patentee, it is our practice to call upon him to report under
oath at the end of 3 months from the grant of the patent as to the
exact amount of capital that has been invested and the increased
employment of men resulting. Recently we have caused an analysis
to be made of these reports and I think you will find the results
interesting. Remember that the figures which I shall cite are only
for the first 3 months of the patent life. Obviously, if these reports
were continued throughout the full term of the patents, that is 17
years, the showing would be very much more impressive.
I have prepared but will not now repeat a detailed tabulation of the
statistics respecting these applications. I shall supply it to the stenog-
rapher for inclusion in the record. In the meantime I shall give you
only a summary.
Here are the facts as to the 457 cases given special status:
Patents
Money expended or men employed, or both 247
Negative report ." 36
No report 62
Total 344
Applications abandoned or forfeited 61
Applications pending Aug. 25, 1938 52
Total made special 457
The reports filed indicate the following results:
First 3 months period
Total
Patents
re-
ported
Average
per
patent
Simi invrstedorspent by reason of j)atents
.$8. 998. 014
14,413
4.57, S44
$113,435
247
167
If.
12
Additional men employed
Additional labor hours. ..
Additnnal wapes paid
.^q 453
<'(\\('ENTRATION UF ECONOMIC POWER 859
The 247 patents prompted a total new investment of $8,998,014,
or an average of $36,429 per patent. They also conduced to the
emplo3^ment of 14,413 additional persons, an average of 86 per patent.
That was done during the first 3 months of the hfe of those patents.
Mr. Leon Henderson, on his appearance before this committee,^
visioned what, to me, was a very dismal prospect for the future of our
country. This noted economist testified that in 1929 the business
ind X was 120. At the present the business index is 102. He went
on to point out that, in order to attahi the same status of unemploy-
ment we had in 1929 we should need to go about 140 in the index of
production maintained by the Federal Reserve Board, because since
1929 the number of those eligible for employment has increased by
millions. Is this to be attained? I suppose' this is the fundamental
question with which this committee is to concern itself and as to which
there will be much difference of opinion. There are no new areas in
this country available for expanding markets and for development by
our people. It is my very firm conviction that among the most
promising means of coping with the disturbing conditions described
by Mr. Henderson are invention and science, the creation of new indus-
tries, and the expansion of our manufacturing facilities. Therefore,
those who believe, as I do, that by these means we shall progress
and prosper, feel we should spare no effort in encouraging their future
development.
The patent system of the United States, more than any other in
the world, offers hope, encouragement, opportunity and recompense
to an individual or a company of small resources. It is as democratic
as the Constitution which begot it. Most foreign patent systems
impose discouraging burdens upon the individual. This striking con-
trast between our patent system and others and a proof of the ad-
vantage which is assured to the American inventor or company of
limited means will be pictured in the chart you are now to see.
(The chart referred to was marked "Exhibit No. 205" and is
included in the appendix on p. 1137.)
Mr. CoE. The diagram in the upper left illustrates the total cost
of Government fees for obtaining and retaining a patent throughout
its entire life in the United States as compared to France, Great
Britain, Italy, and Germany. You will observe that in the United
States it costs an inventor $60 in Government fees to obtain and to
maintain his patent rights, that is to keep his patent. Going to the
other extreme, in Germany, to obtain and to maintain the patent
rights for a period of 18 years it costs the individual inventor $1,965.
The chart in the lower right illustrates the scale of the fees required
in foreign countries to retain ownership of the patents. It starts
with the German example in the third year and continues increasingly
until the eighteenth year, $340 approximately.
Remembering that very seldom can an invention be commerciahzed
through one invention and that probably in most cases at least 10
inventions are utilized, you can see that if a small company or an
individual attempted to commercialize a product in the United States
it would cost him $600, whereas in Germany it would be $20,000.
' See Hearings, Part 1, p. 157, et seq.
ogQ CONCENTHATION OF ECONOMIC POWER
SUGGESTIONS FOR CORRECTION OF ABUSES IN PATENT SYSTEM
Mr. CoE. Mr. Chairman, I take it for granted tliat your committee
is interested in learning whether in my studies of the patent system
and observation of its performance I have detected any abuse?= or
weaknesses requiring correction. My answer is in the afFirmative, and
I shall briefly outline them to you and offer suggestions for their
corrqction.
You will recall the difficulties faced by an inventor or patent
owner in the enforcement of his patent rights as indicated in exhibits
Nos. 202 to 204. ^Vith these problems and hardships in view, I
recommend for your consideration as a major improvement in the
patent laws the creation of a single court of patent appeals.
Such a court, having jurisdiction of patent appeals coextensive
with the United States and its territories, would operate to reduce
the time and cost of litigating questions of ownership, validity, and
infringement of patents and obviate conflict of decisions between
appellate tribunals. It would, in my judgment, assure to patentees,
industry and the users of patented inventions a remedy for some of
the most serious evils in the present patent system.
Exhibits Nos. 19G, 197, 198, and 199 have illustrated the abuses of
the patent monopoly cliargeable to long delays in the prosecution of
applications in the latent Office. Any procedure which permits a
lapse of 44 years between the fding of an application and the expira-
tion of the resultant patent cannot be tolerated. To correct the
abuse of long pendency and to force the early beginning of the mo-
nopoly and its correspondingly prompt expiration, I recommend the
adoption of the so-called 20 -year proposal. This proposal does not
increase the present period of the monopoly, which will remain, as
now, 17 years. Its purpose is to fix a definite time, calculated from
the date of filing, beyond which the monopoly or any of its ramifica-
tions cannot continue. Regardless of ti?e length of time consumed
in the prosecution of the application, the monopoly must end 20
years after the date of filing.
Three years has generally been regarded as a very liberal allowance
of time for prosecuting a patent application. If a law such as that
recommended were enacted, a patentee who diligently prosecuted his
application and obtained his patent in 3 years would enjoy the full
17-year monopoly. If, however, he delays the prosecution or attempts
to keep his case in the Patent Office he will be positively penalized by
the shortening of the monopoly. In other words, if he consumes
5 years in the prosecution his monopoly will expire in 15 years after
the grant of his patent. If he takes 10 years his monopoly will be
reduced to 10 years. Had this limitation been effective at the time of
filmg the Steimer application, to which reference is made in exhibit
No. 199, the patent granted upon it would have expired 22 years
earlier than it now will.
It will, of course, be contended that in some cases an applicant will
be penalized and have his monopoly reduced by reason of ill-advised
actions of the Patent Office and because of delays for which he is in no
wise responsible. Admitting this to be a possibility in some cases,
I nevertheless feel that the permanent public interest is paramount
to the occasional inconvenience of the individual. Accordingly, the
20-year proposal prefers the public interest to the individual interest.
CONCENTRATION OF ECONOMIC POWER gg]^
Not all of the delays in the Patent Office are the fault of the appli-
cant and indeed some cannot be avoided. This is especially true when
his application becomes involved in an interference instituted for the
purpose of deterr^ining priority between him and another applicant.
There is no question that the interference procedure has been greatly
abused and that in some instances it has been invoked for unworthy
purposes, as, for example, to delay a competitor's application in the
Patent Office. The 20-year proposal could not be applied equitabf
and fairly along with the present interference practice. It is therefore
evident that concurrently with the enactment of the 20-year propositi
there must be a radical change in interference procedure. Wliile it is
the unanimous opinion of the officials of the Patent Office and virtually
the consensus of the patent bar and the public that the interference
practice should be reformed, there are many and diverse views as to
the best way to accomplish the purpose. Some, for example, would
go to the extreme of abolishing interferences entirely and award the
patent to the earliest applicant. This would be a harmful practice in
my judgment, because it would result in a race of inventors to the
Patent Office, bring in a flood of improperly prepared applications,
and conduce to fraud.
The Chairman. Mr. Commissioner, may I interrupt you? For the
benefit of the public, which may read the report of your testimony, I
suggest that you define here briefly what an interference is. It is a
technical word, of course, the meaning of which is well understood to
those who practice patent law, but may not be generally understood.
Mr. CoE. An interference proceeding is a name given to a proceed-
ing in the Patent Office which is instituted for the purpose of deter-
mining as -between two or more inventors claiming the same invention,
which of those contestants was in fact the first inventor.^
Senator Ki^g. Calling for an interpretation by the Patent Office.
Mt. Coe. Yes, sir. The Patent Office is required, as between
these rival claimants for a patent, to determine which one actually'
made the invention first in point of time, and that man is awarded
the patent.
The Chairman. An interference may be filed only in the Patent
Office?
Mr. Coe. An interference can be had^only in the Patent Office.
It is a proceeding which the Patent Offica itself initiates. It is some-
times sought when an applicant is aware of the fact that someone
else is in the Patent Office with a similar appHcation, and he files an
application and demands that it be put into interference with the
other party, but on the Patent Office is the final, sole responsibility
of declaring that interference.
The Chairman. Do you wish us to understand that interferences
are sometimes filed for the express purpose of delay?
Mr. Coe. Yes, there is no question about that.
After years of study, durmg which I have considered Uterally
thousands of suggestions, the recommendations I am about to propose
impress me as the most satisfactory, although I concede that this par^
ticular proposal, like many others, will provoke dissent.
At the present time the first decision in an interference proceeding
is rendered by a single interference examiner. From his decision an
appeal may be taken to the Board of Appeals, and from that tribunal
' See also "Exhibits Nos. 200 and 201," appendix, pp. 1134-1135.
124491—39 — pt. 3 3
og2 CONCENTRATION OF ECONOMIC POWER
to the district courts or the Court of Customs apd Patent Appeals^
as the applicant may elect. I urge that the interference procedure
be terminated with a single decision of the Examiner of Interferences
and that a patent be promptly granted on the basis of that decision.
This would abolish all appeals to the Board of Appeals within the
Patent Office. The prompt issuance of a patent will start the patent
monopoly to run and enable the patentee to assess damages against
his opponent during subsequent htigation if he should ultimately
prevail in the courts.
Since this single decision of the Patent Office would be final, it may
be desirable to enlarge the tribunal so that a board of three examiners
rather than a single examiner shall have power to decide these contests.
From an adverse decision of the Interference Board appeals would
be taken directly to a court which could in a single proceeding review
the decision of the Interference Board and, if the facts justified, award
the appellant the patent and also cancel the patent already issued on
the basis of the Patent Office award. The suggested procedure would
minimize the duration of an interference and make it possible to apply
the 20-year proposal without unfairness or injustice.
Renewal applications should be abolished. Under the present
practice an applicant may prosecute his application to the point of
allowance, fail to pay the final fee required by the law, and thereafter
renew the application and resume prosecution. This procedure seems
to be wholly unnecessary and I recommend its unconditional abolition.
The historic warrant for the renewal procedure was the purpose of
affording relief to an applicant who was unable to pay the final fee
when this became due. But it is now used frequently by corporations
which are quite able to pay the final fee but which resort to the pro-
cedure as a device for continuing the prosecution of their cases. As a
safeguard for an inventor who is financially unable to pay the final
fee within the statutory period, I propose that the Commissioner of
Patents, upon proper showing, have authority to receive payment of
it at a later date.
Under the present law an inventor may make public use of his
invention for 2 years before filing his application. As a further step
in accomplishing an earlier filing of the application looking to an
earlier issuance of the patent, I propose that this public use period
be reduced from 2 years to 1.
The present law allows an applicant 2 years within which to copy
claims from an issued patent for the purpose of assertuig the priority
of his invention. As a parallel to the other steps which have been
recommended to rid the patent procedure of this element of elapsed
time, I propose that this period of 2 years also be reduced to 1.
Finally, I recommend that the authority of the Commissioner of
Patents be enlarged so that in certain circumstances he may require
an applicant to respond to an office action withhi less than the normal
statutory period of 6 months. This grant of authority is necessary
to the curtailment of the period of pendency of applications. An
application may have been prosecuted for 3 years, and all material
issues resolved, except for the correction of a slight inaccuracy or the
adjustment of a controversy about a minor point. Under such
circumstances it is felt that the Commissioner of Patents should be
authorized to require an applicant to respond within less than &
months, and, if it should be felt that the exercise of the power should
be restricted, a minimum of 30 days for response may be fixed.
CONCENTRATION OF ECONOMIC POWER §g3
The program which I have outlined has had the deliberate and
thorough consideration of the Patent Office Advisory Committee and
has been formally recommended to the Secretary of Commerce.
While I do not claim that these proposals are a panacea for all of the
ills from which the patent system may be suffering, I do feel that they
will remove the major abuses of Vhich I am aware and will render the
operation of the system more effective for its intended purpose.
Mr. Chairman, by way of valedictory let me say that our patent
system has developed in our people a creative faculty that has served
other ends than the evolvement of things purely mechanical. That
faculty, I believe, has proved signally useful'in solving some of the
great problems that have arisen in our task of preserving and per-
petuating our democratic form of government.
Naturally, among this vast number of more than 2,000,000 patents
there are many covering inventions which either have wholly lacked
utility or which for other reasons have failed to achieve commercial
success. Nevertheless we shall err if we appraise patented inven-
tions merely in terms of utility and success. Their commercial value
and their celebrity are not their sole merit. They symbolize a spirit
that enriches the world though it fails to recompense the inventor.
That spirit is one of patience, resoluteness, sacrifice — suffering, too,
if need be — in the pursuit of an ideal. Abraham Lincoln was one of
those inventors who failed, if by that we are to understand that his
invention brought him neither financial return nor great renown.
But I like to think that his was the true inventor's spirit, which
moved him to invent a boat designed to carry its burden, including
human beings, safely over dangerous shoals. Only a few years later
that spirit was to sustain him in guiding the ship of state through a
tragic storm
(Copy of the Lincoln patent referred to was marked "Exhibit No.
205-A" and is included in the appendix on p. 1138.)
Mr. CoE. In our estimate of our patent system, then, we cannot
disregard its spirtual influence in our national life and destinies.
Mr. Chairman, that concludes my statement.
The Chairman. Commissioner, we are very much indebted to you
for your statement. May I, before you leave the stand, call your
attention to "Exhibit No. 186." This chart, as I understand it, was
prepared in order to show the number of patents over the period of
years extending from 1921 to 1937, issued to large corporations
which, as I understood your testimony, includes corporations having
assets of $50,000,000 or more, to small corporations which includes
all corporations with assets under $50,000,000, to foreign corpora-"
tions and to individuals. It is obvious from the chart that by far
the largest number of patents are issued to individuals. This chart
takes no account, does it, of the utility of the patents which have
been issued?
Mr. CoE. No, sir.
The Chairman. So that while it is true, as shown by one of the
earlier charts,^ that 17.2 percent of all the patents are issued to cor-
porations with assets of $50,000,000 or more, that does not at all
indicate what proportion of the valuable and practical patents are
held by these large corporations?
Mr. CoE. No, Mr. Chairman. I want to indicate that it is dan-
gerous to draw too broad conclusions from these charts. They are
• "Exhibit No. 183", appendix, p. 1125.
gg4 COXCEXTKATION OF ECONOMIC POWER
generalizations and they do not show the results you inquire about.
They don't show the location of so-called key patents, for example.
The Chairman. I was impressed by your testimony given a Uttle
bit later after you had introduced these charts when you were discuss-
ing the necessity of protecting the small inventor by giving him — and
by the use of the word "small" I really meant the individual in-
ventor— a more certain court of appeals, by reducing the number of
courts through which he may be dragged in the prosecution of suit.
I was impressed, I say, by your statement, as I recall it, that there
should be a better bulwark to protect the individual from what you
described as the large and ruthless corporation. On what experience
of yours did you base that statement?
Mr. CoE. Mr. Chairman, we expect to substantiate that statement
by witnesses which we shall present the remaining part of the week to
the committee.
The Chairman. I see. You are prepared to proceed with another
witness tomorrow?
Mr. CoE. Yes, sir; we will start tomorrow to introduce the testimony
of the various witnesses referred to by Secretary Patterson at the
opening of the hearings today.
The Chairman. Who will be the first witness to be called?
Mr. CoE. Dr. Vannevar Bush, the president of the Carnegie
Institution.
The Chairman. It is my understanding that Mr. Dienner will con-
duct the examination.
Mr. CoE. He will conduct the examination.
The Chairman. Do any members of the committee desire to ask
any more questions?
Senator King. I should like to ask one question. Is it not a fact
that a large number of patents issued have no utihty
Mr. CoE (interposing). That is a fact.
Senator King. And several hundreds of thousands of those issued
never have been put into any practical use?
Mr. CoE. That is a fact, sir.
Senator King. Your office does not have anything to do with the
granting of copyrights and the work which is being done by the
Library?
Mr. CoE. We do not administer the copyright law; we do administer
one part of the copyright law which relates to prints and labels.
Senator King. That is what I understood. Have you had any
controversy growing out of your administration of that branch of the
law?
Mr. CoE. Nothing that I know of, Senator, except Miat in our own
administration some people tbink it ought to be administered by the
Library of Congress rather than the Patent Office.
Senator King. I ask that question in view of the fact that repre-
sentation has been made to me in favor of taking away from your
organization and transferring to the Library the limited authority
you have in administration of copyrights.
Mr. CoE. There is a very interesting story back of that, Senator.
Years ago the Library of Congress, the Copyright Division, seemed
to have very lofty ideas about such matters. They didn't like to have
in their office anything as practical and vulgar as a label for a tomato
can, so they sent that all over to the Patent Office, and now there
seems to be a change and they want to get that back.
CONCENTRATION OF ECONOMIC POWER 8g5
ASSIGNMENT OF PATENTS TO CORPORATIONS BY EMPLOYEES
Representative Reece. I want to ask a question with reference to
the custom of the assignment of patents into corporations. Is it
customary when an employee of a large corporation conceives a patent-
able idea— and under the law he, as an individual, of course, makes
application for the patent — for the assignment to be made to the
corporation before the patent is issued, so that your 17.2 percent,
being the percentage of patents issued to large corporations, includes
in the main the patents of employees of the corporations? ^
Mr. CoE. I should say in the main, sir, yes; but, of course, it also
includes any application acquired by the corporation prior to the issu-
ance of the patent.
The Chairman. May I ask. Congressman Reece, what do you mean
by patents of the employees?
Representative Reece. Under the law, if an employee of a corpora-
tion conceives a patent, a patented idea, he must make application
as an individual. My question was if it was customary for him to
make the assignment of the application to the corporation before the
patent is issued, so that that group would be included in the 17.2
percent.
The Chairman. Of course, every patent must be applied for by an
individual.
Representative Reece. But it can be issued to a corporation.
The Chairman. Yes. If a corporation is to receive it, the individ-
ual who applies for it must assign it to the corporation and there is,
as I understand it, a Book of Assignments maintained at the Patent
Office for that purpose.
Senator King. However, some assignments are made weeks or
months or perhaps years after the patent is issued to the individual.
The Chairman. Oh, yes.
Mr. Coe. This chart ^ is partially in answer to your question because
it shows the number that were issued where assignments were filed
prior to the grant, and the rest show the assignments of patents that
took place after the grant, that were acquired by purchase from an
individual after the patent had been issued.
As to all the rest in those groups, the patents were issued to the
corporation before the grant of the patent.
The Chairman. Are there any other questions?
Dr. LuBiN. Mr. Coe, are there any data available which would
show how large a percentage of these individuals were foreigners? '
In other words, you have foreign corporations but you don't have
foreign individuals.
Mr. CoE. I don't think we have any. I suppose it could be ascer-
tained.
Dr. LuBiN. I raise the question merely because it might have some
definite bearing as to how the patent law is a stimulant to invention.
Knowing whether any large number of foreigners who would invent
and patent under foreign laws came h©re to patent something they
had invented and patented at home, would have a definite bearing
on the problem.
1 See "Exhibit No. 186", appendix, p. 1126.
J See "Exhibit No. 188", appendix, p. 1127. , ^ , . . ». ,j w , • , rrv,^„
3 Mr. Coe subsequently submitted figures relating to the number of patents held by foreigners. They
were entered in the record as "Exhibits Nos. 210, 211, 212, and 213" and appear ra the appendix on pp.
1150-1152.
ggg CONCENTRATION OF ECONOMIC POWER
There is a second question I would like to ask if I might. Let's
assume that you could so increase the staff of the Patent Office so
that you could cut your 3 years to 2 or to 1 as the normal length of
time. If such a thiiig were possible through sufficient funds or staff,
what happens to your 20-year change? Then you have automatically
expanded the period of 17 years to 18 or 19, depending on the time
you cut down in your office.
Mr. CoE. No; you never change the life of the patent itself. If
we ever reach that happy situation where we could get rid of the
appHcations in 2 years, the 20-year proposal would still cause that
patent to expire within 17 years of the grant. We are not proposing
at all or contemplating the enlargement of the patent period under
any circumstances.
Dr. LuBiN. One final question which arises out of your question
regarding the place of the large corporation dominating the field,
particularly because of litigation and otherwise: Would it be possible
for the record to recalculate your charts^ "Exhibits Nos. 183 to 191",
just the statistical material, and instead of calling a corporation which
has $50,000,000 worth of assets a big one, let's call a $5,000,000 cor-
poration a big one and see what change it wo.uld have on your charts.
Mr. CoE. I think that study could be undertaken.
Dr. LuBiN. It might change the whole picture.
Mr. CoE. It might. I still think you would find among that large
group a great many patents that are exploited by very small corpora-
tions. Frequently, for example, almost inevitably when an inventor
begins to exploit his own invention, the first thing he does is to incor-
porate, so that could be included in this group; "to small corpora-
tions" in "Exhibit No. 186", of all the corporations below 50 million
assets. ^
The CHAIRMAN. It wouldn't be a difficult task for you to prepare
a chart embodying the material Dr. Lubin suggests, namely; the num-
ber of patents held by corporations having assets of more than
$5,000,000 and less than $50,000,000?
Mr. CoE. It wouldn't be a difficult task. It would be a lengthy
one, but we would be very glad to do it.
The Chairman. How long would it take you to do it?
Mr. CoE. I would rather not estimate, Senator, but we could start
it right away if you would like to have that information.
The Chairman. I think it would be illuminating.
Dr. Lubin. If I might ask one final question arising from the answer
Mr. Coe just gave, if the individual who has a patent and wants to
exploit it usually incorporates, does that mean that these individual
figures in the charts really mean nothing in the sense that most patents
are exploited by corporations anyway?
Mr. CoE. No ; I don't mean to indicate that, because still included
in your individual group are a number of patents that are exploited
by corporations by license agreements, but I should say in my judg-
ment it would be a healthier condition, sir. This is my own personal
opinion, now, and not statistics. The more patents in this group
'To individuals" on "Exhibit No. 186" that pass down into here "To
small corporations" on the same exhibit, the healthier the condition,
because it indicates that the patent has passed into the hands of the
medium that ordinarily indicates commercial activity.
Tlie Chairman. In other words, what you are saying is that most
'^f lHi^ inactive patents are in the group labeled "to mdividuals."
CONCENTRATION OF ECONOMIC POWER 857
Mr. CoE. I didn't say that. I said it was likely that that is the
case.
Senator King. Isn't it a fact that with nearly every patent that
promises some utility, the patentees form a corporation because they
can more readily carry on the business, more readily obtain capital,
sell stock to their neighbors or friends, and have greater access to the
capital market through the instrumentahty of a corporation than if
they held the patents in their owti name.
Sir. CoE. I think that is the preferred method of carrying on
business.
The Chairman. If there are no other questions, and if the witness
doesn't care to add anything at this point, the committee will stand
in recess until 10 o'clock tomorrow morning, and Mr. Dienner wUl
proceed under the direction of the Commissioner.
(Whereupon, at 4:25 p. m., a recess was taken until Tuesday, Janu-
ary 17, 1939, at 10 a. m.)
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
TUESDAY, JANUARY 17, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The Temporary National Economic Committee met, pursuant to
adjournment yesterday, at 10:30 a. m., in the Caucus room of the
Senate Office Building, Senator Joseph C. O'Mahoney presiding.
Present: Senators O'Mahoney (chairman) and King; Representa-
tives Williams and Reece; Messrs. Henderson, Ferguson, Patterson,
Frank, Peoples, and Thorp.
Present also: Senator Homer T. Bone, of Washington, chairman
of the Senate Patents Committee. Counsel: John A. Dienner, special
counsel for committee; George Ramsey, of New York, assistant
to Mr. Dienner; Leslie Frazer, Assistant Commissioner of Patents;
Justin W. Macklin, First Assistant Commissioner of Patents and
Henry Van Arsdale, Assistant Commissioner of Patents.
The. Chairman. The committee will please come to order.
Secretary Patterson, are your ready to proceed?
Mr. Patterson. Yes.
Mr. Chairman and gentlemen of the committee, yesterday, Mr.
Conway P. Coe, Commissioner of Patents, appeared before the com-
mittee as a representative of the Department of Commerce to outline
the history and operation of the patent system of the United States,
concluding with recommendations designed to correct certain abuses
with which his experience has acquainted him.
Today, we are to leave the broad discussion to receive testimony
from users of the system. This testimony will be developed by Mr.
John A. Dienner, who will conduct the examination of the several
witnesses. Mr. Dienner is now serving as a special assistant to the
Department for the purpose of these hearings. He has been actively
engaged in the practice of patent law for more than 25 years. Since
July 1933 he has been a member of the Patent Office Advisory
Committee, appointed by the Secretary of Commerce, and has par-
ticipated in all its deliberations and in its consideration of many
phases of the patent system, both procedural and substantive. Mr.
Dienner has been a deep student of the patent law and its operation
in this country and abroad, and at present is the president of the
American group of the International Association for the Protection
of Industrial Property. Along with Commissioner Coe, he was sent
hy the President to London in 1934 as a delegate to the London
Conference for the Revision of the International Convention for the
Protection of Industrial Property. He is a past president of the
Chicago Putent Law Association.
869
g70 CONCENTRATION OF ECONOMIC POWER
I acquaint the committee with these qualifications of Mr. Dienner
in order that you may utiUze his talents to the fullest extent, and I
am sure that he himself will be willing to assist you in clarifying the
testimony of any of the witnesses at any point of the proceedings.
The Chairman. Thank you, Mr. Secretary,
Mr. Dienner, if you will be good enough to call your first witness,
we will proceed.
Mr. Dienner. Dr. Vannevar Bush.
The Chairman. Dr. Bush, do you solemnly swear that the testi-
mony you are about to give in these proceedings shall be the truth,
the whole truth, and nothing but the truth, so help you God?
Dr. Bush. I do, sir.
TESTIMONY OF DR. VANNEVAR BUSH, PRESIDENT, CARNEGIE
INSTITUTION OF WASHINGTON, WASHINGTON, D. C.
Mr. Dienner. Dr. Bush, will you please state your name and
occupation?
Dr. Bush. Vannevar Bush, president of the Carnegie Institution
of Washington.
Mr. Dienner. Dr. Bush, in approaching the problem of increasing
industrial production, I think we might break the subject up into
three or four general headings. We all agree that there is necessity
for the production of new ideas and their introduction into industry.
Now may we not break up our inquiry into the phases of how new
ideas and with what concomitance they enter into industry; next,
how industrial exploitation of new ideas is accomplished ; further, in
respect to patented inventions, with which we mainly deal, the
termination phase of the patents and the delivery of the monopoly
to the public. Then we shall take up general questions in relation
to the introduction of new ideas into industry, and finally we would
like to have you give your recommendations as a man especially
qualified by reason of your investigation of the question of the intro-
duction of new ideas in industry through the patent system.
With the brief outline of the headings under which we will proceed
I would ask you, please, to state your qualifications as a witness to
cover those points.
Dr. Bush. I took my degree of doctor of engineering from Harvard
and the Massachusetts Institute of Technology in 1916, and after
that time, for about 15 years, I was engaged in consulting practice for
industry, except for the interruption of the war, at whicii time I was
engaged in research on submarine detection for the United States
Navy. After the war I became associated with the Massachusetts
Institute of Technology and combined academic teaching and research
with the consultant practice. In my academic, work, I was first an
assistant professor and later professor of electrical engineering, and
finally became the dean of engineering of the Massachusetts Insti-
tute of Technology and the vice president of that institution, at which
time I relinquished my consulting practice and proceeded with that
post for 6 years; and then became president of the Carnegie Institution
of Washington.
In the course of my consulting practice, I was instrumental, with
others, in the founding of several new companies, based on inventions,
which conxpanies have not made a great deal of money, but some of
CONCENTRATION OF ECONOMIC POWER
871
which have been successful in the sense that they have furnished
employment through the depression.
I was also chairman of the Committee of the Science Advisory
Board which was requested by the Secretary of Commerce to report
on the relationship of the patent system to the initiation of new
industries in this country. I am also vice chairman of the National
Advisory Committee for Aeronautics.
Mr. DiENNER. Then we might summarize your qualifications
briefly as a man who as a graduate engineer has done practical work,
an educator, consultant, and inventor, a director of research, an
author, businessman, and a pubUc servant.
' Dr. Bush. I think I quahfy for all of those. I have about 20
or 30 patents in my own name.
INTRODUCTION OF NEW IDEAS INTO INDUSTRY
Mr. DiENNER. Referring to the first phase of our subject, which
relates to the question of how new ideas get into industry, let me ask
you whether you consider that the patent system has any place in
maintaining and promoting industrial progress in the United States.
Dr. Bush. There is not the slightest question tha-t this country has
a high standard of living as compared with other countries. That has
been brought about for several reasons. First, this is a country of
pioneers. The, frontiers have disappeared geographically as the fron-
tiers of technology have advanced. Pioneering experience still re-
mains to a certain extent. That pioneering spirit, that willingness to
take a chance, has been very important in our industrial advance.
The existence of the patent system has made that work possible in
industry; it has implemented the ingenuity, the resourcefulness, and
courage of our people, and it is in no small degree responsible for the
present high standard of living in this country.
Mr. DiENNER. Under modern conditions in industry, how do new
ideas come forward? I mean by that, consider the individual, con-
sider the corporation, or other forms under which enterprise is con-
ducted. How do these ideas come forward? What produces them?
Dr. Bush. There are two ways that are important. First, they
result of t<»n times from the long program of research, careful and
meticulous analysis of the situation by a group of men, through large
industrial research laboratories or scientific institutions, and the like,
which produce new knowledge out of which come new applications.
In addition, there is the independent inventor, whose day is not past
by any means, and who has a much wider scope of ideas and who often
does produce out of thin air a striking new device or combination which
is useful and which might be lost were it not for his keenness.
Mr. DiENNER. Considering the past history of the introduction of
new ideas into industry, do you consider that the lone individual has
in the past been an important factor in introducing such an invention
as might form a taproot of an industry?
Dr. Bush. He has been and still is a very important factor.
RESEARCH
Mr. DiENNER. You- speak of research. Will you please explain so
that we may understand the term and its implications what' is gen-
g72 CO.NCKXTItATIOX OF ECONOMIC " POWER
erally understood among those who practice research, what that
subject and what their activities ma}- be?
Dr. Bush. Research, of course, is broadly the discovery of new
knowledge by systematic examination, and it can be classified on one
basis, into pure basic research, applied research, and research for
control of a product.
Mr. DiENNER. Do you consider that there is any fundamental
difi'erence in method between scientific and industrial or applied
research?
Dr. Bush. Not a fundamental difference.
Mr. DiENNER. What institutions in the United States are most
active in carrying on scientific research?
Dr. Bush. You mean by that, I suppose, basic and fundamental
research.
Mr. DiENNER. Yes.
Dr. Bush. That is carried on primarily in our great institutions of
learnhig, in our academic institutions, universities, and the like, and
also to a very considerable extent in industry itself, for the great
research laboratories in this countr}^ in industry carry on basic re-
search as part of their activity.
Mr. DiENNER. Is there any fundamental difference in industry
itself as to scientific search for principles, or the apphcation of those
principles in applied research?
Dr. Bush. Tliere is considerable difference in the way in which it is
controlled. In pure research, basic research, men are left compara-
tively free to follow out their own ideas. In applied research they are
of necessity guided hi the direction of interest of the company which
employs- them.
Mr. DiENNER. Now, what are the relations between research and the
patent system, briefly?
Dr. Bush. Research has two i)roducts; first, new scientific know-
edge, new piinciples, with which the patent system has nothing to do.
A new piinciple is not patentable. But research also results m new
combinations, new devices, which are patentable.
Mr, DiENNER. What are the limitations in research, if any, in re-
gard to producing new ideas? Is there any likehhood that henceforth
all new ideas will be brought out through the research laboratories?
Dr. Bush. No, I am quite sure that that is not the case. In the
first place, there is no limit to the new ideas that can be produced.
We are not at the end of mdustrial advance, we are not at the end of
scientific advance, by any means. New ideas are coming forward
with as great frequency today as they ever have, and wliile a great
research laboratory is a very important factor in this country in ad-
vancing science and producing new industrial combniations, it cannot
by any means fulfill the-entire need. The independent, the small
group, the individual who grasps a situation, by reason of his detach-
ment is oftentimes an exceedingly important factor in bringing to a
head things that might otherwise not appear for a long time.
Mr. DiENNER. In industrial research, particularly, how can that
be supported financially?
Dr. Bush. Industrial research is supported, of course, by industry,
because it furthers the progress of that industiy and it can further "^it
in two ways, by bringing out a better understanding of mdustry, by
developing the scientific principles on which that industry is based,
C(1NCENTKATI0N OF ECONOMIC POWER g73
and also by bringing out new ideas wiiich can be patented, wliich can
go into industry, which can produce a new profit.
Mr. DiENNER. Do you consider that the patent system, even with
the advent of research organizations, can retain its democratic
character?
Dr. Bush. The patent system is decidedly a democratic affair, for
it offers the same opportunity to any individual of this country, no
matter where he may be placed. He has the same status before the
Patent Office. He appears there as an individual and from that
standpoint it is an exceedingly democratic thing wliich, of course, I
think is a very important aspect of it. I think there is no threat to
that situation due to the existence of the great research laboratories.
Mr. DiENNER. Considering a byproduct of research, and that is the
question of new principles, how does the research laboratory serve the
public in respect to new principles not covered by patents?
Dr. Bush. This country is dependent, as is any country, in the
great competition that there is in the world today, for the advance-
ment of science within its borders
The Chairman (interposing). Mr. Dienner, may I interrupt you?
It might clarify matters if you were to indicate just what you and
the '^^dtness mean by a research laboratory, from the point of view as
to whether or not it is the institution of an individual or the institu-
tion of a group of individuals.
Dr. Bush. We have all types, Mr. Chairman. We have research
laboratories such as those over which I am at present presiding, which
are endowed institutions, a group of individuals brought together with
special knowledge.
The Chairman. Let me explain what I have in mind. You began
your testimony with the statement that geograpliical frontiers have
disappeared, but that the scientific frontiers are still with us. That
is a very common statement which is being made on every hand these
days, but attention is not always called to the fact that when we had
a geographical frontier with us the individual, by liis own efforts and
his own resources, could support himself on the land, but that with
respect to the scientific frontier, the individual does not have that
freedom, and I suspect that one of the questions before the committee,
one of the questions before the whole country, is how, with the new
frontier, the individual may protect himself. We have a system de-
veloping of collective action, so that the individual now is one of a
group, so it is important for us to know, in studying patent questions,
whether or not this research of which you speak redounds to the bene-
fit and liberation of the individual or of a collective group.
Dr. Bush. And if we can make progress in that direction T will be
very happy in having been of aid, for I, too, have wondered whether,
as we have our recent trends today, the individual is disappearing.
Personally I don't think he is. Certainly in pure science he is not.
In pure f'cience today the individual can map his own path and make
his own recognition as an individual.
The Chairman. All the testimony which has been presented to tliis
committee thus far with respect to research laboratories rather indi-
cates that these are instrumentalities of large groups and that the
individual inventor subordinates himself to the rule of the laboratory,
and whatever he invents, whatever he discovers, he contributes to the
group activity Of course, in return he is paid a compensation by
gy^ COXCEXTRATION OF ECONOMIC POWER
way of salary or wages or what-not. But it is the phase of this study
wliich 1 tliink we should all keep in mind all the time.
Dr. Bush. And as I tried to bring out, that is one phase of the
production of new ideas, a very new and I tliink beneficent phase, a
group phase, but the individual phase has not disappeared and there
still are in this country plenty of individuals with ideas which are im-
portant wliich ought to go into industry for the benefit of the people
of the country, produced not by group work but simply by reason of
the fact that there are individuals who have that keenness of analysis,
of grasp, which enables them to see long before anyone else in the
population a trend and a need, and to put together a combination or
device winch will satisfy it, and we need those people. They have
been very important in the advance in the past and we need to facili-
tate their action in the future.
Mr. DiENNER. Does that approach an as-swer to your question?
The Chairman. I don't know that either of you has specifically
defined the particular research laboratory that you have in mind in
your present questions, but I rather tliink we understand one another.
Mr. DiENNER. It might clarify the situation to have the witness
point out that any patent, after all, is taken out by an individual,
whether the individual be in the research laboratory or be working
individually. Nevertheless, any patented idea is essentially the idea
of one man, or of several men working on the same concept.
The Chairman. Yes; but testimony which was introduced yester-
day by the Commissioner of Patents indicated that a very substantial
number of patents now outstanding were issued to corporations and
are held by corporations, and that a very large percentage of the
patents which are held by individuals are the patents which are not
active, and of course we all know that a very large proportion of the
patents are not useful patents, they are trivial, and do not add a
great deal to the sum total of human knowledge or industrial activity,
-so that the picture which has been presented to us to date is of a
patent system which is being used by the collective corporate system,
and to my mind the big problem is to find how that system can be
made to serve the better interests of the individual.
For example, in the question of employment, we all realize that,
while industrial development in the United States has been perfectly
tremendous and marvelous, nevertheless it is accompanied by an
appalling problem of unemployment, which again indicates that op-
erating on the new frontiers we have not been able to do what the
pioneers in the days of geographical frontiers could do; namely, find
a way of supporting the individual properly.
Senator King. It might be added — I will put it in an interrogative
form — had it not been for the development of these patents and their
utilization by corporations, might there be more unemployment?
The Chairman. That is not the question.
Dr. Bush. I might add a word to that. We want to be careful
that we do not confuse research laboratories with large research
laboratories. Now, I remember the research laboratory with which
I was associated in the early days which produced, it happened, a
new industry. It consisted of four of us, and we were a corporation;
but it was essentially an individual effort for bringing into use some
ideas. Now, every industrial affair was once small, and I think my
own attention is particularly on the point that the Chairman has
CONCENTRATION OF ECONOMIC POWER §75
brought up, the need for facihtating the progress of these small things
which may grow into large ones.
Senator King. There are small research laboratories and, indeed,
sornetimes an individual may have a laboratory of his own in which
he is engaging in reasearch in some particular line of industry or
invention.
Dr. Bush. The National Research Council, the Division of Engi-
neering of which I am now chairman, produced a list of research
laboratories in this country. There are about 1,500. The great
bulk of them are made up of a few men, 10 gr so.
Senator King. I recall that the vacuum tube was invented by a
young chap in my State who silently worked, and without support
of any character or kind developed the vacuum tube, which was
really the beginning of the radio system as we now enjoy it. He had
no help. He was an inventor all by himself and had his own research
laboratory which perhaps cost $100.
Mr. DiENNER. Senator King, we shall later have a witness from
your State who will tell that story.
Dr. Bush, in the employment of the research laboratory as a means
for producing inventions, do you consider that it is likely to produce
a more orderly or a more regular flow of inventions than that which
might be generated and introduced into industry by individuals?
Dr. Bush. Certainly, a great research laboratory devotes its
primary efforts to a systematic development of a system or a group
of products over which it has privilege.
Mr. DiENNER. Then we should look forward, if the system of
research grows in industry, to a more steady but perhaps not as spec-
tacular growth, other things being equal.
Dr. Bush. If the great research laboratory were the only means by
which new ideas came into being, that would be the case. I hope
that will never be so.
Mr. DiENNER. Now turning to another form of research which
has some bearing on the development of industry, will you tell us
briefly about nonprofit organizations or organizations not for profit
maintaining research and research laboratories?
Dr. Bush. The great academic institutions of this country of
necessity maintain a great deal of scientific and technical research,
for the simple reason that the highest form of instruction, the highest
form of teaching in its advanced stages can be given only in the presence
of research. They necessarily extend the frontiers of knowledge at
the same time that they are teaching, so that you will find all of the
better academic institutions of this country doing research within
their corridors.
And then there are in addition organizations that are nonprofit
organizations, endowed, formed for the simple purpose of advancing
knowledge, such as the Carnegie Institution of Washington.
Mr. DiENNER. I wish you would tell us briefly by reference to
competition with foreign laboratories what the necessity is for us in
maintaining our research here in the United States at a high pace.
Dr. Bush. This is a world of competition. I think that if we are
to hold our position in a competitive world, we need to be in the fore-
front of science, we need to be in the forefront of its applications, and
we can do so only by having the facilities for research, and more
876
CONCENTRATION OF ECONOMIC POWER
important of course the people for research, the young people who are
trained and are able to work in that field.
Mr. DiENNER. Do you know Jiow research is carried on, for in-
stance, in Germany as compared with methods here?
Dr. Bush. The primary methods are essentially the same. Of
course the control is quite different.
Mr. l3iENNER. In what respects?
Dr. Bush. Research in the academic institutions and in industry
in general to a considerable extent is controlled by or greatly influ-
enced by government.
Mr. DiENNER. In other words, we must compete more or less m a
democratic fashion with research conducted in somewhat more a
regimented fashion or controlled fashion.
The Chairman. I wonder if Dr. Bush wouldn't develop that
thought a little more clearly. You refer to the system in Europe as
being controlled more or less by government. Now, that covers a
lot of territory.
Dr. Bush. In some places, of course, it is more and m some places
it is less. I was in Russia about 11 years ago, and there every piece
of research, every laboratory, every individual working in science or
in its applications, is very definitely controlled by tiie needs of the
central government and their interpretation to him. He is directed
definitely in the hnes in which it is desired that he should function.
The Chairman. Does that mean that he is restrained from making
research that he would like to, or making discoveries which he desires
to make, or does it mean merely that what he does is done primarily
for the benefit of and at the direction of the Government?
Dr. Bush. It means both.
The Chairman. Of course that is a matter of extreme importance.
Dr. Bush. Of course the Russians have produced great scientific
things, and in recent years. In mathematics, for example, they have
done excellent things, and some of their men in pure science are given
the freedom to enable them to do such things, but the industrial
research and the research generally is closely directed or closely
oriented to certain lines and under very definite control. We do not
have the independent man there as we have in this country.
Mr, DiENNER. Dr. Bush, I wish you would give us a word on the
importance of having research organizations available for emergency
needs, such as for wartime purposes or in case of epidemic or the like.
Dr. Bush. Those are two questions. In regard to the first, if we
get into another major difficulty, one of the primary things that we
would need is a group of trained and able individuals capable of
advancing the means of warfare, and I regard it as highly essential,
as a part of our national defense, that there be encouraged in this
country research laboratories of all kinds, the training of research
personnel to a high degree in order that they may be readily available
if they are needed in an emergency.
Senator King. That applies in the chemical field, I presume.
Dr. DusH. I think it applies in every field.
Senator King. The biological too?
Dr. Bush. Biological, chemical, electrical fields. Of course, in the
matter of public health a great deal may be said. We have come far
in this country due to medical research, and the progress has not
stopped by any means in that regard. We are not beyond the time
CONCENTRATION OF ECONOMIC POWER gyT'
of possible epidemics; we may again meet diflScult problems in this
country in ej)idemics, and if we do our resistance to those will depend
upon the skill and number of organizations and men in medical
research and the allied practices.
Mr. DiENNER. You have touched upon an interesting subject,
namely, the medical research by scientific or highly scientific research.
Could you tell us whether institutions which carry that subject on
avail themselves of the patent system?
Dr. Bush. Some of them do and some of them do not. Medical
research today of course covers an enormous field. The impact of
the physical sciences upon the biological has been very striking.
We have, for example, such a thing as very high voltage machines for
producing intense X-rays for cancer treatment, a striking problem in
recent years. There are physics laboratories built up principally
for the study of atomistics, with which there is a great deal of fascina-
tion, but the final product is used directl}' in the treatment of cancer.
So that when we say "medical research" we must include a great deal
of research outside of the medical field.
Mr. DiENNER. In medical research and particularly where tha
product of such research may be dangerous if improperly admihis-
tered, or habit-forming, or something like that, I understand the
patent system is Used to control those things. What is your ex-
perience?
Dr. Bush. My experience directly is this. I was chairman of the
committee up at Massachusetts Institute of Technology which
handled the patent affairs for that institution, and that institution,
together with many other nonprofit organisations, does deal with the
matter of patents, for several reasons, one of which you have men-
tioned; the dangerous pharmaceutical covt mg into public use needs
to be controlled for the benefit of the public, to guard the public
against its improper use, its improper manufacture, and one very
effective way of exercising that control is through the patent system.
But there are many other reasons why in my opinion academic
institutions do use the patent system.
The Chairman. Who should exercise that control?
Dr. Bush. I can recite the way it is done at Ihe Massachusetts
Institute of Technology, which I think is an excellent procedure.
The committee of the faculty which has the handling of the a fair has
no authority but simply makes recommendations. If an individual
on the staff makes an invention, he is bound to tell the committee of
it, and the committee then recommends to him how it should be
handled in order to bring it properly into use for the public benefit
and in a legitimate and reasonable manner. Their recommendations
in. the 6 years that I sat in that committee were always followed.
The Chairman. Were always followed?
Dr. Bush. Were always followed. I know of no case in which a
recommendation to a member of the staff was not followed by the
individual. The recommendation very often takes this form. They
recommend that he assign that patent to an organization which can
handle the legal, the business aspects of it. One very effective organi-
zation in that field is Research Corporation of New York, which is a
nonprofit organization founded for that very purpose, and the indi-
vidual then makes a contract with Research Corporation whereby
Research Corporation takes over the patenting and commercialization
124491— 39— pt. 3 4
gyg CONCENTRATION OF ECONOMIC POWER
of the idea, pays the individual a part of the receipts, uses a part of the
receipts for its own purposes, and donates in the form of a grant a
portion of the receipts to the organization in wliich the man has his
place. In that way, all of the profit, all of the net income except the
amount paid to the individual himself becomes utiUzed for further
scientific research, because both of the organizations involved are
nonprofit organizations bound to utilize their funds for the benefit of
the public. Research Corporation makes grants to scientific institu-
tions, such as Massachusetts Institute of Technology, either in re-
search or in education.
The Chairman. And who in the Research Corporation has the
authority to determine what the public interest is?
Dr. Bush. The board of directors and the board of trustees of that
organization.
The Chairman. How are they selected?
Dr. Bush. It is a self-perpetuating organization formed in the same
way that the board of trustees of an educational institution is usually
formed.
The Chairman. So that the proper functioning of this board rests,
of course, in the last analysis upon the good faith and the intelUgence
of the members of the board who perpetuate themselves.
Dr. Bush. That is right, sir, and if we did not have"at the Massa-
chusetts Institute of Technology great confidence in their intelligence
and integrity in the public interest we would not recommend the
individual going with them. They are a distinguished group and
have shown great intelligence.
Senator King. Are they selected from various institutions of
learning?
Dr. Bush. No, sir; they are self-perpetuating; they select their own
successors. Research Corporation is a queer organization, in a way.
It is founded under the laws of New York but it owns all of its own
stock, by reason of a special act of the New York Legislature. I told
Mr. Elihu Root that one time, and he told me that perhaps I was
dealing with a ghost, that this organization might have disappeared
and might not hav" found it out. It is rather peculiar in its organiza-
tion. By reason of the fact that it owns all of its own stock and of
course is unable to pay a dividend, it becomes a nonprofit organization.
It uses its entire income, net income, in accordance with its charter,
for grants-in-aid to scientific research.
Mr. Patterson. I think the committee has in mind what qualifica-
tions are necessary for membership on that board. When a man
resigns and a successor is elected, are there any particular qualifica-
tions?
Dr. Bush. I don't know offhand whether there are any particular
qualifications laid down or not.
Mr. Patterson. Beyond the matter of intelligence and public
interest, are there any?
Dr. Bush. I don't know, sir. There may be in their by-laws, but
I don't recall.
Senator King. By and large would you say that the public has
been benefited by the operations and activities of this organization
to which you have just referred?
Dr. Bush. I think it has been benefited very greatly indeed in
many ways.
CONCENTRATION OF ECONOMIC POWER §79
Senator King. In what respect, briefly?
Dr. Bush. Well, for one thing Cottrell's precipitation of particles
was turned over to that organization for the benefit of the public.
He was, at the time of liis invention, a Government employee, and
while he rnight legally have used the result of his patent for his own
ends, he did not feel that it was proper that he should thus proceed.
He hence turned over Ids patent to Research Corporation, which
has built up a considerable business about it, out of which it derives
a very consideralale income. Those patents have been well developed,
well commercialized. The decrease of smoke in our cities, the recov-
ery of industrial wastes, prevention of poisoning in agricultural areas,
have been largely improved by reason of Cottrell's work, and the net
results and profits that have accrued from that have gone in the form
of scientific grants to increase research for public benefit in all sorts
of places.
Senator King. Would you say that organization has, to a very
large degree, without any qualifications, the confidence of inventors
and of the public generally who are interested in inventions and in
teclmological developments?
Dr. Bush. It has a very liigh confidence, indeed, as I know. I am
going to confer with the president of the Research Corporation next
week with regard to matters handled for the Treasury Department on
the subject of narcotics.
The Chairman. Do these directors have the power to restrain the
use of inventions?
Dr. Bush. Certainly.
The Chairman-. And have they ever exercised that power?
Dr. Bush. Yes.
The Chairman. In what respect have they exercised it? Can you
give us some examples?
Dr. Bush. They have restrained the use in the case of the precipi-
tation of particles patents themselves, the Cottrell patents of which
I have just spoken, and I think undoubtedly in other instances —
I can't recall at the moment, but in that instance they have limited
the manufacture of those instruments for precipitation.
The Chairman. Describing the rule under which your staff at
the M. I. T. operates, I understood you to say that each member of
the staff is under obligation to contribute to the group whatever
discovery or invention he makes.
Dr. Bush. He is under no legal obligation whatever.
The Chairman. Oh, no; no legal obligation.
Dr. Bush. He is bound simply by public opinion, the thinking of
his colleagues.
The Chairman. And if he didn't do that he wouldn't be on the
staff at all.
Dr. Bush. Oh, yes, he would ; he would be on the staff indefinitely,
but he would not be regarded by the group as one who was playing
the game properly. It is the public opinion of his associates that
controls.
The Chairman. Have you had any experience of any instance in
which there was a conflict of opinion as to what should be done between
the inventor and the group?
Dr. Bush. No, sir.
CONCENTRATION OF ECONOMIC POWER
Senator King. Would you say that the activities of this organiza-
tion and its plan of procedure make for monopolistic control of any
industry or of any invention?
Dr. Bush. No ; it is quite the contrary, sir. The policy as adopted
by the Massachusetts Institute of Technology recites many things,
one of which is that the exclusive license should be used only when
it is considered necessary in order to bring the device into use, and
that the general policy should be one of general licensing.
Senator King. And then a large corporation, or a small corporation,
for that matter, or individuals who are engaged in industry avail
themselves of some of the inventions or discoveries of this organization?
Dr. Bush. Oh, yes. And the general procedure in most cases has
been that the Research Corporation ficense all who are capable of
handling the invention properly and reasonably.
The Chairman. How large a staff does Research Corporation have?
Dr. Bush. I don't really know. They have quite a bit of manu-
facturing activity of their own and the staff there I don't know.
The Chairman. Could you state approximately?
Dr. Bush. Approximately in the headquarters office where they are
handling the business and contractual affairs, and so forth, I should
judge about 30 men.
The Chairman. Who fixes the salary?
Dr. Bush. The board of directors.
Mr. Dienner. Dr. Bush, referring to the production or generation
of ideas and introduction of them into industry, particularly in respect
to the patent phase (I assume you are familiar with the operation of
the Patent Office and the patent system in w^hat we call ex-parte
prosecution, from your own experience), do you consider that in that
phase of the system there is any bias or unfairness, either to the
individual or to the corporation?
Dr. Bush. In all of my contact with the Patent Office, sir, in 20
years, I have never seen the case in which there was the slightest
suspicion of unfairness. The Patent Office, in my opinion, handles
the ex-parte procedure in a highly efficient manner and with the
greatest fairness, holding the balance of justice. There may be dis-
agreements with its action. Of course, many people may not agree
with detail, but I think all comers are handled on the same basis.
Mr. Dienner. So that we might say that in the application of that
phase of the matter, that is in a securing of the patent, the Patent
Office would not really feel any distinction as between inventions pro-
duced by large corporations through research or otherwise or the lone
inventor?
Dr. Bush. I never in my experience have seen any indication of it.
the interference practice
Mr. Dienner. In regard to the interference practice, which we
have briefly discussed yesterday, do you see any advantage of a large
corporation over an individual or any class of persons having any
particular advantage in connection with this.
Dr. Bush. In our interference practice at present, which is unduly
long and unduly complicated and sometimes unduly expensive, there
is of course a distinct advantage to the organization which has large
resources as compared to the individual.
CONCENTRATION OF ECONOMIC POWER §§J
Mr. DiENNER. Turning now to the exploitation phase, that is
Senator King (interposing). Before you do that, I suppose there
are many instances, however, in which a person in good faith, an
individual or a corporation or a group, feels that the apphcant for a
patent is urging an invention or a discovery which one of the interferers
claims to have been invented or discovered by liim or by his associates,
so that it would be improper to say that there should be no interference
because that might deny the opportunity to a person who had a prior
discovery from protecting himself and preventing a patent's being
issued to some person who is a junior in the discovery of the art.
Dr. Bush. I thinTv, Senator, most of the interferences are in good
faith. There are some that are introduced that are not, but most of
them are in good faith; but an interference procedure is certainly
necessary because, if the two individuals do make the same invention
at nearly the same time, then the Patent Office has to find out which
\vas the first. That is a necessary procedure. I suggest merely fol-
lowing the proposal of the Commissioner yesterday, that the pro-
cedure ought to be much simplified and shortened.
Senator King. But you wouldn't deny the right of a person to file
the interference?
Dr. Bush. Not at all. I think it is a necessary thing that we find
out, in the case of a disagreement, who was the first inventor.
Mr. DiENNER. Senator King, we will come to that phase of the
matter a little bit later in connection with some recommendations
which the witness has made heretofore.
PATENTS NECESSARY TO ATTRACT CAPITAL TO NEW ENTERPRISE
Mr. Dienner. Referring to the exploitation of patented inven-
tions in industry, can you tell us what the prime necessity for a
patent is in the way of attraction of capital? Will you discuss that?
Dr. Bush. Of course, before most inventions can be put into use,
it is necessary to attract capital for their development and their intro-
duction. There are some inventions that would go into use without
that procedure, which would be automatically adopted without great
cost, but in the case of most inventions, the expenditure of a consider-
able amount of money is necessary before they can be introduced into
industry. The patentee, therefore, if he be an individual, is bound to
make arrangements for the expenditure of that money before he can
derive any income from liis invention, either by licensing a com-
pany on a royalty basis or by securing new capital and founding a new
company for the exploitation of the device.
Mr. DiENNER. Now, we have heard it said at times that a man will
take out a patent in order to avoid having someone else take out a
patent ; what would be the disadvantage in that?
Dr. Bush. That has, I think, no sinister aspect, as 1 understand
your question. Of course, when an individual makes an invention, if
he does not apply for a patent, he may find that someone else does and
be surprised to find that the thing which he invented is now controlled
by someone else and that he, himself, is barred from its use. That,
incidentally, is one reason why nonprofit organizations find it necessary
or desirable to deal with the patent system.
gg2 CONCENTRATION OF ECONOMIC POWER
Mr. Frank. May I ask, ou*- of ignorance, if he were the earher
inventor, wouldn't he be able to upset the patent if he could prove that
fact?
Dr. Bush. If he was the earliest inventor and did nothing whatever,
he would be regarded as having abandoned his patented rights.
Mr. Frank. Wouldn't that mean abandonment of the right?
I am asking out of ignorance. If I invent something and don't
patent it, someone else who may independently arrive at the idea
might get a patent, but he won't be able to keep me or anyone else
from using that idea.
Dr. Bush. Oh, yes, he would be able to keep you, yourself, from
using the idea, even if it was originally your idea
Mr. Frank. Even if I exploited it?
Dr. Bush. He would if you took no action in the Patent OfRce. If
you applied for a patent yourself, you and he would go into inter-
ference in the Patent OfRce. If you did nothing, then he could obtain
a patent that was valid.
The Chairman. Has there ever been any suggestion to your knowl-
edge that proof of prior invention should operate as a dedication to
the public?
Dr. Bush. I don't like the words "dedication to the public," Mr.
Chairman.
The Chairman. Use your own phrase.
Dr. Bush. Of course, a patent can be proved invalid if there was a
description of it in the literature 2 years prior to the application and
the patent then becomes invalid and the idea can be used by the
public.
The Chairman. So that in that case the situation would be just
exactly as Com.missioner Frank described it.
Dr. Bush. Yes. If the Commissioner will permit me So moment
more on that, scientific men are very often faced by that difficulty
/ind often do not understand it. They feel that they have discharged
their full duty to the public if they have published the new thing which
they have found. They have not discharged their lull duty because
some other individual may come in and may ratent that device,
and if he applies within 2 years of the publication he may obtain a
perfectly valid patent and he may use it in a wp.y in which the original
inventor would not approve at all. So that if one wishes to make an
invention available to the public in the way that one desires, it is
almost necessary— it is necessary — that h6"apply for a patent and
utilize tie system set up for that very purpose.
Mr. Frank. May it not be that puts such impediments in the way
of development of ideas that the patent system to that extent is
defective?
Dr. Bush. Sometimes it would work a bit of hardship, I am sure.
That is, it forces companies to patent things which are not reallj^
of great moment, simply for fear that somebody else will patent.
I think that is one of the secondary disabilities of the system but not
nearly as important as some other disabilities tliiit I see.
Senator King. Take a case of this character, and some information
came to me upon which I am basing the suggestion. A discovered
what he regarded as a useful contribution to the art. He didn't take
out a patent and he didn't attempt to utilize it. He gave some
publicity to the small area in which he Resided. B came along 2 or
CONCENTRATION OF ECONOMIC PO\\ER ggg
3 years afterward. Whether he heard of A's invention I was not ad-
vised, but at any rate he took out a patent and he organized a cor-
poration and obtained a considerable sum for the purpose of develop-
ing it, and many persons bought stock and went into the corporation
and they developed a very profitable undertaking. Suppose now
that A, who failed to get a patent, should come along years afterward
and claim that he was the patentee of that idea, of that invention,
though he didn't take out a patent; if he could prevail then B, with all
of the investment which has been made, and the stockholders in the
corporation, would be out and would lose all of the capital which they
had invested.
. Dr. Bush. The law quite rightly says that A did not avail himself
of the mechanism set up by law for the purpose of bringing inventions
into use for the public benefit.
The Chairman. Have you fully explained your disapproval of the
phrase "dedication to the public"?
Dr. Bush. No, sir, I will be very glad to. Many individuals think
that if they abandon all of their rights under a patent they are taking
the best way of dedicating it to the public. I think that is quite an
erroneous point of view.
The patent system was set up for the benefit of the public, not for
the benefit of the individual inventor, and in order that devices might
come into use for the public benefit. Now very often a device which
is thrown open to the public so that anyone may make it, does not
come into use at all. Many devices which require initial expenditure
in order to bring them into use never attract that initial investment
except from someone who expects to make a profit. In the absence
of patent protection they do not come into use. Dedication to the
public in the sense of general licensing with no royalty, therefore,
often fails to produce the result that was desired. The utilization
of the patent system in a proper way to insure that the device will
come into use is the best form of dedication to the public.
The Chairman. In other words, you are telhng us that the system
which we have followed from the beginning here of having Govern-
ment grant to the inventor a period in which he has the exclusive use
of the device for the purposes of profit, if he so desires, is the best
system of stimulating industrial progress and scientific progress.
Dr. Bush. I think our history has proved that to be the case.
Mr. DiENNER. Mr. Chairman, might I answer Commissioner
Frank's question as to a public use of an invention being a protection
against a later patentee? The courts carefully safeguard the interests
of anj' genuine situation where a man has actually begun the use of a
device before someone else invented it and he has adequate proof of it.
Of course there is in many a case the difficulty of proof, and the
courts would never allow a man to say "I thought of that before the
other man invented it," and allow that to stand in the way of a genuine
development, and I tliink I might ask the witness. Dr. Bush, do you
see any bias or any unbalance of the system which unduly favors
either the inventor, the patentee, the manufacturer, or the public in
its administration of this question of rights between the public and
the inventor?
Dr. Bush. No, I tliink so far as the Patent Ofl&ce is concerned it is
well administered indeed, except for the point which I have already
brought out, and which was brought out by the Conmaissioner yester-
day, that there is sometimes an undue and expensive delay.
gg4 CONCENTRATION OF ECONOMIC POWER
Mr. DiENNER. I meant more particularly whether there is any
hardship or unfairness /is between a man who has once given some-
thing to the public without' patent, freely opened it up, and then a
later recapture, as it were, by a claimant. Do you know of any un-
fairness or inequality?
Dr. Bush. I have known of many cases where individuals were
disgruntled, of course, but I think in general the system works ^yell,
and in case of interferences it is well to bring out this point, that in a
decision of an interference the Patent Office takes account of the
original date of conception and of due dihgence on the partfol the
two inventors, the date of reduction to practice and a number of other
factors, before it makes its decision as to who took the necessary
steps to bring this thing into use for the public benefit.
Mr. DiENNER. In other words, the matter is carefully safeguarded
by both the Patent Office in the interference phase and by the courts
in the litigation phase.
Dr. Bush. Safeguarded ver}- well, except for the items of expense
and delay.
Mr. DiENNER. We shall go into that a little later.
" SUPPRESSION OF PATENTS "
Mr. DiENNER. Dr. Bush, we often hear complaint that there -are
suppressed patents. What do you understand by the term and do
jou know of any case of suppressed patents as you understand the
term?
Dr. Bush. The idea of suppressed patents may take several forms.
One form that is fairly frequent is this: A company has two ways of
accomplishing the-same thing. It has two patents, either one of which
it might use in producing a device for a given purpose, and it may
produce one of those and not produce the other. I do not personally
regaird that that is a suppressed patent provided the pubhc need is met.
Another form in which I have heard the term: The advent of
inventions, the advent of industrial devices, is sometimes delayed
because the company which controls the patent situation thereon
does not produce the devices for the public use as rapidly as it might.
That is again a matter which can't be settled in a moment, can't be
dismissed in a word. Sometimes it is economically desirable that the
obsolescence of equipment in the hands of the public be brought about
dehberately and reasonably gradually, and not abruptly and suddenly,
for sudden obsolescence would produce disruption, unemployment,
and what not, so that I think oftentimes delays of that sort are
justified.
Mr. FRA.NK. You think the judgment as to how long the d^lay
should be, should be in the hands of the person who obtains the patent ;
or ought there be some pubhc body which would exercise some
judgment with respect to that?
Dr. Bush. I feel. Commissioner, that there is no great danger in
leaving that judgment in the hands of the company itself, for this
reason: That this is a terhporary monopoly which the company holds,
and if it delays unduly it destroys its own monopoly because the
patent is going to expire. If we had the situation of a permanent
monopoly, it would be quite different.
The Chairman. The Commissioner explained yesterday that under
the syatem which we now have the period of protection may be unduly
CONCENTRATION OF ECONOMIC POWER gg5
extended. An example was given, for example, of a patentable device,
the period of protection of which covered 44 years.
Dr. Bush. And, Mr. Chairman, I think that is an infernal situation
that ought to be corrected.
The Chairman. So that with that qualification
Dr. Bush (interposing). Yes; in answering the Commissioner I had
in mind that we were dealing with a system in which the normal period
of 17 years obtained; with undue delays I would immediately say the
matter ought to be corrected, but ought to be corrected by correcting
the delays.
Mr. Frank. But supposing that a corporation owned a patent and
there was some other invention, some new device, which would be
far better in the public interest, and it patented that new device and
sterilized it for the full period of 17 years. Do you think that that
is in line with the constitutional purpose or the constitutional power
pursuant to which Congress enacts the patent laws?
Dr. Bush. Commissioner, in 20 years I never have seen what I
considered a bona fide case of suppression of that type. I have never
seen a suppressed patent in that sense, and I think the reason is this.
It is altogether too dangerous a procedure.
Let's take the example of the vacuum tank on the automobile. The
patents on that system were pretty much held by one company which
controlled the system of transferring gasoline from the tank to the
engine by a vacuum device, and they had a group of patents which
controlled that whole affair.
Whether or not they put out into the hands of the public the best
form of that I can't say, but certainly they had an incentive to put
out the best form of it. Moreover, they were vulnerable. One would
have said offhand that they had the entire t-ituation in their hands,
but what occurred? Along came the motor gasoline pump and the
vacuum tank became obsolete.
Every company is in the position, even if it has control of a par-
ticular device, that some individual outside may come on with a new
and novel idea which will render their whole affair obsolete. The
more complex their situation in some ways, the greater the danger,
and they have therefore the greatest mcentive to make the best device
that they possibly can in view of the things that are in their hands,
and my own experience and my own judgment is that there are no
suppressed patents in that sense and that it would be very foolish for
industrial concerns to have suppressed patents in that sense.
Mr. DiENNER. And you might say that a patent is a self-destroy-
ing monopoly in respect to the point of time, and one patent monopoly
destroys another monopoly. They are not by any means continuing
monopolies in themselves.
Dr. Bush. Yes, although I think much can be said about monopoly
based on a succession of patents.
Mr. DiENNER. Let's discuss that right now. Let's ask ourselves
whether the monopoly of a patent is truly temporary, and under
what circumstances it might be doubted that it is so.
Dr. Bush. Well, I will take a moment to discuss that, because it
can't be answered in one sentence. The original patent law con-
templated an original inventor and gave him a monopoly for 17
years, after which the monopoly would terminate. That still happens
today. W^ do have individual patents wliich stand on their own feet
§§g CONCKNTUATIOX OF ECONOMIC POWER
and which are used for. 17 years by the original inventor or his as-
signees and then go into public use.
But we also have various other situations, and one which is fairly
clear-cut is tliis: The company has a group of inventions protected
by patents. It has intensive research and as a result of its study and
research it continually improves its product and takes out new patents,
and in that way extends its monopoly.
My own point is this with regard to that particular form, that if a
company can improve its product at the rate necessary to preserve
its patent control, assuming again a reasonable expediency in prosecu-
tion and that we have no long delays, then I say that is for the public
benefit. It is a monopoly which is made permanent for a time by
reason of the activity of the holder thereof. It is bound to expire
sometime and it is in general beneficial because of the incentive whicli
that company has to greatly improve its product.
The Chairman. Is it possible for such a collective unit, by the use
of this method which you have just described, to make it difficult, if
not impossible, for a single individual to make effective an improve-
ment in the same field?
Dr. Bush. Yes, sir; and that brings me to the third form. It is not
easy to prevent some individual from making the improvement, but
it may readily be that if that individual makes such an improvement
he will find himself in the position of having only one customer for it,
so that an organization which has a patent control over the entire
situation nuiy therefore find it readily possible to acquire improve-
ments which come from the hands of others, and to thus perpetuate,
by aggregating to itself the improvements not only that it itself makes,
but also the improvements made by others by purchase.
The Chairman. It would be possible, for example, for such an
aggregation as you describe to use a device invented in good faith by
an independent person, and individual, to appropriate that device,
and compel the individual to resort to the courts for liis protection.
Dr. Bush. Of course, our entire patent system is based on the idea
that any individual, if he thinks he is right, may make anything, and
the recourse of the holder of the patent, no matter who he may be, in-
individual or corporation, is to appeal to the courts.
The Chairman. Yes; but I am speaking now of policy. As I
listen to you, I see this possibility, that a large corporation engaged
in the manufacture of a certain type of product, some machine let us
say, runs across a very valuable improvement which has been developed
and invented and patented by an individual who is not an employee
of that company and who, indeed, would like to sell the device to the
company. The company, recognizing the value of the device, refuses,
however, to deal with the inventor and says to the inventor, ''You
take 3'our case to the court." Is that possible under this situation?
Dr. Bush. It is possible, but it would be a very foolish thing to do,
for a company which has an established business will certainly not go
out and baldly violate a patent which is obviously valid, for it is so
vulnerable that that becomes exceedingly dangerous. The individual,
through the courts, can collect damages.
I have many thoughts on the cost of that litigation and I agree
enormously with the recommendation of the Commissioner with
regard to the simplification of that system, but even under the pre-
sent circumstances, where litigation is relatively involved and unduly
CONCENTRATION OF ECONOMIC POWER 3g7
costly, no company would go out and baldly violate an obvious patent
in the hands of an individual.
The Chairman. Many complaints have been registered with this
committee that that has been clone in certain cases.
Dr. Bush. We can come to that, if you wish. It is quite a story.
To go on for a moment with your question, if I may, sir, it can ap-
proach the individual to buy that patent or to buy rights under it,
whereupon the individual has a ;:hoii e between selling to one customer
at the price set by that customer, or of waiting until the fundamental
patents in the hands of the group expire, whereupon he can deal with
his patent as he wishes.
PATENT POOLS
Dr. Bush. There is no doubt that a group which holds the patent
control on a particular field may, in that way, acquire improvements
from individuals at times at small cost, and then to thus increase its
control and continue its monopoly. I believe that that usually
occurs only in the case not of individual companies but of cases where
there are patent agreements between practically all of the units in an
industry, so that we come immediately to the question of patent
pooling, which is a large question, but in the case of the individual
company I am not so afraid of that, for the individual company is too
vulnerable. There is too much chance that exactly what happened
in the case of the vacuum tank may happen to them, so that in gen-
eral the individual inventor still has an opportunity to make a reason-
able arrangement with them instead of waiting for the expiration of
their patent.
Senator King. Aren't there analogous cases in real estate? I am
diverting for a moment. Take in the mining industry, there are hund-
reds of cases in which the owner of a mining claim, through under-
ground wor^ngs, has abstracted the ore belonging to a contiguous
owner, and he has insisted, after he has committed the trespass, upon
buying the property for nothing or refusing to pay for it, and has forced
the person who has been deprived of his property to resort to the
courts. You can't guard against that. A man can resort to the
courts to meet the trespasses here as well as trespasses in real estate.
There are many cases in which the owner of the property has "fudged,"
to use a comn^on expression, on the property of his neighbo.- (the
neighbor was a poor man) and insisted that it was liis property, and
the poor man has been compelled to go into court. There have been
thousands of cases where there have been trespasses on the surface
which compelled the poor man to defend himself in order to maintain
his rights. You can't guard against everything. The poor man has
the courts. He may resort to the courts.
Dr. Bush. But the owmer of a vaUd patent which is obviously valid
on the face of it, for an improvement which is a very necessary and
important improvement, is in an exceedingly strong position no matter
what the industrial situation may be, provided the procedure m the
courts is sufficiently facile so he may be supported in his rights.
The Chairman. That is not the case now?
Dr. Bush. Not in my opinion, sir.
Mr. Dienner. Going back to the question of the temporary charac-
ter of the monopoly, Tbelieve you discussed the phase of overlapping
patents owned by the same company, and you mentioned the question
ggg CONCENTRATION OF ECONOMIC POWER
of pools. Will you please tell us the character of the pool which j^ou
consider to be undesirable, and a character of pool wliich might not
be open to that objection?
Dr. Bush. That is a very large question, sir. The simplest situa-
tion that arises is this, where two companies or two individuals hold
the patents, neither one of whom is able to manufacture on the basis
of the patents which he holds, so that it is necessary for them to get
together in some way or other before the device can go into pubhc
use. Obviously in such cases it is to the public interest that they
should interchange rights under the patents. That is the simplest
situation.
We have the more complex situation, however, where units in an
entire industry interchange patents, and we have then what we might
call a patent pool. In my opinion some types of patent pools are
necessary and beneficent, and other types are undersirable. It is a
very large question. I can mention only one or two points on it
unless you wish me to go ahead.
One undesirable feature, I think, is this. If tlie patents are inter-
changed among the units of an industry on the basis of no royalty,
I think that is undesirable, because the incentive which is provided
by the patent system for progress, for research, for invention, is
effectively canceled out in that event.
I think, also, that a closed pool which has no provision whatever,
no workable provision, for the entrance into it of a newcomer who
brings with him an addition to the situation, is undesirable. I wish
very much that a beneficent type of pool, a desirable t3'pe of pool,
could be defined and given public support. or governmental support
in this country, for I think it is a thing that we very much need.
Pooling is necessary and desirable if properly carried out.
Mr. DiENNER. We might say this, that pooling goes to the aspect
of proper use, but it endangers the aspect of termination. Is that
right?
Dr. Bush. If it is complete it practically cancels the aspect of ter-
mination if it is in an advancing art. In a static art, of course, it
does not.
The Chairman. How does it cancel termination?
Dr. Bush. If it is in an advancing art and if there is a complete
interchange af patents between the units of an industry, and there is
a provision so that new inventions as they arise may be brought
effectively into the pool, then if inventions arise with sufficient
frequency the monopoly in effect goes on and on, but of course if it
is the type of pool that I just outlined, where there is an opportunity
for the newcomer to enter into the pool, bringing with him his ideas
or facilities, then it is not a monopol}^ in the real sense at all.
The Chairman. In other words, you object to the pool which
excludes the newcomer, but the pool which would admit the newcomer
you think would operate to the benefit of the people.
Dr. Bush. I don't think we can draw it on that point alone. That
is an important point.
The Chairman. What other points should be borne in mind?
Dr. Bush. I tliink, for one thing, the one that I just mentioned.
Reasonable royalties should be charged between the units of a pool
in order that the incentive to progress be not canceled out. But
there are several other ones. I think in general that pools are very
CONCENTRATION OF ECONOMIC POWER
889
necessary in some fields, that they can be beneficial, and that if they
have certain features which could be readily defined they are desir-
able and should be encouraged. Of course, the converse is also true — •
that I believe that pools very often have been disadvantageous in
the past where they have not contained the desirable features.
The Chairman. Of course, that in turn raises the question of who
should draw the regulations by which such a pool should operate.
If the pool is one of very large corporations with a great many stock-
holders and many employees and deals in a product which is used
widely by the public, then if the pool itself may, without any super-
vision, fix the regulations, the pool may impose its will upon the
public. Is that not so?
Dr. Bush. It could in an ideal case, yes.
The Chairman. I would scarcely use the word "ideal" in that
connection.
Dr. Bush. Having had a bit of mathematical training, I am likely
to use the word "ideal" as meaning over-simplified.
Senator King. You are familiar, are you not, with the testimony
with respect to the pools by a number of manufacturers of auto-
mobiles, where the various companies, A, B, and C, to illustrate, had
patents, and some were conflicting. with the others, yet all of the
patents aimed at the same thing, namely, the perfection of an auto-
mobile for the best interests of the public. They formed a pool, put
all their patents in the pool, and A was permitted to use B's and C's
patents, and B and C were permitted to use A's. Do you see any
disadvantage in that?
Dr. Bush. In general, that is certainly a desirable feature. It
saves litigation and enables a product to be built, et cetera. If it is
properly safeguarded, if there is an open pool, there is an opportunity
for the newcomer to enter, it is not a monopoly, it is not closed, and
I do not tliink that in that case there is any reason why it should be
undesirable. I do think in the case of the automobile pool that it
would have been better had they. done certain other tilings. In fact,
I disagree with their procedure with regard to the exchange of
royalties. I think the automobile industry in' this country would
have gone ahead more rapidly if it kept the incentive of interchange
of royalties on a higher plane.
Senator King. You can't contend that it hasn't gone ahead rapidly
when there are over 40,000,000 automobiles used by the public.
Dr. Bush. Yes; but I notice that some of the very important ad-
vances'in the automobile have come in Europe before they have come
in this country, and as an American proud of our advance I prefer
that they come here first.
Mr. Frank. Dr. Bush, I quite understand that the patent system
is liiglily desirable in enabhng persons to obtain funds to exploit ideas
which might not otherwise be exploited if there were no monopoly;
yet I would Uke to ask, purely for information, the follomng question:
As I understand you, nonprofit research organizations allow their
patented inventions to be used on the basis of relatively small royalties
and take out patents primarily to prevent the antisocial use of their
inventions. That I understood to be the general point of view of such
organizations. Now, bearing in mind what I said previously, that it
is necessary to get funds through the patented monopoly in private
industry in order to bring about the exploitation of new ideas, I would
gQQ fONCEXTRATION OF ECOXO.MIC POWER
like to ask this question: Would large corporations or small corpora-
tions wliicli are profit-making organizations abandon their research
work and their research laboratories if, when they procured patents
on their inventions, they were obliged to give licenses on a modest
royalty basis to all persons not intending to use the inventions
antisociall}^?
TENDENCY OF COMPULSORY LICENSING TO DISCOURAGE INVENTION
Dr. Bush. Some of them would; some of them would not. Some
great research laboratories have other purposes than the mere pro-
duction of patentable inventions. The research laboratory of the
telephone company, for example, has many other functions and many
other ideas. I can tell you that many would never come into existence
and many research laboratories and many groups now and in the
recent past striving to bring in new products would never have come
about had there been any system of general compulsory licensing. I
can tell you from my own experience that I was closely associated
with the founding of several small companies in this country based
on inventions, and no one of those would ever have come about had
there been a system of general compulsion in licensing, so that having
spent a great deal of money, they w^ould have been obliged to license
their competitors at a small royalty.
Mr. Frank. Then you think that the profit incentive connected
or associated with the monopoly created by a patent is essential if
we are to have the development and exploitation of new ideas.
Dr. Bush. Some things would come into use without it, but there
are many ideas for which it is essential. Here is one right here. T
was associated many years ago in the development of a thermostat as a
consulting engineer. The invention was made by a young chap who
at that time was a macliinist at the bench. That device has come into
use. It has gone into some 10,000,000 flatirons for their control; it
has been of public service. It certainly prevented a great many
electrical and flatiron fires; it has kept employment, it has done many
beneficial things. That w^ould never have come into use had there
not been the exclusive right for a considerable period, for, simple as
that device looks, it required $100,000 of development before there
was anything that could be used out of it. That thing is very inter-
esting. Senator. You may have heard of it.
It is a piece of thermostatic metal which is just like the bottom of
an oil can and snaps back and forth, but since it is of thermostatic
metal, if you change its temperature it will itself snap. It is a very
simple idea, yet it proved to meet a great need. It is a difficult thing,
to produce a thermostat which will operate in a flatiron at the high
temperatures and successfully break the electric current. This thing
acts with such great abruptness that it can break a current even under
very difficult circumstances, and hence it became used in that field
where it was not possible to use the prior devices.
The young man brought that out. There was a company fornicd
around him holding a series of patents, and the company is still going
and having its troubles. I consulted for it in its early days. This is
supposed to operate at body temperature ; except for the fact that my
hands are cold this morning I could show you how it is supposed to
COXCEMKATIOX OF KCOXOMIC POWER §gi
go. Thermostatic metal, you know, is two kinds of metal joined
together in a sheet with different coefficients of expansion. That
was old in the art before this work started. There were a number
of expired patents on it, so it was public property, but the general
scheme of making it in that little form was utterly new. There, for
example, is a thing that never would have come into use if it hadn't
been for the exclusive right.
Mr. DiENNER. \That would you say the cost of developing that
thermostat was?
Dr. Bush. We spent about $100,000 on development before it went
into any uses whatever. I have a couple more of those, I think.
\\Tien I Icnew I was coming down here I looked in my desk and found
that I had just four of those left.
The Chairman. I hope the witness doesn't believe the members of
the committee should have something to play with.^ [Laughter.]
Dr. Bush. Mr. Chairman, I can assure you that that device at one
time held up all procedure on the Boston Stock Exchange for 5
minutes.
The Chairman. Were they able to make them snap?
Dr. Bush. Only practice and warm hands will make that snap
properly.
Mr. DiENNER. Dr. Bush, in the use phase of the patent, that is
introducing the invention into industry, we have this question of price
control to consider; that is, tliere is price control under patents. Will
you please explain a situation under which price control is a necessaiy
requirement in introducing an idea into industr}-?
Dr. Bush. It is a part, of course, of the situation that I just men-
tioned, where the introduction of an invention requires a large initial
investment. The fimds for that can be secured only if there will be
a speculative profit, only if the individual who puts up the money ca
expect that if the gamble is successful he will reap considerable profits.
Now that procedure of putting the thing into use can occur either by
the new companj^ itself manufacturing or licensing for manufacture.
If it licenses a single company for manufacture, it can give an exclu-
sive license and collect a royalty. However, suppose that it licenses
two companies. In order that there shall be at the outset a complete
control, it is necessary that price restriction also be superimposed,
otherwise competition will be produced between those units and the
speculative profit which is necessary will not occur. The inclusive
feature is necessary in order, in many cases, to bring the device into
use, and there are circumstances, therefore, where price control is
necessary in order to preserve the exclusive feature.
Mr. DiENNER. Then we might answer Commissioner Frank's ques-
tion in some degree by pointing out that there is a necessary relation
between speculative profit and exclusiveness.
I believe you have passed on the question of introduction, the possi-
bility of using the patent situation for stimulation of new industries,
and I believe you rendered a report to the Secretary of Commerce.
I beheve this report which you prepared as a member of the subcom-
mittee of the Science Advisory Board is of sufficient significance that
I should request its introduction as ^^n exliibit in this case and that it
be printed as an appendix in the record.
The Chairman. It is so ordered.
' Referring to exhibit of thermostatic metal.
og2 CONCENTRATION OF ECONOMIC POWER
(The report referred to was marked "Exhibit No. 206" and is in-
chided in the appendix on p. 1139.)
The Chairman. May I ask the witness to identify the Science
Advisory Board?
Dr. Bush. The Science Advisory Board, sir, was set up under the
National Academy of Sciences by order of the President and requested
to advise the several departments of the Government as requested,
and this report was one result. The Secretary of Commerce asked
that he be advised in regard to certain operations of the patent system
in connection with the advent of new industries, so that this report
was made^ to him.
Mr. DiENNER. Will you discuss for us briefly your view as to whether
17 years is a proper period for the life of a patent?
Dr. Bush. Well, sir, we haven't really tried it out in recent years.
I would like to see the situation brought into form so that 17 years
would actually be the period, and then see how it works.
Mr. DiENNER. Answering the question in respect to the grant as
being for a period of 17 years, do you have any comments as to whether
you think it ought to be longer or shorter, assuming that delays in the
Patent Office were reduced or eliminated?
Dr. Bush. If the delays were reduced or if the 20-year rule were
introduced as proposed by the Commissioner, then it seems to me that
that is a good reasonable period.
Mr. DiENNER. To pursue the point further, Mr. Chairman, I should
like to have the witness tell us briefly the purpose of the subconimit-
tee's report and the recommendations which are attached to it in
general.
RECOMMENDATIONS OF THE SCIENCE ADVISORY BOARD
ON PATENT REFORM
Dr. Bush. I can do that very briefly, indeed, since there are only
three principal recommendations and a number of minor ones. The
first one, and the most important one, is one that was presented to
you yesterday by the Commissioner of Patents: the proposal that
there be established in tliis country a single court of patent appeals
in the form in wliich we proposed it here. It was also urged that this
court be supplied with proper technical advice of its own in the con-
sideration of patent cases.
The second recommendation, which is associated with that, is
that there shall be supplied to courts of first instance in the considera-
tion of patent disputes technical advice to the court as contrasted
with the present situation where the only technical advice available
to the court is by experts presented as witnesses. My committee
felt strongly that the determination of a patent case involves the
law and the facts, and the facts in a patent case are technical facts,
properly understood only by men with a technical background, so
there should be joined to the court for the proper determination of
those facts individuals who have the proper scientific and teclmical
background to understand them, rather than to expect a judge to
acquire that necessary knowledge in the brief course of a suit.
Finally we made one recommendation in regard to the opening of
patents before issuance not to contest within the general system but
to the submission of additional evidence by anyone interested in
order to increase the presumption of validity of issued patents. The
CONCENTRATION OF ECONOMIC POWER §93
unfortunate situation that obtains today is that an individual who is
granted a patent by the United States Government has not as great
assurance as he ought to have that that patent is vahd and will be
sustained. Anything that can be done to increase the presumption
of validity of that patent when it is issued will aid in the introduction
of new ideas in industry, because it will shorten and make easy the
path of the man who has to forge his way.
Mr. DiENNER. Then might we conclude from your statement that
the one significant thing jin your opinion for improvement of the
system would be in the direction of increasing the presumptive
validity of the patent when issued?
Dr. Bush. Increase its presumptive validity when issued and
make simple and inexpensive and direct the procedure by which
that vahdity will be tested in tho courts, if necessary.
Senator King. May I ask o^ question? Who would select the
supposedly nonpartisan adviser, technical advisers, to the judge who
acts in the first instance?
Dr. Bush. The court itself, sir, in my judgment should select its
own advisors. There is no lack in this country of properly quahfied
scientific and technical men who are utterly nonpartisan, who have
no connection in industry whatever in some cases, who would be
available if called upon in a dignified way by the court. Many of
them object to becoming experts for the reason that, because the pro-
cedure of the court is natural to the attorney, it is not natural to the
scientific and technical man called by the court, but as an advisor to
the court they would respond and there is no lack of eminent successful
and distinguished men who would offer their services, who would
respond to a request made that way by the court.
Senator King. I recall, if I am pardoned a diversion, that in the
many lawsuits over miderground passes, or the determination of the
forms in which the ore was found — because there were controversies
as to whether it was dolomite lime or the various other forms in which
the ore is found — in view of the fact that many of those lawsuits took
up weeks, and experts from Germany and the leading geological insti-
tutions of the country came before the court — the plaintiff would
have experts and the defendant would have experts — and the court,
not being a geologist, would have difficulty in determining whom to
believe. It was suggested that the court employ independent expertwS
to aid him to disentangle the conflicting statements of the geological
experts. There was objection made because they thought perhaps
the court would find somebody who knew more or knew less, and there
was a conflict as to who should guide the court in selecting the expert
to advise him.
I was wondering if the same difficulty would not be experienced
here.
Dr. Bush. I would personally be quite content to see the court
select its own advisors, and I feel quite sure that that would be done
in such a way that perfectly adequate and impartial advice would be
obtained in order to aid the judge in the determination of facts in a
field of science, which by its very nature is one that he cannot know
intimately and cannot learn in the brief space of a trial.
Senator King. That would mean Congress would provide a fund
from which the experts so selected would be paid, and the judge
would determine the compensation which was to be puid them?
124491— 39— pt. .3 5
gg^ CONCENTRATION OF ECONOMIC POWER
Dr. Bush. Yes, sir. That compensation, I think, should be com-
mensurate with their usual earning power.
Mr. Frank. Dr. Bush, has any progress been made since the date
of this report in classifying patents in the manner therein indicated into
major and minor patents?
Dr. Bush. The Commissioner of Patents and I have had a number
of discussions on that. It has been discussed before his advisory
committee. Progress has been made, but we have not arrived as yet
at any concensus of opinion. It is a difficult thing to make such a
classification. It is done, as you undoubtedly know, in Germany.
Mr. Fbank. Is there a body of literature on that subject?
Dr. Bush. Yes, sir; quite a number of references.
Mr. DiENNER. I think the question of major ajtid minor patents is
provided for in the law of Germany, Japan, and Poland at present.
Those are the only countries.
Mr. Frank. Would it be any great burden at some time to supple-
ment the record by a bibhography on that subject? ^
Dr. Bush. No difficulty. I haven't it offhand, but I think it can
be obtained. I think the Patent Office Journal has such a list.
BEARING OF PATENTS ON STANDARD OF LIVING
Mr. DiENNER. One final question, Dr. Bush. How far would you
go :p a statement as to the influence of the patent system as a primary
factor in producing in this country ,the highest standard of living in the
world?
Dr. Bush. It has been an extremely important factor in putting
this country ahead of the world in industrial development. At the
present time it is operating very lamely indeed in that respect. If
we can remove some of the difficulties in the way of the pioneer, the
technical pioneer, if we can make it more readily possible to establish
new industries in this country based on inventions, if we can remove
some of the difficulties of litigation, if we can simplify the procedure,
then I think we have a reasonable chance that we can regain our posi-
tion and proceed on the way. Unless we do that, our industrial prog-
ress will be permanently lost.
Senator King. Isn't one of the difficulties of acquiring a patent in
order to carry forward inventions with which we are familiar, because
of high taxes or for other reasons, legitimate or illegitimate?
Dr. Bush. High taxes come into it in another way. It is very
difficult to secure funds from an individual if, under the conditions of
failure he loses 100 percent, and under the conditions of success he
gains 15 percent. That is most certainly a difficulty in the way of
securing new funds for. new developments. I do not think, however,
that the taxes imposed by our patent system on the inventor are in
effect a serious bar.
Senator King. Do you perceive any reduction in the stream of
technological development and of invention?
Dr. Bush. No, sir; I expect an acceleration.
Senator King. It seems to me there are more inventions these days
than during the 10 years proceeding; by that I mean in this decade
measured by the former decade.
' For brief bibliography on short term, minor or petty patents see appendix, p. 1157.
CONCENTRATION OF ECONOMIC POWER ggg
Dr. BiTSH. There are plenty of them. The progress of the world
is not stopped in any degree.
Representative Sumners. Unfortunately, I couldn't be here during
the beginning of the testimony, and if any of my questions have any-
thing to do with subjects which you already have testified on, I wish
you would consider the question withdrawn before I ask it. I am
interested in the statement just made. It may be expected that the
continuing development of our genius as inventors will help us to
retain our position in the world. As you visualize the future, would
those inventions take the direction of helping us to produce cheaper
and more efl&ciently, in the main, things we now produce, or produce
new things which we do not now have, as distinguished from producing
an old thing in a new way.
Dr. Bush. I think both things will undoubtedly be accomplished.
The extent of human desires is infinite. The extent of human needs
may be bounded, bu<^ there is no limit to the number of new devices
and new advances that can be absorbed by the public if they are
produced at a reasonable cost and properly distributed, and we are
nowhere near the end of new devices for the public benefit, new com-
binations, so that I fully expect the program will take two forms:
the production of more of the usual things that we already have and
in better form by better methods and the introduction of wholly new
things.
Representative Sumners. I will stop you on that point. Would
it mean a reduction in the unit cost of producing things which people
now use?
Dr. Bush. Yes, sir; that is one aspect.
Representative Sumners. Would that have a bearing in your judg-
ment on the number of people unemployed?
Dr. Bush. Yes, it has a bearing; a very definite bearing, and it has
a bearing in both directions. Progress, sir, always pays for itself by
at least temporary disturbance. If we have a static world, we can
have a completely stable affair in which things do not change. That
is very lovely in one way, but if we are going to go ahead technically
or in any other way then we must expect at least local disruption and
temporary disruption which means unemployment. There is no
question, however, that the whole trend of invention, the whole trend
of the introduction into industry of new devices and new ways of
doing old things has been to greatly increase employment in the long
run and in the end, so that it works in both ways; it produces in my
opinion a temporary and local disruption but in the long run and over
a considerable period generally increases the standard of living and
increases enormously the potential employment.
Representative Sumners. May I ask you another question, as a
scientist. These changes that result from scientific progress in the
fields of mechanical things, may we expect that nature will more or
less take care of the temporary addition of unemployment in the dis-
ruption or will we have to expect that there shall be some scientific
developments to take care of the results of scientific development?
Dr. Bush. I feel, sir, that if our procedure for the introduction of
new industries in this country, for the commercialization of new ideas
and new things had been faster, had been ready, had been easily
operated in the past decade, we would not have anywhere near the
problem that we now face in that regard. The fact that new indus-
ggg CONCENTRATION OF ECONOMIC POWER
tries have not come ahead, that their way has been inhibited in a
thousand directions, is one of the reasons that we are in difficulty at
the present time. As industries grow old, there must be the advent
of new industries to pick up the slack or we will have difficulty.
Representative SuMNERs. I don't want to appear to be in opposition
because I wouldn't even if I were opposed — I wouldn't expose myself
to anything of that sort, but do you think there has been any lack of
relative progress in the sciences, in scientific development in the last
10 or 15 years when we have accumulated some of our modern
problems?
Dr. Bush. No, sir; science has gone ahead at an accelerated rate.
NEED FOR SCIENTIFIC ADVISORS IN PATENT TRIALS
Representative Sumners. One other question. I thank you very
much for answering those questions; it has been very helpful to me.
Now, in regard to this expert to aid the court, would it be expected
as a practical proposition that a group of scientists would be suffi-
ciently expert in the whole field to constitute more or less professional
advisers of the court or would you have to have for each particular
group of patents that are under consideration, somebody who would
have time to become expert, qiore expert, as expert as would be
required in that particular field?
Dr. Bush. I think the scientist that comes in that regard should
be called upon to be expert not in the particular patents before the
court, but in the science which underlies them.
Representative Sumners. That is rather important. Would you
mind helping us on that? That is very important to me and I believe
to my colleagues in this regard. You think then that a man who is
trained in the general field of science and who has a scientific turn of
mind could probably advise a court with reference to most any patent
litigation.
Dr. Bush. I think he could be of great help, indeed, sir.
Representative Sumners. I didn't get that across. I didn't mean
somebody to be a great help but I mean as great help as somebody
trained with reference to a particular group of questions involved.
Dr. Bush. Oh, I see the point. I think we need both, sir.
Ilepresentative Sumners. You couldn't have them in one advisory
court in the same lawsuit, could you?
Dr. Bush. My committee did not recommend that we abolish the
idea of experts called by the litigants.
Representative Sumners. I understand that.
Dr. Bush. But that we supplement it.
Representative Sumners. But you are making a concrete sugges-
tion with regard to court procedure which I am sure the members of
the committee are very much interested in because you are getting
down to something, don't you know. All this talking around doesn't
get you anywhere but. when you get down to a concrete proposition,
that means something. That is why I am taking the time to get a
pretty clear view of your notion because you are going away. When
we come to details, could we hope to get the aid that you suggest by
having some persons who possibly are attached to the judiciary to
give this advice, or would you have to have somebody in each lawsuit
who is particularly trained with reference to that particular group of
patents?
CONCENTRATION OP ECONOMIC POWER
897
Dr. Bush. I hope ultimately, sir, that we will have both forms, that
we will have permanently attached to the court of appeals scientific
and technical advisers who will permanently be a part of the court,
but that we will have in addition, particularly in the courts of first
instance, individuals called as teclmical advisers to the court who are
called for each case individually.
The Chairman. Mr. Dienner, that buzzer, of course, was the roll
call in the Senate.
Representative Sumners. Why not hold it until there is something
important and they call us over in the House.
The Chairman. In that event, we probably would be here all the
time.
The Chairman. The committee will recess until 2 o'clock.
(Whereupon, at 12 noon, a recess was taken until 2 p. m. of the
same day.)
AFTERNOON- session
The committee reconvened at 2:10 p. m. on the expiration of the
recess.
The Chairman. The committee will come to order.
Dr. Bush, I think that all members of the committee this morning
were very much interested in the testimony which you gave. I know
that speaking personally, I think it was one of the most interesting
discussions of the patent question which has been presented to our
committee and it stimulated a number of questions in my mind, some
of which perhaps we might be able to pursue this afternoon very
briefly.
You are aware, of course, that this committee is operating by virtue
of a resolution which was adopted by both Houses and signed by the
President, which directed us to do certain things.* Among these wa3
the direction that we should examine the eft'ect of existing tax, patent,
and other Government policies upon competition, upon price levels,
unemployment, profits, and consumption.
VALUE OF patent SYSTEM IN REDUCING UNEMPLOYMENT
The Chairman. The part of the study with respect to the effect
of patent law upon competition has already taken place and a hearing
has been presented to this committee. It was demonstrated this
morning that your experience has been so broad that I felt it would
be very illuminating if you would give us briefly, perhaps, the benefit
of your judgment with respect to the effect of the present patent
policy upon unemployment.
May I say before you answer that as I conceive it, that is the pre-
eminent problem before the people of the United States and indeed
before the people of the world. We have a system which is operating
very inefficiently. If we are to judge efficiency by the social security
which it produces, our system does not produce social security.
What, then, can tlie patent system do, what does it do, with respect
to unemployment? Would you care to give your views on that?
I Public Resolution 113, 75th Cong. P: iously entered in the record as "Exhibit No. 2," see Hearings,
Part I, appendi\, p. 192.
398 CONCENTRATION OF ECONOMIC POWER
TESTIMONY OF VANNEVAR BUSH, PRESIDENT OF CARNEGIE IN-
STITUTION OF WASHINGTON, WASHINGTON, D. C— Resumed
Dr. Bush. The patent system was designed expressly^ to bring out
new industries in this country, and by so doing to advance the useful
arts and science, and of course by increasing industrial activity and
providing new products to provide for new employment. And that
it did very effectively, very effectively because we went to the point
where we had the highest standard of living in the world. Today, in
my opinion, it is not doing that with nearly the effectiveness that it
ought to, and if it were truly effective in that regard I think many
more new industries would have sprung up in this country in recent
years and would have provided a considerable amount of employment.
Now, that has not been the only factor, of course. You spoke a
moment ago of the tax situation and its relationship to that problem,
but from the standpoint of the patent system alone I feel sure that
if it were operating smoothly and effectively so that the individual
and the small group had better opportunity to bring out in this coun-
try new and desirable products, that the effect upon our unemploy-
ment situation would be very real.
The Chairman. What prevents the individual and the small group
from realizing the potentialities of the system which was envisaged
by the drafters of the Constitution who directed Congress to provide
this patent system?
Dr. Bush. Several things. I will draw on my own experience in
that regard. I was one of a small group several times that were in-,
strumental in organizing new companies, new industries, based on
inventions, some 15 years ago. In my considered opinion, that same
procedure would not operate today to produce the things that were
then produced, given the same opportunity as far as the ideas them-
selves were concerned, first because it would be much more difficult,
if not impossible, to secure the interest of men having funds which
they could properly spend in speculative ventures in a new under-
taking, where the risks are very large. Only men of large means can
properly take the long shot that is involved, and men of large means
today, with the taxation system that we have, are not inclined to
take long risks, so that it would be very much more difficult to finance
such an operation.
The Chairman. Would you want this committe to draw the infer-
ence that we should arrange our system now so that it would accom-
modate men of large means primarily rather than men ol small means
primarily?
Dr. Bush. No, sir; so that it would accommodate both in combina-
tion, the man of large means and the man with an idea.
Tne Chairman. All right, but would you tie it to the opportunity
of the wealthy man to invest his savings or would you tie it to the
opportunity of the poor man, the individual, to attain proper devel-
opment?
Dr. Bush. I would tie it to both, for I think that only when you
have the proper combination of the man with the good idea, the new
thought, the new invention, and capital able and wiUing to enter
into its development with it have you a combination which can pro-
duce new industries.
CONCENTRATION OF ECONOMIC POWER gQQ
The Chairman. I judge from what you have said this morning
and from what Commissioner Coe testified yesterday that the patent
system as it now operates tends to restrict the opportunity of the
individual.
Dr. Bush. I feel that it does, and of the small group, and, inciden-
tally, also of all those who use the patent system.
The Chairman. And in the recommendations which you have made
as a member oi ♦^his Advisory Committee, you have covered the field
so far as your prt '^nt studies have taken you?
Dr. Bush. We n ade at that time three recommendations which
we considered to be the three most important ones and a number of
minor recommendations. I do not think that those would go the
whole distance toward giving us a perfect system, but I think they
would go a very long way toward improving it.
The Chairman. I glanced over this report by the Science Advisory
Board,' and I found on page 29 this statement — it raises the same
question which you raised at the very outset of your testimony this
morning [reading from "Exhibit No. 206"]:
The frontiers have disappeared. No longer may a citizen break new ground
beyond the horizon.
You refer there to a citizen being, I take it, the natural person.
But the opportunity for pioneering in the application pi science to human need
remains and calls for the same virtues of courage, independence, and persever-
ance. It still is possible to enter uncharted regions in industry and it is still
hazardous to thus open new territory for the national welfare.
Now let me ask you there: Is it as easy for a citizen, a natural
person, to penetrate these frontiers of science as it was for Daniel
Boone and the geographical pioneers of our history to penetrate the
geographical frontiers?
Dr. Bush. I think the risks are quite comparable.
The Chairman. Is that your answer, taking into consideration also
the accumulation of capital resources by large groups of individuals
operating as groups?
Dr. Bush. Taking into account the whole situation as I see it,
I think the courage and resourcefulness called for today in a man
who would break new ground in the industrial field, produce new
companies, new products, for the benefit of the pubhc, and the risks
that he takes, are as great as the risks of any pioneer; and his reward
ought to be commensurate with the risk that he takes.
The Chairman. Yes; but I have not made my question clear.
You described to us this morning a system which is followed by the
Massachusetts Institute of Technology.^ As I understood it, you
described the collective effort of a staff of an institution of learning.
Now, my own feeling is that staff working together can probably
produce better results than the individuals working separately.
Dr. Bush. Oh, yes; in certain fields very much better.
The Chairman. So that illustrates what has been developing
through our society in the last 50 years, namely, collective effort in
science and in economics, so the question proposes itself, as it we^e^
Is the individual who operates outside of a collective group protected
in our present system sufficiently?
1 Pee "Exhibit No. 206", appendix, p. 1139 at p. 1147.
» Supra, p. 877.
900"
CONCENTRATION OF ECONOMIC POWER
Dr. Bush. In my opinion he is not, and I think the day of the
pioneer is not past, the day of the individual inventor is not past,
for fine as these cooperative groups may be and necessary as they
are to our general progress in this country, they do not cover the
entire field.
The Chairman. But the individual inventor as such is now under
a handicap that in attempting to develop his invention he is forced
to compete with collective groups.
Dr. Bush. Oh, but he is always competing. He has difficulties
t)f all sorts.
The Chairman. That may be, but this is a new sort of difficulty
that he didn't compete with in the days when the patent system was
initiated.
Dr. Bush. Yes; I think today he merely has more artificial hazards
which ought to be removed from his path because he has troubles
enough anyway without taking into account the artificial ones.
NEED FOR SINGLE COURT OF PATENT APPEALS
The Chairman. Of course you have recommended, as the Com-
missioner of Patents has recommended, that there should be one
single court of patent appeals. Now the primary argument which
has been advanced to support that recommendation has been this:
That the individual inventor is unable financially to follow a collec-
tive unit through the 10 circuits of the United States Courts of Appeals
to establish the validity of his patent, and therefore is in danger of
losing his patent to a collective group which is willing to seize the
use of the patent and put the inventor to his remedy in the courts.
Dr. Bush. Yes, and more generally the delays, burdens, costs of
the present system, which I believe has grown to be unduly cumber-
some, are a burden upon society at large, for they are a burden upon
the progress of the new things which the country could use.
The Chairman. So that your recommendation with respect to iin-
provement in the court system is designed to open the way for indi-
vidual enterprise?
Dr. Bush. Yes, sir.
The Chairman. And you recognize that individual enterprise is
handicapped by the necessity now of competing with collective power
of some kind or another?
Dr. Bush. The individual small enterprise at the present time can
go forward with surety only when it has in its hands patents of the
validity of which it is sure, so that it can proceed. The present
process for establishing without a doubt the validity of a patent is now
altogether too cumbersome, and if it can be shortened new ventures
can go forward with more assurance.
The Chairman. So now we have developed a realization of a certain
amount of control of scientific' development and invention by these
collective groups which we may regard as private groups. With that
in mind, I want to read the next paragraph in your report [reading
from "Exhibit No. 206"!:'
There ha,s been a powerful trend toward stronger Government control of large
industry in recent years. Unfortunately this has resulted in many measures
which have borne heavily and which have added artificial hazards to those
^naturally in the path of new ventures. Independence has been curtailed.
Appeudix, p. U30.
CONCENTRATION OF ECONOMIC POWER QQl
What did you have in mind when that paragraph was written?
Dr. Bush. I had in mind, and I think the committee as a whole had
in mind, a number of things. I can illustrate by one thing, if you
wish. I think the general procedure that has been adopted in this
country in regard to the control of the issuance of new securities has
been a desirable thing in order to protect the pubHc. But along with
that entire problem, an attempt to control and protect the public
against the issuance of securities of no value, if you like, has come an
additional burden upon new ventures, an additional cost, an addi-
tional amount of red tape in the furtherance of issuance of securities
to the public for the financing of new affairs. That is one illustration.
The Chairman. You don't mean to intimate to this committee that
it would be a valuable exchange to abandon the control or supervision
which is now being exercised over the issuance of securities in order
to obtain this greater freedom of which you speak.
Dr. Bush. Not at all, sir. I hope that the benefits may be main-
tained and the disadvantages mitigated as time goes on.
The Chairman. Have you any suggestions as to how that might
be done?
Dr. Bush. No, sir; not without taking more time than I ought to
take on that subject.
The Chairman. Well, now, if, by taking a httle time, you could
do that, I think I can speak for the committee in saying we will be
glad to have a m.emorandum from you on that point.
Dr. Bush. I will be very glad to go to work on that some time.
The Chairman. Because the more information we get the more
likely we are to reach conclusions that will be pubhcly advantageous.
This whole question of the effect of patents upon unemployment,
as outlined in our resolution, raises in my mind the question of what
the effect is of labor-saving devices. Have you any opinions about
that?
Dr Bush. Yes. It happens that in my own experience I have
had very httle to do with inventions which were brought out ex-
phcitly for the purpose of saving labor. I have perhaps 30 United
States" patents. I don't think any one of those is directed to the
saving of labor as a means for the production of profit, and I very
seldom encounter the group that is attempting to invent for that ex-
plicit purpose.
More generally, the cheapening of a product through the saving of
labor very often results in its increased use, as we all know, so that
the mere saving of cost in that way, in the production of a product,
does not necessarily mean a decrease in the aggregate of labor used
in that particular field.
The general result of all invention and all patents has been, first,
to cause temporary dislocations in labor, but, second and more im-
portant, to increase very largely the potential call for labor in the
country as a whole.
The Chairman. We have a condition which might be described as
a race between the labor-saving device upon the one hand and the
new invention upon the other, creating new demands. Would that
be a fairly accurate description?
Dr. Bush. We have a race between the tendency of old industries
always to produce their products with less labor and the advent of
new industries which are capable of picking up that labor and labor
in addition.
gQ2 CONCENTR-\.TION OF ECONOMIC POWER
The Chairman. Which is overtaking the other?
Dr. Bush. Recently I think the advent of new industries has been
so inliibited that it has not performed its proper part in picking up
the slack.
The Chairman. How has it been inhibited?
Dr. Bush. By lameness, by cumbersomeness in the patent system,
particularly in the matter of litigation, and by the general situation in
regard to the attraction of new and venturesome capital into new
ventures.
The Chairman. The litigation system, in your opinion, is such
that it restricts development, thereby restricting the opportunity for
creating labor, new opportimities for labor?
Dr. Bush. Yes, sir.
The Chairman. And you have taken that into consideration in
the recommendations which you have made here?
Dr. Bush. Yes, sir.
LACK OF SERIOUS ECONOMIC THREAT IN FOREIGN HELD pAtENTS
The Chairman. Have you any suggestion to. make to us with
respect to the operation of our patent system upon tlie inventions of
citizens of the United States and the inventions of foreigners?
Dr. Bush. Of course, under our patent laws any individual who
comes with a new idea is entitled to the protection of our patents
and similarly American citizens may apply for patents in foreign
countries. In my opinion, the American patent system is a far
better system than is found elsewhere, far. more favorable to the in-
ventor. It has been my own personal experience that it is very
seldom worth while for an American citizen to apply largely for foreign
patents because primarily of the taxes which soon come to bear as
a burden. In that sense, then, the situation as far as foreign citizens
applying for patents in this country and Americans applying for
patents abroad is not the same. They operate under different
systems.
The Chairman. What I had in mind was whether or not in your
judgment foreign inventors or foreign cartels, particularly, could use
the American patent system for the purpose of preventing production
or employment in this country.
Dr. Bush. If the American patent system is operating properly
for its intended use, for improving the standard of living of the
American people, through increasing employment, through giving
us new industries, then we don't care who uses it for that purpose.
Any individual who uses it properly for that purpose will contribute
to our general situation and to the benefit of the public.
The Chairman. I didn't imderstand that to be an answer to the
question as to whether in your opinion the system as it now exists
can be used by foreigners for the purpose of repressing production
here.
Dr. Bush. Oh, yes; it can.
The Chairman. Have you any suggestions to make to us with
respect to remedying that point, that defect?
Dr. Bush. I am not sure that it needs to be remedied. I think it
would require quite a bit of study to determine whether that is on
the whole a damaging situation at the present time.
CO^'CENTRATION OF ECONOMIC POWER 9Q3
The Chairman. Do you want us to draw the inference that you
beUeve it may be beneficial on the whole that developmcDt could be
suppressed or restrained?
Dr. Bush. No, but I am not sure that that is sufficiently extensive
to compensate for the benefit that is undoubtedly produced by having
the foreigners come in here and introduce their ideas into the American
patent system, which, of course, results in due time in their release
to the public.
The Chairman. Does your experience enable you to draw any
conclusion as to whether or not there are among these large groups
which are now developing patents, understandings, and agreements
which overrun national lines which include other nations as well as
the United States?
Dr. Bush. Well, I know, as I think is general public knowledge, that
there are arrangements by which American companies interchange
patents with foreign companies.
The Chairman. Of course, that wasn't in the contemplation of
those who drew the original patent law. Have you any advice to
give the committee with respect to recommendations dealing with
that phase of the situation?
Dr. Bush. I have never felt that the American businessman
needed any great aid in that regard. I have always felt that he was
perfectly able to take care of liimself in that sort of situation.
The Chairman. That buzzer is a roll call and the members of the
Senate are being called to respond to a vote. Senator King and I will
have to go and I will turn the inquiry over to my good friend of the
House of Representatives.
(The vice chairman. Representative Sumners, assumed the chair.)
Mr. Frank. Dr. Bush, there is every indication that you have a
splendid scientific mind and I therefore assume that in any subject
with which you are dealing you want to be supplied with adequate
data. I just want to suggest that if you care to, in preparing the
memorandum to which you referred, you can avail yourself of the
data that the S. E. C. has on the subject of the cost of registering new
issues. I think it may surprise you to learn that the cost, particu-
larly of the smaller issues, while it is larger proportionately than in
the case of the larger issues, is by no means the impediment to the
saleability of such issues, for we have hundreds of them registered
and fully ready to sell and they have not been sold. But that and
other related data, if you care to have it, we will put at your disposal.
Dr. Bush. Thank you, Commissioner. I shall be glad to.
Mr. Frank. May I ask you a question on the subject of your sug-
gestion as to experts? It occurs to me that an interesting analogy
might be found in the statute, the O'Mahoney-Chandler Act, that
was enacted at the last session of Congress. Under that act the courts
may call upon the S. E. C. for advice with respect to reorganizations.
Would it be possible that a similar device might be used with respect
to patents; for instance, that a group in the Patent Office might be set
up, of experts upon whom the courts could call if they desired?
Dr. Bush. Yes, it seems to me that that would be quite possible.
I hoped personally that the matter would be broadened so that the
court would be enabled to call upon the best man in the country on a
particular field for advice in considering a particular issue.
gQ4 CONCENTRATION OF ECONOMIC POWER
Mr. Frank. Would you think, to carry the analogy a Httle further,
that it might be appropriate to allow the Patent Office, or some branch
of the Patent Office, to apply to the court in any case where a patent
suit was being heard and ask for leave to supply information to the
court?
Dr. Bush. Property worked out I think that might be quite helpful.
It is not exactly what my committee had in mind in making the
recommendation .
The Vice Chairman. Are there any further questions, gentlemen?
Dr. Bush, there are one or two points, and I am constantly having
to explain my embarrassment because I haven't been able to be here
all the time.
I gather from the statement by the chairman that in your report/
which I unfortunately haven't had the opportunity to examine, that
you found similarity between the condition of the individual pioneer
and the person who is pioneering jm the field of scientific discovery
and invention. It occurred to me that the similarity probably would
be more striking between the position of the discoverer of a new
continent or a new island than it would be between the pioneer in the
field of scientific discovery and the individual, in the relatively small
number of people who can hope successfully to pioneer in the field of
invention.
Dr. Bush. I would compare the geographical discoverer rather
with the scientist who spends his lifetime in discovering new knowledge,
new relationships.
The Vice Chairman, I misunderstood your analogy. I thought
from the question of the chairman that yo.u had indicated a sort of
broad, democratic opportunity in the field of scientific discovery,
comparable to that which is afforded the pioneer who wanted to get
an individual home.
Dr. Bush. Of course, we have to contrast in all our thinking
scientific discovery with invention, and the scientific discoverer is not
subjected to the stresses of the pioneer in industry who makes and
commercializes a patentable invention.
INVENTIONS and EMPLOYMENT
The Vice Chairman. If I may, I would like to follow that just a
little further and for my own information ask for a httle more develop-
ment.
Whatever that was [referring to buzzer], I wish it wasn't.
I refer to the practical situation, as I view it, that has developed by
reason of a large number of unemployed people and the peculiarly
distressing situation of the person along about 50 years old who has
been released from some employment where he has been trained
through his lifetime, and the apparent inabiUty of organized society,
or whatever you want to call it, to provide an opportmiity for at least
a relatively large number of people to find any sort of gainful occupation.
^ I wouldn't myself go so far as to say that there ought to be a cessa-
tion for a while of the inducement wliich the Government is offering
for people who invent a machine who will give us some more idle
people. I wouldn't like to go that far yet, but a.<» a practical, common-
sense proposition, we do recognize that we have so much more rapidly
' "Exhibit No. 206", appendix, p. U39.
CONCENTRATION OF ECONOMIC POWER QQq
advanced in one of what ought to be, it seems to me, paralleling lines,
where we have accumulated all these millions of people, and I question
the common sense of continuing to try to hire somebody to invent a
machine that will give us some more idle people by offering them a
monopoly of 17 years of right to use.
I have traded all my Hfe in the country, buying mules and yearlings
and things, and it doesn't seem to me that is an awfully good trade.
I can't figure it out.
Dr. Bush. You and I, sir, approach this apparently from 'itterly
different points of view.
The Vice Chairman. You are a scientist, and I am just an ordinary
fellow around the country. I mean that.
Dr. Bush. I am a boy from the country, too, but my own experience
in this field has nothing whatever to do with that. One of the prin-
cipal things that I was concerned with that was founded upon inven-
tion and that was dependent entirely upon the patent system for its
continuance, succeeded in carrying through this depression with
approximately a thousand men. Now, the pioneers in that thing
made very httle money in it; it hasn't been a money-making venture,
but it has provided employment in a new field where men would not
have been employed if those inventions had not been made.
The Vice Chairman. What is that, Doctor, what field?
Dr. Bush. I am thinking of the Raytheon Manufacturing Co.
The Vice Chairman. What do they make?
Dr. Bush. They make about a million thermionic tubes a month,
radio tubes that go into the sockets of your radio set, an-d they were
early in the field and have a large number of inventions in the general
field, vacumn tubes and the like.
The Vice Chairman. That is the development of the use of radio,
isn't it? It is a new field?
Dr. Bush. Yes; that is a very new field; this was just one unit in it.
The Vice Chairman. I was wondering if you had an illustration of
what we may call invention and discovery with reference to some
established activity, well, anything.
Dr. Bush. Well, take control devices, a very old field, a field where
much work has been done for two generations.
The Vice President. What field is that?
Dr. Bush. Controls, thermostatic controls, automatic controls of
all sorts. I was associated
The Vice Chairman (interposing). You mean instead of using the
hand brake on a freight car you press a button or something?
Dr. Bush. Yes; and ofihand that looks decidedly hke a field where
labor would be displaced by making things automatic instead of
hand operated. My own experience in that field has been this:
I was associated with a group that started with some inventions and
formed a little company which has gone on for 15 years and has pro-
vided new employment by providing new devices, things that the
world had never seen and which are now being rnanufactured.
The Vice Chairman. Applying that to the railroads, how many
people did you increase by reason of that automatic device, just
deahng with that one thing'^? How many people did you increase in
the operation of trains?
906 CONCENTRATION OF ECONOMIC POWER
Dr. Bush. This, as far as I know, has never gone into the operation
of trains. They have some automatic devices but not this particular
type.
The Vice Chairman. I don't want to pursue it to the point of
becoming tedious but isn't it a fact that these automatic apphances
with regard to trains, which I have seen operate, did considerably
reduce the number of people who were required to stop moving trains?
Dr. Bush. Yes, sir; and if the railroads of this country had had
their own great research laboratories, had participated completely
in the technical advance, had produced 10 or 15 years ago streamlined
trains, light cars, many of the things that we see just over the horizon
now, the situation in the railroads would be a much more pleasant
one than at the present time. In my opinion the railroads have suf-
fered not from the advent of new devices, not from the advent of
inventions, but from the lack of completely successful development
technically.
The Vice Chairman. Well, that is compared with the automobiles
and traffic of that sort. It didn't result in many people riding trains
that hadn't ridden them before, do you suppose?
Dr. Bush. Well, every time I have been on a streamlined train it
has been crowded.
The Vice Chairman. Now, do you think those people wouldn't have
been going places if they hadn't had a streamUned train?
Dr. Bush. They might have gone another way.
The Vice Chairman. That has been bothering me, but nobody
agrees with me, so don't be disturbed. I have been trying to figure
out whether it is a good thing to keep on increasing the number of
unemployed people by increasing patents.
Dr. Bush. You haven't any doubt what I think about it, have
you, sir?
The Vice Chairman. No, sir. Thank you very much.
PROPOSED single COURT OF PATENT APPEALS ^
Mr. Davis. Mr. Bush, I am very much interested in the proposal
with respect to the single court of patent appeals. I should like to
ask whether this recommendation made by your committee con-
templated that all of the evidence for consideration by the Court of
Appeals would be made up in the hearings in the Patent Office, so that
the Court of Appeals would in fact be a Court of Appeals and hear the
case upon the written record and in the absence of the introduction of
any witnesses or additional testimony.
Dr. Bush. My committee, sir, does not make any recommendation
in regard to the distribution of function between the courts of first
instance and the Court of Appeals. The recommendation of my com-
mittee was directed to one point only, the creation of a single court of
appeals for patent cases rather than to have the appeals go to the
several circuit courts.
Mr. Davis. Was there any contemplation of your committee to
the effect that the entire hearings should be here in Washington,
assuming that the court of appeals would sit here, or that you would
employ trial examiners, such as do some of our commissions, to
go to different sections to receive testimony?
>This subject is resumed from p. 902 and is continued on p. 1104, infra.
CONCENTRATION OF ECONOMIC POWER 9Q7
Dr. Bush. The committee suggested that there be held sessions in
the several districts but made it clear that that was not the important
feature in the minds of the committee; the important feature was the
creation of a single court and the details of the ways in which it held
its sessions were regarded as secondary.
Mr. Davis. You have in my opinion very properly manifested a
concern for the inventor, the independent inventor without very
great means. If he resides a considerable distance from the capital
and was required to bring his witnesses and other testimony to the
capital for introduction before this court, would it not in a great
many instances amount to a denial of justice to him?
Dr. Bush. If it would, sir, then we have a denial of justice in the
same sense at the present time, for he may be called upon to go to
any circuit in defense of his rights.
Mr. Davis. Well, but we are undertaking to devise means of
impr(5ving this situation, not simply creating something else as bad,
and I respectfully suggest that that is a very important feature that
should be considered, the disadvantages of which could be avoided
in the manner of some of the existing commissions.
Dr. Bush, you also made some comments with respect to the
relative position or importance of independent inventors and collective
invention, and I presume that by the latter term you refer to the
development of inventions in laboratories. That is correct, is it not?
Dr. Bush. Yes.
Mr. Davis. It is a fact, is it not, that a large percentage of the
useful, valuable inventions have been developed by individual in-
ventors?
Dr. Bush. It is a fact that important inventions have come from
both sources ; yes, sir.
Mr. Davis. Is it not a further fact that the success of a laboratory
of this kind in large measure depends upon the personnel, with respect
to ability and inveptive genius of it?
Dr. Bush. Oh, yes; very much so.
Mr. Davis. In other words, can it not be truthfully said that
inventors are born rather than made? I mean, men with inventive
minds and the ability to evolve these ideas.
Dr. Bush. While it is quite true that there are born inventors, it
is also entirely possible to teach the ^rt of invention to a consider-
able degree, and a man who is naturally of the type of mind who
would make inventions if properly handled in his training will become
a much better inventor than if he went his own way. I think it is
entirely possible to impart some of the fundamentals of the art of
inventing.
Mr. Davis. That is all.
Mr. Frank. Dr. Bush, you referred some time ago to the desir-
abihty of removing impediments to the investment in risky ventures
which may turn out to be socially useful. Did you imply that per-
haps in connection with inventions and investments therein it might
be worth while to consider granting some kind of limited tax exemp-
tions to persons making such investments?
Dr. Bush. That is one artifice that is very attractive as it is viewed
in the broad. I would not venture an opinion as to just how such a
thing could be worked out, but it certainly seems to me fundamentally
908 CONCENTRATION OF ECONOMIC POWER
necessary that we make it possible for speculative investment,
properly made, to secure a speculative profit.
The Vice Chairman. Are there other questions?
Mr. DiENNER. I have no further questions. Senator King would
like to put some questions to the witness.
Mr. Patterson. Mr. Chairman, I should Hke permission to call on
my colleague, the Commissioner of Patents, to speak for a moment
on Judge Davis' observation of the court problem. The Commissioner
has something in mind, if it is agreeable.
Mr. Conway P. Coe. Mr. Chairman, I think in a very simple way
I can remove some of the uncertainty that seems to have arisen in
Judge Davis' mind about the single patent court of appeals. It is
contemplated that if that court is established it will be used merely
for purposes of litigation and have nothing to do with the appeals
from the Patent Office, so that if such a court is -established the pro-
cedure will be this: A patentee would go into the district court, any-
where he could obtain service on the defendant, and build his record
exactly as he does today. Thereafter, instead of appealing to a cir-
cuit court of appeals of that circuit, he would take it to this single
circuit court of patent appeals, having jurisdiction throughout the
United States.
(Senator O'Mahoney resumed the Chair.)
Mr. Davis. In other words, you only contemplate appeals from
the United States district courts.
Mr. Coe. Exactly.
Mr. Davis. To be heard upon a written record, a transcript of the
record made up in that court.
Mr. Coe. Yes; the record made in the district court.
Mr. Davis. I misconceived, largely by reason of what Dr. Bush
said, the function of the proposed court.
CHARGE OF SUPPRESSION OF PATENTS OFTEN UNFOUNDED
Representative Reece. Mr. Chairman, sometimes one hears the
view expressed that the putting of a patent into production is
restrained by purchase or otherwise of some interest that would be
adversely affected by the patent being put into production, and then
after this interest acquires the control or influence over the patent, does
not utilize it, and I am wondering if, in your studies, which of course
are impartial, such a condition was found to ex-ist to any considerable
degree, if at all.
Dr. Bush. I said a word or two this morning on the matter of sup-
pressed patents, which I think is what you have in mind.
Representative Reece. That is certainly one phase of the question
of suppressed patents.
Dr. Bush. And, I said that in my opinion it did not constitute a
serious problem, for various reasons that I outlined, and specifically
that in the usual sense of the suppressed patent, namely one that might
result in a device for the public benefit, I had never in my experience
seen one held away from the public permanently which could produce
a benefit.
Representative Reece. As an illustration of what I had in mind,
an experience was encountered yesterday as I came down in a taxicab.
In some way the conversation with the driver developed which gave
CONCENTRATION OF ECONOMIC POWER QQQ
him the-opportunity to express his view that he understood there were
patents available by which there could be a great saving effected in
the use of gas and the operation of an automobile, by which you could
get 40 miles to the gallon, but the oil companies had bought them up
and of course wouldn't put them into production.
Dr. Bush. I think that is one of the popular opinions that we are
bound to meet. I don't believe myself that there is any serious
problem of suppression of patents in this country. I have never
seen it.
Representative Reece. My thought in propounding the question
wasn't to reveal that I had the view myself, but rather to allay the
fears that some might have.
Dr. Bush. Of course, all inventors think that the things that they
invent are great. If they did not have that point of view they would
not be good inventors. Very often you find a man who thinks his
patent has been sidetracked by artificial means because he knows
it is good and knows it would be of great public benefit and it is not
in use. For that reason I think we very often find men who have
the feeling that they have been artificially prevented from progressing,
when really the facts are quite different.
Senator King. Apropos of that, are you familiar with the Oldfield
hearings in the House? ^
Dr. Bush. Only very sketchily, sir.
Senator King. And the McFarlane hearJngs, recently in the
House of Representatives? ^ Is it not a fact, especially in the latter
hearings, that there was no evidence whatever of any suppression of
patents?
Dr. Bush. I didn't follow that evidence closely. Senator King.
Senator King. In the Oldfield hearings, two hearings, as I recall,
while there was some claim that there had been some patents sup-
pressed or not used, there was no concrete evidence presented, as I
recall. Are you familiar with that?
Dr. Bush. No, I am not. I have never seen the record.
Senator King. I suppose there are thousands of patents issued
which lack utility and are never put intause?
Dr. Bush. Right.
Senator King. Have you made an investigation to determine, out
of the hundreds of thousands of patents v/hich have been issued, the
number which have been used?
Dr. Bush. No, sir. I thought j'-ou were going to ask me whether
I had made an invention which proved to have no utility.
Senator King. I will ask you that now. Out of your 30 patents,
how many of them had any utihty?
Dr. Bush. Oh, I suppose half or a third of them are in use. The
fiirst invention I ever made was patented in 1913 and didn't have a
ghost of a show, but I was too young to know it at the time, or appre-
ciate it.
Senator King. Taken by and large, you think the patent system
has been beneficial to our industrial and economic fife?
Dr. Bush. It has not only been beneficial but it has been one of the
essential factors in our position.
1 Codification of Patent Statutes and their hearings pursuant to H. P. 23417, April 17, 1912; adu Oldfleld
Revision and Codification of Patent Laws, 1914, 63d 2d. „ , ^ , . ,
' Hearings before a subcommittee of the House Committee on Patents on "Compulsory Licensing ,
75th 3d pursuant to R. R. 9259, H. R. 9815, and H. R. 1666.
124491— 39— pt. 3 6
giQ CONCENTRATION OF ECONOMIC POWER
Senator King. Would you favor any repeal or amendment of the
present law?
Dr. Bush. I would not. I would recommend that the patent law
be strengthened and its imperfections removed in order that it may
function for its intended purpose more efficiently.
The Chairman. The question propounded by Senator King sug-
gests another one to my mind, namely, did you ever invent any
device which was afterwards the subject of litigation, and if so, with
whom?
Dr. Bush. I can't remember of a case where one of my own inven-
tions has specifically gone into litigation.
The Chairman. You showed us this morning a device which
sounded very much Uke a child's firecracker, but which I think was an
important element and a really useful device. Was that ever the
subject of litigation?
Dr. Bush. That device was invented by one John A. Spencer.
There are about, 1 think, 40 or 50 patents in the general field that are
held by tha^t company, many of them resulting from his inventions.
Those patents have never been the subject of Utigations. They have
been the subject of long discussion and I can remember a period of
years during which w^e in the company felt that a large company was
infringing those patents. The matter never went to suit.
The Chairman. You say a large company?
Dr. Bush. A very large company. The matter never went to
suit. The company finally took a license, and is now manufacturing
under the patents.
The -Chairman. I hope you are now getting a Uttle royalty from the
large company.
Dr. Bush. Yes; we got royalties from the large com.pany for years.
We plowed them back in the business ; we built up a very fine business,
and the depression came along, and things haven't been as nice since,
but we still have hopes.
The Chairman. I have no doubt but that with your personality
you t!ould persuade any company to be interested.
FOREIGN PATENTS *
Senator King. Reference was made before the recess to foreign
patents. Are there m.any Am.erican citizens who have taken out
foreign patents?
Dr. Bush. I can't give you the statistics off-hand. Yes; quite a
number, of course.
Senator King. Have they encountered any difficulties in the
utilization of their patents in foreign countries?
Dr. Bush. Well, again, from, my own experience, the tax situation
in foreign countries is very difficult, and the expense of keeping up a
group of patents is so liigh that I do not personally believe it pays to
take out foreign patents except under very extraordinary circum-
stances.
Senator King. I understood you to answer Senator O'Mahoney this
rooming that you did not know of any foreign patents taken out in the
United States; that is, taken out in the United States by foreigners,
which were used for ro.onopolistic purposes, or for the purpose of inter-
fering or injuring the economics of our country, our business life.
' This subject is resumed frorn p. 093.
CONCENTRATION OF ECONOMIC POWER QH
Dr. Bush. I said, I think, I couldn't name any specific instance of
where I felt that such a situation was permanently disadvantageous.
I have no doubt that there are situations of that sort, but I can't
name them.
Senator King. Is there any considerable number of foreign patents?
Dr. Bush. Oh, yes; quite a large number.
Senator King. In what particular fields, chemistry?
Dr. Bush. Oh, I think in all fields. You will find United States
patents taken out by foreigners and often assigned to foreign concerns
in practically all fields.
Senator King. Many American patents are taken out now on dyes,
are they not, or do you rely very largely upon the German patents for
our dyes, for the products of coal tars?
Dr. Bush. Before the war, of course, the whole dye industry, and
the development of organic chemistry of dyes, had its center in Ger-
many and was developed there. I think no one questions that at the
present time' the Am.erican chemists are doing fully as good work as is
done anywhere in the world in the development of that type of
product.
Senator King. We took over, did we not, all of the German patents,
immediately after we entered the war?
Dr. Bush. Yes; the Alien Property Custodian had those patents
and they were turned over to the Chemical Foundation for the United
States of America.
The Chairman. Do any other members of the committee desire to
ask Dr. Bush any additional questions? Mr. Dienner, have you any-
thing more?
Mr. Dienner. Nothing further, thank you.
The Chairman. Dr. Bush, we are very grateful to you for a very
interesting day. Thank you for appearing.
Dr. Bush. At your service.
The Chairman. Mr. Dienner, your next witness.
Mr. Dienner. May we call Dr. W. D. Coohdge to take the stand?
The Chairman. Dr. Coolidge, do you solemnly swear that the testi-
mony you are about to give in this proceedings will be the truth, the
whole truth, and nothing but the truth?
Dr. Coolidge. I do.
The Chairman. You may proceed. Mr. Dienner, will you pro-
ceed?
STATEMENT OF DR. WILLIAM D. COOLIDGE, DIRECTOR OF
RESEARCH LABORATORY, GENERAL ELECTRIC CO.,
SCHENECTADY, N. Y.
history and description of general electric research
laboratory
Mr. Dienner. Your full name?
Dr. Coolidge. "William D. Coolidge.
Mr. Dienner. And your occupation?
Dr. Coolidge. I am director of the research laboratory of the
General Electric Co.
Mr. Dienner. Am I correct in understanding that that was the
first industrial research laboratory in the United States?
912
CONCENTRATION OF ECONOMIC POWER
Dr. CooLiDGE. So far as I know; yes, sir.
Mr. DiENNER. That is identified in popular language as the House
of Magic; is it not?
Dr. CooLiDGE. Yes.
The Chairman. This is the successor of Mr. Steinmetz?
Dr. CooLiDGE. You might regard it as such. But it might be in-
teresting for me to say a few words as to how this laboratory happened
to be formed.
The Chairman. I am sure we would be very much interested, Mr.
Coolidge.
Dr. Coolidge. It was 38 years ago. Mr. E. W. Rice was then in
charge of the engineering work of the company, and among his associ-
ates he had Professor Elihu Thomson, Dr. Steinmetz, and Mr.
A. G. Davis, who was then head of the patent department, and these
gentlemen saw clearly that all of the engineering work of the company
was based on the facts and principles established by fundamental re-
search. Much of that research work had been done by university pro-
fessors, and they felt that it might be a very good scheme for us to
contribute to that kind of fundamental research, and of course with
the utilitarian purpose of establishing new facts and principles on
which new jobs for our factories could be created, new devices which
would give work to our various factories.
It might be interesting, too, if I go a step further and give you a little
picture of what that industrial research laboratory is like. It started
with one man — a very small laboratory. Dr. \\'hitney was then
Professor of Chemistry at the Massachusetts Institute of Technology,
and it gradually grew. Today there are about 300 people in that
laboratory; about 100 of these are research workers and the others are
mechanics, glass blowers, and assistants, and clerical help. The re-
search workers are men who for the most part would otherwise be
connected with universities if they weren't with us.
The Chairman. Would it be inappropriate if we would call that the
brain trust of the General Electric Co.?
Dr. Coolidge. I think a little, because some of our people would
feel that there were brains outside of the laboratory. [Laughter.]
Mr. Frank. To follow in that vein, Doctor, it is possible that some
of those men are persons who have never met a pay roll.
Senator King. Is the inference that a brain truster never did meet
a pay roll?
Mr. Frank. It has been suggested that they have a monopoly of
such incapacity.
Senator King. Well, they have a partial one.
Mr. DiENNER. Dr. Coolidge, you have been so modest that you
have not given us a statement of your qualifications and accomplish-
ments, and I would like to have you do so.
Dr. Coolidge. Well, I started out to try to be an electrical engineer,
and then after graduating from the Institute of Technology I went
abroad for study in physics and chemistry, and then came back to this
country and remained at the Institute of Technology for 5 years doing
research work, and then in 1905 I joined the staff of the research
laboratory in Schenectady.
If I may go on and tell you a little more about what that laboratory
is like, I have a feeling that while there is no difficulty in finding men
who know enough to do research work, it is not so easy to find those
CONCENTRATION OF ECONOMIC POWER 913
who can make use, good use, of their knowledge, so that I think of
our group as a hand-picked group of men who are able to use their
scientific knowledge and as men who are capable of cooperating well
with one another and with the other men in the General Electric
organization. I should have said that Dr. Whitney in starting the
laboratory started out with the idea that cooperation was tremen-
dously inriportant, that given two scientists of equal ability, if they
would cooperate nicely with one another, their output should be
much more than twice that of either of them working alone, that each
should contribute a good deal to the work of the othor, and I have
seen that work out very well. In the 33 years that I have been in
that laboratory I have often seen it happen that one man working in
a seemingly very remote field from the other makes an important con-
tribution to the work of the other.
The facilities of such a laboratory are. of course, very helpful to the
worker in it. I should name, first, the library as the most important
aid to his work, and then he has material facilities in his workroom; he
has probably hydrogen gas at low pressure, hydrogen gas at high
pressure, oxygen gas, compressed air, water, and vacuum, all piped
to his room, and then electrical services — a great variety of electrical
services.
I might go on a step further and speak of the different kinds of work
going on in that laboratory. Remember that the laboratory was
established for fundamental research, that is to establish new facts
and principles, but it natu'-ally develops that inventions will be made
by members of the staff.
The Chairman. By fundamental research, Dr. Coolidge, I assume
you mean unrestricted research unrelated to the particular objectives
that the company itself might have in mind at that particular time.
Dr. Coolidge.' Absolutely unrestricted. We have ordinarily stuck
to things in the electrical field, but now that we regard all matter as
electrical you see thct that gives us a very wide field for our work.
As a rule, the man is working quite on his own, just as much so as
he would if he were connected with a university. It is impossible in a
large laboratory for any director to direct in any detail the work of
the men in the laboratory.
Representative Sumners. Doctor, let me ask you, in this labora-
tory are you seeking to discover natural law and how human beings
can work in accord with it?
Dr. Coolidge. New facts and new principles in the physical world.
Representative Sumners. You say new facts and new principles;
you mean they are newly discovered; they have always existed,
haven't they?
Dr. Coolidge. They mav have always existed. If it were cosmic
radiation you would sav it has always existed, but we have known noth-
ing about it. On the" other hand, it might be something which has
not always existed, which has been brought into existence. For
example, "take ductile tunarsten, the material from v/hich those lamp
filaments are made, the source of light in all of the present-day mean-
descent lamps. There was never such a thing as ductile tungsten m
existence until it was brought into ex-istence in the laboratory. The
tungsten which had been made up to that time, metallic tungsten,
had been as brittle as glass, but it was possible by work in the labo-
ratory to make it as strong as steel.
gj4 CONCENTRATION OF ECONOMIC POWER
Representative Sumners. Has that depended upon some natural
principle that you had worked in harmony with? You didn't create
it, did you?
Dr. CooLiDGE. You may say that it depended upon metallurgical
work, but it was a new metallurgical art which was developed.
Senator King. May I interrupt you there? Take, for instance, the
shattering of atoms; perhaps it was never known and it would have
been impossible until the concentration of electric energ}^ and such
tremendous power, to shatter an atom.
Dr. CooLiDGE. Except that that shattering has been going on all
the time on a very large scale due to cosmic radiation, but we haven't
known that until recently.
Representative Sumners. But without going any further, you didn't
inveT-', the power by which it would shatter, did you? You didn't
create the power; it was always here. I think I will withdraw the
question.
Dr. CooLiDGE. We might invent a machine for producing very high
voltage, very high energy particles for doing such atom smashing.
Representative Sumners. The practical question to me — I tliink
it is practical — is we don't seem to recognize in our job of trying to
operate the machinery of a complex government that there are any
natural laws, any principles, anything that we have got to know about
and work in accord with; we just go thundering along. You people
in your laboratories are trying to discover natural law and how you
can work with it.
The Chairman. It might be proper to remark here that the courts
have recognized a distinction between a principle, which Congressman
Sumners is now discussiong, and a device which makes use of that
principle. The principle is not patentable; the device is patentable,
and of course it may be that there is a principle in poHtics. I will dis-
cuss tlat with Congressman Sumners a little later.
Representative Sumners. If there is, we are pretty ignorant of it
around here.
Dr. CooLiDGE. I appreciate your help, Mr. Chairman.
I might say that all of this work is published, that is, there is no
secrecy in that laboratory. Insofar as possible we try to have every
member of the staff know what every other member is doing, and, as
I say, all of the results of that research work, which are of any interest,
are published, and published very promptly, published just as soon as
the patent ai)plication can be filed.
The Chathman. But not published before application is filed.
Dr. CooLiDGE. That is right ; provided there is sometliing patentable
there. Of course in mnny cases it is fundamental work, discovery of
new facts and principles on which
The Chairman (interposing). On which a patent couldn't be ob-
tained.
Dr. CooLiDGE. On which a patent couldn't be obtained. The fact
that thcro is no secrecy is very lielpful because it makes it ])Ossible for
us to discuss our work not only freely among ourselves but also with
other research workers in the universities and also in other industrial
laboratores, even those of our competitors; that is, we welcome all
visitors to our laborator^^ and always feel perfectly free to discuss
aiiytVJng which either isn't patentable or on wliich patent protection
has been obtained. I have said as nmch as I have about the value of
CONCENTRATION OF ECONOMIC POWER 9J5
cooperation because I know how much more efficient it is to work
that way than on the basis of secrecy.
The Chairman. But tliis is cooperation within a certain group, as
you have just defined it.
Dr. CooLiDGE. It is rather more than that because we do feel that
we can cooperate with other groups, with scientists working in other
laboratories.
The Chairman. Yes; you cooperate with these other scientists,
these other groups so far as principles are concerned, and new facts are
concerned
Dr. CooLiDGE (interposing). Yes; and often as to methods.
The Chairman. But you would not cooperate with them with
respect to any patentable de\ace until after your application was filed.
That is a p\irely practical situation.
Dr. CooLiDGE. That is correct.
The Chairman. I was very much interested, Dr. Coolidge, in
your description of this laboratory. We all know, of course, that
laboratories of this kind are productive of great benefits, public
benefits as well as private benefits to your particular corporation.
Ton refer to the advantage which the scientist who is employed by
your laboratory derives from the presence, ready to his hand, easily
accessible, of hydrogen gas under pressure and hydrogen gas without
pressure, the accessibility of current in various forms, and the -avail-
ability of all of the physical devices which are used in a laboratory.
That suggests to my mind an inquiry — if it may be a proper one, and
I don't want to ask you to divulge private information — the inquir}'-
as to what your annual budget may be for the maintenance cf this
laboratory.
Dr. Coolidge. In this one laboratory, so-called research labora-
tory, it will be a little over $1,000,000 a year, but that will be only a
small fractK :i of the amount of money spent by the company for
research. I have no idea what the total amount is, but you see there
are some 15 other laboratories. They for the most part are what we
call works laboratories, and their function is mainly for testing mate-
rials and the control of factory processes.
The Chairman. Those 15 other laboratories are the laboratorios
which arc operated for the development of devices which are presently
usable bv the company. I take it.
Dr. Coolidge. It is intended that way.
The Chairman. Yours is the general laboratory which undertake
the fundamental research.
Dr. Coolidge. Yes; but some fundamental research work will be
carried on in these other laboratories. It will depend upon the
personnel.
The Chairman. Would j^ou care to venture any opinion as to the
annual cust to the General Electric Co. for maintaining these 15
other laboratories?
Dr. Coolidge. I wouldn't dare to. I don't know the answer, and
it would be very difficult, I think, even for our controller to tell you
how much the company spends annually for research, because in some
cases you would need to get together on definitions as to what should
be included.
The Chairman. But in your laboratory the expense is not less than
$1,000,000 a year.
giQ CONCENTRATION OF ECONOMIC POWER
Dr. CooLiDGE. That is right.
The Chairman. And of course that is made possible only because
the General Electric Co. is a large company, with a large number of
stockholders and a very large capital reservoir upon which to draw.
Mr. DiENNER. Also you should include the patent system available,
in that connection.
The Chairman. We will come to that, Mr. Dienner. We are not
going to forget patents in this inquiry any time.
You were about to answer the question, Dr. Coolidge. I said all
of this is possible only becauso the General Electric Co. has a large
number of stockholders and therefore a large capital reservoir upon
which to draw to maintain this enterprise.
VALUE OF SCIENTIFIC RESEARCH
Dr. Coolidge. That is undoubtedly helpful. I wouldn't want to.
lesive you, however, with the impression that that laboratory is an
expense to the General Electric Co.
The Chairman. Oh, undoubtedly it produces dividends ; I am sure
of that. I was thinking of the cooperative aspect of the matter to
which you have referred.
Dr. Coolidge. Yes, sir.
Mr. Dienner. Might I ask, Dr. Coolidge, whether without such a
laboratory your company would continue with development of new
ideas, new principles, inventions, and, if so, at what rate?
Dr. Coolidge. The engineering development work would certainly
go on and the application of known principles, facts, would certainly
go on. I think, however, that both of those would go on at a some-
what reduced rate, because without patent protection the manufac-
turer would spend money on the development of a device and would
put it on the market and it would then be copied by others, and the
second manufacturer making the "Chinese" copies would have no
development expense and so could undersell the first manufacturer
who was responsible for tne dev'ce in the first place.
So far as fundamental research is concerned, 1 presume we would
also do a certain amount of fundamental research, but it seems to me
that it would have to be much less than At present, because I don't
see how it could be paid for in the absence of any patent protection.
Mr. Dienner. One other point. Would not the necessity of
observing secrecy materially interfere with the rate of advance?
Dr. Coolidge. It would certainly slow it down. I was so impressed
several years ago seeing how far secrecy could be carried, and how
badly it worked out. It was in a German laboratory and the research
work was all done behind locked doors, not only outside doors but also
inside doors, so that although this was all one laboratory, the man
working in this room knew nothing about what was going on in the
next room, and it went so far, I rember, in one instance, that the two
men working in this room needed an electric furnace of a special type.
They knew that a man working in the next room h-td developed such
a furnace, but they couldn't learn anytliing about the design of that
furnace, so they had to go ahead and develop their own, although the
same company paid for both of these development jobs.
Mr. DiKNN'RK. Dr. Coolidge, would you tell us about some of the
public benefits which have accrued from your laboratory in the past,
with reference, for example, to the electric lamp?
CONCENTRATION OF ECONOMIC POWER 917
Dr. CooLiDGE. As I have already said, the filament, the light-giving
filament in the incandescent lamp of today is made of ductUe tungsten
that was developed in that laboratory. Then miost of these lamps are
gas-filled lamps and that was also an invention made in our laboratory
by Dr. Langmnir, an invention w^hich doubled the efficiency of the
incandescent lamp. I mean, the efficiency of the gas-filled' lamp is
twice tliat of the high vacuum lamp which preceded it.
I might also speak of our X-ray work; the modem X-ray tube came
from that laboratory. To get back a moment to the subject of
lighting, the new fluorescent — we have contributed to the new
fluorescent lamp which is two or three times as efficient as the gas-
filled incandescent lamp.
Mr. Dip:nner. Will you pardon my interruption, but I would like
to have you bring out at this point what savings were effected to the
public through your improvenient.^ in lamps over the period of years.
Refer to your notes, if you please.
Dr. CooLiDGK. I have a story here which I would like to read on
that subject. The United States public paid about $90,000,000 for the
lamps it bought in 1938. If it had to buy the carbon lamps of 1900
to produce the same n mount of light, its lamp bill would have been
increased by about $600,000,000 for that one year, $2,000,000 per
working day.
The CiiAir.MAN. Well, that of course means that reduction in
price is the means by which the inventions of science become available
to the masses of the people..
Dr. CooLiDGE. That is right.
Mr. DiENNER. A further point, Senator, that in doing that there
is an enormous sav^ing in the cost of current required to produce the
light we do get. Not only do we buy more lamps, but we save our
natunil resources.
Dr. CooLiDGE. Tliat is a small part of the story. The lamps of
1938 through research were so much more efficient than those of 1900
that to produce with the latter lamps the amount of H^dit used in
1938 would have raised the public's electric light bill for the same year
by about $3,000,000,000, or $10,000,000 per working day.
The Chairman. It would have been perfectly impossible for the
public to have paid any such bill?
[Dr. Coolidge nodded his head.)
The Chairman. Let the records show that the Doctor nodded his
head affirmatively.
Dr. Coolidge! Thus research on lamps has given the public an
annual saving of about $3,500,000,000, more than the cost of all the
private automobiles sold in 1938 in the United States. But even this
is only part of the story. The foregoing was calculated on the basis of
average power rates for electric lighting in 1938. The average cost
of power today is less than one-third of what it was in 1900, and in
this reduction 'research has played its part. If the light used in 1938
had been produced by the lamps of 1900 with the electric power rates
of 1900, the cost would have exceeded that of 1938 by over $10,000,-
000,000— $30,000,000 per day.- Of course, the public would get along
with less light for they could not have afforded such a lighting bill.
What that woidd'have meant in reduced safety and efficiency in
industry, in reduced safety on streets and highways, and reduced
comfort and convenience in the home cannot be evaluated in dollars.
Q^g rOXCEXTKATKtX OV ECONOMIC POWER
The Chairman. What you are telling us, then, Doctor, if I under-
stand it, is that anything that tends to reduce production or to main-
tain price is really not u\ the public interest?
Dr. CooLiDGE. That is correct.
Mr. DiEXNEu. Dr. Coolidge, would you be good enough to let us
in on some of your current work and show us an example or so of
what you are working on in your laboratory at present? We would
appreciate that very much.
Dr. Coolidge. Dr. Bush made it a little easier for me by establi<=!h-
ing a precedent this morning of showing some playthings. First of
all, I should like to speak of our work on pernument magnets.
The Chairmax. If I may remark, it looks as though Aladdin was
just about to rub the lamp.
Mr. DiENXER. It has been nd:)be(l.
Dr. Coolidge. Through continuous research, in the last 30 years
the strength of a permanent magnet has been increased eight to ten-
fold. DiH'erent groups have contributed to this research, and from
our laboratory has come the last step which has resulted in a two or
threefold increase in magnet strength. I think that if you try to
pull — I won't try to — -the iron armat\ire off of that magnet, you will
have quite a little respect for it, and I might say that in this magnet,
the only permanent magnet part is just the thin outer shell; the rest
is of soft iron to concentrate the field in this narrow groove; that is,
this was intended for a loud-speaker magnet. [Dr. Coolidge sub-
mitted the sample for inspection.]
In this case the magnetic material consists of an alloy of four
elements, aluminum, nickel, cobalt, and iron. In the proper propor-
tions and with the right heat treatment, these magnets are sufficiently
powerful so that they are capable of producing levitation. You have
here such a magnet, and then concealed in the wooden base is another
one just like it, and thus, as you see, one is capable of sustaining the
other. [Dr. Coolidge submitted the sample for inspection.]
These new magnets will find hundreds of new applications. It is
quite interesting to see how the field of usefidness of the permanent
magnet is suddenly extended by increasing its strength. It will be
used on the airplane, where weight is very important, for the magneto
and dymimos and motors; that is, for the fields of dynamos and motors.
It will be used where you want a quick break, as in switches where
you now use a toggle and spring you will use a little magnet. One of
these little horseshoe magnets goes in the control of each of our
domestic refrigerators. I will pass these toys around. You might
like to put them in your pockets. [Dr. Coolidge submitted the sam-
ples for inspection.)
The Chairman. I think you are trying to interrupt this study.
Doctor, by making the members play.
Senator King. How do you extract the dynamic power that con-
stitutes this magnet; where do you get it? How do you concentrate
it in the concrete form? Although it is imponderable, how do you
make it ponderable?
Dr. Coolidge. What you have done in this case is to take the
right elements and then you have put these things in a very strong
magnetic field. You have had to do that; that is, the thing is not a
permanent magnet until you put it in a strong magnetic field.
CONCENTRATION OF ECONOMIC POWER Q^Q
I might say just one word more about the magnet research. That
material is so hard that it can't be machined; it has to be ground so
that the cost, of course, is very important; it has much to do with
determining the breadth of the field in which this thing can be used,
so that to make little magnets like that or magnets of complicated
shape, it is very desirable to be able to get away from the casting
process, and we do find here through research that we can take the
constituent metals in powder form, mix these powders up in the right
proportion, press them in a pill-pressing machine, and then subject
them to heat treatment which causes a sintering and au alloying of
the metals, and then with the proper heat treatment and after mag-
netization, they are just as good as cast magnets.
If I may go from that to a more recent piece of work which many
of you may liave seen described in the public press recently, the work
of Dr. Blodgett, Dr. Katharine Blodgett, of our laboratory, in making
glass invisible. This has come as the result of several years' work on
surface films, fundamental research work, very funilamental on surface
chemistry, but she has discovered this application of this work. She
has found that by coating glass on both surfaces with a layer of material
having the right optical property and the right thickness, she can
completely eliminate the reflection which otherwise takes place from
a glass surface. That is, when light falls normally on a piece of glass
4 percent of it is reflected at this surface and 4 percent at the other
surface so that only 92 percent goes through. This becomes a very
serious matter when you come to a complicated optical system such
as a good camera lens or a submarine periscope, for example, or a
telescope. I happen to remember that in the case of the submarine
periscope only something like 20 percent of the light which is received
gets down through the instrument to the eye of the observer and that
loss, 80 percent, is mainly due to the reflection that takes place from
the various air-glass surfaces involved in the various lenses and prisms
that go to make up that device.
What I show you here is practical but only in a very limited field,
because this film is a soap which would be very easily rubbed off;
that is if you touch it you spoil it. It could be used then practically
only where it is mechanically protected, but I am rather glad to show
it to you for this reason.
The Chairman. I hope you are not inferring that we ought to
make ourselves invisible.
Dr. CooLiDGE. I want to raise this question: Can we afl'ord to carry
this invention from this state to the state where it is generally applic-
able, let's say, on your eveglasses? That is, now you may be troubled
by light corning in from the side and being reflected in the eye from
the inner surface of the lens, or on show windows, store windows, or
the windshield of your automobile. In all those cases you are troubled
by light reflected from the surface of the glass. Now this obviously
in its present state can't be used on your windshield because the wind-
shield has to be cleaned. But can we afford to go on with this piece
of work, to carry it further, unless we can see a chance to get patent
protection on the method which is being developed? Remember that
we are not glass manufacturers nor are we manufacturers of optical
equipment. I don't see how we can possibly afford to go on further
with this invention, how we could possibly do it, unless we could get
patent protection on it.
g20 CO>'CENTRATION OF ECONOMIC POWER
The Chairman. That, of course, suggests to my mind a very inter-
esting corrolary. This invention of Dr. Blodgett for making glass
invisible is really outside of the field of General Electric, your imme-
diate field, the field for which that company was originally organized,
and in which it is operating, and it is a result of the fundamental study
which you have been carrying on. Obviously it is a useful, patentable
device, and if Dr. Blodgett appHes for a patent the patent will in due
course issue to General Electric or its appointee, maybe one of its sub-
sidiaries. That, of course, means, it indicates the way by which, as a
result of the studies being carried on in this laboratory, maintauied at
a cost in excess of a million dollars a year, the General Electric can,
in due course, project itself into many fields altogether separate and
distinct from that in which it was originally organized. Thereby the
patent system and the system of research laboratories would be the
means of further concentration in a single compan}^, would it not?
Dr. Cooi.iDGE. Yes, that is true.
The Chairman. And that in turn raises the question in my mind
whether, under these conditions which you describe, the establishment
of research laboratories maintained at such great expense and so per-
fectly, so completely, it is possible for an inventor, a single individual,
to rise in' the future, as Thomas Edison arose in the past. In other
words, is not the individual now, the natural person who has a scien-
tific turn of mind or a mechanical turn of mind, placed at a tremend-
ous disadvantage to compete with your entire staff, the studies of
which are so, what shall I say, stimulated by this tremendous organi-
zation that you maintain?
Dr. CooLiDGE. I don't think so. This tree of knowledge is always
growing, it is always putting on new branches, so that the frontiers,
instead of being reduced, as you may say the geographical frontiers
are being greatly reduced — it seems to me the frontiers of scientific
knowledge are always being extended.
The Chairman. Oh, I quite agree with you on that. I didn't mean
to imply anything else. I evidently didn't make myself clear. I am
asking whether or not in the conditions which you have described
the future of invention, the future of discovery, is not being occupied
by the collective efforts which are represented by your organization
to the disadvantage of the individual enterprise of the individual
person.
Dr. CooLiDGE. I personally doubt whether it is to the disadvantage
of the individual.
The Chairman. What chance does an individual have against the
General Electric Research Laboratorv, vour general laboratory and
the 15 others?
Dr. CooLiDGE. Take in this case, for example: Dr. Blodgett has
made a splendid contribution. This work, 3-ou see, is published in
detail. She has made a splendid contribution to our Imowledge. It
opens the field, then, doesn't it, for mvention? We will try, of course,
to see if we can't get from here to something which is generally appli-
cable, but her publication opens this field up, doesn't it, to the indi-
vidual inventor as well?
The Chairman. Yes, tut the individual inventor doesn't have
available to him in his closet hydrogen gas under pressure, hydrogen
gas without pressure, test tubes of evevy variety, electric power such
as General Electric can make available*' to you and to Dr. Blodgett
CONCEXTIIATION OF ECONOMIC POWER 92I
and to others. That is what I am thinking of. He^.e is a collective,
cooperative enterprise upon the one hand with those wonderful in-
strumentahties immediately at command, and her^ is an individual
working without those benefits. Is' he not at a groat disadvantage
and should anytliing be done about it? I don't know, I confess. '
Representative Sumxers. Mr. Chairman, isn't this the answer? If
the individual could do it, he could do it, and if he couldn't do it,
this is the only agency that could do it.
The Chairman. That may be the answer. We are discussing tbe
fact now.
Dr. CooLiDGE. I think so. We certainly have advantages that he
does not, but he is still making useful inventions.
The Chairman. Oh, yes; and whenever you discover a principle
that principle becomes public information and any individual who
has the wit and the facihty to do so may take advantage. That is
true, of course.
Representative Sumners. It could hardly be expected that a private
person of limited means could take even this glass, with soap on it,
and be able to put something on it that would endure, and be able to
do anythmg with it.
Dr. CooLiDGE. I am not so sure, because the principles have been
clearly established by Dr. Blodgett. There are two things that are
essential, only two things. One is that the tliickness of the coating
shall be right, one-fourth of the wavelength of the light in question;
and the other is that the iriaterial used shall be of the right refractive
index, that is, that the velocity of hght traveling through it shall
have the right value. Now, in this case she finds that there is no
material — no solid material — which has the right refractive index.
But she shows how porosity can be developed m a material so as to
give the right refractive index, and shows that that porosity must
be of a very fine nature, that is, the air pockets that she develops in
this soap film must be so small that they do not cause a scattering of
the light.
The Chairman. To make a film withstand ordinary usage it will
become necessary for an inventor or a scientist to make innumerable
experiments, just as Dr. Blodgett has made, with all sorts of material
under all sorts of conditions, and to do that it is practically necessary
for the individual to have at his or her command the vast resources
of a laboratory such as yours.
Dr. CooLiDGE. But you would be surprised in this case to see how
simple the means are that she has used in producing those films.
The Chairman. Yes, I judge that; but it took a lot of experimen-
tation under these conditions such as you have described to produce
that simple use.
Dr. CooLiDGE. And she certainly has the advantage of close contact
with a large cooperating group of scientists.
Mr. Dienner. Mr. Chairman, might I suggest that we will complete
that picture a Uttle further, since obviously Dr. Coolidge can not tell
the other side of the story so well, and we can call as a witness one or
two other men who, without facilities, but who with only the knowledge
of principles, were able to perceive how things can be done.
The Chairman. Mr. Dienner, on behalf of the committee I apolo-
gize to you for interrupting. Dr. CooHdge is too interesting, he is
too provocative. He gets us going. Proceed, Mr. Dienner.
922
CON'CENTKATION OF ECONOMIC POWER
Mr. DiENNER. The issuance of a patent, Dr. Coolidge, sometimes
stimulates other people, does it not?
Dr. Coolidge. Yes.
Mr. DiENNER. Explain what you mean by that.
Dr. Coolidge. It seems to me that that is very desirable, indeed.
I think it often happens that the original invention without improve-
ments would not come into general use, but that the publication
through the patent of the basic patent does stimulate others to make
detailed inventions, and as a result of such a detailed invention, that
may be of benefit to the second inventor and the first inventor, and to
the public, where the owner of the basic patent might never have
realized at all on his invention.
Mr. DiENNER. We have discussed, for example, the beginning of
this film for reducing the glare on glass, and we have been speaking
of these high-powered permanent magnets. Take a series of inven-
tions with which you are familiar, and give us some idea of the time
between the making of the invention and the putting of that invention
into commercial form and into commercial use.
Dr. Coolidge. It is very different in different cases. It seems to
be always very much longer than one would predict. I have in mind
a recent development some 4 years ago, I should say. One of our
men invented a new mercury switch, a little thing to be used in the
home in place of the ordinary switch that you now have. It was
about as large around as a 25-cent piece, and perhaps 3 or 4 times as
thick, and there was nothing in it but 2 little steel shells sealed to-
gether around the edge with some glass, a httle piece of porcelain
inside, a drop of mercury and some hydrogen gas. But it has taken
us 3 years to get from the idea to something which could be sold to
the pubhc. It is a case where the device must be rehable, and it
must be very inexpensive. I suppose to have a very wide use, it
can't cost but a few cents, so that automatic machinery has been
developed to produce it. Automatic machinery has had to be de-
veloped to test it, because it isn't sufficient that 99 out of 100 of these
devices shall function properly, they must all function properly.
But as you look at it now, it doesn't seem possible that it can have
taken us 3 years of hard work to get that thing to a point where it
could be of benefit to the public.
With more complicated things, the time is usually much longer.
Several years ago I remember Dr. Whitney made a study covering a
few of the devices developed in our laboratory, and found that the
average time was 10 or 12 years.
Mr. DiENNER. Considering the life of the grant, that is the life of
a patent after it is granted, have you any comments on the 17 years
as being a suitable time or otherwise?
Dr. Coolidge. I have a feeling that it is none too long.
Mr. DiENNER. Have you any comments to make on the general
character of the workings of the patent svstem as you have encoun-
tered it?
Dr. Coolidge. It has certainly seemed to tne to be tremendously
helpful, and I should certainly hate to see it abolished or any very
radical changes made in it. I am impressed, of course, by the fact
that under that system in the 38 years since our laboratory was started
some 1,500 other industrial research laboratories have sprung up.
CONCENTRATION OF ECONOMIC POWER 923
Mr. Frank. Dr. Coolidge, your corporation devotes apparently a
considerable amount of its funds not only to the development of these
ideas, but in many instances to their useful exploitation and develop-
ment. That indicates, I would gather, that in that manner other than
through what are known as the capital markets, large sums of mone}^
are available for the development of American enterprise, so that the
sole measure of our industrial advancement must not be taken as
being found solely in the capital markets.
Dr. Coolidge. You are getting me a little out of my field; I am
sorry.
Mr. DiENNER. Do you vision the future as involving a continuous
increase in the number of research laboratories maintained by in-
dustries?
Dr. Coolidge. Yes, I do. I think it has been very well demon-
strated now that it is only through research that industry can be —
well, I think of research as insurance for industry.
Mr. DiENNER. Insurance against what risk?
Dr. Coolidge. Any industry is manufacturing certain things. Im-
provements may be made by others which would render those things
unsalable.
Mr. DiENNER. In other words, insurance against a displacement
from its position, whatever that may be?
Dr. Coolidge. Yes, that is what I mean.
Mr. DiENNER. What do you vision the effect in the way of public
benefit may be, that is regarding the patent system as a means for
effecting the greatest good to the public? Do you see any danger
to the public arising through the increase in industrial research labora-
tories?
Dr. Coolidge. I can't see any. As I have said before, I think of
the tree of knowledge as always increasing, always putting out new
branches, and I can s^e no hazard in it.
Mr. DiENNER. Mr. Chairman, I have concluded with the witness'
examination.
The Chairman. You find the patent system beneficial to General
Electric or to any other large corporation operating industrially, do
you not?
Dr. Coolidge. Yes, sir.
The Chairman. And that, of course, is recognized as a grant from
the pubhc, from all the people of the United States, to the corporation.
Dr. Coolidge. Yes.
The Chairman. In other words, I am merely emphasizing the fact
that patents are possible only because the Constitution of the United
States and the representatives of all of the people assembled in
Congress have provided for this protection to inventors, and that
protection inures to the benefit of the big as well as to the benefit of
the small.
Dr. Coolidge. Yes.
The Chairman. Of course, the question which suggests itself over
and over in my mind in connection with every phase of the study in
which we are engaged is whether or not there is anything that we
should do, anything that we can do, to m.ake it possible for industry
to take up the slack in unemployment. We have had a good deal of
testimony here today and upon other occasions, and there is a good
g24 CONCENTRATION OF ECONOMIC POWER
deal published in all of the current literature with respect to the in-
creased opportunities for labor which arise as a result of invention,
but as I pointed out in questioning Dr. Bush, these new enterprises
have been accomplished, strangely enough, by increased unemploy-
ment. Do you tliink of any tiling that industry can do or that govern-
ment can do to solve this very, very important question?
Dr. CooLiDGE. Again I am being taken out of my field, Senator.
The Chairman. You don't see anything in the patent field wliich
would solve it?
Dr. COOLIDGE. No.
The Chairman. Are you satisfied that the natural individual is
sufficiently protected by the present system against competition from,
huge collective enterprises such as that by wliich you are employed?
Dr. CooLiDGE. I tliink so.
The Chairman. You think he is.
Dr. CooLiDGE. I think so. We are always on the lookout for new
inventions (I mean our company is), whether they come from our
laboratory or whether they may be from outside.
Mr. Dienner. Did you hear the testimony this morning ^ about the
manner in which an individual is sometimes compelled to, having
obtained a patent, go to great expense through a very complicated
legal system to maintain his rights?
Dr. CooLiDGE. Yes; and I can see that it would be very nice if
that could be simplified.
The Chairman. But you have notliing of yours to add to that
story?
Dr. CooLiDGE. No, sir.
The Chairman. Are there any other questions to be asked by any
other m.embers of the committee? Admiral Peoples? Mr. P'rank?
Mr. WUliams? Judge "Davis? Congressman Reece? Commissioner
Coe?
Representative Reece, Except, Mr. Chairman, I would be inter-
ested to know what policy your company has with reference to making
its patents available to the public, particularly those patents which
might be evolved in your laboratory which the company itself does
not use.
Dr. CooLiDGE. I tliink that in general it has been the policy of our
company to Ucense other companies under such patents.
The Chairman. Are there any other questions to be asked? If
not. Dr. Coolidge, the committee is very much indebted to you for a
very interesting afternoon.
Mr. Dienner, your next witness will be who?
Mr. Dienner. I shah call Mr. Flanders, of Jones & Lamson, and
Mr. Graham of the Motor Improvement Co.
The Chairman. WiU it be convenient for you to begin with them
in the morning?
Mr. Dienner. I would appreciate that.
The Chairman. If there is no objection, the committee wdl stand
in recess until tomorrow morning at 10 o'clock.
(Whereupon, at 4:15 p. m., a recess was taken until Wednesday,
January 18, 1939, at 10 a. m.)
' Supra, p. 855 et seq.
INVESTIGATION OF CONCENTKATION OF ECONOMIC POWEB
WEDNESDAY, JANUARY 18, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The Temporary National Economic Committee met pursuant to
adjournment yesterday, at 10:30 a. m. in the Caucus room of the
Senate Office Building, Senator Joseph C. O'Mahoney presiding.
Present: Senator O'Mahoney (chairman); Representative Williams;
Messrs. Henderson, Frank, Peoples, Thorp, and Coe.
Present also: Senator Homer T. Bone, of Washington, chairman of
the Senate Patents Committee. Counsel: John A. Dienner, special
counsel for committee; Justin W. Macklin, First Assistant Commis-
sioner of Patents; Leslie Frazer, Assistant Commissioner of Patents;
Henry Van Arsdale, Assistant Commissioner of Patents; Grattan
Kerans, administrative assistant to the Commissioner of Patents;
George Ramsey, of New York, assistant to Mr. Dienner.
The Chairman. The committee will now come to order, Mr.
Dienner, you are recognized to proceed.
Mr. Dienner. Yesterday our last witness was a representative
of a large industry, of a wide variety of products, fields and interests,
with a largfi research laboratory at his command. Now we are
introducing a witness representing a relatively small enterprise wliich
has for a long period maintained its position in industry under the
patent laws and without the advantages of a research laboratory..
We call Mr. Ralph E. Flanders. Mr. Flanders, vAW you be sworn?
The Chairman. Do you solemnly swear the testimony wliich you
will give in these proceedings will be the truth, the whole truth and
nothing but the truth, so help you God?
Mr. Flanders. I do.
TESTIMONY OF RALPH E. FLANDERS, PRESIDENT, JONES &
LAMSON, SPRINGFIELD, VERMONT
Mr. Dienner. Mr. Flanders, will you tell us your occupation and
connections?
Mr. Flanders. I am president of the Jones & Lamson Machine
Co., of Springfield, Vt., maker of machine tools. Machine tools are
roughly metal working machinery ; and I am an inventor and designer
as well as having some responsibility for the business management
of the company.
Mr. Dienner. Give us some further facts in regard to your
background.
Mr. Flanders. Well, I was born up in the country in Vermont,
taken as a child down into Rhode Island, served an old-fashioned
124491— 39— pt. 3 7 925
g26 CONCENTRATION OF ECONOMIC POWER
apprenticeship to the machinist trade at Brown's shops in Providence,
stayed there for 5 years, worked in the drafting room there and in"
other places for a number of years, roving about ; then was associate
editor of Machinery, a pubhcation deahng with machine tools in
New York for 5 years, from 1905 to 1910; then I went froni there
back to Vermont, to Springfield, where I now live, for work with the
machine-tool industries of that town in various connections.
Mr. Frank. Mr. Flanders, you are one of the co-authors of a recent-
ly published important book known as Toward Full Employment? ^
Mr. Flanders. I am a co-author, sir, of that book.
The Chairman. You don't object to the adjective, I am sure.
Mr. Flanders. It is a much more difficult and praiseworthy task
to be a co-author than it is to be an author.
The Chairman. I thought you meant the word "important."
Mr. Flanders. I would rather someone else would use that.
HISTORY OF JONES & LAMSON TOOL COMPANY
Mr. Dienner. Will you tell us the history of your present com-
pany, which I believe is Jones & Lamson Machine Co.?
Mr. Flanders. Yes. There are photostats here of a genealogical
chart of my company. ^ One new ancestor has been found since
this chart was made. This chart, by the way, is taken from a
book by Prof. Joseph W. Roe, then of Yale, Sheffield School, titled
''English and American Tool Builders." The line is traced back
one generation earlier to Asahel Hubbard, an inventor of Windsor.
Vt., who in 1834 was granted a patent, of which photostats are avail-
able for a revolving hydrauUc engine.^ This patent carries the signa-
tures of President John Quincy Adams (the Adamses were important
in those days) ; Henry Cl^y, Secretary of State ; smd WilUam Wirt,
Attorney General of the United States. They got on all the names
that were available. A patent was a pretty serious thing; it was an
outright monopoly without much qualification or subject to much
doubt. The fact that Mr. Hubbard was able to get a patent that
enabled' him to get the backing of a local capitahst to set up a little
machine shop in Windsor, and he built these so-called revolving
hydraulic engines which were nothing more than an early form of
rotary pump, and from that little town way up in the North, far
from the centers of urban civilization, salesmen were sent all over
this country, and the first public water system of the city of St.
Louis had the water pumped by one of these pumps made up in
Windsor, Vt., at that time.
I am not going to go into all of this in detail, but I will touch one or
two high spots. The ^ext step was when Nikanor Kendall (these
names are good — Asahel Hubbard and Nikanor Kendall — they are
country boys) married the daughter of Asahel Hubbard. Nikanor
Kendall was a gunsmith, had a country gun shop, and made guns by
hand. When he married into the family of a man wdth a machine
shop they commenced making guns by machinery instead of by hand,
and it was the development of machine tools for making guns which
I Co-autliors with Mr. Flanders: Henry S. Dennlson, Lincoln Filene. Morris E. Leeds, published 1938 by
McGraw-Hill Book Co., Inc. Mr. Dennison subsequently testified before the committee, see hearings
held May 22, 1939. h .r , ^
* Subsequently entered as "Exhibit No. 208". See infra, p. 1149.
• Subsequently entered as "Exhibit No. 207". See infra, facing p. 1149.
CONCENTRATION OF ECONOMIC POWER 927
has been continued down through to my company to the present day.
I just touch one or two of the high spots in that thing.
I notice here on the left the Enfield gun machinery.
Mr. DiENNER. You are referring to the genealogical chart?
Mr. Flanders. Of our company; yes. That is the Enfield Arsenal
h^ England, and the machinery for making the Lee-Enfield gun, with
which the British fought the Crimean \Yar, was made up in Windsor,
Vt. They made such good guns that were exhibited at a royal exhi-
bition in London, that the British Army sent over a buying commission
which wound up in Windsor, Vt., and bought machinery for equipping
the Enfield Arsenal.
Coming down through, there is another interesting spHt-off here.
You see the Windsor Manufacturing Co., 1865, in the lower middle
center, with a line in the left running off to Sullivan Machinery Co.
This firm through its history built almost everything imaginable,
including in 1865 certain minmg and quarrying machinery, and with
regard to the Une of quarrying machinery there was a patent suit on^
and a couple of young fellows in the Windsor Manufacturing Co.
thought that they had a scheme for a channeling machine that was
better than the one that was held up by the lawsuit, and so they tried
to sell the new idea to the people in charge of the firm, didn't succeed
in doing^it, so they went down to the livery stable, hired a buggy, and
the two of them set off for the neighboring town of Claremont, N. H.,
and on their way they stopped to talk to a well-to-do farmer of Clare-
mont, Deacon Upham, and with him sitting on one side of the flat-top
stone wall and they on the other, they spread out their sketches and
he financed them to the making of the new channeling machine.
That was the beginning of the Sullivan Machinery Co., which is one
of the leading builders of mining and quarrying machinery in the
United States — another case of the starting of a new industry from
the ideas of a couple of young fellows.
Now, this central company has gone into decline two or three
periods throughout its history and had to be reorganized, and in each
case the reorganization and the new success was built on new inven-
tions and new patented. inventions, clear down through to the last one,
James Hartness, who came there in 1888 and revived the fading insti-.
tution with new blood and new ideas, and again brought it to the
front.
The last thing I will mention is the three names below Mr. Hart-
ness' name to which a fourth has been added since this chart was
made: Mr. Lovejoy. There is a succession of chief draftsmen from
Mr. Hartness, each of whom had a patentable idea, each of whom left
the parent company, got financial backing for his idea, and each of
whom founded a successful company existing and operating today.
This genealogical chart of companies is, if looked at from the patent
standpoint, a series of patentable ideas, branching off from the central
parent stem and becoming a new and successful a/id going organization.
Mr. DiENNER. Each enterprise founded on an idea not coming from
a research laboratory, I take it.
Mr. Flanders. No. In fact, one of the most picturesque of these
is Mr. E. R. Fellows, who before he went with Mr. Hartness was a
window dresser in a department store in Torrington, Conn. That
wasn't a research laboratory proposition.
928 CONCENTRATION OF ECONOMIC POWER
Mr. DiENNER. Mr. Chairman, may we have these charts introduced
in the records as exhibits? I think they would be helpful to explain
the testimony of the witness.
The Chairman. Without objection, so ordered.
(The documents referred to were marked "Exhibits Nos. 207 and
208" and are included in the appendix on pp. 1148-1149.)
VALUE OF PATENT PROTECTION TO INDUSTRY
Mr. DiENNER. Mr. Flanders, in your particular industry what do
you feel would happen without patent protection to your company?
Mr. Flanders. Without patent protection — really, I can't imagine.
It is the patent protection which makes it worth while for us to spend
the tens and sometimes hundreds of thousands of dollars involved in
developing a new idea. I don't know just what we would do without
patent protection. I am sure that there would not be so much
improvement because you couldn't afford to put the money into the
development. I never tried to think what it would be without patent
protection.
' Mr. DiENNER. Assume that you even had the disadvantage, or
the advantage, of a compulsory license provision in the law, what
would be the effect upon your industry?
Mr. Flanders. The compulsory license provision — well, of course,
most of the patents, not all but most of the patents we take out we
put into use, and we wouldn't lose much ourselves that we had
patented, but I am not able to answer these hypothetical questions
quite so well as I am to describe actual experience. I haven't tried
to think through what would happen with a Ucensing provision.
Mr. DiENNER. In other words, if someone had the right to come
to you and ask for a Ucense on the payment of a fee, roj^altj^, you
consider that would be beneficial.
Mr. Flanders. I see, you are not referring to the same situation
they have abroad where you must either work it yourself — —
Mr. DiENNER (interposing). No, that is called a working agreement.
Mr. Flanders. The idea being if people had a right to demand a
license of us?
Mr, DiENNER. Yes.
Mr. Flanders. That is different.
Mr. DiENNER. What do you think of it?
Mr. Flanders. If they had the right to demand a license, it would
depend on what the Ucense fee was. If it was something that required
$100,000, which is by no means, even in our line, a large sum, to
develop and get possible future profits from it, we should need to
have a license fee large enough to have warranted that expenditure
and it would be a pretty large fee.
Mr. DiENNER. Would you like to have some existing with you,
even though you did receive a royalty on your own ideas?
Mr. Flanders. We might be willing on any particular thing to
receive licenses large enough so we could sit back and do nothing on
that particular thing, but we wouldn't want to be compelled to sit
back and do nothing on everything we did and just receive money
without having any fun in business.
I don't know, this proposal is something that I haven't given much
thought to. You speak about having competition. We do have
very severe competition, and the competition at the present time
CONCENTRATION OF ECONOMIC POWER 929
works this way, that here is a competitor here, and here are we here,
and we find our competitor moving ahead a notch With some new
patented improvement, and we have to think hard and think fast
and think of something else that is better than that so that we are
up here., and the other fellow thinks of something that is better than
that and he is up here, and so we keep going. That is as far as I can
go right this minute, but there is no end to that step-by-step progress
that comes with protected inventions.
The Chairman. Now are you speaking of actual events which have
happened in your experience, or of an ideal condition?
Mr. Flanders. Yes; that situation is actual. A particular case of
it is at the moment is with a comparatively new machine, a new
process, a process for grinding screw threads on hardened parts, par-
ticularly useful in aviation engine work. We have one competitor.
The competitor (let not this word get out of this room) is just about
as good as we are, and we are a continual stimulus to each other.
That doesn't trouble us at all, and it is good for the industry as a whole.
The Chairman. "VMien this very able competitor of yours develops
a new device, do you attempt to compete with it by imitating the
device or by developing an utterly different device?
Mr. Flanders. An utterly different device for the same thing, not
by trying to copy at all — an utterly different device, and the' net
result is that in this particular process the results-obtained for the user
of the machine are about four or five times as good as they would have
been if there had been no competition and no patented protection.
The user gets the benefit of it. That is a specific instance. In
general, our whole industry's relation to patents and the relation of
our customers to the effects of patent protection run along the same
line.
The Chairman. It occurs to me that under the compulsory licensing
system, of which Mr. Dienner spoke, it would only be necessary for
you, when your competitor stepped out a yard in advance of you, to
demand that he license the new device to you and you would not be
put to the stimulus or the effort of developing the utterly different
device from your own.
Mr. Flanders. No; we wouldn't be put to the stimulus; we prob-
ably wouldn't make the effort and the art wouldn't be advanced so
rapidly. That seems to me a logical result.
I say, this is a hypothetical situation I have never met, but I
imagine it would work that way.
Mr. Dienner. I would like to ask, Mr. Flanders, whether there is
any broad patent protection in your specific field that you now know
of; I mean, wldch prevents anyone from making machine tools.
Mr. Flanders. No; there is no marked-off space of any importance
that I can think of in which there is a "no trespassing" sign set up.
It is an old industry and an open field for ingenuity. Its opportuni-
ties for ingenuity still exist; ingenuity is still being exercised, still
being protected, still being rewarded ,~" and the field is still being devel-
oped in spite of the fact that it is an old one.
Mr. Dienner. You mentioned the products or machines made by
your company as a thread-grinding machine. Do you make other
machines? ■ ■>
Mr. Flanders. Yes; we make turret lathes, automatic lathes, the
automatic opening die, and a line of'bptical measuring instruments
930 CONCENTRATION OF ECONOMIC POWER
involving the use of magnified projection of outlines to be measured.
Mr. DiENNER. Now 1 would like to bring before the committee
the picture in regard to the expiration of a particular patent and the
result of that in connection with the turret lathe. Will you explain
the facts in connection with that?
Mr. Flanders. Well, the facts in connection with that are typical
of almost any of these lines on this chart. The modern turret lathe
was born with our company before the Civil War. After the Civil
War it went through another period of development on which a series
of patents was taken out. On the expiration of those patents they
became common property and are now used without thought or
knowledge, even, of their ever having been patented, they have become
so much the common property of the industry by all builders of
turret lathes in the country, and a series of lathe patents in the nineties
has become common property and is used by all builders of turret
lathes the country over and the world over. In these other companies
down here, particularly Fellows, the Gear Shaper Co., gear-cutting
macliinery, the same -thing is true. He developed — this man whose
previous experience had been dressing windows in a dry goods store —
a method of cutting gear teeth which was new and revolutionary. It
is now common property. There are two firms in the United States,
two in England, and two in Germany building machinery which is
more or less a direct copy of the machines that he built. That has
now become the common property of the industry and is the basis
of the designs of many companies.
Mr. DiENNER. I take it here is an industry in which a great many
devices, machines, are being manufactured in substantially the same
from in which they were manufactured before the expiration of the
patents. Is that correct?
Mr. Flanders. That is particularly true of the gear shaper. In
the turret lathe I wouldn't want to say "the same form." The
principles have remained the same, but the form has been so much
improved that the likeness isn't so obvious as it is in the case of the
gear shaper, which is a more unique sort of thing, but the same prin-
ciples that were patented by early inventors in our company are now
universally used in improved forms with no change in principle.
Mr. DiENNER. I understand you do not maintain a research labora-
tory.
Mr. Flanders. No.
Mr. DiENNER. What is the size of your enterprise, approximately?
Mr. Flanders. We have in good times about 800 employees and
sell three or four millions dollars' worth of machine tools a year.
Mr. DiENNER. How are you able to maintain your position in
competition with larger competitors?
Mr. Flanders. Well, the difficulty is not so much with larger
competitors as it is in our location, 7 miles from a railroad, but we
can maintain our position there geographically or competitively only
by continuous invention and continuous development.
Mr. DiENNER. Which I assume is patented where possible.
Mr. Flanders. It is patented; yes.
The Chairman. If you don't maintain a research laboratory, how
an you depend upon the continuity of invention which you say is so
ecessary to maintain your competitive position?
Mr. Flanders. Continuity of invention is maintained by hiring
bright young fellows; it is maintained personally. We have to renew
CONCENTKATION OF ECONOMIC POWER g^i
m a given company without a continuing research laboratory the
inventive ability and the personnel at least every generation. That is
the history. There is no organization; it is too small for an organiza-
tion, and it has never been the history of our particular industry to
depend on research organizations. Perhaps it is more nearly the old-
fashioned inventor than it is scientific research, though a certain
degree of scientific research comes into it. ■
The Chairman. Doesn't this fall into a slightly different category
from that in which the General Electric find themselves, for example?
The General Electric Co. is deahng primarily with fundamental
research, the application of scientific principles to modern industrial
hfe.
Mr. Flanders. Yes.
The Chairman. On the other hand, your company, which is engaged
in the making of macliine tools, as I understand it, is dependent rather
upon the practical application of particular tools to particular tasks.
Mr. Flanders. Yes.
The Chairman. And therefore you can depend for invention en-
tirely upon these bright young men who are working on a special task
every day, and you don't have to have research,
Mt. Flanders. That's right; that's right.
The Chairman. So that the mere fact that your company 'pro-
ceeds without a research laboratory is not in any sense a criticism of
the research laboratory method.
Mr. Flanders. Not at all; no.
The Chairman. Nor an indication that the research laboratory
method could be dispensed -watli?
Mr. Flanders. Not at all. ■
The Chairman. Nor is it an indication that the research laboratory
method does not result in the concentration of patent control?
Mr. Flanders. Well, does not result in the concentration of patent
control . Tn its own field I presume it does. I like to speak best about
my field about which I know.
Mr. DiENNER. Mr. Chairman, I have no further questions for the
witness, unless he wishes to develop the subject.
The Chairman. Mr. Flanders, the fact that your company is pri-
marily interested in the manufacture of machine tools would indicate
that you should be' particularly expert in giving us an opinion at
least \vith respect to the effect on unemployment of labor-saving
devices. I assume that this long line of companies illustrated on the
chart which you presented here this morning has grown and extended
in the early day.to the present time primarily because you have been
constantly developing and inventing new devices for making macliine
tools and for saving labor in the manufacture of the implements to
which these machines would apply.
Mr. Flanders. In our industry there are two things that improve-
ment does. It provides machines which turn out work faster and
turn out work better. You have to keep that in mind particslarly
in the machine-tool industry, because at least half of the improvement
relates to accuracy and the other half relates to higher production.
and so setting aside, not forgetting, the fact that a main purpose cif
improvement lies in accuracy, we will say, yes, that a main line of
improvement lies in increasing the output of the worker. Now, this
history of our company and its predecessors has gone on for more than
g32 CONCENTRATION OF ECONOMIC POWER
a hundred years, not just since the war, since the World War, but for
more than a hundred years it has been engaged in making machinery
by which the individual workman turns out more product. Not onl}^
has that been true of machine tools; it has been true in textile machin-
ery, it has been true in agricultural machinery, it has been true in
every Hne of production machinery, that for more than a hundred
years, not just since 1920, we have been continuously engaged in the
process of improving the output of the individual worker.
Now from time to time we run into difficulties, but in that hundred-
year period the net result has been beneficial and in the last 10-year
period perhaps we are not so clear on the picture; on the hundred-year
picture it is clear.
MORE JOBS CREATED THAN DISPLACED BY PATENTED DEVICES
The Chairman. When you say beneficial, what do you mean in
terms of jobs? What I have in mind, Mr. Flanders, simply stating
it, is this. Through this himdred-year period — we will treat the 10-
year period afterward, as you differentiated it — have your company
and its predecessors in machine tools created more jobs than they
have displaced?
Mr. Flanders. Immensely more.
The Chairman. Now on what do you base that statement?
Mr. Flanders. The industries which have spread out from our
work (I don't mean just simply this chart, but the great mass of
things that these machines have made) were not in existence; they
relate to goods which no one dreamed of; they relate to things like
this microphone which no one could even imagine, and the people
who make these microphones have completely new jobs. I haven't
any statistics at hand, I can't say whether a greater percentage of the
population now is gaiii fully employed than was the case in 1834 when
this began, but of this I am sure, that in 1834 they were engaged in
making a bare Uving and in 1939 they are engaged in making for
themselves very much more than a bare living, very much more than
food and clothes and shelter, and it is the development of which our
company has been a part which has made that thing possible.
The Chairman. Now about the 10-year period which you differ-
entiated a moment ago.
Mr. Flanders. The lO-j'ear period seems to me by no means a
period in which our distresses have come from labor-saving machiner3\
Now when I start to talk on tliis line I am completely off of the patent
question, and I don't know whether I should be or not, but we wont
through in the period from the middle twenties on to the middle thir-
ties a timet when the primary activity of a large part of the capital of
the country was engaged not in production and distribution, but in
the manufacture and sale of paper titles to wealth, and I don't beUeve
that that is a socially useful service. I believe it was at that time a
disruptive, socially disruptive occupation, and there is no likeness,
no coimection ]>etween financial speculation and the production and
distribution of goods, and I befieve we want to be very careful that
in applying' proper controls and correctives to the production and
distribution of securities that we don't at the same time apply improper
and dan^eri'us barriers to the production and distribution of goods
and tiervices.
CONCENTRATION OF ECONOMIC POWER 933
The Chairman. I am afraid I misunderstood you, Mr. Flanders.
I thought that you were indicating that in the lO-year period there
was a different effect upon employment from that which was noticeable
during the previous 100 years.
Mr. Flanders. Let me make the connection which I didn't estab-
Ush. My belief is that there has been no change in the principle, in
the effects of the application of improved maclunery to employment
and production and the standard of living since the war as distinguished
from the period before the World War, but that something else has
come in which has disturbed us and that that is the cause of our
difficulties and that we are not looking at the right thing when we
try to find that cause in improved macliinery, we are not looking at
the right thing, we should be looking at this other thing.
The Chairman. Then you really mean that the difference in the
10-year period from the 100-year period is due to other causes
altogether?
Mr. Flanders. Yes; that is it, cither causes altogether.
The Chairman. Do you export any of your machine tools?
Mr. Flanders. We exported last year about 60 percent of our
machine tools.
The Chairman. Where did they go?
Mr. Flanders. They went largely to England, Russia, and France.
The Chairman. Was there any difference noticeable in the amount
of exportation to those three countries recently?
Mr. Flanders. They were largely concerned with war prepara-
tions. The domestic demand is not good.
The Chairman. How about France?
Mr. Flanders. France is interesting. France has been a poor
market for modern production machinery until this last year. Then
the shorter hours introduced by the Premier — you know, previous to
Daladier
The Chairman (interposing). Premier Blum.
Mr. Flanders. Introduced under Premier Blum stopped off or
interfered with production, particularly war preparations, to such an
extent that for the first time the French are keenly interested in pro-
duction machinery, and they are npw buyng it. That is just a
matter of interest.
The Chairman. I was going to ask just another question. • With
respect to the stabiUty of employment which is available to workers
in a field like yours or in a plant like yours which is located in the
country, what happens to your workers when a depression comes and
your market falls off?
Mr. Flanders. We are favorably located so far as the workers are
concerned. Our industry is the worst in the whole list of industries
for which records are kept. In the 1929 depression there was only one
subject to more fluctuations than ours, and that was locomotive build-
ing, in which, owing to certain technical corrections in the index they
had a minus production one month. Ours wasn't quite so bad as
that. On the face of it, it looks as if somebody shipped a locomotive
back to Baldwin. [Laughter.] But except for that we have the
worst ups and downs of anj industry. Located as we are, in the
country, a very large proportion of our men have gardens and bens and
some of them have cows, some of them have pretty nearly full-fledged
farms. Most of them have fathers and mothers or uncles and aunts
934 CONCENTRATION OF ECONOMIC POWER
or brotliers and sisters on the farm, and that helps out durin? hard
times. But there is one other thing that we do, and did \Ve were
enabled in 1929, under the— if you will permit me to say so— tax laws
then existing, to lay by a considerable sum for development work and
that development work we carried out during tjie depression and we
spent something between five and six bundled thousand dollars- and
hve and six hundred thousand dollars in development work means that
amount of employment, because in development work a comparatively
small amount of material is used— it is almost a hundred percent
employment— and we used that during tlie dull times for brino-incr our
line of machinery and product up to date. ^
So we had the advantage of a war chest— we didn't go out for
dividends, we just want to make sure that is clear; we had a little wir
chest lor maintaining employment, and we were in the country Pnd in
close connection with the soil and we got by and our men got by
better than did many other industries much less subject to fluctuation
than ours was, located in urban centers.
The Ch.^irman Your men lived on the soil, whereas the laid-off
employees m the big city were unable to support themselves
^\1T. INLANDERS. 1[ es.
The Chairman. Do any of the members of the committee desire
to ask any questions?
NEED FOR MORE EASILY ACCESSIBLE CAPITAL FOR SMALL INDUSTRIES '
vo!^Ir7.''.^r;i^^';7^^''-^''''>'-*^^^^'^ important book of which
Ir.^ f co-author, there is an mtimation that something oudit to be
done for the relatively small industry— you indicate, I believe an
f^nnnLn"^^.^ ^'^^ or needing funds in the amount of $500,000 to
tW ?i!i u something ought to be done for such industries so
explail that? "^"'^ ^^^ ^ ""^^^"^ '^P^*^^' "^'^^^^ ^^^ ^^^« ^^
Mr. Flanders. Anyone wanting more than $5,000,000 can get it
annlv f^T.nJfnnn*-''^ concl.t.i $i,ooo,000 is a feasible amount to
apply for, $500,000 is a httle bit difficult. Floating a stock issue or
a Dond issue or getting banking accommodation of long-term nature
or less than $500,000 is something that we are not set-up to do? aJid
or th. r^^-TP'^r °fi!^^'' ""^7 '"'^^^ ^^^ ^^^ ^eeds above the $500,000
It nrt^ '''' line that needs some means of long-time financing not
hasTrdin«Hri'^^'\ ^r ^^' "^P^^^ within that range hitherto
Has ordinarily done its financing by sav ng up durincr ^oSd times a
diffici^t?o"; ''^. spending it luriiig hard ti^es. f hirwas most
somPwLi 1 "^"^V^'^. undistnbuted profits tax as it was-they are
or7or o«U!ff Pf ^^li^fd for It now, but either whether for expansion
^ tW mS^/^'^^^^^T^^'^ ^^°^^? '^ ^ ^*^" ^iffi^^Jt ^or the company
Sing eC aiain f '■ ^^Z ""^^'^ '' "^-"^^^ *« expansion that is some^-
mmg else again, 25 30, 40 years ago it was possible to go out in the
mfney It if rt' ^"' "^^^'^^"^ '^'^t ^^^^^^ ^^^^ and g?? addidonal
money It is not so easy now. The S. E. C process is all to thp
fesfrSe"Tt\a: CT'^' -\-,?--ral in i?sTa%Vre:Illts: a
to be thP ri 1 handicapped the httle local financing which used
to be the regular method by which these small and middle-sized
£ompa^ either were originaUy started or got their additSnal
' See hearings on this subject, Henring^, Part IX.
CONCENTRATION OF ECONOMIC POWER 935
capital as they grew. There is a real element of risk involved in it.
That element of risk is pretty, pretty large, and. it isn't so easy for
local folk to take a chance, nor do they want to, in tliis comparatively
small thing, even though they know there is a chance there.
Twenty -five and thirty years ago people were taking chances wil-
lingly; it was in the air. There were successes all about of people
who had taken chances; there were failures as well, but the spirit of
taking a chance was in the air and the financing of most of the small
and middle-sized companies was a matter of willingly taking chances.
I don't know whether you get what I mean by the spirit of risk and
enterprise being in the air or not, but it has gone out of the air now.
We don't breathe that air quite as naturally as we did 25 to 30 or 40
years ago. The S. E. C. is partly responsible for it, by putting the
finger on the risks and callmg attention to them, partly responsible
for it by putting a larger financial load on the small industries than
on the large.
Mr. Frank. I should like to pursue that with you for a moment.
On that latter point you are misinformed. You might be interested
to know that aside from the fact that there are certain exemptions
for some small issues, what is more important, we have a great number
of issues of small character which have been registered with S. E. C. It
is true that the cost of registration is relatively larger, but it is frac-
tionally small as compared with the cost of flotation. We have this
very large number of registered issues where that expense has been
incurred and where the issues have been unsold, so that the lack of
salability cannot be ascribed to the cost of registration.
Mr. Flanders. I don't think I made clear the point I was trying
to make. In times past the inventor put his faith in a man. Here is
our region up here in the country; here is a group of two or three or
four men. The people around about know these men to be men of
ingenuity, men of integrit}', men of energy, and they have put their
faith and their money in a man, and that is quite a different process
from the disembodied corporation of unknown personalities of which
3'ou judge on the basis of certain certified figures spread out before you.
The Chairman. Then I assume that 3-ou would be very much
inclined to agree with Senator Borah and me that it is of great impor-
tance that the corporation laws be so drafted as to make it possible
for men to place the same faith in the corporation which they for>nerly
used to place in the man.
Mr. Flanders. I don't know the mechanism, sir, but on the end
I agree with you 100 percent.
The Chairman. I am very happy to have you say that,
Mr. Frank. Have you any suggestion, Mr. Flanders, as to how to
meet this most important problem of obtaining long-term financing
for the small enterprise which, as you say, finds it difficult now to
obtain funds for expansion?
Mr. Flanders. Well, I should dislike to open up too wide one
phase of that subject because it is not the subject we are talldng about,
and that is the necessity for having visible profit coming out of new
enterprise to which people can look and see as visible successes of risked
money. I am talking about more or less intangible things, but they
are real; profit is under a cloud, the success story is unpopular — these
are on the intangibles; we need more success stories to revive the spirit
of business enterprise, and I want again to draw the distinction between
g36 CO>'CEXTRATIOX OF ECONOMIC POWER
business enterprise and financial speculation. We are all the time
mixing those two things up, and if you who make the laws of the
country and we who are engaged in business can each of us in our part
do all we can to hamper harmful financial speculation and to leave the
road open for enterprise and production and distribution, we are going
to make a better business climate in this country for increased employ-
ment.
One of the things we sometimes forget is this, that new business
enterprise surely provides new employment, it doesn't surely provide
profit; profit is its ultimate end, but the thing that is sure is increased
employment; the profit may be, it may not be. But every expansion
of a business enterprise is an expansion of employment, and it must
be a serious matter for us to provide the proper business atmosphere
and the proper business weather for business ventures, not financial
ventures pure and simple, but business ventures. That is our prime
responsibility today.
Now you asked me, I think, a more specific question and I didn't
answer it at all but talked about something else. Do you want to
ask your question again?
Mr. Frank. I don't care to press it, I know that you are a very
reflective person and this morning you have indicated undue modesty
by restricting your remarks to your immediate experiences. I thought
perhaps you might make some helpful suggestions as to specific
devices by which the small business enterprise which today finds
difficulty in obtaining funds for expansion could obtain such funds
on a long-term basis.
Mr. Flanders. That is a matter wldch I have been interested in,
have made inquiries about at banks and in other waj^s, not, I will
say, for my own company because we have been well treated. When
you look at the problem in detail of this company or that company
or the other company, the bank's analysis of the problem in the case
of a bank with good management, willing to take some risks, which
is what a bank must do as well as anybody else (a bank which lends
only on safe risks isn't 100 percent safe, isn't performing its function)
but the bank's analysis is liable to look to any of us, I think, as
thorough and conclusive for that particular instance. Yet after you
look at a hundred or a thousand of those particular instances you are
still left with the feeling that some function has not been performed.
Now that function previously was performed by private lenders who
had confidence in men. It was performed in part by the country
bank which was halfway between the city bank and the private lender,
and the country bank also had confidence in men — I don't mean
necessarily the country bank in a small town like mine, but in a small
city. Now what we are trying to do is a difficult thing to do; we are
trying to say to the lending institution that you must go by rules and
not get into trouble by following your individual judgments of men,
you must go by rules, and in so doing we have left this middle area
unfilled between that which by the rules is a hundred percent safe
to do as a bank and that which is unsafe to do.
Now, I don't know how to fill in that c:ap. I see the gap but I
don't know how to fill it in. It used to be filled in by individuals,
risk-taking individuals, or by the small bank which took risks which
it is now not allowed to take. In there is an unfilled gap, and I haven't
any good suggestions to offer this morning as to how to fill that gap,
but I know it is there.
CONCENTRATION OF ECONOMIC POWER 937
The Chairman. You haven't developed the cause of that gap, have
you? You made some reference to rules and regulations.
Mr. Flanders. Yes. Well, the cause of that gap is, I think, clear
to all of us. There werr mistakes made in years past in that gap,
and banks failed and rules are made and those rules are being followed,
and the rules are pretty stiff because the banks are insured by the
Federal Deposit Insurance Corporation. It is necessary to follow
rules. The whole thing is safer, the whole banking situation is safer
than it ever was, and yet the field for enterpirise has been restricted.
The Chairman. You don't wish us to infer that in your opinion
the laws which have made the banking structure more safe have been
the cause of this gap?
Mr. Flanders. Yes; they have been one of the causes of this gap.
The Chairman. That is a different matter. You now say one of
the causes. That is what I was hoping you would say.
Mr. Flanders. You are getting me into territory in which I am
not an expert. I am only telling you now what I see as someone off
on the sidelines looking into a territory where he doesn't belong, and
I think perhaps it might be better to keep me on the stuff I know
something about.
The Chairman. Before we dismiss you from that, I might just ask
this one question, whether you think that it would be very far wrong
to suggest that one of the primary causes of this gap has been the pro-
gressive concentration of control over the industrial system which
makes it very difficult for a man to compete with this collective unit
of which you were speaking a moment ago. In other words, a small
banker in a small town isn't going to finance an enterprise which will
compete with a large national corporation as readily as he would
have financed an ordinary applicant 25 or 30 years ago.
Mr. Flanders. I presume that may be so, Senator O'Mahoney,
There have been no cases of that that have come into my experience.
Dr. LuBiN. Mr. Chairman, I would like to ask Mr. Flanders this
one question. It has particular bearing upon rules and regulations
that have been made to control banking and investment. I wonder
how far, in your opinion, the disappearance of this risk-taking spirit
which formerly was personified in confidence in individual people —
how far that risk-taking spirit has disappeared as the result of the fact
that some of these individuals have proven themselves unfit to be
trusted. How far has the fact that now the public knows when dis-
honesty exists, because of these regulations, been a factor?
Mr. Flanders. I think if we look back to the times of our childhood,
we will remem.ber an immense amount of rascality, if our mind goes
that way, which became public. My recollection is that thei'e was
just as much of defalcation and dishonesty in the nineties andthe
early nineteen hundreds as there is today, if anything perhaps a little
more of it, and perhaps a little more condoned, but it was not con-
cealed in those days, but the recognition of that thing was a part of
the risk. I don't think we are having any worse men in business or
any worse things shown up now than we had 30 and 40, 50 years ago.
I don't think we are any worse. In fact, I thmk on the whole we are
better, standards are a bit higher.
The Chairman. Mr. Dienner, I think we have carried Mr. Flanders
very far afield from your outline. If there are no other questions, the
witness is excused.
Your next witness.
g38 CONCENTRATION OF ECONOMIC POWER
Mr. DiENNER. Mr. Chairman, we shall turn to Mr. Graham, who
is president of the Motor Improvements Corporation. Mr. Graham,
will you take the stand.
The Chairman. Mr. Graham, do you solemnly swear the testimony
you are about to give in this proceeding shall be the truth, the whole
truth and nothing but the truth, so help you God?
Mr. Graham. I do.
TESTIMONY OF JOHN A. GRAHAM, PRESIDENT, MOTOR
IMPROVEMENTS, INC., NEWARK, N. J.
Mr. DiENNER. Mr. Graham, I understand you are president of
Motor Improvements, Inc.
Mr. Graham. Yes, sir.
Mr. DiENNER. And how long have you been president of that
company?
Mr. Graham. Since April 13, 1925.
Mr. DiENNER. Explain what the business of that company is,
formation of company to establish new INDUSTRY
Mr. Graham. The business of that company— it was originally
organized ifor the purpose of establishing a new industry, oil filters,
filtering the oil of an internal combustion engine as the oil circulated.
The idea was presented by an inventor who had in a preliminary way
conducted experiments that showed liim that under certain conditions,
he could perform that function, but he hadn't worked it out and
hadn't applied it, and he came to a group of men in Newark and New
York who became interested in the problem, and in 1923 a company
was organized. At that time the filtration of oil which had been
tried by several inventors and proven a failure, was accomplished, and
it was up to our company first to prove the principle; secondly, to
apply it, because when you go to deal with an automobile motor,
you find so many variables that what applies to one will not apply to
all. So that the work of application before we could go out and
attempt to interest the autom.obile engineer was quite a task and
required the expenditure of an immense amount of m.oney.
After the development was proved practical, then the job of intro-
duction came in. The automotive engineers are about the hardest-
headed group of engineers that there is in the country, and one of the
policies of the automobile maker is not to put an extra nickel in the
car until two things can be proven: First, that it will cut down the
construction costs of the car; and secondly, it will increase the utiUty
and decrease the upkeep cost on the automobile.
So we had a difficult job in that respect and before those three
stages were accomplished, the initial investment in the company
had been spent and it was necessary for the original subscribers of
stock to invest more money. The company was originally organized
for $400,000 cash, and before I came into the company two series of
notes of $200,000 each had been subscribed for, so that at that time
there was an investment of $800,000 before any money began to
come back.
It is a little difficult for me to follow three experts and talk about
patents, but one nice thing developed yesterday, that the last pre-
CONCENTRATION OF ECONOMIC POWER 939
ceding witness proved to be a customer of ours, and in his talk this
morning I find another need for our product on that thread-grinding
machine.
We have developed our business much beyond the stage at which
it was when I came into the company and we are building filters
today for all sorts of purposes, even filtering toothpaste, lacquers and
all sorts of products of that nature, and the reason I am telling that
story at this point is the fact that things happened to us that made
it necessary for us to diversify, and while we started in to merchan-
dise a new invention and estabhsh a new industry, we found that
we had to go far afield while staying in the filter business, to develop
new uses for our product.
I have listened with a great deal of interest to these gentlemen
who have preceded me. I am not an engineer, just a common,
ordinary businessman, and I want to tell 5^ou what our experience
has been. We have probably had the opportunity a hundred times
during the last year of looking at new inventions. Invariably the
developer of an. idea does just the same as Mr. Sweetland did in
developing the filter idea, and when a company is organized to
put that production on the market, you have otily got the idea, you
have got to work it out, and that tak^s real money.
Mr. DiENNER. Mr. Graham, may I interrupt to put your napie on
the record?
Mr. Graham. John A. Graham.
Mr. DiENNER. Now will you proceed with your story of Motor
Improvements?
Mr. Graham. May I refer to notes? I have made a running story
of our experience and it will be easier for me to cover it in that way.
Mr. Sweetland, as well as being an inventor, was a very capable
businessman and when he wrote the agreement under which our
company is operating, we paid him $105,000, and at that time he
had no patents issued. His applications were made to the Patent
Office in 1920 and the years following. No patent came to issue
until July_ 1926, so that by the allowed claims of the Patent Office we.
had faitb in the product and undertook its development.
I have heard it said that ordinarily the inventor doesn't get much
out of the merchandising of the invention. In our case,~it has been
the reverse, because in the years that we have been operating, after
paying $105,000 we have paid the inventor $851,000, so that that
"poor" inventor got well paid.
In the early days of our experience, naturally our job was to sell the
car companies. Chrysler, when that was put on the market in
1924, was equipped w^ith our filter, known under the trade name of
Purolator. That happened in 1924. In 1925 Buick, Cadillac, Oak-
land units of General Motors adopted our filter. Following that,
Nash, Studebaker and Peerless, and a lot of cars whose names you
would hardly recognize today, adofDted the filter as equipment.
The last half of 1925 and the first half of 1926 we got to where we
were making money. We established our price based on our ability
to build 50,000 filters a month, and at that point we would break even.
Beyond that point we would make some profit, we went along
and when we took on these bigger production cars, our volume went
up and naturally we began to get a httle money back. It became
necessary for us in that period, due to the fact that automobile produc-
g^Q CONCENTRATION OF ECONOMIC POWER
tion is up this month and down next month, to be in position to lake
care of the peak production, so we had to provide new buildings. We
built a building, two stories, 100 by 150 feet, and bought equipment
to put us in position to manufacture economically.
PATENT INFRINGEMENT LITIGATION DISCLOSES EVILS IN PRESENT
PATENT SYSTEM
Mr. Graham. In the early part of 1926 a patent infringement
occurred and a company started in to build oil filters, appropriating
the patent that we had spent so much money in developing. In 1925
and 1926 we had this volume business. In the eariy part of 1926 this
new filter appeared on the market, experimentally, and at the buying
season of the year, which is July 1, we had lost Buick, Cadillac, and in
November of tlmt year we lost Oakland, and that cut our business more
than in half and drove us immediately from an earning company to a
heavy losing company. Fortunately for me, I didn't have to go to the
public for finance because the original people were thoroughly willing to
support the company, and a bond issue was put on the plant and that
provided us with enough money to pay for these investments we had
made and to give us some working capital, but it increased the invest-
ment in that business from $800,000 to $1,100,000.
Now in the regular course, when our patents came to issue in July
1926, we started first by notifying the infringer of the infringement,
and asked him to desist and account. Failing to do so, in the fall of
1926 suit was started, and a supplemental bill was filed in the spring
of 1927. That case took its regular course and it went to the district
court in which the ruling was, or the decision, that every claim of
every patent was infringed, but the judge declared the patents in-
valid. We took an appeal to the circuit court of appeals at Cincin-
nati. That was late 1928. The district court tried the case in April
of 1928, and in 1930 that case was argued before the circuit court of
appeals. We felt we were in the right and we employed Mr. Charles
Evans Hughes and he and Mr. William Houston Kenyon argued our
case before the circuit court of appeals.
That case in 1930, I believe it was — no, it was early 1931, was
decided and the trial judge was reversed, claiming that two of the
five patents were valid. Well, those two patents were the important
patents. The defendants petitioned for a new trial and were refused,
and then they petitioned the Supreme Court for writ of certiorari and
that was refused.
The Chairman. Who were the parties to this suit?
Mr. Graham. The AC Spark Plug Co., Flint, Mich.
The Chairman. And your company.
Mr. Graham. And they are a unit of General Motors.
Wlien the Supreme Court refused to take that case under con-
sideration, it was referred back to the trial judge for the issuance of
an injunction. We got an injunction I think on the 2d of November
1931, and then that was filed I think on November 14. Immedi-
ately the judge ordered an accounting. By reason of the fact that
there were so many units of the General Motors interested in t&e
case, the accounting was a very laborious one. They had the AC
Spark Plug Co., the Buick, Cadillac, LaSalle, Oakland, and the
United Motor Service, all of whom were parties to the case. It took
about a year and a quarter for that accounting to be completed.
CONCENTRATION OF ECONOMIC POWER 94 ^
After that was completed, then it became necessary for us to
employ accountants to study that accounting and to recast it,
which used up a lot of time because so many of the records required
the interviewing of oflBcials and department heads that our recasting
of that lasted about a year and a half.
After that recast was filed, another thing we had to do was to employ
accountants also to find what our damages were, to make our own
calculation of how much we had been damaged. Then we started a
series of arguments with the master that had been appointed, and
that carried us through another year and a half. The heads of
departments had to be called before the master and the points at
issue argued, and it usually had to be done under a court order.
So we come up to December 22. The case was completed before
the Master, I believe, in the beginning of 1936 and we had expected
before the end of that year that we would have the Master's ruUng,
but unfortunately, on December 22, 1936 he died without leaving
any indication as to what his findings or recommendations might
have been.
Then we were up against the problem of doing all that work over
again, but the judge had compassion and he decided to end the case
himself, and in a series of arguments he went down the list, he allowed
us this, he denied us that, and he allowed us this and denied the next
item, and that took the early part of 1937, and on April 26 he decided
that we were entitled to this, not that, and then it was put back to
the accountants for both sides to agree upon the computation of the
amount due us, and that again was argued, and on October 11, 1937,
he gave us a judgmi^^nt, entered a judgment based on the findings of
the two sets of accountants, and that judgment was for $1,045,000,
with a supplemental judgment based on the possibility of tax savings
not to exceed $139,000, so that it made a possible judgment of $1,184,-
000. We didn't think that that was a sufiicient amount, for the
reason that *He judge in rendering his decision took the instrunient
apart. Our patent covered an extended area type of construction,
and he took the filter apart and only allowed that portion of their
product which could be attributed to the filtering element itself.
We contended that the whole item was the patented item, so at that
point our regular attorneys recommended to me that they were so
close to the forest that they couldn't see the trees, or something to
that effect, and wanted me to get other counsel to review the situation.
We employed Mr. W. H. Davis, of Penny, Davis, Marvin & Edmonds
in New York, and their recommendation was to us that we had a just
right, with the expectancy of an increased judgment, to appeal the
case. That case was appealed and went back to the circuit court of
appeals in Cincinnati, and while the narrative statement was being
prepared it consumed almost all of 1938 and fortunately before the
end of the year settlement was had by agreement.
That is the story of the infringement, and one of the reasons why
1, as a businessman, feel that some action should be had that will
make it impossible for a case to stay in court 12 years.
The Chairman. You regard your company as a small company?
Mr. Graham. Yes, sir.
The Chairman. Are you now making the filters for General Motors?
Mr. Graham. We have certain units, but we have none of their
car accounts.
124491— 39— pt. 3 8
^42 CONCENTRATION OF ECONOIMIC POWER
The Chairman. Are they using the device which was an alleged
infringement of your device now?
Mr. Graham. Not generally.
The Chairman. They are using a new device?
Mr. Graham. The cars are not equipped with filters.
The Chairman. I see. I take it from your story that when you
got production it was largely by reason of the use of your filter upon
the General Motors, and when General Motors began to use the
allegedly infringing device, then your volume dropped off and instead
of making money you began to lose money and thereupon had to
float this bond issue among your own financial backers.
. Mr. Graham. True.
The Chairman. And your struggle from then on took you through
the courts for 12 years m order to establish your fundamental right
in the patent, and you did that finally only by settlement.
Mr. Graham. That is correct.
Mr. DiENNER. May I ask the witness another question? I believe
there was an interference involved in the same proceedings which I
think the committee would like to hear about.
Mr. Graham. Naturally when a company undertakes to defend
their action they are going to search the world to find anticipation or
something in the prior art. In 1918 a man by the name of Cole
applied to the Patent Office for a patent covering what he claimed to be
the same principle of filtration as was employed by Sweetland. That
was 2 years prior to Sweetland's filings. That case was continuously
rejected by the Patent Office, and I might say this. I thought the
Patent Office acted very unfairly when they allowed six or seven
amendments and kept that patent application alive in the Patent
Office. When we tried our case we relied on certain claims of the
various patents, and claims that we didn't want to rely on weren't
used in our prosecution of the case. After the Sweetland patent came
to issue in July 1936, one claim, claim 3 of one of the patents, which
had not been relied on by us, was picked up verbatim and put in as
a single claim in this Cole patent. That was thrown into an inter-
ference immediately with Sweetland's issued patent, and our attorneys
argued that interference, and it finally went to the Court of Patent
Claims.
Mr. DiENNER. Court of Customs and Patent Appeals?
Mr. Graham. That is right. They finally issued that patent to
Cole. Prior to the time that that Cole patent came to issue, a unit of
General Motors had made an agreement with a man by the njime of
Dooley who had taken up the Cole invention. My memory is that
they paid something like $41,000 and agreed to pay $20,000 a year.
Immediately after the patent came to issue they started suit against
Sweetland and Motor Improvements m the district court. Our
attorneys took up the case and asked for its dismissal, based on the
fact that Mr. Sweetland was a resident of California and couldn't be
served in the district of Delaware. We finally, after going up to the
supreme court from^ the decision of the third circuit in Philadelphia,
got the case dismissed as to Sweetland. That is the interference
Eart of it. The infringement part, then, was set down and tried as
etween Motor Improvements and Dooley Improvements.
I think it was in 1937 that we got a favorable decision declaring the
Cole invention purely a paper patent, and therefore invalid.
CONCENTRATION OF ECONOMIC POWER 943
When we separated the two cases there was an immediate case
•started in the District of Columbia, because there the.v could make
.Sweetland a party. That case— well, I will finish the Delaware case
first. An appeal was taken from the judge's decision, but it happened
to be taken 1 day too late, therefore the pntent was invalid and the
case closed. But last spring the District of Columbia case was tried
and the judge has not yet handed down the decision. So while we
have got rid of the damage case, that case still hangs over our heads
and that is where I criticize the Patent Office for allowing a case of
that kind to s;.i,y alive since 1918 and come up in 1927 to a patent.
Mr. DiENNER. Might I summarize the proceedings this way, that
you were forced to bring suit on your own patent. After a groat deal
of difficulty you secured a favorable decision. Meanwhile you were
being attacked in the rear on a patent which was issued on application
pending for a long time, having been held by the Patent Office to
contain no allowable claim until the Sweetland patent appeared.
Then in this old application in the Patent Office the applicant 10 years
pending, without anything allowed, copies the claim of the Sweetland
patent on which Motor Improvements was building its equipment,
and was actually bringing suit against General Motors, and that nter-
ference passed through all the stages of an interference up to the Court
of Customs and Patent Appeals, and the Cole patent case issued as of
an earher date than the Sweetland patents, so that while Mr. Graliam's
company was winning on the one hand, it was apparently losing on
the other, being stabbed in the back, as he remarked, by this old
patent which did not, as was finally held in the courts, contain the nven-
tion, and because of this attack in the rear, Mr. Graham's company
first was assailed with that patent in the Sixth Circuit Court of Appeals
on the accounting; it was assailed in Delaware in the district court, and
finally it has been assailed in the District of Columbia. That is a
brief outline of the proceedings.
The Chairm.\n. And to what extent, Mr. Dienner, does the counsel
for the Patent Office now desire to criticize the Patent Office in this
matter? .
Mr. Patterson. I didn't hear all of Mr. Graham's interesting
discussion of his problem, but it is clear to me that he has in an
interesting and clear fashion described one or two of the evils that the
Commissioner of Patents is vigorously trying to change and correct,
and such testimony as yours, Mr. Graham, is helpful to us. I haven't
spoken to him, but I would like to know if Mr. Coe, the Comrnissioner
of Patents, would care to comment on what you said", if that is agree-
able with the chairman.
The CHAiR^iiAN. I take it that the Commissioner of Patents is to
reply to the question that I directed to his counsel.
Mr. Coe. I won't try to defend that factor, Mr. Chairman, because
the Commissioner of Patents and the present administration of the
Patent Office has been very much exercised and is trying to correct
at least two of the evils pointed out by Mr. Graham: First, the
undesirability and the need for correcting the long pendency of
applications in the Patent OflSce. It hasn't been due to the personnel
in the Patent Office but rather to a procedure that permits that.
And among the recommendations, which I offered the other day to
this committee was one that would, we think, effectively stop the
evil of long pendency of applications. The second vicious practice
g44 CONCENTRATION OF ECONOMIC POWER
referred to by Mr. Graham is the use of an interference procedure by
a competitor for the purpose of delaying or harassing an applicant
who, in this case at least, has proven that he will ultimately prevail.
The purchase of this old apphcation for the purpose of invoking an
interference by a competitor who is even at that moment engaged in a
suit with Mr. Graham is another problem which the Patent Office
thinks should be corrected.
The Chairman. Then do you wish us to understand, Mr. Com-
missioner, that there was nothing which the Patent Office could do
in this case?
Mr. CoE. Nothing, the Patent Office could do at all in that case
under present procedure, Mr. Chairman, so the Patent Office is now
proposmg additional legislation and procedure that will enable us to
cope with that situation.
I might give a specific indication or case as to how the Patent
Office has been unable to handle this matter of long pendency of
applications. A case came to my attention a few years ago which
had been pending 11 K years, and I thought that was far too long and
indicated to the applicant that the prosecution of that case must be
considered closed. The applicant then, with his attorneys, went down
to the district court, obtained a mandamus, and the court ordered me
to permit the case to continue, and it was 3 years beyond that point,
a total life of 14 years, before the patent was issued.
The Chairman. The rejection of an application does not neces-
sarily end the application?
Mr. CoE. Not only that, but we have to reconsider and reconsider
and reconsider the rejection until final issue has been reached by the
examiner. That opens up a long course of appeals from the examiner
to the Board of Appeals and then to the courts, and as Mr. Graham
has indicated, that is exactly the course that this case he refers to
followed, not being terminated until it received final termination by
the Court of Customs and Patent Appeals.
The Chairman. Do I understand you to say that an application
which has been prosecuted before the Patent Office and rejected may
thereafter be purchased by a person who is not a party to the original
application and by that purchaser amended and carried through
these various steps again?
Mr. CoE. It is not only possible, Mr. Chairman, but I think the
case Mr. Graham has cited indicates how it is put into practice.
Mr. DiENNER. One more question.
The Chairman. Judge Davis would like to ask a question.
Mr. Davis. Commissioner Coe, where it appears to the satisfaction
of the Patent Office that an applicant, apparently for the purpose of
putting another application in interference, simply copies the claims
or part of the claims made in a prior application, is that not pretty
strong ground for the officials in the Patent Office practically taking
summary action in reaching a decision in that case?
Mr. CoE. Of course, if we were aware of the facts as you have
stated them, Judge, perhaps the Patent Office might take some
action, but this question of the motive, as to why they purchased this
case or why they seek an interference, is something we have no manner
of ascertaining, and there are frequently very legitimate, proper
instances where an applicant must copy claims from fiTn issued patent.
The Chairman. If you could establish that motive, do you have
the power to take summary action?
CONCENTRATION OF ECONOMIC POWER 945
Mr. CoE. No; we do not, sir. We might try to do some things we
wouldn't ordinarily do, but I think we would probably be reversed
by the courts.
Mr. Davis. If you reached a conclusion of that kind, would not
that be a very strong reason for expediting that case so as to prevent
an improper interference indefinitely, which is apparently the purpose
of the apphcant who has placed the matter in interference?
Mr. CoE. We are instructed to allow an applicant 6 months in
which to respond to an office action. When a procedure contemplates
a long course of appeals there is no effective way of expediting the
application.
Mr. Davis. And that is one reason you are recommending that the
law be amended so as to shorten those periods ?
Mr. CoE.' It is our considered judgment that the only effective
way of stopping the evil of long pendency of applications is to penalize
the applicant himself, and if he stays there,' to force him to accept a
reduced monopoly. We believe that that selfish interest, then, of
his getting his case out of the Patent Office, will effectively cure this
evil of long pendency.
The Chairman. Tour 20-year recommendation would be the solu-
tion?
Mr. CoE. In our judgment that is the only effective solution, Mr.
Chairman.
Mr. Davis. Well, now, right in that .connection, can a willful
interferer, without meritorious cause, hold it in interference and by
filing amendments and things of that kind limit the time of the life
of the patent which is ultimately issued to the true inventor?
Mr. CoE. Judge Davis, we suggested what we thought is a complete
program. We did not contemplate the operation of the 20-year bill
with the present interference practice, and therefore we suggested
that the interference practice be so changed that there would not
be this possibility of retaining an adversary's application in tb**
Patent Office, such as you now suggest.
In other words, the proposal was to have one interference decision
by the Examiner of Interferences, and then issue the patent, and we
think that that can be done in such a short time that it can be applied
along with the 20-year bill without any substantial unfairness.
Mr. Davis. In other words, you recognize that danger and are
undertaking to provide against it in legislation.
Mr. CoE. Yes; interference reform was part of the program we
suggested.
Mr. Davis. Mr. Graham, can you tell us how much this extended
litigation which you have described cost your company in the
aggregate.
Mr. Graham. The court costs, attorneys' fees, expert witnesses,
and accountants, which were a very heavy part of the expense of this
case, cost the company just around $300,000 over the 12 years.
The Chairman. Your judgment was in excess of $1,045,000, with a
possible $139,000 above that, and I assume, of course, you settled for
less.
Mr. Graham. We settled for more.
The Chairman. I think you had pretty good attorneys or a pretty
good business m.an handling the settlement.
Mr. Graham. Both.
946 CO>'CENTKATIOX OF ECONOMIC POWER
I would like to make one correction. I didn't mean to criticize
the Patent Office, only as the procedure appeals to me as a layman.
The Chairman. ^Ir. Graham, I think the committee understood
the tenor of your testimony.
Mr. Graham. The thing tlint annoyed me was, and Mr. Dienner
can bear me out in this, that there was not one allowed claim in all of
the rejections of that patent up to the time they appropriated one
claim, out of the Sweetland patent, and that is what annoyed m.e.
Mr. Dienner. Do you tliink, do you feel, that the award which
yoir have received in this litigation has adequately compensated
you and your company for the trials and difhculties and loss of business
and general damages which it sustained?
Mr. Graham. Not nearly.
Mr. Dienner. Wasn't there an unfair competition feature involved
in that case?
Mr. Graham. Yes; when the injunction became effective on
October 14, 1931. the defendants ceased to build the infringing type
of filter and went to building one that we regarded as not good, and
we started an action in the courts at Bay City, Mich., charging them
with unfair practice. At the same time we filed a case with the
Federal Trade Commission here in Washington charging the same
features, and the Federal Trade Commission returned our case on
account of the fact that we had it in the civil courts, and until we
were through there the Federal Trade Commission wouldn't touch it.
Mr. Dienner. But wasn't it a fact that during a part of that time
the defendant, instead of putting an actual device of filtering charac-
teristics on its cars, was putting something which might not even be
described as a filter, a dummy box, as it were, to give the appearance
of putting on the filter.
^Ir. Graham. That's right.
Mr. Dienner. Have you a chart indicating the progress of your
business throughout the period that you have discussed from its start,
through the litigation right up to the present? '
Mr. Graham. Yes; I have.
Mr. Dienner. And that indicates, as has been stated by a member
of the committee, the ups and downs of your company?
Mr. Graham. Here is the chart, Senator, and this is our inception
period, back in 1924. That base line in the upper chart is that 51,000
filters a montli that would permit us to break even. In 1925 we went
up above the line — in 1925 and the first part of 1926 — and there is
the indication of the severe drop that we took when we lost that
business, and it took us until 1928 to get back up above the line, and
in this period was where we had to get that additional financing.
Mr. FitANK. May I ask: When you got your settlement did j^ou
have to pay an income tax on the amount for the j^ear in which you
received that sum, or was it apportioned over the j^ears backward?
Mr. Grau \M. T think the fair thing, Commissioner, is to put that
back over th" infi'iigiiv.' j'ears.
Mr. P'rank. What did happen in your case?
Mr. Graham. Nothing as yet.
The Chairman. That is another suit.
Mr. Graham. No; that won't be a suit, it is just negotiation.
' LS^lb^l•^uenlly entered as "Exhibit No. 209" on following page.
CONCENTRATION OF ECONOMIC POWER 947
Representative Reece. Mr. Chairman, I am rather surprised to
hear this instance cited, because I rather got the impression, when
representatives of G. M. C. were before the committee, that they
never harmed anybody.
Mr. Graham. Well, this is not a case of picking individual com-
panies. This might have happened to any company.
The Chairman. Mr. Graham has been called for the purpose of
illustrating the effect of the present patent system upon this particular
industry, and the individual companies were not material to the
inquiry, as I understand it.
Mr. DiENNER. That is correct.
The Chairman. Mr. Coe, you wanted to ask another question.
Mr. CoE. Mr. Graham, without regard to the particular defendant
in your litigation but in view of your experience with these numerous
litigations, would you care to express any opinion as to the handicap
a small company or an individual has in conducting patent litigation
against a large corporation or an adversarj^ of considerable strength?
Do you regard that as an equal conthct?
Mr. Graham. No; very unequal.
Mr. Coe. You think the small company is at a decided disadvan-
tage?
Mr. Graham, Very much so. If it hadn't been for the fact that
the original investors in our company were people that could enlarge
th^ir investment, and if it were not for the fact that they had con-
fidence in the management, our company probably wouldn't be here
today.
Mr. Coe. In other words, the result of the litigation, even though
you might ultimately have prevailed, would have meant failure to the
existence of your business.
Mr. Graham. Absolutely.
The Chairman. Do you regard this instance as in any cegree
typical of industry today? Have you heard of any other similar
instances?
Mr. Graham. Well, I have heard of lots of instances where com-
panies appropriated inventions and the person who first started the
invention or started to merchandise the invention wasn't able to stay
through to the finish.
Mr. Frank. Mr. Graham, have you any notion of what the litiga-
tion cost the defendants?
Mr. Graham. I should think it was equally heavy.
Mr. Frank. You think approximately the htigation cost some
$600,000?
Mr. Graham. That is right,
Mr. Dienner. May this chart be introduced in the record as an
exhibit?
The Chairman. Without objection, it will be so ordered.
(The chart referred to was marked "Exhibit No. 209" and is
included in the appendix facing p. 1149.)
The Chairman. Are there any other questions of Mr. Graham?
Mr. Dienner. I have no further questions.
The Chairman. Do any members of the committee desire to ask
Mr. Graham aiiy additional questions? Dr. Lubin? Mr. Frank?
Mr. Williams? Mr. Davis? Congressman Reece? Then the wit-
g4g CONCENTRATION OF ECONOMIC POWER
ness may be excused, and the committee will stand in recess until
2 o'clock this afternoon.
(The witness, Mr. Graham, was excused.)
(Whereupon, at 12:10 p. m., a recess was taken until 2 p. m. of the
same day.)
AFTERNOON SESSION
(The committee reconvened at 2:10 p. m. on the expiration of the
recess.)
The Chairman. The committee will please come to order.
Mr. DiENNER. We wUl next call Dr. Frank B. Jewett, who is presi-
dent of the Bell Telephone Laboratories, which is the largest indus-
trial research laboratory in the world. He will explain the operation
and purposes of his laboratory in terms of its effect upon the promotion
of science and the useful arts in conjunction with the United States
patent system.
Dr. Jewett, will you please be sworn?
The Chairman. Dr. Jewett, do you solemnly swear that the testi-
mony which you are about to give in this proceeding will be the truth,
the whole truth and nothing but the truth, so help you God?
Mr. Jewett. I do.
TESTIMONY OF FRANK B. JEWETT, PRESIDENT OF THE BELL
TELEPHONE LABORATORIES, INC., NEW YORK CITY
Mr. Dienner. Dr. Jewett, will you please give your name and
your position with your company?
Dr. Je A'ETT. Frank B. Jewett, vice president of the American
Telephoi-e & Telegraph Co., and president of the Bell Telephone
Laboratories.
Mr. Dienner. Will you please state your qualifications so that
the committee will have your background and some idea of the
experience which you have had so that we may ask you questions
which may be more or less in the nature of your opinion in certain
respects?
_ Dr. Jewett. I was born and brought up in the Southwest at a
time when social insecurity was the order of the day. I got my
preliminary training as an engineer in what is now the California
Institute of Technology, then Throop Polytechnic Institute, and I
went then to the University of Cliicago, where I did graduate work
in physics and mathematics, and for 2 j'ears was a research assistant
to Prof. A. A. Michelson, later a Nobel prize winner in physics, and
then I went to Boston as an instructor in the Massachusetts Institute
of Technology, and was there at the time, and was an, associate, of
Dr.Coohdge, who spoke here, who testified here, yesterday, and
Whitney, and was there at that period. At that same' time, or about
the same time, that Whitney and Coolidge went to Schenectady to
organize the General Electric research department laboratories, I was
asked to go to the American Telephone & Telegraph Co. to do a
similar job.
For, as I listened to Dr. CooHdge yesterday, I think essentially
the same reasons I accepted that position. I accepted that position
although I had never had any intention of going into industrial
research work; in fact, in those davs none of us were ever trained for
CONCENTRATION OF ECONOMIC POWER 94^
that. Those of us who took advance degrees were scheduled to go
either into fundamental science research in universities or into the
teaching profession. It so happened that an appealing story was
told and also happened that I wanted to get married and needed
some money, so here I am, and for 35 years now I have been an
employee of the American Telephone &^ Telegraph Co., always in
intimate association with its research and development work and in
the main after the first 2 or 3 years, either in responsible charge either
of a part of it or for more than half the period in completely responsible
charge for the program of research and development work and the
expenditures which the Bell System makes in the communications
field, so that whatever judgment is passed on the research function
of the Bell System is one which I will have to share in and share a
large part of, whether it is good, bad, or indifTerent. The only excep-
tion to that tour of duty of nearly 35 years now (and it wasn't only a
minor exception) was the 3 or 4 years that I served as the operating
vice president of the Western Electric Co., and while I had general
charge of its research and development functions my primary duty
was an operating job in those years.
But since about 1922 or 1923 I have been the cliief executive officer
in charge of that function of the Bell system's business. That you
may have a proper background to get some of the answers I may give
to questions, since a large part of this testimony, I judge, will at least
touch on the patent side of research and development work, I might
say that when I entered industrial life from academic circles I was
completely opposed to the patent system, patents at least for that class
of work. I had grown up in the atmosphere of pure science, and at
that time, whatever it may be now, I thii)k it is safe to say that the
consensus of opinion of the leaders of science looked upon the patent
system and patents as a thing which were well enough, that had their
place with regard to mechanics and possiblj'^ to engineers and inventors,
but had no place whatever in the pur\-iew of those who were trained
in fundamental science. I know that that is the way my cliief. Pro-
fessor Michelson, felt. He thought that when I entered industrial life,
which was a field where patents were a part, I was prostituting my
training and my ideals.
I say that because duriug the j'ears which have followed I have
completely reversed the preconceived ideas I had as to the value and
necessity of the patent system. I tliink scientists in general have
changed; I doubt if the sam.e atmosphere prevails now that did then,
and also because in the process of the change I found myself changing
my point of view. In order to Imow why I was doing that I made it
somewhat of a hobby to learn a little something about the patent
system, how it came to be, what society organized it for, what they
expected to get out of it, and what price they expected to pay for what
the.y got. Now, that is the sort of background of my history which
ma}'' help you to appraise whatever I may say.
iClr. DiENNER. I think it would be very interesting at tliis time to
have j^ou tell us what you did find out, under your study of the patent
system, as to its usefulness, and the way in which it accomplished its
purposes.
g^Q CONCENTRATION OF ECONOMIC POWER
ORIGIN OF U. S. PATENT SYSTEM
Dr. Jewett. Well, in the course of my examination, of course, I
could not help but come back to the acts of Parliament at the time of
James I. Of course, I had thought in my ignorance that the in-
clusion of the patent section in the Constitution and the acts of Con-
gress which followed it was a thing generated by the fathers of the
country. When I came to look into it, of course, I found that they
were well versed, the colonial people, in the British thing, and the
whole history of this patent business went back to that act of Parlia-
ment at the time of James I, when the iniquities which had gro%vn
up around the grant of royal patents for every sort of thing had be-
come so obnoxious to the people that Parliament at one fell swoop
wiped them all out. That was quite conceivable, but the thing that
always struck me about it was that in that era of intense dislike which
was \villing to wipe out the thing that had grown up over hundreds of
years, men were ^v^se enough to see that there was one exception to
that thing in which the State could well afford to grant certain rights
to people who did certain kinds of things, and that was mainly in the
field of those who created new and useful things.
They established that at that time and every patent system, so far
as I know^ — of course I am not an historian — which exists in the world
is fathered in that act of the British Parliament back at the time of
James I.
Now then, I think most people have a misconception as to what
the patent system was set up to do and what patents are. In fact,
some of the questions and answers which I heard here yesterday led
me to feel that even some of the members of the committee may not
have in mind what I conceive to be what a patent is. In the first
place, some people have the idea that in the exclusive right which is
given to the inventor of a new thing by the issuing agency, in our
case tlie Patent Office, he is given a right to do something which he
othcr'.vise didn't have the right to do. That is not at all, of course,
the case. Anybody has a right to do anything if he thinks about it,
unless he is excluded from doing it, and what the patent is is a right
for a limited period of time to exclude others from the use of that
thing, assuming it is a valid patent.
■ Now just what was it that the English Parliament sought to do
"when they established the first British patent system, and what was
the situation which they were trying to correct? The thing they wore
trying to correct was to break down the walls of secrecy, by which
process new ideas were kept secret by those who thought of them, and
operated in their own behalf, and the reason they wanted to break
it down was because any scheme of secrecy as a means of control is
necessarily a limited and small thing. You can't have things secret
if you have too many people involved in them. You just can't keep
it a secret. And Parliament felt in the interests of the nation as a
whole that anything that could be done to break down the walls of
secrecy was a good thing.
The other thir.g that they were attempting to do was to act in be-
half of the nation as a whole. They wanted to stimulate invention,
they wanted to stimulate new ideas, new manufacture, new products,
but they wanted to do it for the benefit of the nation. They weren't
thinking particularly of the individual himself, but they could only
CONCENTRATION OF ECONOMIC POWER 95 ^
do it through the individual, and what they did was to offer what was
in e'flfect a bribe to the individual by being willing to agree in advance
and to pledge the faith of the nation to inventors unknown, even
unborn, that if they would do certain things, the nation pledged itself
to do certain other things. And that certain other thing which they
did was this: What they demanded of the inventor was that he
publish forthwith and fully his invention; in other words, that he
break down the walls of secrecy and give all and sundry notice of
what it was he had done, and in turn for that and on behalf of the
interests of the state, the state agreed to constitute his new, thing,
his brain cliild, as real property endowed with all the attributes of
real property, principal among which was the right to exclude others
from its use for a limited period of time, after which it became public
property.
I think, as one looks over the history of the growth of industry in
England, and particularly iu this couiitry and laterally in the other
industrial countries, there can be no question that whritever may have
been the deficiencies of that conce])t in its appUcations in different
places at different times, whatever may be its deficiencies at the
moment, the over-all effect of the thing as measured from the stand-
point of the nation, of society, has been of inestimable value, and, so
far as I can see from my observations' of it, the fundamental condi-
tions which obtained at the time of James I's Parliament have ob-
tained continuously since, and obtain at the present time unless one
is prepared to say — which I am not — that we have so far explored
and made use of the unknown of nature that there is no substantial
future for development in the years ahead comparable to that which
we have had in the past.
ORGANIZATION AND PURPOSE OF BELL LABORATORIES
Mr. DiENNER. Dr. Jeweit, will you please tell us about yonr labo-
ratory, the Bell Telephone Labor;itory?
Dr. Jewett. xis I mentioned a few minutes ago, I was asked to go
to the American Co. at about the snme time, a year or so after Whitney
and Coohdge went up to the General Electric. Of course, I stated
that I thought the conditions which originated that request were
almost identical with those which Coolidge testified to here yesterday
as having been the genesis of the thing at the General Electric, and
it seems quite obvious that was so. Whether at that time there
were conversations between the people who managed the General
Electric Co. and those wlio managed the Telephone Co. and it was
somewhat of a concerted action, of course I don't know and never
will know.
The 35 years of course which 1 have been in the Telephone Co.
are half the life of the industry since Alexander Graham Bell made
his invention, and it is perfectly clear that at the time v.hat has
grown to be this great research organization was started back in 1903
or '04, the industry had outgrown its ability to progress wholly on
the basis of random invention which was the basis of its new material
in the very early days after Graham Bell, and had also outgrown the
second stage in which inventive ability and genius was teamed up
with engineering skills, skills of the trained engineer, and had reached
«» fitfliro iT^ "vhiob it wflo ^loo»* fVtrif co'^-a ^41 ,. 1 : i *" ,--,.-,-
952 CONCENTRATION OF ECONOMIC POWER
problems had to be made. Roughly stated, the telephone devel-
opers of the early nineteen hundreds, at the break of the century,
knew the things that they wanted to do and knew that it should be
possible to do those things in the light of known knowledge or easily
ascertainable knowledge, but they couldn't do them with the mere
random inventive type of stuff, or even with that supplemented by
the t5^pical kind of engineering training that you had there; in other
words, that they had to bring some way into the picture the same
type of mind, trained mind, and the same type of teclmiques which had
developed the fundamerital knowledge which they knew had applica-
bility but which they did not know how to apply, and I think that
state of affairs pertained in many industries, it certainly pertained in
all the electrical fields and most assuredly pertained in the telephone
field.
Well, at the time when I went down to join the bunch at 125 Milk
Street in Boston, there probably were two or three men who had
been trained somewhat as I had been trained, as a fundamental
scientist. Some of them, like rnyself, had had some engineering
training. There was, of course, in the central organization of the
A. T. & T. Co. and in the organization of the Western Electric Co.
as a manufacturing subsidiary, and had been ever since the start, a
lot of experimental laboratories, more or less like the laboratories Dr.
Coolidge mentioned yesterday, but they were not research laboratories
in the ordinary and present-day sense, so that in the 35 years this
research and development function has grown in the Bell System from
three or four people to many thousand, and of course you made the
statement, and it has been made, that this laboratory of which I am
the head is the largest industrial research laboratory in the world.
Whether that statement is true or not, it is certainly one of the very
largest laboratories, and it is unique so far as I know in quite a num-
ber of respects. In many respects, of course, it is exactly the same
as any other research laboratory in the physical sciences. In other
words, it is dealing with fundamental science knowledge in the fields
of chemistry, physics, and what have you, in their applicability to
useful purposes in a particular sense.
But it is unique in these respects, part of the uniqueness being con-
nected with the uniqueness of the Bell S3^stem itself, the telephone
business. In most industrial research laboratories the ultimate objec-
tive that is sought is the development of a physical thing which is sold
to the general consuming public. Without exception, almost, except
in our own case, that is the end of the road, and a good piece of work
is done when a thoroughly satisfactory article at a thoroughly satis-
factory price, a thing which will give satisfaction to the customer, is
delivered.
The interest of the producer ceases and determines when the trans-
action is completed except insofar as he has an interest in the good-
will of his customer.
Now in the Boll system, while our induslrial research laboratory
operates physically just like any other industrial research laboratory,
it has this distinction, that we make substantially nothing to sell.
The end product of our work is physical things, but except to a very
lim.ited degree those things are things which are used by the operating
companies of the Bell system, communications people. They never
appear in trade, or practically never appear in trade.
CONCENTRATION OF ECONOMIC POWER 953
Now at first sight that might appear to have very Httle bearing ou
the question of how we conduct our work. Actually it has a vital
bearing in this, that since the Bell system is a completely integrated
part and since for the last thirty-odd years since society everywhere
in , the world tried the experiment of running . the telephone business
on a competitive basis but gave it up everywhere, so that today there
is no competition in telephony anywhere in the world in the ordinary
competitive sense — since that time the fact that the B^ll system is a
completely integrated affair in which from the inception of an idea
through its development, its manufacture, its installation, its opera-
tion, to the end of its life when it goes on the junk heap the whole
thing is under a common command, that integration brings in a type
of attack in the research laboratory which is fundamentally different
from the attack which is made, which we wouldn't make on exactly
the same problem if our end product was to be sold in general com-
merce, because being part of an integrated system the thing that we
are really interested in is that this particular thing which is put into
service shall have given the service for which it was intended through-
out its life untU it goes on the junk heap, in the best possible fashion
at the least possible total cost. That results more frequently than
not in that the first cost of the thing which is produced and put into
service may be higher than the first cost would be if it was sold in
commerce and be equally good at the start.
Take an example; take this kind of an example. It costs about
somewhere over a dollar, 1 presume, for a maintenance man to go to
visit your house to clear up trouble, most trouble on transmitters; I
don't know what the figures are, but it certainly would cost at least
that much on the average, and a telephone transmitter I suppose
should last on the average about 10 years. Well, now, if you can
afford during the life of that thing, by spending a dollar on the first
cost of the transmitter, to save two or three visits of a maintenance
man, you can afford to put in, in an integrated system, more money
on your research and development in your first cost phase than you
could afford to put in if you were selling that thing in a competitive
market and you were interested in giving a perfectly good article but
didn't care anything about the maintenance cost, the other fellow is
going to bear that, so that has a bearing on how we handle our
problems.
I mentioned this sort of thing in the hearing, to one of the members
of the committee some time back, and he suggested that that difference
.which results from a difference in environment was a thing which
might be of interest to the committee in appraising this sort of thing.
And it was suggested that I cite the case in question. Well, I am
perfectly willing to do it because it is a rather interesting case and
what I am going to say is no reflection on anybody else. Vacuum
tubes — you will probably talk more about that later— as we all know,
have become in the last couple of decades a very important article
in the whole electrical thing. Everyone who. has a radio set has a
vacuum tube; they are extremely important in the telephone business.
The average vacuum tube, I presume, of good quality, which is used,
would be considered very good quahty, would last nearly 1,000 hours
of operation and it would, we will say, consume an ampere of current
in its filament to heat the filament up.
Qg^ CONCENTRATION OF ECONOMIC POWER
That is wliat the telephone repeater tubes 10 or 15 years apro did
require and lasted about 1,000 or 1,500 hours and took about an am-
pere of current. Well, as a result of research, and we had been buying
those things from a manufacturer as though we were individuals
buying for our radio sets, since the tubes were absolutely satisfactory
and had a reasonable length of life, measured by incandescent lamps,
and what not, there would have been no particular incentive for that
fellow to have improved his product, unless he could either get a
bigger sale by that or get a higher price for it. But we had a very
great incentive for reducing the annual costs by prolonging the life
of the tubes and by reducing the amount of power that they took or
consumed. To make a long story short, the end of the road, about
10 or 12 years ago, was a tube which was no better physically than
the one preceding it, but instead of having 1,000 or 1,500 hours life
it hfld 50,000 hours life and took half an ampere of current, and cost
tilightlv less. The cost factor didn't make much difference.
Now what is the effect of that? That is a thing which we had a
great incentive to do, but whi^h no outsider, even with our facilities,
would have had any particular incentive to do for us. I had the figures
here a while back and what it amounts to is this. If I should wave a
wand tonight over the plant or system of the Bell system and replace
all of the vacuum tubes that are in all of these long-distance line
circuits with tubes of the vintage which I have mentioned to you of
10 years ago, tomorrow morning the using public would not know the
difference, so far as the service is concerned. The service would be
just the same as it is now, but it would cost us $10,000,000 a year for
mcreased power and in reased replacements of these tubes.
I mention that simply because that was suggested, that I do that as
an interesting thing, as an illustration of how this thing developed.
The Chairman. I wonder if we might clarify that a little bit,
Doctor. Do I understand that the Bell telephone system was pur-
chasing from a manufacturer?
Dr. Jewett. No. They always purchased from our own people,
always purchased from the Western Electric.
The Chairman. The Western Electric was manufacturing the tube
which was of the limited length of life?
Dr. Jewett. That is right.
The Chairman. And who developed the tube of the longer length of
life?
Dr. Jewett. The Bell Telephone Laboratories, and what it actually
resulted in, Senator, so far as the end result for the Bell system, is
what I have just indicated to you. The effect on the Western Electric,
that part of the Bell system, was of course to reduce its manufacturing
output over what it would have been. In other words, instead of
manufacturing, assuming you did not have any difference in the
number of tubes, you reduced the number of tubes to one-fiftieth of
what it was before.
The Chairman. In other words the system was being supplied by
the subsidiary Western Electric with the short-Hved tube?
Dr. Jewett. That is right, short lived measured by our present
standards.
The Chairman. The laboratory pursuing this research had dis-
covered how to make a tube of much longer life to serve the same
purpose and because of its longer life
Dr. Jewett. And much less current capacity.
CONCENTRATION OF ECONOMIC POWER 955
The Chairman. Longer life and less current used, and as a result of
this discoyerj^ the Western Electric substituted the manufacture of
the long-life less-powered tube for the other?
Dr. Jewett. That is right, except insofar as the growth of the
sjstcrn brought about more business, the efiect on the Western
Electric as a manufacturing concern was to cut down its business.
Suppose that there had been no growth in the use of tubes in the
system at the time of the substitution. Then instead of having to
replace tubes every thousand hours you replaced them onlv every
50,000 hours.
The Chairman. You cut down the number of tubes that it was
necessary to manufacture for the same amount of business?
Dr. Jewett. Right.
The Chairman. But if you allowed the longer life and the lesser
amount of power to be reflected in price to your patrons, then in all
probability you had a larger demand?
Dr. Jewett. Unquestionably there was some larger demand because
we all know these long-distance rates, which is the service in which
most of these tubes are used, like the transcontinental rates, have
been
The Chairman. Increasing demand.
Dr. Jewett. I can't tell you what the effect was on the Western
Electric Co., but the tendency was one direction, and all I have brought
this out for was because one of the members of the committee sug-
gested it was an interesting illustration of how a pliilospohy affects
what you do uith the same kind of tools, and it is a type of thing which
if we had been a research laboratory, connected with the Western
Electric Co., whose sole business was selling the general trade, we
would have had no incentive to do that kind of tiling.
Mr. Patterson. May I interrupt there? Did this tube become
generall}^ available?
Dr. Jewett. It is universally available in the Bell system, and it
is, if I am not mistaken, under all licenses we have granted to every-
body, useful to anybody. But no ordinary manufacturer who is
making his money out of the sale of his products is hkely to have the
same incentive to go as far as we have in making the things of ex-
tremely long life and extremely low current.
Mr.' Patterson. I can understand why the manufacturer, the
Western Electric, M'ould not cut the business down. It seems to me,
however, your incentive in increasing the life of this tube from 1,000
to 50,000 hours might very well have been to decrease the rate to
your subscribers, which is what you constantly want to do, and are
doing. That is the major effort?
Dr. Jewett. That's right. You see our objective — maybe I ought
to state this, although I think you all know i^. It is nothing, even
though I have been in the business 35 years, that I can take any
credit for, because the wise men — let me go back to the early days of
this Bell system, because I think it was a most astounding performance
that was done, and its fruits are in the fact that it is recognized not
only here but throughout the world that the telephone service in the
United States is just miles above what it is anywhere else. No-
where else in the world can you grab a telephone and call San Fran-
cisco or Seattle and wait at the telephone. You have to wait a very
long time. That is one illustration.
^56 CONCENTRATION OF ECONOMIC POWER
How did that come about? It wasn't just through a chance aggre-
gation of stupidities. It was due to some awfully wise planning, and
what is most astounding to me is that some men back in Boston
apparently in the 1880's had a concept wliich has found, outside the
Bell system, very Uttle appUcation since. Practically every pubhc
utility, including the Post Office of the United States, which requires
material things for its operation, is limited to some extent by the
physical things which are produced by somebody else. In other
words, it is not master of its own house completely. It is true that
the customer influences the suppHer of these things, but these Johnnies
back in Boston in 1880, who may have had the railroads or the
Western Union or somebody as their example, came to the conclusion
that if they were going to attain their objective, and I will teU you
what that objective was in a minute, there was only one way they
could do it. The supplier of physical things must be subordinate to
the user of those things, and they set up this arrangement which has
persisted since 1882, in which the manufacturer, the using utility
companjT^, directs and controls the research and development work
and directs" and controls the physical things wliich go into his plant.
He is master of his own house, and it has led to some very peculiar
things.
The Western Electric Co. is one of the three largest electric manu-
facturing companies in the United States and it is the only great man-
ufacturing company that I know of anywhere in the world that
doesn't have an engineering department. It has no engineering de-
partment. It doesn't design a single thing that it manufactures.
The Chairman. Dr. Jewett, I was tremendously interested in that
general principle which you say those Johnnies back in Boston de-
veloped, the principle which they felt must be followed at any and
all events, namely, that the supplier of the usable thing must be
subordinate to the user. Did I understand that correctly?
Dr. Jewett. This is for a public utility that they were talking
about. I don't know that they would have carried it to the ordinary
affairs of life. I don't know that they would do that.
What was the objective they were trying to reach? Of course they
were kind of a Jules Vernes outfit in those days — they must have
been — but they were wise Jules Vernes, and you will find what their
objective was stated in the charter of the American Telegraph &
Telephone Co. It has been oft quoted. They had the vision of
anybody anywhere in the United States, on demand being able to be
connected to anybody anywhere else, not only in the United States;
they mentioned these places — Canada, Mexico, and what not — by
wires or other appropriate means whenever they wanted to do it.
They made that statement long before they could talk 500 miles.
The Chairman. I take it that you meant by that statement that
those who were planning this development which we now know as
the Bell telephone system, world-wide in its aspects, decided at an
early date that if their plan, a very widespread plan, were to be
carried out effectively, it must be under a system whereby those who
were making the plan and carrying out the plan should be in a position
to demand the manufacture of the things that they needed.
. Dr. Jewett. Yes, that is quite right.
The Chairman. And it was for that reason, I suppose, that these
planners established the Western Electric Co. as a manufacturing
subsidiary of the Bell.
CONCENTRATION OF ECONOMIC POWER 957
Dr. Jewett. That's right.
Dr. Jewett. You are quite right. Let me finish this and then
I will tell you an illustration exactly along the lines I think your mind
is running. It shows how the thing worked in another situation
contrariwise. Their objective was this thing I have indicated to you
and that they should provide this service on demand at the lowest
possible rate, and by lowest possible rate they meant in every case
rates which were low enough so that they imposed no substantial
artificial barrier to a free usage of this service, and with safety to the
business. Now that has been the objective ever since before I was
in the telephone business. It was stated by Gilford down at Dallas
many years ago, and it wasn't anything new with Gifford; he was just
restating a thing which was old before he and I were bom, almost.
Now to give you the illustration of how the thing works contrari-
wise. One of the things which was done here a good many years ago
in the growth of the business was to develop certain kinds of machine
switching to take the place of manual switching which had become in
the big cities a very difficult thing to do, and because of this central-
ized, unified thing in the Bell system, and because of this long-range
proposition where you finally judge whether a thing is good, bad, or
indifferent by the total cost of the time until you put it on the junk
heap, certain types of apparatus were developed for the big city
areas like New York. The British Post Office came along and they
had a similar problem in London. London, a great big city, didn't
have as big a telephone development as New York, but it was a big
problem and they envisioned what has actually taken place, a big
growth in the telephone service in London. They knew of all this
work we had done over here, there was no secret about it, and they
wanted very much to use that, the engineers in the British post oflSce
wanted to use it, but that type of apparatus required extremely ex-
pensive tools to stamp out the stuff, so expensive that it only proved
out over the less efficient types of things if you could manufacture in
large quantities, single manufacture such as we had in the Bell system.
They didn't have that in England; they weren't masters of their
own house; their business was built to a considerable extent on what
they could get from the manufacturers. That isn't saying that the
manufacturers didn't try to do what they wanted but there was a
division of responsibility there. They wftre set up on a competitive
basis so far as their manufactures were concerned, and it was quite
obvious that two or three or four manufacturers coiild not tool up
with these expensive tools to make this limited quantity of stuff and
have the post oflace bear the burden as they would have to bear it, of
these duplicate sets of tools. The post office even went so far at that
time (the Postmaster General did) as to work out and present to
Parliament a scheme which was, in effect, that these several manu-
facturing companies should realine their business so that one of these
companies could be the sole producer of this tiling which they wanted
to use, and in return for that give up other kinds of things which it
had been manufacturing, and Parliament in its wisdom, probably^ it
was all right, refused to do that. The result was that the British
Post Office had to put in, in the city of London, a system which they
knew was inferior to the one which was available and was in use
generally in the United States.
124491— 39— pt. 3 9
958
CONCENTRATION OF ECONOMIC POWER
The Chairman. Well, the sum total is that in the minds of those
who have directed and planned the growth of the Bell telephone
system, the patenting of devices and manufacturing of devices which
are invented and patented is a wholly subordinate thing to the larger
concept of the work of the system.
Dr. Jewett. Absolutely.
The Chairman., That is to say that the manufacturing of these
devices for the return to be derived from them is not the main objective.
PATENTS RESPONSIBLE FOR DEVELOPMENT OF TELEPHONE
Dr. Jewett. Absolutely not.. And as long as you have mentioned
patents now, Senator, I will go back and say that the Bell system is
somewhat unique in another respect in connection with patenting.
It is a type example of rather ancient age now. When was the tele-
phone invented, 76? It is sixty-odd years ago. In its early stages it
was completely dependent on patents, that was its lifeblood; it could
not have come into being except for the protection which the patent
laws of the United States gave. It was a toy; it was looked upon as a
toy when it was invented. Some people had some vision and some
courage. They were living in an era in which they were not afraid,
and they had reason to believe that the patent system as it existed
at that time was a stable thing, that it w^ould persist for a number of
years, and they risked their money on this thing. I doubt, with that
some thing coming into the picture just at this moment, whether the
same course could be pursued, but that is because there are a lot of
other factors mixed up in it.
As time went on their complete dependence on patents existed for a
good time, 10, 15, or 20 years, as is evidenced. Of course I have to get
it from the lore of the tribe, I wasn't old enough to Imow about it,
but it is perfectly clear from the record how vital was this patent
business to this small industry which has now become vast. It grew
from- a little bit of a thing. All you have to do is to look at the records
of suits and the scraps in the Patent Office to know how vital it was
at that time. But as time v/ent on and the business grew bigger, the
same thing happened to us that happens to every great industry.
Wliile patents are still of very great importance to us, particularly
important in stimulating the ideas which come to us from the outside
relatively, they become less vital to the business than they were at the
start, and in the case of an industry like ours which for quite natural
reasons is not subject to competition in the ordinary sense, our interest
in patents is largely an interest of freedom to use whatever is best in
the busmess. The result of it is that I tliink I am safe in saying that
not one-hundredth of Lpercent of the research and development work
in the Bell Telephone Laboratories, vast as they are, is done with the
idea of getting patents. Patents are a pure incident in the business.
Our job up there is to solve problems, is to find new and better, more
satisfactory ways of doing the kinds of things we are now doing, or
doing other kinds of things.
The Chairman. If you were to adopt a phrase that is in more or less
common use when economic systems are discussed would it be proper
for me to say that within the Bell telephone system the theory is:
patenting and production for use rather than for profit?
Dr. Jewett, Yes, I think that is quite right.
CONCENTRATION OF ECONOMIC POWER 959
Mr. Patterson. Ma^ I go back, Dr. Jewett —
Dr. Jewett (interposing). Let me add one thing. The thing is so
much of an incidence, the patenting busmess is taken in its stride, that
it is a form of pubhcation, it is a form of pubhcation that has to be
done under the laws of the land under certain conditions if you are
going to carry out the intent of the patent laws, but the darned thing
works in our place in such a way that a large part of the research
people resent having to spend time in getting the patents. In the
first place, they don't want to spend the time on it, and in the second
place they don't want to present their work in the stereotyped way
that the patent specifications call for,
Mr. Patterson. Dr. Jewett, did you give the year the long-life
tube came out? If you did, I didn't get it.
Dr. Jewett. My recollection is that that change was made in 1923,
and we are still 15 years afterwards deriving the benefit from it. Of
course, I don't want to get into astronomical figures of the kind you
got into yesterday, you can buUd a thing up so that it becomes absurd,
but that is an annual saving. In the year 1938, just as I said, if you
replace the tubes that are in the sockets of the Bell system in connec-
tion with this long-line service in the tubes of the vintage of whatever
this was, 1923, there would be no change in the service, the subscriber
wouldn't know it, but it would cost $10,000,000 to do it.
Mr. Patterson, I follow that clearly. I have two or three thing?
in my mind. Is it not this tube that your contemporary, Dr. John
Carty, gave so much time to, your vice president in charge of- engi-
neering?
Dr. Jewett. This is the vacuum tube, yes.
Mr. Patterson. You recall General Carty?
Dr. Jewett. Oh, absolutely; I was his assistant for many years. ■
Mr. Patterson. Could I use this- tube in my radio?
Dr. Jewett. No.
Mr. Patterson. Could I buy it today?
Dr. Jewett. Not the one I use.
Mr. Patterson. The long-life tube?
Dr. Jewett. I couldn't use it in my radio and I couldn't use it in
any radio because it is designed for the particular service of the tele-
phone repeaters, but you could make a tube which you could use in
your radio which has the properties of thi^j thing.
Mr. Patterson. I could?
Dr. Jewett. Sure.
Mr. Patterson. Is there one on the market?
Dr. Jewett. Not that I know of.
The Chairman. Are the qualities which make this new tube
patented?
Dr. Jewett. Sure, and there are plenty of people licensed to make
it if they want to make it.
The Chairman. I think probably I didn't make myself clear.
Was the method by which you produced the longer-Uved tube requiring
less power to operate just a method of manufacturing or was it a
particular
Dr. Jewett (interposing). No, of course, T haven't looked the
thing up and I can't tell you just what happened, but I surmise you
would find that there probably were a considerable number of what
you might call secondary patents connected with the development
ggQ CONCENTRATION OF ECONOMIC POWER
which T have described here. Fundamentally the tube is exactly what
was covered by the earHer De Forrest patents; it is a three-member
device.
Mr. Patterson. Are any other companies making th^s tube?
Dr. Jewett. I thmk the only companies that are making this type
of tube — I don't know any in this country that are doing it. I think
the International Telephone & Telegraph Co., which operates abroad,
and 'which has rights under our patents, is making this type of tube
for service abroad.
Mr. Patterson. So far as you know, no other company in this
country is making it?
Dr. Jewett. No, I don't think so. Of course, I am not a tube
expert, but I don't know of any tubes on the market which have the
coated type of filament which is employed in all our telephone tubes.
Most of them are tungsten fiTament tubes.
Mr. Patterson. If I had the proper experience and the financial
structure to manufacture these tubes, would you give me a license to
manufacture them?
Dr. Jewett. I think so. I am not in charge of the licensing
business of the company, but I know that many Hcenses have been
given. Whether those licenses that have been given are in any way
80 worded that they couldn't extend to your particular case, I don't
know. You would have to inquire, but so far as I know, yes.
Mr. Patterson. Do you happen to know, Dr. Jewett, the general
-poUcy of Mr. Gifford on that particular pointj as to hcensing?
Dr. Jewett. No; I don't.
Mr. PiViTERSON. I don't want to press that question.
Dr. Jewett. To tell the honest truth, I don't think that we have
what you would call a fixed policy on the thing, except that our
business is the telephone business and our actions in the past have
indicated our willingness to grant licenses broadly, and we have
granted many of them. I don't see them; you would have to get
that from someone else.
Mr. Patterson. Don't misunderstand my question; the A. T. & T.
like Tiffany to silver, is doing a marvelous job, but the Patent Office is
very anxious to get your advice and assistance in a lot of these things
and you in particular with two or three other men can be of great
service to us. But have you found any trouble in your dealings with
the Patent Office? Have things been fairly smooth? Have we
delayed you?
Dr. Jewett. As far as I know, they have been fine, but my business
isn't to solicit patents which bring me into contact with the detailed
operations of the Patent Office. But I have never heard any com-
plaint of the thing at all and I think that the Patent Office's attitude
toward getting their work done promptly and well conforms exactly
to what we want to have done. We are as anxious as anybody to get
our applications through in the shortest possible time and in the best
possible fashion. The thing I deprecate more than anything else as a
user of the system is the thing exemplified in the first recommendation
of the Patent Committee, of which I was a member, and that is the
invalid patent. If I could have my way 1 would have nothing but
vahd patents coming out and I would have a good time.
The Chairman. You are a fundamental scientist, as I understand it.
Dr. Jewett. Well, I was a practitioner in the field of the funda-
mental sciences. Now I don't know what I am.
CONCENTRATION OF ECONOMIC POWER Qgl
The Chairman. Your laboratory is somewhat similar to that which
was described by Dr. Qoolidge yesterday.^ You conduct your investi-
gations into matters of principle; that is to say into matters of funda-
mental science, as well as into matters affecting the practical problems
which are presented from time to time.
Dr. Jewett. Yes.
The Chairman. In other words, your laboratory is not under narrow
restrictions from the managers of Bell Telephone to confine its efiorta.
to productive devices alone.
Dr. Jewett. No ; absolutely not, Senator. I am one of the managers
of the Bell system. I am one of its officers. I participated in that
thing, and it is true, I think, that the field of our interest is narrower
than the field of the interest of the General Electric Co., because we
are primarily concerned with the communications field. That is one
application of electricity. The sky is the limit for them in their
interests.
The Chairman. But in the prosecution of your studies would it be
proper for me to infer that it is almost inevitable that you should
follow along in much the same channel as that which is pursued by
General Electric, and that you both might be developing similar
ideas, mostly in competition with one another?
Dr. Jewett. Frequently we do, insofar as their interest happens"
to be in our sector. They are more likely to be doing things in our
sector than we are in theirs, because their sector has a great big section
we are not interested in.
The Chairman. And that does happen?
Dr. Jewett. Absolutely, and does with every other laboratory.
In fact, a thing as far removed as synthetic organic compounds, which
is the business of an outfit like the Du Pont Co. and not primarily an
interest of a thing like the Bell Laboratories, we find in conflict there
occasionally.
The Chairman. It was developed yesterday from Dr. Coolid^e
that discoveries and inventions are made in the General Electric
Laboratory which are altogether outside the field in which General
Electric was organized to operate. Now that is true of your laboratory
too, is it not?
Dr. Jewett. I think so. I think it is true of every laboratory.
The Chairman. What happens to the inventions and discoveries
of that character which are outside the field of communication?
What do you do with those?
Dr. Jewett. In general, I should say, and here again you would
have to go to the people who are actually operating this kind of prop-
ertv, they are Ucensed to people who are in those fields.
The Chairman. But you are one of the managers of the company. ^
Dr. Jewett. That would be the policy, to make those things avail-
able in some way. Take a case that I happen to think of offhand, that
I know quite a httle bit about, submarme signaling, this protection
of ships at sea and that sort of stuff. That is a kind of business that
the General Electric or the Western Electric might well be in. It is.
Take the Western Electric. It is not very far removed from the kind
of stuff that they make for the telephone business, but it is a specialty
kind of business. We are not in it. It is a kind of business which is
'' Supra p. 911 et seq.
gQ2 CONCENTRATION OF ECONOMIC POWER
SO vital but so small that it couldn't very well— I mean, you couldn't
do anything with it competitively, particularly a big outfit.
Mj recoUection is that we had a lot of inventions that were in that
field, that could be used in that field, that we and, I think, General
Electric, too^ made available to the Submarine Signal Co. and the
United States Navy for their use, gratis or on very reasonable terms.
The Chairman. How did you make them available?
Dr. Jewett. By licensing.
The Chairman. You retain the patent and license for use?
Dr. Jewett. Yes, because in general. Senator, these patents are
not labeled "submarine signaling." They are a thing which has
many uses, and you may license a fellow over in this field and you
retain the rights over in all the other fields.
The Chairman. You see, I am impressed with the scope of a great
laboratory such as yours and such as the General Electric's, with the
practically inimitable scope of it. You are delving into fields of
fundamental science, you uncover principles, you might make dis-
coveries that would deal with fields wholly foreign to communication
in any form: Now what happens? Does the telephone company,
by reason of those discoveries and the patent system, project itself
into fields of industry and commerce which are altogether foreign
to it?
Dr. Jewett. In general, not. I think the best answer I can give
to the question I think is running through your mind is merely to
cite in two or three sectors what the attitude of the Bell system has
been in relation to its job as it conceives it. In its own field it is a
tremendous organization. It is alleged that it is the biggest corpora-
tion in the United States. I don't know whether that is so or not.
But 20 years ago the Bell system was engaged in many activities.
In the first place, it was engaged in a business in the foreign field.
It liad manufacturing plants when I was chief engineer of the Western
Electric Co. scattered all over the world. We did a jobbing business
of general electrical supplies. We used a great many general elec-
trical supplies, lamps and what-not, and we did a jobbing business
in the Western Electric Co.
Along' comes broadcasting. We don't know what the field of
broadcasting is going to be. We have a feeling that whatever it may
be; We have played a part in creating the implements by vrhich it
comes iiito being, and there comes this picture of radio broadcasting,
looming large on the horizon. We don't Icnow what our place is
going to be in that, except we have a feeling that transmission of
speech in connection with that is going to be a vital part. We
Cannot find out what it is, so what do we do? We create an experi-
mental broadcasting station, WEAF. We had one down in Wash-
ington, WCAP. Those were experimental things. As soon as we
found out what we wanted to know what do we do? We dispose of
those things; we dispose of the foreign business. Earlier still there
was a time when the Western Electric Co. was a bigger power ap-
paratus manufacturer than the General Electric Co. We had a
great factory in Chicago to make power apparatus. Well, it did not
fit in with the telephone business and as the telephone business grew
and the problem of our own job grew, the- whole tendency has been
to slough off these things which are extraneous, and in a way I would
say_ that gave the general answer to the question you asked about our
attitude toward this licensing business.
CONCENTRATION OF ECONOMIC POWER 9^3
Now there come things, and the things which cause us— and I
presume everybody else — much difficulty as anything else — these
so-called byproduct results of research. You set out to solve this —
to go over m this direction, and inevitably, almost, if you do a good
job you develop byproduct values out of your work. They may be
quite outside the field of your owti activity, and in the main at the
time may appear to have nothing but potential value. Every inven-
tion that I know of that has been made, whether by individuals or in
laboratories, at the time, on the date which the Patent Office would
take as the time of the invention, the thing is not anything more than
an idea.
It requires a large amount of time and money to bring it to fruition.
Now we get one of these byproduct things. What are you going to
do with it? You cannot throw it out the window. You cannot give
it away, without running the risk of your owners saying, "What are
you doing? Are you throwing our property away?" You 'don't
know what the value of the thing is; you cannot establish the value;
cannot get anybody to establish it. So what you frequently have to
do, even though you have no intention of going into a type of business,
is to go far enough along to develop the thing so that it is a mferchant-
able article.
NUMBER OF PATENTS HELD BY BELL SYSTEM AND THEIR TTSE
The Chairman. Could you give us any approximation of the number
of patents the Bell system now holds?
Dr. Jewett. My recollection is that at the time of the F. C. C.
investigation there was a check-up made and there were something
like, I think, 15,000, most of which are the results of our own work.^
The Chairman. And what proportion of those are strictly commu-
nication patents?
Dr. Jewett. Oh, the great — well, strictly communication, you
mean, confined so that tlie}^ have no other use?
The Chairman. Let me put it in another way. How many of
those are byproducts?
Dr. Jewett. I should say relatively a small number, a few.
The Chairman. Is the Western Electric your only manufacturing
subsidiary?
Dr. Jewett. It is the onh' manufacturing subsidiary, yes; but it is
not the only manufacturing supply.
The Chairman. How about the Graybar?
Dr. Jewett. The Graybar Co. is this jobbing kind of business, once
in the W^estern Electric Co., and in the sloughing-off process, getting
rid of that, the Graybar Electric Co. was created, and the employees
who had been in this jobbing business really bought the jobbing
business from the W^estern Electric Co. Except insofar as it mav
still owe something on the purchase price, it has no connection with
the Bell system.
The Chairman. Does the Western Electric Co. now manufacture
any of these byproduct devices?
Dr. Jewett. Yes, some; if you want to call things like artificial
larynx, which Dr. Fletcher and his people developed, a medical thing;
1 Dr. Jewett subsequently informed the committee that. "The number (15,000) which I gave Is the tefal
number wliich we were free to use as of 1934. The number owned as of that date was about 9,600— and
naturally this is a number which varies from month to month because of new and expiring patents, As
to the others, we held licenses to make and use." See "Exhibit No. 244" entered in the record on February
S, 1939 and included in the appendix on p. 1158.
964 CONCENTRATION OF ECONOMIC POWER
aids to the hard of hearing; they are not connected with the com-
munication business; audiometers, deaf sets, for which all the aurists
have use now. Those tiling's which were developed in our laboratory
in our endeavor to study the mechanism of hearing for the purpose of
designing better service. They become valuable tools in the medical
profession and they are in every hospital and in every aurist's office,
every large one. Those, as far as I know, are manufactured by the
Western Electric ; whether others are licensed to manufacture, I just
do not happen to know.
Mr. Patterson. Dr. Jewett, is any manufacturer of radio tubes
now licensed to use this long-life Bell patent?
Dr. Jewett. I think so, yes. My recollection is that in the cross-
licensing arrangement, with the whole R. C. A.-G. E. group, thej
have full rights to use them, but it is not commercially to their
advantage to do it.
Mr, Patterson. It is not commercially?
Dr. Jewett. I do not see why it would be. If I were in their
place I would not.
Mr. Patterson. I can see how they sell less tubes, that is true,
but was that in the Hcense accompanying the consent decree of 1932?
Dr. Jewett. I do not know about that.
Mr. Patterson. I mean when they were all divorced?
Dr. Jewett. I do not know about that.
Mr. Patterson. Thank you.
Mr. Davis. Are any of those long-life tubes available to independ-
ent telephone companies, independent of the Bell System?
Dr. Jewett. Yes, sir. I am not speaking with great certainty, but
I tliink the present arrangements, either directly or indirectly, make
practically anything which is necessary in their business available to
them, but I do not know of any independent telephone companies that
would have any particular use for long-lived or short-Uved tubes in
their service.
Mr. Davis. Is that used only in long-distance telephony?
Dr. Jewett. Not only in long-distance telephony, but the principal
usage for them is in connection with long-distance telephony; that is
where primarily they are amplifying devices, and amplifying devices
are principally used on longer circuits, and most of these so-called con-
necting or independent companies are relatively short things. As a
matter of fact, I think most of them have their toll service handled by
the Bell System except their very local toll system.
Mr. Davis. I know that is generally true, but there are some few
telephone companies still in existence besides the Bell System?
Dr. Jewett. Oh, my heavens, yes; a third of the telephones are in
the hands of them.
Mr. Davis. In line with questions propounded by Commissioner
Patterson — I just wonder whether these tubes are available for pur-
chase by those?
Dr. Jewett. I said to the Senator I am not in charge of the licensing
arrangements, but I see a good deal of it, and my recollection is that
most of the telephone business of this country;, either directly from us
or indirectly through the associated companies with which the con-
nection has made available to us, either through right to purchase or
lease or rental, whatever ^ou will, anything which is really necessary
lo give as good grade service to them as to any of our customers.
CONCENTRATION OF ECONOMIC POWER 955
The Chairman. Do you have very much competition from inde-
pendent inventors? Or, let me put it this way; that does not convey
the idea I have in mind. Does the BeU system find it necessary or
advantageous at any time to adopt patents issued to others?
Dr. Jewett. Oh, absolutely, ever since I can remember, and now
we are continually either buying patents or more frequently in recent
years obtaining rights under patents, and increasingly, I think, our
tendency has been — unless there is some peculiar reason for doing
otherwise — to be content with a nonexclusive license. Really, what we
are interested in is freedom to use.
The Chairman. But that is not what I have in mind at the moment.
I am wondering what proportion of the patented devices which the
Bell Telephone System uses were developed within your own labora-
tories and what proportion came from outside.
Dr. Jewett. A great lot of them came from within the laboratory.
The Chairman. What percent, would you say?
Dr. Jewett. What percentage would I say? I would say three-
quarters. That is just a guess on my part.
The Chairman. Not less than three-quarters?
Dr. Jewett. I would say not less, but that again — I would want to
check that, if you want to use it. The great bulk of it.
The Chairman. Would you think that I would be justified in say-
ing that in large enterprises like the Bell Telephone System and the
General Electric, Westinghouse, Radio, and the rest, the research
laboratories which are maintained by these corporations produce by
far the great majority of the devices which are used?
Dr. Jewett. I think that is true, if you measure it just in numbers
of patents. That partly is an exigency of what patents are. There
are many of these 15,000-odd patents that I have mentioned to you
which are essentially very trivial things. There are a great many of
them which are not in use, and that arises — that is true both with
regard to those that originated with us and those that came to us
through purchase from the outside. The results from this sort of a
thing, whenever a patent on an improved device or method comes out,
it automatically makes one or more patents obsolete. They are
legally alive, but they are as dead as the Dodo bird.
The Chairman. I assume you maintain a close scrutiny of the
patents which are issued by the Patent Office from time to time?
Dr. Jewett. Yes; we do, and one of the reasons — sometimes we
are interested, Senator — of course more frequently than not the in-
ventor, the owner of the patent on the outside, brings his invention
to our attention, as he does to the General Electric or anybody else
for purchase or a license under it. If, however, we find something
which for one reason or another as it issues from the Patent OflEice
looks of interest to us, then we may be the seeker for that right from
the inventor. Very frequently we have this kind of a condition.
While we are interested to get rights, even though we have no specific
intention to use it at that moment from the standpoint, here is a
patent or a group of patents which cover a general field. Now, we
are doing something in a field which is right close by there. We get
ready to use what we have developed and the question comes up,
Are we free to use? Nothing is ever put into the Bell System until
it has gone to the patent department for them to answer, to our
patent department for them to answer two questions: Is there any-
gQQ CONCENTRATION OF FX'ONOMIC POWER
thing of patentable nature in this which ought to be protected in the
United States Patent Office; and second, is there or is there not
freedom to use? Do we infrinjre somebody's else's patents?
"Well, if this field of these patents I am taikino: about is very close
to the one you are working; in, and it isn't terribly important but
you may want to acquii'c rig;hts in that field for the sheer facility it
gives you in not having to make this interminable search through a
whole grist of patents, if you know that in this whole field I have
freedom to do anything I please and use the best thing tliere is without
further search it is of some convenience to you. That is not a very
common case but it does arise.
The Chairman. One of our witnesses this morning, I think it was,
told of the incident in the business in which he is engaged, of com-
petitive effort upon the part of his own company and of another
company, and of the effort of each when the other developed a new
device, to develop an.other new device altogether different to do the
same thing.
Dr. Jewett. I think that is true as between research laboratories
in more or less similar fields everywhere.
The Chairman. In other words, you prefer to develop your own
device to reach the same objective than to take over a device of the
independent.
Dr. Jewett. That is true, Senator, even where automatically, as
under these continuing license agreements, we automatically have the
right to do it. That to some extent is tied up in human characteristics,
in the characteristics of individuals.
Dr. LuBiN. I still am terribly upset about the long life of the tube.
Dr. Jewett. Upset about it?
Dr. LuBiN. Yes. If I understand you correctly these other
principles embodied in the long life of the tube have not been adapted
to radio. In other words, I can't go out and buy a tube which would
last 50,000 hours as compared with a thousand-hour tube. The
reason, as I understand you, for that situation being so is that the
people who make tubes won't make a 50,000-hour tube
Dr. Jewett (interposing). I don't say they won't. I don't know
what their business is. My impression is that you can't do that.
I have never tried to do it. It is very possible that somebody may
be doing it, but I don't know of it.
Dr. LuBiN. It is not being done.
Dr. Jewett. As far as I know it is not.
Dr. LuBiN. But from the point of view of the physics involved it
could be.
Dr. Jewett. Yes; except that there is a little difference, I presume^
that the tube which would last 50,000 hours in the Bell System or in
the telephone plant with its rigid controls of voltage, supervised
battery supply, and everything of that kind, and maintenance,
probably wouldn't last 50,000 hours in your radio set or my radio set.
Dr. LuBiN. J.et's assume it would last only 20,000 hours, so you
increase your efficiency by 2,000 percent. Now the reason for it, as
you understand the situation, although as you say you don't know
the facts, is that these manufacturers of 1,000-liour tubes by produc-
ing a 20,000-hour tube would cut down the potential demand for their
product. They would sell less tubes, and their own personal interest
keeps them from doing it. What is there, then, to keep anybody else
CONCENTRATION OF ECONOMIC POWER 9Q7
who doesn't make tubes today from going into that business and pro-
ducing a 20,000-hour tube? There must be some reason why they
don't do it. Do you know the reason? Is it that they can't get patents?
Dr. Jewett. I will tell you what I think is a very practical reason,
even though people have the full right to do this thing and facilities
for doing it. In the first place, I think it probably is true that the
best interests of the radio industry and the users of that, the radio
set people, are served where you have uniformity, a certain amount
of standardization, so you could use different manufacturers' tubes
in different sets. There is a fundamental difference in the manu-
facturing concept of most of the people who are in the tube-manu-
facturing business, the big R. C. A., General Electric people, and
the Westinghouse Co.
I have tried to outline that in the Bell System the emphasis has
been on quality of stuff as it is reflected in service. That has inevi-
tably forced us in the laboratories in the Western Electric Co. into
a technique which is based on quality of performance without vast
quantities, usually, for many things. Now the electric-light business,
from which most of this vacuum-tube business has sprung, has been
an art which developed from the standpoint largely of the lowest
possible cost of the thing which you supply, I mean the cost of electric
light bulbs has come down, and the technique which they developed
and which they carried over into the vacuum-tube game is quite a
different technique from that which we in the Western Electric employ,
and they would have to learn a new technique, or somebody would have
to learn this same technique in order to do this long-Hfe coated filament
type of thing. My experience has always been, in every line, that
an organization which has lived long under one kind of technique finds
it extremely difficult to pick up an entirely different technique, and
there may be some of that in the explanation.
Dr. LuBiN. The thing that I just can't quite understand is that
here are people in the United States foregoing an opportunity to
make millions, to make something which is 20 times as good as any-
thing on the market, and you wouldn't have to charge much more
for it
Dr. Jewett. I am not so sure that they are doing that.
The Chairman. How about Western Electric? Could Western
Electric manufacture these long-life tubes for radios?
Dr. Jewett. Yes; it could, but I am not sure under their licensing
arrangements whether they are fully free to go into that kind of
business.
The Chairman. In other words, the cross-Ucensing agreement which
the Bell has with R. C. A. and the others might prevent you from
utilizing this very advantageous discovery which you made in the
radio field.
Dr. Jewett. In a particular field.
The Chairman. Do you know whether or not you could license
that tube, say, to the Zenith, which I think is independent?
Dr. Jewett. I don't know that, Senator.
The Chairman. You don't have a cross-licensing agreement with
Zenith?
Dr. Jewett. I don't know. -
Mr. Patterson. Let me ask this question. Dr. Jewett, to follow
up the chairman and Dr. Lubin. Is it your judgment that if the
968
CONCENTRATION OF ECONOMIC POWER
Bell long-life tube patent were used in the manufacture of radio tubes,
that it would provide, say, many times the life, use only a portion of
the current, and reduce production costs, if the radio people used
that tube? , , ,
Dr. Jewett. I am not sure that the tube would be as cheap as the
present short-life tube that you buy. My comparison of costs on
the tubes themselves was between two tubes of the same breed.
I suspect — I don't know what these prices are — that the tubes that
are now supplied in radio sets are cheaper than this tube that I am
talking about. ^ .
The Chairman. Well, Western Electric manufactures the larynx
box for hospitals.
Dr. Jewett. Yes.
The Chairman. It manufactures this deaf cell, and it manufactures
other byproducts which are altogether independent of the communi-
cation field. Radio, of course, is within the communication field,
so that the ([uestion presents itself consistently: How does it corne
that Western Electric doesn't develop and manufacture in the radio
field a perfectly marvelous discovery which it has made?
Dr. Jewett. It docs-in that part of the radio business which they,
are in, which is the furnishing of radio stuff for communication pur-
poses, but I think, if you want to pursue this further, you ought to
get somebody from the Bell Co. who is concerned with this phase of
the thing, but whatever the situation is at the present time as the
result of the cross licenses which exist in this field of radio, which is
largely in the broadcasting, they are tied up with a situation which
goes back to patents of 20 years ago, a situation following the advent
of the De Forrest three-member device into the field through the
Telephone Co. I have forgotten when De Forrest made that in-
vention, which, of course, was subordinate to an earlier invention by
Fleming in England; my recollection is about 1906 it was invented
as a wireless detector, and it served its purpose. Actually De Forrest
I don't think, or anybody, knew exactly, what the mechanism was
that he had there. But it had all these properties which liaye since
become so valuable, but people didn't recognize it. It was in 1912,
when we were struggling hard to complete a promise to have a trans-
continental telephone line in San Francisco in time for the opening
of the Panama Pacific Exposition and we were tryhig to find every
conceivable amplifying device that we could think of that would work,
that this thing, 6 years after its invention or 6 years after its patenting,
was brought to our attention as a possible telephone amplifier, but
it didn't work. But what did happen was that it was obvious to the
scientific people that the thing could be made to work. They saw
what the trouble was and they went ahead and did it. Well, we
didn't think this thing was patentable. All I am leading up to,
Senator, is that the hnpasse which arose out of a bunch of conflicting
patents brought about the initial cross licensing thing which in modi-
fied form over the years is what controls the situation today.
_ The Chairman. Yes; I perceive that^ and I feel it is probably out-
side of 5^our line, but would you object if, on behalf of the committee,
I asked you to make inquiry of the proper person in the Bell system
> Dr. Jewett subsequontly-Rave the committee other facts showiag that the long-life vacuum tubes would
not be In economic balance with radio receiv'inc sets whose avorape life is perhaps one-fifth to one-tenth that
o( those tubes. Soe "Exhibit No. 244" entered in the record on February 8, 1939, and included In the ap-
pendix on p. 1158.
CONCENTRATION OF ECONOMIC POWER 9g9
or the Western Electric system, and notify the committee whether
or not this cross-Ucensing arrangement prevents you from manufac-
turing this tube for the radio field? ^
Dr. Jewett. Prevents us, prevents the Western Electric, from,
manufacturing for the general field?
The Chairman. The general radio field.
RELATIONSHIP BETWEEN ISSUANCE OF VALID PATENTS AND PROPOSED
SINGLE COURT OF PATENT APPEALS
Mr. CoE. Mr. Chairman, I want to pursue a thought that was
expressed by Dr. Jewett some moments ago. He said that he would
be very happy if no patents other than vaUd patents were issued.
Dr. Jewett, you were a member of the Science Advisory Board which
recommended, among other things, that there be established a single
court of patent appeals. Dr. Bush, on his appearance before this
committee yesterday, made this statement.^
The unfortur'ate situation that obtains today is that an individual who is granted
a patent by the United States Government has no great assurance, as he ought to-
have, that that patent is valid and will he sustained. Anything that can be done
to increase the presumption of validity of that patent when it is issued will aid in.
the introduction of new ideas in industry, because it will shorten and make easy
the path of the man who has to forge the waj'.
Do you see any connection between the establishment of a single
court of patent appeals and the percentage of valid patents issued
by the Patent Office?
Dr. Jewett. Most assuredly. I think it has a very direct relation-
ship. It has been a number of years since I read that report of ours,
I don't know whether that is mentioned or not, but if my under-
standing is correct, one of the first and most direct effects that would
come out of the effect of the establishment of a single court of last
instance would be the setting of more permanent standards than we
have now for the guidance of the Patent Office in what does constitute
a valid patent, and I should assume that unquestionably the estab-
Hshment of such a single court would tend not directly, but indirectlj^,
to increase the presumption of validity of the work that comes out
of your office, because you are not going to be battered around from
pillar to post with conflicting views as to what constitutes validity in
different circuits. You have got some final court that tells you at
least what the judgment of the court is as to its validity.
Mr. CoE. In other words, in addition to the tendency to reduce
the cost and duration of litigation, it will have the effect of increasing
the percentage of valid patents, in your judgment?
Dr. Jewett. Yes; I am not a lawyer and I am not a patent man,
but I should assume that if this court is established along the lines
that we of the committee had in mind, and of course we didn't attempt
to say who would be on it, we assumed they would be competent
people, competent men, men of training, and that they would serve
for long periods of time, like other Federal judges do, they would
inevitably build up certain standards, just as the Supreme Court has
built up certain standards, that would become a background of sub-
stantial proven law, which certainly should make it easier for an
» In this connection see letter from Dr. Jewett to Senator O'Mahoney, under date of January 24, 1939,
which was entered In the record as "Exhibit No. 244" at hearings held February 8, 1939, and is included
in the appendix on p. 1158.
'Supra, p. 893.
970 CONCENTRATION OF ECONOMIC POWER
examiner, looking at somebody's applications, to say whether the
claims that are asked to be allowed fit in with the pattern which the
courts have said constitutes validity.
Mr. CoE. Thank you very much.
Dr. Jewett, Does that answer your question?
Mr. CoE. Yes; fully.
Mr. Davis. Mr. Chairman, if I may: Dr. Jewett, you spoke of your
system getting out of the radio field, as I understood it. It is a fact,
is it not, that your system has a very close relation to radio in the
transmission of radio programs over your wires?
Dr. Jewett. Absolutely.
Mr. Davis. You have a monopoly of that field, haven't you?
Dr. Jewett. Substantially; yes. I think there probably are certain
cases where the wires of the Western Union or Postal are used, but
in the main you are correct. It is a monopoly because it is only
telephone wires that can be used for this purpose.
Mr. Davis. Wliy can't telegraph wires be used?
Dr. Jewett. For tliis simple reason. Judge: The Lord, in His
wisdom, fixed it up so. that whenever you create a telephone ciruit,
almost without exception you automatically create one or more
telegraph circuits, but when you create a telegraph circuit, wliich is
for the transmission of a very much less ligld kind of transmission,
you don't automatically create a telephone circuit, and while it is
true that there are some telegraph circuits of more recent origin that
are capable of handling telephone transmission Avith some degree of
adequacy, the great bulk of all telegraph circuits are not capable of
handling telephony adequately, without complete revamping.
Mr. Davis. Well, if that is true why was it necessary for the A.
T. & T. and the National Broadcasting Co. to enter into an agreement
to the effect that the N. B. C. would only use A. T. & T. wires?
Dr. Jewett, I don't know. Do they do that?
Mr. Davis. I think that is a matter of record ; yes.
Dr, Jewett. Maybe so. I don't know.
Mr. Davis. Do you know whether your company still requires a
license from a broadcasting company now, in the United States?
Dr. Jewett. From a broadcasting company? I don't know. I
don't think so. I don't know just what you refer to.
Mt. Davis. I refer to the fact that it certainly formerly did.
Dr. Jewett. Are you referring to the case of where apparatus which
infringed patents was made by various people?
Mr. Davis. I refer to the claim of the American Telephone & Tele-
graph Co. that was made that no broadcasting apparatus was in
existence that did not infringe on their patents, and consequently if
the licensee from the United States Government to conduct a broad-
casting station desired to operate, he would have to obtain a license
from you.
Dr. Jewett. I think I know what you are referring to. Of course,
we furnished broadcasting stations; a lot of broadcasting stations are
manufactured by the Western Electric. They automatically carry a
license under patents. The stations of the people affected by the
cross-licensing arrangement all carry it. I think what you are referring
to are the things which were in existence at one time, and there may
be some still, in which apparatus not made by us or our licensees was
used for broadcasting purposes, and there I think we did have a
CONCENTRATION OF ]:CONOMIC POWER
971
royalty arrangement, and that was reduced at one time to $1 or some-
thmg of that kmd. So far as I know, there is no such tiling as that,
and it couldn't obtain in very many cases anywav because so many
of the stations are furnished either by "Western Electric or K. O. A. or
General Electric or Westinghouse Co. or other licensees.
Mr. Davis. They all have licenses from you, you mean.
Dr. Jewett. They are all licensed to manufacture this stuff. In
what I said about getting out of the business, I was really talking
about getting out of the broadcasting business as a service.
DISTRIBUTION OF TITLE TO BELL SYSTEM PATENTS
Mr. Davis. \'\ ell, now, of the 15,000 ' patents which are owned by
your company, which I believe is the number used here. Senator
O'Mahoney, they are all held by the A. T. & T. itself, rather than the
subsidiary companies, are they not?
Dr. Jewett. No; they are not, Judge. The title to the patents is
in three diflerent positions at the present time. The title to some of
the licenses which were entered into 50 or 60 years ago with regard
to the use within the system is in the A. T. & T. Co. ; the title to some
of them is in the Western Electric Co., and title to those in transit,
generated in the Bell Laboratories, is in Bell Laboratories. The
division between the A. T. & T. and Western Electric Co. is the result
of the so-called 1882 contract, before the Western Electric Co. became
a part of the Bell system, or the contract was entered into way back
in those days, which was a contract between tuo independent people
in which, roughly speaking, telephone-appliance patents ownership
is in the Western Electric Co., and telephone patents, things like the
transmitter, receiver, and transmission apparatus, is in the hands of
the A. T. & T. Co.
That is the result of a very ancient contractual relationship. And
there is this third group which I have indicated which comprises only
patents which were generated in Bell Laboratories, in which the title
to those patents temporarily is in Bell Laboratories.
fundamental and subsequent development patents of bell
system
Mr. Davis. Were any of the key or fundamental inventions in the
telephonic art discovered in your laboratory?
Dr. Jewett. Yes. I am glad you asked that question because it
bears on a question that the Senator asked, I think a while back.
I think it is inevitable that the great bulk of what you might call the
run-of-the-mine patents in an industry like ours will inevitably come
from your own people, from your running a research department.
I think that it is equally the case that those few fundamental patents,
the things which really mark big changes in the art, are more likely to
come from the outside than from the inside. There aren't very many
of those. I am getting around to answer your question.
When I try to tliink of what are the fundamental patents, leaving
out Bell's original patents which have been in the telephone business
during its lifetime, which changed the whole picture of the future,
there are only three of them. One of them came completely from the
1 Note that this number was subsequently corrected to read 9, 'iCO. See "Exhibit No. 244" entered In the
record on Feb. 8, 1939, and included in the appendix, on p. 1158.
g<72 CONCENTRATION OF ECONOMIC POWER
outside, that is the vacuum tube type of thing which came clear from
outside.
The second one, technically, according to the rules of the game,
came from the outside, although that decision was the result of a long^
carried-out contest between a man on the inside and a man outside,
between Pupin and George Campbell, but the result is that Pupin
slightly ante-dated Campbell so two came from the outside. The
third came from the inside.
Mr. Davis. Of course, the Pupin patent on the loading coil is one
of the fundamental patents.
Dr. Jewett. That is one of those I consider fundamental.
Mr. Davis, And the courts held that was a vahd patent.
Dr. Jewett. They held it was a valid patent and Pupin rather than
Campbell was entitled to be considered the inventor.
Mr. Davis. What was the third?
Dr. Jewett. The third is what is known as the filter patents, the
wave filter patents which have made possible practically all of radio
telephony and much of the carrier current type of stuff which we do,
which was an invention of the same George Campbell. It was the
result of a high line mathematical attack on the whole problem of
transmission of high-frequency currents over circuits.
So that out of the three thmgs which I picture as fundamental
patents, one certainly came from the outside, a second one came from
the outside altliough it came almost simultaneously from the inside,
and the third came from the inside.
Mr. Davis. The telephone receiver was a fundamental patent,,
wasn't it?
Dr. Jewett. Of course, that goes back to Bell's time.
Mr. Davis. And that was a Bell patent.
Dr. Jewett. There wasn't any "inside" then.
Mr Davis. I know, but I want to follow my line of inquiry. Now
the transmitter, that didn't originate in the laboratories of your com-
pany, did it?
Dr. Jewett. The fundamental idea of the transmitter?
Mr. Davis. That was originated in '78 by Berliner, was it not?
Dr. Jewett. The fundamental idea of the transmitter is covered
by a Bell patent. The particular form of microphonic transmitter is
claimed by Berliner and Edison and others. I don't know who they
were.
Mr. Davis. Of course recognizing the fact that you have been
-describing for some time, that refinements have been made, and we
assume improvements, no doubt, I am talking about the fundamental
patents, the key inventions, the principles involved, and all of these
subsequent developments have simply been a development or im-
provement or refinement of the same key invention.
Dr. Jewett. No; I certainly wouldn't agree with you on that, but
I am perfectly willing to agree, if you like, that many of the things
which came into the telephone business in the first 10 years of its iife,
15 years, inevitably came from the outside. It was a little bit of a
thing, there wasn't much inside. When it comes to the period of the
last 25 years, there are only three of these things.
Mr. Davis. Are those key inventions, or refinements of them, still
under patent control?
Dr. Jewett. I don't know about the filter patents, I don't know
how they stand because I have forgotten the age of them, but the
CONCENTRATION OF ECONOMIC POWER 973
fundamental Pupin patents and the fundamental DeForrest patents
have expired.
Mr. Davis. But there are still patents on refinements.
Dr. Jewett. Oh, unquestionably.
Mr. Davis. Well, how about the transmitter and receiver?
Dr. Jewett. The same thing there.
Mr. Davis. One of them originated in 76 and the other in 78.
Dr. Jewett. The same is true of everything, Judge.
Mr. Davis. Is anybody manufacturing telephone apparatus in the
United States to any degree except the Western Electric?
Dr. Jewett. Oh, certainly, and there are a lot of transmitters and
receivers that are being manufactured which are quite free from any
Bell patents that may exist at the present time. That art is so old
and so wide open that there is no control from the Bell system on that
thing except insofar as specific adaptations and modifications are
concerned. The Kellogg Co., Stromberg-Carlson, and a lot of people
are making transmitters, and so far as I know they or anybody else
can make pretty good microphonic transmitters without by your
leave from the Bell system at all.
Mr. Davis. You mean for general telephone use?
Dr. Jewett. Sure.
Mr. Davis. I didn't know that.
Dr. Jewett. The art is like making agricultural apparatus. The
fundamental patents on some of the Deering or McCormick stuff
have run out, but those companies have probably got a lot of patents
on detailed improvements of the stuff, but still there are other people
making agricultural apparatus.
I don't see how you can escape that sort of a^ situation. If you go
on in a continuing art, you will have these subsidiary patents, and so
long as they pertain merely to improvements, until something funda-
mentally new comes along, while they may increase in number as the
years go by, in value they tend to decrease because they pertain to
more and more minute things. Of course when somebody comes
along— take the telephone transmitter, if some fellow comes along
now with an idea of a transmitter which is other than a microphonic
transmitter, v/hich is as good or better than a microphonic transmitter,
he has then a fundamental idea with regard to transmitters.
The Chairman. But the original idea? on which the system was
founded and built up are now open to the public?
Dr. Jewett. Certainly. Bell's patents expired years ago.
The Chairman. But there are still in existence patents upon im-
provements which are substantially as effective in maintaining the
strong position of the Bell system. , .
Dr. Jewett. No; I don't think so, and I don't think the position of
the Bell system is maintained by patents at all at the present time.
The Chairman. "VNTiat maintains it now?
Dr. Jewett. I think the thing that maintains the Bell system is the
fact— I think it would be maintained as it is if there were no patents
because of the fact that it is one of those few things which people have
recognized as a natural monopoly. We tried in this country and tried
in every country to work on a different basis and they have all come
to this thing. That doesn't mean it is a monopoly that has to be run
by one person, but rather telephony as it exists is a monopoly for the
agency operating it.
124491— 39— pt. 3 10
^74 CONCENTRATION OF ECONOMIC POWER
The Chairman. Everyone recognizes that in a particular area it is
much more convenient for the public to have the telephone system
under one direction, whatever might be said about independent local
enterprise. But you want us to understand that the patent system as
such has ceased to be the effective agency in maintaining the Bell
system.
Dr. Jewett. Yes. I can state my point of view quite clearly.
Senator, and it pertains only to the Bell system or to things like the
Bell system which are, we will say, natural monopolies, if there are
such. I don't think that if you were to abolish the patent system
tomorrow, or if you were to greatly circumscribe it by its fundamentals
in some way^ — I am not talking about procedural methods— that it
would make one iota of difference to the Bell system with regard to the
work it did itself for the development of communication, because we
do not do work for the sake of taking out patents.
Now, that isn't saying, however, that we and the public we serve
would not suffer immeasurably by that, because what would happen?
We would be deprived; we don't have to fear other people's using our
stuff, we are a natural monopoly, we don't care, let them use it if they
want to. But what we do want is to have the opportunity to get as
many ideas as we can from the outside and pay for them, and anything
which tended to dry up the flow of ideas from the outside, which we
had the opportunity to buy or be licensed under, or what not, would
tend to circumscribe and shrink down the kind of thing which we do.
The Chairman. You referred a moment ago to an idea which, if it
were developed, would be a fundamental departure. Now if such an
invention as that were made and the Bell system were not in the
position to obtain the use of it, it would be a very serious matter for
the system, would it not?
Dr. Jewett. Absolutely, and it would be more serious for the public.
The Chairman. Yes, to the public and to the stockholders and
everybody who is employed by the Bell system.
Dr. Jewett. Right.
The Chairman. Mr. Dienner, I think the committee will probably
allow you to go on for 3 minutes.
Mr. Dienner. I should like to have you state for the benefit of the
committee your annual budget for running the research laboratory
of the company.
Dr. Jewett. In order to state that, Mr. Dienner, I think I want to
make it clear to the committee and the Senator just what this is, in
view of the testimony that Dr. Coolidge gave yesterday.' This
laboratory of ours is different from any other laboratory in the world
that I know of in that we have under one common direction everything
from fundamental science research to the engineering type of engineer-
ing stuff which any manufacturer would do, and we designate the
work of the Bell Telephone Laboratories as research and development
because it is difficult to draw a line. Dr. Coolidge was describing
what is a part of our laboratory.
Now the total budget of Bell Telephone Laboratories for the three
things it does, fundamental science research, tl^e engineering type of
stuff which is done in these 15 laboratories that he was talking about;
and the consulting services which the scientists give to the Bell sys-
tem; those three things involve an expenditure of between 20 and 22
' Supra, p. 911 et seq.
CONCENTRATION OF ECONOMIC POWER
975
million dollars a 3^ear, and of that amount the consulting services
and the engineering type of stuff, by a liberal or conservative division,
thing-s which probably everybody would agree to, constitutes more
than half of the amount.
The best figure, and I am up against this question all the time, that
I would give would be that the expense of running the kind of a thing
which Coohdge was talking about yesterday, and which we call our
research department, is somewhere between seven and nine million
dollars, possibly, a year. Now when you contrast that with the
General Electric you must remember this, or any of these other labo-
ratories, you must remember this thing that Bell Telephone Labora-
tories is doing, the research and development work. There are a few
other rather small ones, the R. C. A. has some. General Electric, and
Westinghouse, but by and large you can say this with a fair degree
of accuracy, that Bell Telephone Laboratories is doing the fundamen-
tal research development work for the Nation, the one place it is
done, whereas the electrical or chemical industries, or electrical in-
dustries. General Electric does a big lot, Westinghouse, other people
do things; so if you wanted, to get a direct comparison of the amount
of the money spent for research and development in the communica-
tion field, from the power and light field, you would have to compare
Bell Laboratories with the sum total of these other places, who are
doing similar work.
Mr. DiENNER. I wish you would discuss briefly the concept that
there are certain complex problems which are encountered in your
system which are of such extensive and difficult character that they
would be totally unable to be solved, except by coordinated effort of
a numher of men.
, Dr. Jewett. Well, (rf course, Mr. Dienner, that is true of the great
bulk of the more fundamental problems which we are confronted with.
Specifically let me take the case of transcontinental telephony, which
was a big problem 20 years ago. It is just inconceivable that that
problem could have been solved by- any haphazard approach by indi-
vidual attack on the thing. It was a thing which had definite objec-
tives, simple objective, yes. When you came to analyze what needed
to be done to project the art which now enables you to talk from here
to here over to this point, find out what had to be done, you found the
solution of this problem required the solittion of a very large number -
of problems in widely unrelated fields, and the only way the main
problem could be solved would be for us to attack all of these prob-
lems with a frontal attack, with expert knowledge in each company,
which was on the attacking front, and when thej'' had solved their
things, bring them together into the common answer. That is the
process which is used in all laboratories in all fundamental work, and
there are many things in every field, not only in our business, but
everywhere else, which in the present state of the science can only be
solved within a reasonable time by cooperative action of people who
are skilled in different techniques and arts.
The same thing is true, even more true, of this development of
recent years with us by which we put 10 or 15 or 20 telephone conversa-
tions on a single pair of wires in our endeavor to get enough circuit
so you can do this with no delay service; all tied up. It just could
not be done except by a cooperative operation under control.
gyg CONCENTRATION OF ECONOMIC POWER
OPPORTUNITY FOR INDEPENDENT INVENTORS
Mr. DiENNER. I would like to ask you one important question.
You are convinced of the necessity for research in large organizations
of scientists in order to attack the complex problems. Do you see
any room that is left for the independent inventor with those research
organizations working?
Dr. Jewett. Absolutely. I heard som.e of the testimony yesterday.
I do not agree with some of it. I think that there are certain sectors
where the independent inventor cannot operate; he never could, can-
not now, and never will be able to operate. There are certain sectors,
which I tried to indicate in my answer to the judge over here, the very
fundamental things where I think the chances — in our case it happened
to be 2 out of 3, I think in the majority of cases, the fundamental
idea, the chances are 10 to 1 they are going to come from outside big
laboratories simply because of the nature of the things. They are a
creation and brain child of particular individuals who have that ca-
pacity and knowledge and heaven knows we cannot coUar them all,
even if we wanted to.
Now in the other sector where the independent inventor has oper-
ated, I think that instead of being restricted the opportunities are
increased because every invention which we or anybody else makes, or
every publication of new results which we make, gives 10 jumping-off
places to one that existed before. When it comes to those things
which are kind of peculiar to the nature of your business, where in-
timate knowledge of the day-by-day affairs are concerned, the out-
sider just cannot possibly know about that, and there is no way of
doing it. We tried one time years ago, when M. I. T. set up a scheme
'way back in Mr. VaU's tiro.e, of trying to do som.e industrial develop-
ment as a part of their teaching tools, to give them some problems and
i' just was a physical impossibility to do it because you could not set
up the mechanism which enabled a bunch of people over in Cambridge,
Mass., in an educational institution to have the intimate contact with
the problems we will say of the Western Electric Co., at Hawthorne,
111., or the telephone company out in the Senator's State.
There are certain kinds of things that have to be done inside the
business.
Mr, Dienner, Mr. Chairman, I have no further questions to ask
the witness, and unless he has something further to say or the com-
mittee wishes to inquire further, I should be glad to have the witness
released _
The Chairman. It is now after 4 o'clock and coming to time for
recess. Are there any questions to be asked by any members of the
committee? Dr. Lubin? Admiral Peoples? Mr. Williams?
Representative Williams, I have none.
The Chairman. Judge, you have completed your questions?
Mr. Davis. I have nothing except, Mr. Chairman, I should like to
suggest, with the permission of the committee, that Dr. Jewett, in
making the reply and giving the information you called for, also advise
the committee whether the Western Electric Co. makes available for
purchase by independent companies those long-term tubes.*
Dr. Jewett. Will you limit it to "makes available in some fashion,
either by purchase or rental?"
• See letter from Dr. Jewett to Senator O'Mahoney under date of January 24, 1939, which was entered In
the record as "Exhibit No 244" at bearings held February 8, 1939, and Included In the appendix on
p. 1168.
CONCENTRATION OF ECONOMIC POWER 977
Mr. Davis. Yes.
Dr. Jewett. The reason I say that, Judge, I think there are quite
a lot of arrangements with these connecting companies by which, at
least in the past, certain things of our manufacture which are used
generally in the Bell System have been rented to the connecting com-
pany by the local company, rather than sold.
Mr. Davis. Make available for use, and also whether they are of the
same quality as those you describe.
Dr. Jewett. They will be the same quality. I can answer that
question right now.
Mr. Davis. The reason I ask that. Doctor, is because you made
the remark in the course of your statements that they made available
to them such as were needed for their purposes.
Dr. Jewett. For what other reason would they want to have them?
Mr. Davis. I thought your company might happen to have some
views on what they needed, from that remark.
Mr. Jewett. I didn't intend to convey that idea.
Mr. Davis. If it is other than purchase, I should suggest that you
state in your reply the terms upon which they are made available.
Dr. Jewett. May I make just a statement, a sort of confession of
faith, which I would like to lay before the committee? I indicated
at the beginning that I have had some interest in this whole patent
history and system from a philosophical standpoint. It was intensified
by my having been a member of the science advisory board. I think
it is a wonderful thing. I don't think there is any question about it.
I am not very much concerned, as a user of the system, with the
mechanisms, changes in the mechanisms, the procedural cl anges, which
ought to be reviewed from time to time, and have been reviewed
by the Congress ever since the first laws were passed. But I would
be very much concerned if anything was contemplated which struck
at the roots, the fundamentals, of the system itself, and it would seem
to me from some of the questions which were asked and answered here
yesterday as though there is a thought that it is the inventor and what
he gets from the jovernment which is the principal concern, whereas,
I have always conceived that nothing is taken from the public domain,
when an invention is made; something is added to the public domain
That is what an invention is, and the public is willing to pay a price
to have that thing done, and it is to the public interest, it isn't in the
interest of the A. T. & T. or of F. B. Jewett or anybody else; it is in
consideration^of those possible changes which affect modern procedure.
We don't want to give too much consideration to inventors, it is the
public that should interest us.
The Chairman. In view of what you have said and in view of the
testimony which was given here this morning by Mr. Flanders with
respect to inventions in the machine tool trade would it be proper
to summarize by saying that as through the years inventions have
been made and have become pubhc property, thereby increasing the
domain of public knowledgCj it has become more and more necessary
for cooperative and collective action to make the new pioneering
efforts which are necessary to extend human knowledge beyond the
present frontiers of knowledge?
Dr. Jewett. I think that is right, Senator, and I would add one
more thing. What I have heard in the last 2 days and what we have
talked about today has been civil stuff, principally. There are many
gyg CONCENTRATION OF ECONOMIC POWER
things in this world which are needed in the national defense which
can only be done on a huge scale if they are going to be done at all,
and so long as there is the element of war still in our presence, and
so long as these people with whom we may be at war don't have the
same concept of doing things that we do, so long as they are willing
to set the thing up to do it on a huge scale, to me it would be suicidal
for us, as a matter of public policy, to take any step which would
tend to diminish our ability to do things wherever they have to be
done in the huge way that may be required. There are many things
in every domain of applied science that you can find where they
simply can't be done, or can't be done economically, except on a
huge cooperative basis.
The Chairman. And as you stated in the early part of your testi-
mony this afternoon, they cannot be done without planning.
Dr. Jewett. That's right.
The Chairman. And without making the production or the man-
ufacture of devices subordinate to the uses to which they were to be
put, and as you stated in closing your testimony, these extensions of
human knowledge are to be accomplished, by cooperative actions of
groups under control. I think I quoted your exact language. My
•attention was called to the word "control" because in recent years
there has been a good deal of tendency in some quarters to criticize
that idea of control.
Dr. Jewett. I would like to add just two more things which have
occurred to me. One seemed to be from some of the questions I
heard answered yesterday that the only way of extending the benefits
of a patent to the pubUc was through hcenses. Now, I can conceive of
hundreds and hundreds of cases where the maximum benefit to the
public would be in the dissemination of the thing covered by the
patent without extending the license to anybody. That is one thing.
The Chairman. One question, of course, which reasserts itself
over and over again in any consideration of the patent system is the
effect of patent pools an^l cross-hcensing of patents. Would you care
to make any comment upon that?
Dr. Jewett. Of course you are getting somewhat outside of my
field, but I have this picture, Senator. A patent, to me, a patent
property, is a temporary form of real property which has limited life,
it is limited to whatever the state says it shall be limited to ; it is the
most fragile kind of real property that there is because its value may
be destroyed overnight and you may have a perfectly' valuable patent
today, I come along tomorrow and all your work goes out. Beyond
that when it comes to the use which you make of our real property,
whether it is a patent or any other kind of thing, the same laws apply
to it, and the only difference between the two things is that this is a
very limited kind of real property. Now, you wouldn't allow me to
go out and buy up all the cows in the United States and monopolize
that.
The only other thing, Senator, and then I am through with the
thing, apropos of whsit Coi.lidge Sciid yostcM'day about i)ublicaiion.
We all do it. Patents are only one form of publication. The Bell
Laboratories ever since it was organizcii in 1925 — and I am not sure
but what it was before that— has done this; the Boll Syst(-m gets out
a technical quarterly called the Bell Technical^Toiirnal. It is a
higldv sciojiLilic ?n>.>gazino about, ihe si/.e of Harper's M;i2:azino;
CON-CEXTRATION OF ECONOMIC POWER 979
it gets it out 4 times a year, and it has the biggest circulation of any
truly scientific magazine in the world, it has a circulation at the present
tirne between 9,000 and 10,000 copies of an issue. We disseminate
this Ivnowledge; every tiling that is done is passed on to see whether
it ought to come within the purview- of the Patent Office, and if it
ought to it goes before the Patent Office. Patents may or may not issue
on it. Every other thing is published. And we do^it, why? Partly
for the prestige, yes; partly to satisfy the normal human desires
of the men who are in the laboratories, but more because we profit
more in the development of the telephone business for the people of the
United States by having the base of knowledge increased than we do
by trying to keep the stuff secret. Wc are perfectly wilUng to pubhsh
it for the sake of what we get in return.
The Chairman. Thank you very much. Dr. Jewett. We enjoyed
your testimony this afternoon.
Before we adjourn, may I ask j^ou, Mr. Dienner, to announce what
witnesses you have called tomorrow and what their subjects will be.
Mr Dienner Mr. Chairman, I assume we will sit tomorrow
afternoon?
The Chairman. In the morning
Mr. Dienner. Only m the morning?
The Chairman We will sit in the morning and afternoon unless
there is some development that I don't know anything about now.
Mr. Dienner. I should like to call tomorrow, Mr. Farnsworth.
He will lay before us the case of a young man who with all the difii-
culties in the world before him was able to come forward with a brand-
new idea. He will furnish the fundamental theory of the modern
television which he conceived when he was 14 years old, and his
difficulties, the difficulties of securing patents, and the interferences
and difficulties which he encountered in the application stage.
Then I should like to call Mr. Lawrence Langner, who will give us a
comparison between the laws of the United States relating to patents
and the laws of foreign countries. I think that should be very
interesting, as giving us some idea of what certain provisions in the
foreign laws are intended for as compared with corresponding provi-
sions or lack of provisions in the United States laws.
Then I should like to call, following Mr. Langner, Mr. Carlton.
Mr. Carlton represents a group of manufacturers of parts of auto-
mobiles known as parts manufacturers. His testimony will go to the
peculiar situation surrounding the manufacture and supply of auto-
mobile parts to the manufacturers of automobiles, and the rather
restrained use of patents in that situation.
Then I shoidd like to call one more \\'itness on the general fielcl,
Mr. Baekeland, George E. Baekeland, of the Bakelite Co., who has a
very interesting story to tell of how an industry was started first as a
secret process and then abandoned because of its limitation and
turned to the patent system as a proper basis for an industry which
could grow.
The Chairman. You won't be able to cover all of those tomorrow?
Mr. Dienner. I shall not be able to cover them all tomorrow.
The Chairman. The committee will stand in recess until tomorrow
morning at 10 o'clock.
(Whereupon, at 4 •.'•'> p. m., a recess was taken until Thursday,
January 19, 1939, at \<J a. m.)
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
THURSDAY, JANUARY 19, 1939
United States Senate,
Temporary National Economic Committee,
Washington, D. C.
The Temporary National Economic Committee met pursuant to
adjournment yesterday, at 10:30 a. m. in tiie Caucus room of the Sen-
ate Office Building, Senator Joseph C. O'Mahoney presiding.
Present: Senator O'Mahoney (chairman), Representative Williams,
Messrs. Henderson, Ferguson, Patterson, Peoples and Coe.
Present also: Senator Homer T. Bone of Washington, chairman of
the Senate Patents Committee. Counsel: John A. Dienner, special
counsel for committee; George Ramsey, of New York, assistant to
Mr. Dienner; Justin W. Macklin, First Assistant Commissioner of
Patents; Henry Van Arsdale, Assistant Commissioner of Patents;
Grattan Kerans, Administrative Assistant to the Commissioner of
Patents.
The Chairman. The meeting will please come to order. Mr. Dien-
ner, are you ready to proceed?
Mr. Dienner. Yes, Senator; I would like to call as the next witness
Mr. Philo Farnsworth. Mr. Farnsworth, ^vill you please be sworn?
The Chairman. Do you solemnly swear that the testimony you are
about to give in this proceeding shall be the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. Farnsworth. I do.
The Chairman. Thank you.
TESTIMONY OF PHILO T. FARNSWORTH, VICE PRESIDENT
FARNSWORTH TELEVISION, INC., PHILADELPHIA, PA-
Mr. Dienner. Mr. Farnsworth, will you please tell us about your
background and history?
Mr. Farnsworth. My introduction to television and to the field
of invention happened so far back that it is difficult for me to remember
just when. My first technical training came from having charge of a
farm lighting system and the electric motors and so forth that were
necessary to keep in repair, and that was at the age of 12. I was
finally given the responsibility for tliis rather modest amount of elec-
trical equipment because no one else could keep it running.
This is only significant in that it gave me a background at a very
early age of the elements of electricity and gave me an incentive to
study electrical physics and, through the medium of popular magazines
a knowledge that there was such a thing as telcArision.
The Chairman. Let^s chalk one down for the popular magazines.
981
9S2 CO.N'CENTKATION OF ECONOMIC POWER
BIRTH AND DEVELOPMENT OF FARNSWORTH TELEVISION IDEA
Mr. Farnsworth. It also gave me a theme for research wliich has
continued throughout the years as a guiding light, or as a direction for
research and development, namely the elimination of all moving parts
from television equipjuent. That idea I had fairly weW established in
1921, when 1 was 13 years old, so that the moment I discovered tools,
out of textbooks I mean, which would enable television to be done
without moving parts, the invention seemed almost simultaneous, as a
matter of fact siinultaneously ^vith the discovery that there was an
electron and a photoelectric effect.
In 1922 when I was a freslmian in high school I made the first
invention, my first big invention in television, and it consisted of a
means for producing an electric counterpart of an optical image.
At that tune it was a daydream, a daydream only. I had no facilities
for doing research, I had no money to buy equipment, all I had was
access to a very modest school librarj', but my sum total of equipment
which Phad for forming any definite practical idea as to the problems
in television consisted of a static generator of a physics laboratory
and an old Braun tube.
Nevertheless, this daydream, as you might term it, had the basis for
perhaps the most important invention and certainly the earliest inven-
tion in the electronic field, namely, that of a tube for electrically
transmitting a picture without employing any moving parts.
In the 2 years following 1922, that is 1923 and 1924, I continued to
do research in libraries and with any type of electrical equipment that
I had to work with, with the idea of evolving, a complete television sys-
tem free from all mechanical inertia.
My family at that tune moved from Idaho, where I was attending
high school, to the town of Provo, Utah, where I had slightly more
laboratory equipment at my disposal and continued to develop the
previous notion of television without moving parts, so that in 1924 I
had CA olved what is essentially the present system of electronic tele-
vision. Again I had no money and no suitable laboratory facilities
to reduce this theory to practice. As a matter of fact it has taken
15 to 17 years to make that a practical reaUty, but I didn't know how
long it was going to take then, very fortunately.
In 1926 I was in Salt Lake City looking for anything I could do
cither to continue my schooling — my father had died and left the
responsibility of the family to my mother and myself, and I was hunt-
ing for work, when T met two California businessmen to whom I
disclosed ni}^ hopes and dreams of this television idea, who agreed to
put up a sum of $8,000 to se'e if it was worth anything. I decided that
was the proper tune to get married, being 19 and quite old, so I got
married and moved to Los Angeles, where we set up a laboratory, such
as it was, to explore at least as well as w^e could with $8,000, the
possibility of tliis television idea.
_ Aftcj- just about 2 months, 2]^ months, as a matter of fact, of inten-
sive work, wo had used \ip all of the $8,000 and we had taken the idea
to the California Institute of Technology and to exi)erts wherever we
coidd find some who would listen, and I convinced these early backers
of mine, one of whom is Mr. Kverson, who is here A\ilh me today, that
at least the idea had some merit, but we had the basis for a nice
patent, perhaps, but no substantial experimental evidence yet.
COXCENTRATION OF ECONOMIC POWER 9§3
Mr. Everson's step then was to interest — and it sounds quite
easy — further financial backing in San Francisco, wliich he did very
effectively and a group of San Francisco businessmen decided th^t it
might be worth while to take a flyer on this television idea. As one
of the men put it, it was a darned crazy idea but somebody ought to
put some money in it._ So they did agree to put up $12,000 more to
see a little more what it was worth.
At that time, which was in October of 1926, we established the
Crocker Research Laboratories in San Francisco for the purpose of
corktinuhig research on this idea which was essentially to take all
moving parts out of television. Twelve thousand dollars sounds like
it should be enough to find out what the idea was worth, but after
18 months we had spent 60 thousand, and without hstmg tlie problems
in detail, I think it can be understood that it is very much as though
someone with a considerable amoimt of knowledge — or it doesn't
matter really to what extent the knowledge runs — is suddenly cast
on a desert island, removed from all tools, and given the job of build-
ing a steam engine. That means building the tools to build the tools
to build the tools to buUd the steam engine, and our problem of making
a laboratory was, in the early part of our work, by far the greatest
problem. Also, the state of the photoelectric art and of electric
optics at that time was not far enough advanced to carry out properly
the basic conception of the electron image — scanning, as we have
called it.
In 1926 and 1927 the photoelectric materials that we had were
almost scientific playthings. The photoelectric material available
were the haloid of alkali metals, particularly ^ sodium and potassium,
and the construction of photoelectric cells required an amount of
knowledge and art and technique far beyond that available to me, and
so I proceeded to get all the help from scientific institutions I could.
I pestered the ])eople of the University of California and Stnnford
and California Tech and anj^body who would give me information
or sell information. But to make a long story short, in the latter part
of 1927 we demonstrated a television transmission which used appa-
ratus that did not employ a single moving part.
The Chairman. You said that you pestered everybody who would
give you information or sell you iniformation. How much information
did you have to buy?
Mr. Farns WORTH. Most of it.
The Chairman. How did you buy it?
Mr. Farnsworth. Through the funds made available to me
through this group of bankers.
The Chairman. And what type of information was sold?
Mr. Farnsworth. The technique of forming electron surfaces, the
experience necessary to blow glass and evacuate tubes and sensitize
photoelectric surfaces in vacuum, and purification of the alkali metals,
the electrical circuits necessary for amplification, and so much similar
material that it practically covers the entire field of physics and
optics.
The Chairman. Were you actually buying the information or the
prepar.'iuon of the information, the service of conveying it to you?
Mr. Farnsworth. The services of the scientists or technicians who
gave it.
Tlio Chairman. In otlier words, it was informalioiL already
uiiiible.
984
CON'CENTRATION OF ECONOMIC POWER
Mr. Farnsworth. It was information known at that time but not
known by me.
Mr. Pattersox. Mr. Farnsworth, was this the first transmission
of a purely electronic television image?
Mr. Farnsworth. Yes; it was definitely the first transmission of
an electronic im.nge, and as a matter of fact I made an effort at that
time, but failed, to be the first to transmit a television image. I could
have known then thr.t would be impossible. C. Francis Jenldns had
transmitted television images prior to that. Earlier that year a
demonstration was made by the Bell Laboratories of a mechanical
television system.
Mr. Patterson. What year was that?
Mr. Farnsworth. This was 1927.
Mr. Patterson. In New York City?
Mr. Farnsworth. The Bell system transmission was from New
York to Washington. Our transmission was simply a laboratory dem-
onstration that an image could be converted electrically, entirely elec-
trophonically or electrically, into the required signals and reconverted
into an image.
Mr. Patterson. From New York to Washington?
Mr. Farnsworth. Was the mechanical demonstration.
Mr. Patterson. Didn't they have public demonstrations in New
York City, too, at about the same time?
Mr. Farnsworth. At about the same time; yes.
It required about 1 year, then, to convert, to build a minimum
amount of laboratory technic and to reduce an idea conceived in 1922
to a practical result in 1927. Incidentally, the first image transmitted
was about a 60-line image of a dollar sign. That seemed to chmax
the work, when we could get real money and see the sign of real money,
so at that time our company was incorporated and we continued to
do work to perfect tliis idea and to perfect an organization and labo-
ratory capable of eventually making something practical out of a
laboratory toy.
About a year later, in 1928, we had a television transmitting tube
as sensitive as then theoretically possible. I hate to say what that
sensitivity was, and by sensitivity I mean the amount of light that it
was necessary to project on to the tube in the image in order to get a
useful residt. The notion was obviously impractical for televising a
subject because the amount of light on the subject would have caused
it to blow up and burn up immediately, whether tbat was a subject
or object.
But, also to just gloss over the immediate years of the ensuing years,
the sensitivity then, wliich wafe theoretically possible was agreed by
all the consultants that I consulted were as approximately 100,000
times less than is available today wdth the same tube and with sub-
stantially no change in the tube other than improved methods of
making it.
Since 1927 one of the major problems has always been to obtain
sufficient money to continue the experiments. There has never been
any substantial revenue, ca- almost no revenue, coming in, and it
speaks weff for the origi;:.d backers of this invention that they have
now spent greatly in excess of a million doffars without any revenue
for a cjevelopment wliich has taken 13 years. It will be 13 years in
May since it started.
CONCENTRATION OF ECONOMIC POWER 935
In 1928 and 1929 we began to get recognition for our work and other
engineers and inventors agreed that it was a difficult problem to
work out, but would be the ultimate way television would be accom-
plished, and in 1929 Philco, the Philadelphia Storage Battery Co.,
took a license under patents which we then had issued, and under the
promise of what our future developments would be.
But to go back to the point we had reached where we had the
maximum theoretical sensitivity of our transmitting tube, it has
been my experience that whenever a stone wall was encountered
where possibihty of scaling it seems hopeless there is a grand oppor-
tunity for a good invention, and it happened in this case to call for
one of the most important developments that we have made, namely
that of the principle of electron multiplication. Wliat we needed was
more electrons for a given amount of light.
It may seem a little radical to expect that electrons could reproduce
themselves, but this is in effect what they did. We produced an
electron stream and had it arranged that it was capable of producing
offspring at the rate of 5 per litter, 5 to 10 per litter, and then to take
the offspring, and they have the fortunate property of being born
mature so that in about less than one-billionth of a second they can
produce — each child can produce, with no question of sex involved,
either — 5 to 10 more in less than a billionth of a second.
If you consider how fast that electronic multiplication process
builds up you can see that in less than one-miUionth of a second it
would evolve a number of electrons. Each initiating electron will
evolve 25 with 500 ciphers, probably more electrons than there are
in the universe. But the problem is not to get the electrons but to
control the process so that there is a definite proportionality existing
between the number of initiating electrons and the final output.
That principle, which is called electron multiplication, now is in
universal use throughout the world. There are many different types
of tubes employing the process, and it has added perhaps the most
powerful way of amplifying feeble electric currents that exists.
When we divide the number of electrons given out by an optical
mrage by the number of divisions that are necessary to show fine
definition in an image, which amounts to perhaps 400,000, the ap-
paratus begins to count electrons. Even though the electron is a
mighty small unit it is not small enough, and we begin to count the
electrons. Now, the electron multipUer minimizes the extent of inter-
ference produced by this process of counting electrons, and that is
why it is important in television. Many inventions have come from
this fundamental principle. They are employed in perhaps 100
different varieties of tubes. It constitutes one of the very important
byproducts of television research.
Mr. Patterson. On that point, I don't mean to interrupt the con-
tinuity of your thought, but I think it is germane. In getting your
increased sensitivity did you develop any devices that are helpful
to the radio industry gener'^lly? If so, will you put it in the record
and tell of that?
Mr, Farnsworth. In the field of electron multiplication the device
No. 1 is simply what might be termed a multiplier electric eye. Ordi-
narily, photoelectric eyes are measured in milHonths of an ampere per
unit of light. Photomultipliers are measured in units 1 milHon
times that big. I have a tube that I will show you that is measured
ggg CONCEXTRATION OF ECONOMIC POWER
in 50 amperes per unit of light, whereas the corresponding tube
available on the market previously might be measured in 30 mil-
lionths of an ampere, or over 2 million times improvement in sensitivity
As yet we don't know to what extent this principle will be important
in the radio industry, certainly to a very great extent, but in just what
fields it will be important it is hard to say as yet. Certainly in the
very short wave region below 1 meter and below 5 meters, it is already
the most powerful tool in measuring. In measurement of very feeble
currents such as used in stellar photometry or in various scientific ap-
plications or in some projected military applications the tube is by
far the most powerful tool available to the physicist and inventor.
A particular tube w^hich I have will record the light of a candle 10
miles away, and it will do so also instantaneously, whereas other
methods of doing it might require 5 or 6 seconds and maybe that
many minutes for its measurement.
Mr. Patterson. Just what do you mean by 10 miles away? I'd
like to have you develop that for the committee. I have spent
considerable time in it and I want the committee to hear it.
The Chairman. Do you mean to imply that the committee doesn't
understand whet is said? [Laughter.]
Mr. Patterson. You win, Mr. Chairman.
Mr. Farnsworth. The measurement of small amounts of radiation,
either visible or invisible, is usually made by the heating effect of the
radiation or alternatively by the fact that radiation produces the
emission of the electrons from certain suitable materials. Its usual
practice when extremely small amounts of radiatian are to be detected
is to allow this process to continue over a long enough interval so that
the accumulated effect is measurable on the most sensitive instru-
mei^.ts we have. Now, in the photomultiplier, due to this multipU-
cation process, although only one electron is released, a million or so,
in some cases a billion billion, are available for measurement. I say
that number although it is so astronomical it may not mean much.
We can in effect detect one electron per second.
The Chairman. In all of this it is still necessary to have an instru-
ment at each end, is it not, one at the end at which the image to be
televised exists, and at the end at which it is to be seen.
Mr. Farnsworth. Yes; although it is not necessary to have a visi-
ble image at the transmitter.
The Chairman. Has the art been sufficiently developed, for exam-
ple, to enable you to segregate the light of a single star, let us say,
from all the others?
Mr. Farnsworth. Only through the use of the telescope. If we
could measure down to very low intensity stars, stars that would re-
quire considerable period to photograph, they could be checked and
the intensity of that star determined to a much greater degree of
accuracy by direct reading instead of photography.
The Chairman. By the use of the telescope you could segregate a
particular star from all the other stars.
Mr. Farnsworth. With a suitable eyepiece you could segregate
that from the remainder of the stars and measure its intensity, and
you could do so and measure perhaps tliousands of stars per hour
instead of a few. That only indicates the type of application that
this tube is adapted to. A more common application is in talking-
motion pictures where the tube acts not only as the photo cell but
CONCENTRATION OF ECONOMIC POWER Qgy
also as the amplifier. It eliminates quite a bit of costly equipment
in the talking motion picture. We are now making these tubes for
use in sorting lemons, in sorting beans, and so many peculiar indus-
trial applications that it is hard to remember that it grew out of
television research.
Mr. DiENNER. Mr. Farnsworth, did you have any contact with
foreign television corporations?
Mr. Farnsworth. We had, I think, in 1933 or '34 representatives
from many foreign companies visit our laboratories. One in partic-
ular, the Fernseh interest in Germany, Vv-hicJi is the combination of
the Zeiss-Ikon and the German Bausch Co., became interested in our
work on electronic television and took a license which resulted in an
exchange of licenses and an exchange of technic between ourselves
and those in various countries in Europe. The Baird Co. in London
visited our laboratories and we arranged an exchange of licenses,
patent licenses, and technic for use in the British Empire, and since
then we have licensing arrangements in Australia,, until now our
patents and technic are employed throughout the world.
Mr. DiENNER. Is it a fact that the British and German television
interests put the equipment on the market before it was done here
in the United States?
Mr. Farnsworth. They have. They have made available to the
public, equipment that is at the present time v^iy satisfactory. The
images transmitted are clear and large and sh vv good definition and
the receivers are very satisfactory. Program experimentation is mak-
ing fine progress, and they have a television service which is in ad-
vance of that that we can boast of in the United States.
Mr. DiENNER. What is the explanation for their use of it before it
was used here in the United States?
Mr. Farnsworth. Their problems of application are vastly simpler
than in the United States. In Great Britain two television stations
can cover the countr3^ In the United States perhaps the same serv-
ice would be represented by a hundred or so; it would require a
hundred or so stations. Then also, their waj' of paying for programs
in both England and Germany makes available a certain amount of
money for commercial application of television which must come in
the United States from individuals, so that the service here is in more
or less a position of lifting itself by its own bootstraps for awhile.
We can't broadcast profitably without receivers and we can't go into
any extensive receiver production without transmitters, and program
research doesn't get very well under way without transmitters, and
it is very much again the same problem of building a steam engine
on a desert island without any other facilities. Fortunately that sit-
uation is, in pictures, being very rapidly changed now and television
for the American home is going to be a service before very long. Also,
this time hasn't been entirely lost. We have the benefit of foreign
experience on problems of getting television started, so when televi-
sion does emerge as a commercial service in the United States it will
be, I think, a better service than is being made available abroad.
The Chairman. The last figure which you gave as to the cost of
your research was $60,000.
Mr. Farnsworth. That is the first 18 months.
The Chairman. What would you say this research has cos^ as a
total?
988 COxXCExXTKATIOX OF ECONOMIC POWER
Mr. Farnsworth. It has cost considerably in excess — I can't give
you the exact figure, but considerably in excess of a million dollars.
The Chairman. And to raise that sum, it became necessary for
you to bring larger and larger numbers of persons into the enterprise
with you.
Mr. Farnsworth. Yes; it has been necessary not only for the orig-
inal stockholders to put up money but for those of us who haven't
had facilities to decrease the percentage of our holdings by bringing
in anyone interested in helping us continue.
The Chairman. So that actually this is an illustration of cooperative
research.
Mr. Farnsworth. Yes. It has grown from the status of an indi-
vidual inventor to that of a highly organized research and efficient
research laboratory.
The Chairman. In other words, when this study is finally completed
in any particular item along the road, it will be a group research.
Mr. Farnsworth. A group research.
The Chairman. In which the credit will have to go, of course, the
major part of it, to the original inventor.
Mr. Farnsworth. Well, there I want to make it very clear that the
inventor in a project of this kind can only be a small unit, that the
successful financing of the venture, its continuation over such a long
period of years, the patent counsel, the other legal counsel required,
and the technical staff which must eventually be evolved are major
items in carrying such a complicated art to completion.
The Chairman. In other words, your experience illustrates a fact
which is becoming more and more apparent in the modern world,
that advance of all kinds, technological advance and scientific advance
and practical advance, is getting to be more and more the product of
collective and cooperative effort.
Mr. Farnsworth. Yes; although we must not lose track of the
fact that inventions as such, important inventions, are made by
individuals and almost invariably by individuals with very limited
means.
The Chairman. You see, there is a concept abroad in the world
that we are still living in the era of the rugged individualist, to use a
phrase that has been more or less in common parlance for some time,
but stories such as you are telling us this morning clearly demonstrate
that that era is receding rapidly into the past and that we must find
a way of working together if we are going to achieve really beneficial
results for all.
Mr. Farnsworth. Yes; but do you see any difference in this de-
velopment than in that of any other major invention?
The Chairman. Oh, yes; yes, I do; because to use a phrase that you
used a little while ago, it is now necessary for the inventor to develop
the tools to make the tools to make the tools to make the locomotive.
So that you must have this cooperative effort, and there was a time
when the inventor could make the monkey wrench and he made it
and he didn't need any cooperative effort.
Mr. Farnsworth. But in technological inventions I doubt if the
situation has changed much. Edison in his development of the
electric light required facilities of the same order as are required in
television. The telephone in its fundamental conception only re-
quired less facilities for its original adoption because scientific knowl-
CONCENTRATION OF ECONOMIC POWER 989
edge had not then advanced to a point where very much of anything
in the way of a telephone could be evolved.
The Chairman. Of course Edison was breaking into this field where
it was necessary to bring together cooperative eflFort and the knowledge
of others, perhaps not to the extent that you had to do that, but I
conceive Edison to be a figure in the modem world very different from
Alexander Graham Bell, for example, who invented the original device
on which the whole telephone system is based I rather imagine that
Bell didn't require, for the patenting of that device, anything hke the
cooperative effort that you have required to develop your idea, al-
though the progressive improvements of his device require the sort of
laboratory that was described here yesterday by Dr. Jewett.
Mr. DiENNER. I think our chairman has put his finger on the
significant fact that although an invention starts with an individual
and that individual must somehow arrange to make the tools to make
the tools to reach the objective, the research laboratory is the human
tool concept of the picture. The physical tools, the iron and steel
tools, are only part of the picture. The human tools must also be
appHed, such as are available, and I think our brilhant chairman has
caught the modem situation in this particular case history. Here is
a man who has an idea. He must make the tools on the physical side
and on the humfln side in order to develop the thing fully.
Mr. Patterson. Mr. Farnsworth, what is your title in the Farns-
worth Television Corporation?
Mr. Farnsworth. I am vice president in charge of research.
Mr. Patterson. How many patents, approximately, have you
taken out?
Mr. Farnsworth. I think the number runs into around 46 at the
present time, with probably twice that many appUcations entered.
Mr. Patterson. Out of those 46, and applications pending, how
many, approximately, are you the sole inventor of?
Mr. Farnsworth. I should saj^ three-fourths of those.
Mr. Patterson. You began with this idea that you conceived a
great many years ago, and you had no money. You borrowed money.
I would like to ask you, are ycu still in control of your company?
Mr. Farnsworth. I am not in control of the company but I still
own twice as much stock as any other stockholder, have twice as much
interest in the company as any other stockholder.
Mr. Patterson. You are the largest stockholder?
Mr. Farnsworth. I am the largest stockholder.
(Representative Reece took the chair.)
The Acting Chairman. I came in a Uttle late, and for my informa-
tion will you please state if you and your associates developed the
principles upon which television is being worked out?
Mr. Farnsworth. The early principles of television I conceived
in the period from 1922 to 1927 are the system now adopted, funda-
mentally at least, throughout the world, and while our company has
in no way been completely responsible for the development, neverthe-
less the fundamental ideas underlying it were the entire basis, for our
early research.
The Acting Chairman. There are now other companies m the
United States who are working on television also?
Mr. Farnsworth. Yes; there are many, and there are many m
other countries, but this basic idea of no moving parts is common to
124491— 39— pt. 3-^ 11
990 CONCENTRATION OF ECONOMIC POWER
all systems, with the possible exception of one or two that are being
used in the world.
The Acting Chairman. Are there only a comparatively small
group who are in your company, or has the stock been more or less
open to the public?
Mr. Farnsworth. It has in no sense been open to the public. The
diversification of the stock has come more through stockholders them-
selves trading around among themselves than it has been otherwise.
The bulk of the money has been put up by very few stockholders.
The Acting Chairman. So that the stock is mostly held within a
comparatively small group of individuals.
Mr, Farnsworth. It is closely held and the majority of the stock
is held by a very small group.
Mr. DiENNER. Mr. Farnsworth, I understand you developed a tube
which produces radiation somewhat like radium. Is that correct?
Mr. Farnsworth. We have worked on a tube, the ultimate object
of which is to produce very short radiation, very short X-rays, while
not comparable with radium as yet but for the same purpose as radium,
and also for producing very high velocity electrons.
Mr. DiENNER. That can be used for X-ray purposes, is that correct?
Mr. Farnsworth. Yes; it can be used as an inexpensive source of
very short X-rays, corresponding to tubes of 1 to 5 to 10 milUon volts.
Mr. DiENNER. Going back to an earlier statement, you explained
that the television of your conception involved no moving parts, no
parts which had inertia. Will you please explain briefly what the
difference is between having moving parts and having merely electron
movement in terms of satisfactory operation?
Mr. Farnsworth. It comes down to the nature in which television
must be accomplished, that is, the picture must be made up of points
in a plane, the'points having varying intensities, and the picture must
be broken down and transmitted one point at a time. Then a com-
plete picture must be transmitted in a comparatively short fraction
of time, say, 30 times per second, 30 images per second, so that if we
break down the picture into half a million units and transmit those
30 times per second, we have some 15,000,000 points of light per
second which must be transmitted.
Not only that, but the tearing down process at the transmitter and
the building up process at the receiver, while occurring at this enor-
mous rate, must be synchronized so that the receiver and transmitter
are doing the same thing at the same time, and that tremendously
high speed of transmission is practically synonymous, it has been in
my mind, with the lack of mechanical movement. So that in our
system the fundamental idea is to translate an optical image into an
electronic discharge corresponding to that image, because the elec-
tronic image can be deflected and moved and operated on almost
without any inertia! effects, without any mechanical lag, and makes
possible this tremendously high rate of information transfer without
involving too complicated apparatus.
application for PATENT COVERING BASIC IDEA OF FARNSWORTH
TELEVISION
Mr. DiENNER. And I understand that the patents and patent appli-
cations which you filed covered that concept and it* application to
television.
con<:entkation of economic power 99]^
Mr. Farnsworth. Yes; the early application that was filed in the
early part of 1927 covered the basic idea— it covered two basic ideas,
conversion of the optical image- into an electronic image and the
scanning of that rniage in a linear fashion, much as a sheet of paper
is typewritten — that is the generation of electrical unpulses which
transmit the image in a proper, orderly fashion.
Mr. DiENNER. Now in the course of your securing patent protic-
tion, did you encounter any interferences with other inventors?
Air. Farnsworth. 'Yes; we have been involved in man}/ inter-
ferences, the exact number I don't know, but since 1927 there has
been to the best of my knowledge no time when we haven't been
involved in interferences.
Mr. DiENNER. Approximately how many would you say?
Mr. Farnsworth. I should say 20 or 25 in all.
Mr. DiENNER. And some of those are still active?
Mr. Farnsworth. Yes; there are some of the interferences that
are still active.
Mr. DiENNER. Tell us about what the first contested interference
cost you and your backers?
Mr. Farnsworth. One of our interferences, I think it was the
second one, cost the company approximately $35,000, somewhat of
that order, perhaps more and perhaps sUghtly less, but it was very
close to $35,000.
Mr. DiENNER. Did you win it?
Mr. Farnsworth. We won that interference; yes.
Mr. DiENNER. And you had further interferences beyond that?
Mr. Farnsworth. Yes; we have had, as I say, continual inter-
ferences in other matters.
The Acting Chairman. If I may ask, do any of these interferences
involve the fundamental principles of your idea?
Mr. Farnsworth. The interference to which I referred as costing
$35,000 involved the basic idea of converting an optical image into
an electrical image and forming a train of television signals to cor-
respond to the electrical image.
The Acting Chairman. And that has been cleared up?
Mr. Farnsworth. It has been cleared up.
Mr. Patterson. When was the first pubUc demonstration of elec-
tronic television?
Mr. Farnsworth. The first public demonstration was at the
Franklin Institute in 1934. That demonstration lasted about 2 weeks,
at which time we televised all kinds of scenes from outdoor pictures
to pick-up of the parkway in Philadelphia, the transmission of night
club scenes — in fact, we generally raised hob with the dignity of the
Franklin Institute for a period of 10 days.
Mr. Patterson. You are talking about the Farnsworth Television
Corporation.
Mr. Farnsworth. This was the Farnsworth television demon-
stration. . ,. . . .
Mr. DiENNER. Have you been involved in any litigation in regard
to the patents, I mean suits on patents aside -from the interferences?
Mr. Farnsworth. Not aside from the interferences.
Mr. DiENNER. The money which was put into that first contest
that cost you $35,000 had to come out of your backmg and not out
of earnings, is that correct?
g92 CONCENTRATION OF ECONOMIC POWER
Mr. Farnsworth. Yes; there were no earnings. It means just
that much money diverted from research.
Mr. DiENNER. So interference in your case was a very severe trial
on the hopeful enterprise which had reached the commercial stage.
Mr. Farnsworth. Yes, it was. It meant getting along without
some engineers, or stopping research on some particular phase in
limiting our activities to the extent of $35,000.
Mr. DiENNER. It detracted from your work by compelling your
attention to the contest, I assume.
Mr. Farnsworth. Yes ; it also took time of myself and our patent
department which could have well been devoted to the problem of
"development and fiUng of new applications instead of contesting inter-
ference proceedings.
Mr. DiENNER. About how long did that interference run, as you
recall it?
Mr. Farnsworth. As I recall, it ran approximately 2 years.
Mr. DiENNER. I believe you stated that you had developed various
collateral inventions or byproducts of your main pursuit. Tell us
briefly, if you can, what the general nature orf those is.
(The chairman. Senator O'Mahoney, resumed the chair.)
Mr. Farnsworth. They relate to electronic tubes that have been
required for amplification or for other purposes, for carrying out the
television process, and invariably where a new tool is developed which
improves television, it has improved something else, some other field.
These sensitive multiplier ampMers are one type, the possibility of
an inexpensive hard X-raj^ source is another, the translation of images
from invisible light to visible light are another field; the electron
microscope is a field which we have gone into somewhat.
Mr. DiENNER. Could you show us some samples of the tubes
which you have produced and tell what they would do?
Mr. Farnsworth. I have brought with me the two tubes that are
important as they are evolved at present in the television transmitter,
and I have in addition brought along three electron multiplier tubes,
one evolved for moving picture and bean counting and lemon sorting,
and the other for photometry where extreme sensitivity is necessary,
and another that is important in generation of extremely short-wave
length.
Mr. DiENNER. Would you like to see the tubes?
The Chairman. I am sure the committee would be interested in
seeing them.
Mr. Farnsworth. This is the tube that I described that would
detect a candle 10 miles away.
The Chairman. There is another tube in front of the candle,
isn't there?
Mr. Farnsworth. No.
The Chairman. You mean to say this instrument of itself could
be so operated that it could segregate the light of a candle 10 miles
away?
Mr. Farnsworth. It could tell you whether you had your hand
in front of the candle or not. In other words, that merely indicates
the lower amount of light that is necessary to show measurable effect.
The Chairman. You would probably have to go out to Utah to
get the open space to do it.
CONCENTRATION OF ECONOMIC POWER 993
Mr. Farnsworth. You have to find some place to get rid of
extraneous effect, but if you are pointing a telescope at a star you
have those conditions.
This is a tube for production of extremely short waves. It is a
true cold cathode tube. The electrons originate from no place.
The electron multiplies so high that we don't need to find where the
first waves come from.
Mr. Patterson. Will you at the proper time tell us some of the
proper applications of this tube (referring to the first tube displayed) —
the potential applications?
Mr. Farnsworth. This tube is the modern camera tube for direct
pick-up. This tube promises— it hasn't done it as yet but theoreti-
cally it is possible to televise a scene with so small an amount of light
on it that it can't be seen.
Mr. DiENNER. The image appears on the end of this "potato
masher"?
Mr. Farnsworth. No; this is the transmitting tube. The image
is focused by means of lens onto the photoelectric screen which is a
part of it.
Mr. DiENNER. In other words, that looks at the televisor equip-
ment, so to speak.
Mr. Farnsworth. Yes; that corresponds to the film in the canlera.
This is a simple electron multiplier.
Mr. DiENNER. I believe Secretary Patterson asked what the
potentialities of the first tube were that could detect the light of a
candle 10 miles away.
Mr. Patterson. Yes, that is right, Mr. Dienner, I asked Mr.
Farnsworth if he would kindly tell us the practical applications of the
first tube, and maybe some of the potential applications — that is the
10-mile candle tube, I will call it.
Mr. Farnsworth. I can only indicate the field of use where this
is now being applied. First, I will say that many of the fields where
this is being used is confidential work of other inventors. In other
words, we have furnished a tool here that they are very anxious to
apply, but some of them don't tell us what it is for.
But in any field where an extremely small amount of light is to
produce some useful effect, it can be used. You might use it for
opening your garage door but you would only go to the trouble of
using this tool if you wanted to flash your flashlight on it while you
are half a mile away. In other words, a very much simpler tube
would serve this purpose.
This little tube which I am passing around here is for talking-motion
picture use, the same sort of tube except not so elaborate and that
might be used for opening the doors of a railway station, in which
case it would elim.inate a costly head amplifier that goes along with it.
Tliis would directly operate the relays which open the doors.
And both of these tubes are photocells with the amplification within
them and not on the outside. This particular tube is used for color
comparator work, for monochrometers, for stellar photography, and
all of the possible industrial appUcations -that are mcluded in those.
Mr. Dienner. That includes the lemon sorting and bean sorting?
Mr. Farnsworth. We designed a particular model here for lemons.
This tube is the early dissector tube, the fundanacntal idea of which
was evolved when I was a kid in higb -- cliool, but it is not by y means
994 CONCENTRATION OF ECONOMIC POWER
the invention of that high-school age. As a matter of fact, it involves
20 or more separate inventions and is the final product of a fairly-
good research laboratory.
Mr. DiENNER. Before you pass it to the committee will you tell
briefly how it operates or what it does?
Mr. Farnsworth. In this tube the image to be transmitted is
focused onto this silver plate here, which has the property of emitting
electrons.
The Chairman. How is it focused?
Mr. Farnsworth. It is focused through this clear window, the
window in this end of the tube.
The Chairman. In other words, that is pointed at the image which
it is desired to televise?
Mr. Farnsworth. It is placed behind the lens. An optical lens
picks up the image, a regular photographic lens, and focuses it pn this
cathode, this being in the plane of the image as though it were a film
in the ordinary camera. The electron emission from this cathode
is dra^vn in this direction by an electric field and focused by means of
a magnetic lens so that in this plane here we have the electrical
counterpart of this image here.
Taking a cross-section of the electrical image there, it corresponds
in electrical intensity to the light intensity of the corresponding plane
back here. A small portion of that is picked up by a tiny aperture in
the shield, this metal shield which you can see through here, and that
registers then, or records, the electrons from one particular area in
tliis image back here. Then, by means of deflecting magnetic fields
we can sweep this over the image in a fashion, any desired scanning
fasliion. The way we do it is the manner in which you would type a
page of script, but at a very high rate. It scans the entire image in
one-tliirtieth of a second, and in that time draws 441 lines across this
image in the back.
Inside tliis little shield is this tube, reduced. That is, exactly the
same number of elements you see in this tube are positioned inside
this small tube here, and it amplifies the electrons entering the aper-
ture. The portion of this electron picture selected is amphfied by a
factor in this tube 100 times before it enters the conventional amplifiers
that are external to the tube.
The Chairman. Is this the same principle as that by wliich the
news associations today transmit photographs, except that they do
it by wire, and this does it by radio?
Mr. Farnsworth. They do it mechanically. If they could speed
up their apparatus 10,000 times they would accomplish practically the
same result that this tube accomphshes. They wrap a photo negative
around" a cylinder, very much as the old Edison cylindrical phono-
praphs did, and transmit the impulses in the receiver and there, by
a light belt, change the impulses back to light and record it photo-
graphically or otherwise.
The Chairman. In other words, the principle, the transmutation
as it were, of an optical image into an electrical image, and the trans-
mission of an electrical image either by wire as the news photographic
associations do, or by radio, as yours does.
Mr. Farnsworth. With one exception. The news system does not
convert to an electron image first. It tears the picture down and con-
verts it into a train of signals wliich go over a wire. We do it ?o we
CONCENTRATION OF ECONOMIC POWER 995
can make this wheel draw 441 lines in one-thirtieth of a second,
instead of approximately that number of lines in 7 or 8 minutes.
The Chairman. When you draw the line you pick up the electrons
just as the other machine picks up the impulses.
Mr. Farnsworth. Picks up the Hght and converts it into electrons.
Mr. Patterson. What is the name of this tube?
Mr. Farnsworth. The image dissector tube, or the dissector
multipUer.
Mr. Patterson. And it is designed primarily to transmit motion
pictures, but it can be applied to other uses?
Mr. Farnsworth. It is not the tube we propose for that purpose.
The other tube is the one we use for direct pick-up. That tube is
standard equipment in half a dozen different television systems now.
IMPOSSIBILITY OF OBTAINING FINANCIAL BACKING WITHOUT PATENT
SYSTEM ^
Mr. DiENNER. Going back to your main problem of getting under
way, how does it seem possible, without calling on the patent system:,
to get such an enterprise started?
Mr. Farnsworth. Why, without the patent situation I don't see
any hope of starting any such an enterprise. Certainly no one- can
be expected to subscribe such a large amount of money without hav-
ing it protected; without having a basic reason for so doing and with-
out the money, without this order of money, no such development —
well, there is no point in ever starting any development of that
magnitude.
Mr. Dienner. And if, after getting your patents, you had to grant
licenses to others on demand, do you suppose you could have gotten
the backing?
Mr. Farnsworth. If we had to grant licenses on demand the value
of the patent would be so materially decreased that we might just as
well not get a patent.
Mr. Dienner. I understand you have relations with other com-
panies. Have you any cross licenses with any company?
Mr. Farnsworth. We have a cross-licensing agreement with the
American Telephone & Telegraph Co., we have licensmg arrange-
ments with Fernseh and Baird in London.
Mr. Dienner. You- heard the testimony of Dr. Jewett yesterday
regarding the electron tube used on the Bell telephone lines.^ A
question was raised as to why a tube of the same long life and small
current consumption is not furnished to the public. Will you please
explain what the facts of the situation are?
Mr. Farnsworth. The telephone company, I think, made the
reason for their long life tube very clear; the necessity for reduction
of operating costs and the fact that the desired characteristics of the
tube could be so completely specified made possible the long life which
thev have achieved.
In radio, therf^ are two points that were brought out, one that the
tube uses less filament power, less heating power or operating power,
and therefore results in economy where there are so many of them
used. That was perfectly true. That is perfectly true, that it did
at the time evolved use much less power. It doesn't, however, use
' This subject is resumed on p. 1075, infra.
« Supra, p. 953, et seq.
996 CONCENTRATION OF ECONOMIC POWER
less power than modern radio tubes, of which there are many models
actually using less.
The question as to why 50,000 hours of service is not used for radio
tubes can be well understood if you remember that there are in
current use from 75 to 200 different types of radio tubes which must
be kept available to the radio set owners because of the very rapid
development of radio. Receivers sold 7 years ago or 10 years ago
must still get tubes in some way, and those tubes, even though rend-
ered obsolete by later developments, still have to be capable of
production.
As a matter of fact, radio tubes have been made with life approach-
ing the 50,000 hours, and certainly could be made available if the
public desired them. The fact of the matter, in my opinion, is that
the public demand for such a tube does not exist, for the very reason
that the rate of obsolescence in radio tube sales is such that from 12 to
25 new tube models appear every year, and actually, the obsolescence
in radio amounts to a complete set of tubes a year. I know of several
models of tubes which, are capable of 10 to 12 thousand hours of
service. The fact that a longer life tube is not available is in no
way an attempt to evade public demands. If the public demanded
a 50,000-hour tube they could have it. As a matter of fact, our
company is licensed to make that tube and knows how to make it.
There are perhaps 10 or 12 other licensed radio manufacturers who
also can make that tube.
The Chairman. By whom are you Hcensed?
Mr. Farnsworth. By American Telephone & Telegraph. We
can manufacture anything directly not competing with telephone
apparatus under any of their patents.
The Chairman. Is there any other limitation upon the use of that
license?
Mr. Farnsworth. To the best of my knowledge, no. The limita-
tion is simply that we must not compete in telephonic service with
Western Electric.
The Chairman. Is there any limitation upon the amount of pro-
duction or anything of that kind?
Mr. Farnsworth. No limitation as to the amount of production.
I should say none.
The Chairman. Any control as to price?
Mr. Farnsworth. No control as to price.
The Chairman. So that you conceive yourself to be free to use this,
except not in competition
Mr. Farnsworth (interposing). We couldn't supply telephone
repeaters, but we have no intention of attempting to produce such a
tube becausvT the present production of radio tubes, the evolution of
the radio-tube policy, hasn't been haphazard by any means. It has
been to meet public demand I don't believe there is any market for
a 50,000-hour tube, bccaus-^ nobody wants a tube that will last 50
vears in a radio. Their set becomes obsolete after perhaps 10,000
houva, and if they want a tube which will last 10,000 hours they can
get then'..
Ml'. DtENNEU. You mean they are on the market now?
Mf, F.-.rnsworth. They are on the market now.
^ Dr. LuRiN. In making up such a tube, would any other patents than
the Bell jio tents be involved?
CONCENTRATION OF ECONOMIC POWER 997
Mr. Farnsworth. I doubt if at the present time any patents
would be involved. That work is almost all expired art. I am speak-
mg now of art represented by work of Nicholson and Dr. Arnold, and
vacuum technique, most of which is expired art, so that even the un-
licensed companies could make such a tube.
Mr. DiENNER. Mr. Farnsworth, what was the first experience of
any member of your family with the patent system?
PATENTS ON USELESS INVENTIONS
Mr. Farnsworth. My father, who made a very small amount of
money and to whom the amount of money which I will mention rep-
resents perhaps 3 or 4 months' savings, put up in 1924 a sum to the
extent of $150 to finance an invention of mine indirectly concerned
with television. That is, I visualized it as a way of getting money
to go on with my television work. I had contact with a certain
nationally known patent attorney. The application which I got
seemed to be in very good order, beautiful drawings, beautiful speci-
fications; as I regard the patent today, totally useless. It was aa
idea not worth patenting. It should have been told to me that it
was not worth patenting, and the fact that it was patentable can cer-
tainly be said of almost anything you can conceivably think up. There
is certainly some kind of claim you can get on it.
I think that that type of practice on the patent attorney's part
represents a very questionable part of our patent system, and unfor-
tunately is the part which brings in the inexperienced inventor, and
the inventor of very meager means.
The Chairman. You mean that the patent attorneys use their art
in phrasing claims for ideas to induce inventors to prosecute the patent,
ideas which are useless and which the patent attorney himself must
know are useless.
Mr. Farnsworth. Certainly anyone with any experience could
know that the patent he obtains is worthless.
Representative Reece. My experience has been, if I may say so,
that most of the people who invent something becorne very enthusiastic
about it, though it may not hold any great promise in the minds of
others who might have opportunities to look upon it.
The Chairman. I was going to say that I have a little expei:ience,
too. Congressman, with respect to the attitude of inventors or those
who conceive themselves to be inventors. I suppose to every Member
of Congress there come hundreds of letters from persons who think
they have ideas that will save the world in one way or another. It
is ordinarily the thought of these persons that somebody is waiting
around the corner constantly to steal the idea, and I am sure if an
attorney told such persons that the idea was impractical those persons
would immediately come to the conclusion that the patent attorney
was trying to steal their idea and they would go to somebody el^e;
I have had dozens of letters which clearly indicated a belief upon
the part of the person who had conceived the idea that unless he was
very, very careful, somebody was going to steal it away from him.
They exercise the greatest caution in being referred to attorneys. My
letters read, "Can you suggest to me an attorney on whom I can rely?"
and I am frank to say to you that I know of no attorney practicing
998 CONCENTRATION OF ECONOMIC POWER
law in Washington upon whom the inventor couldn't rely to prosecute
his claim honestly and fairly and exclusively.
Representative Reece. And you are rather cautious yourself, are
you not, to keep yourself in a position where you might not be
suspected of becoming a part of the conspiracy?
Mr. Farnsworth. I can well understand that. I am accused of
stealing ideas and inventions and everything else, from inventors who
are jealous, just afraid that they are going to have their inventions
stolen^ bui-«o long as weiiave the present interference practice it is
important that such inventors get a record. If we can save 1 out of
100 inventors, if some system can be worked out so that they will
make a record of their Aotion. We will never get rid of the nut
inventor. That is a confliction in terms.
The Chairman. I was just coming to the defense of the patent
attorney. I don't know how you can very well avoid the issuance of
patents upon useless devices. I doubt very much whether the patent
attorney as such could be held responsible for it.
Mr. Farnsworth. No; they unfortunately can't. That is why
they are able to operate a business approximating fraud, approaching
fraud. You may not know of any such attorneys in Washington, but
I do, and so does everyone else who deals with patents. That seems
a rather strong statement, but there is a distinction between those
who attempt to give an appraisal of a possible patenting of an idea
with some possible merit, and those who get a patent, no matter
whether it is good, b«d, or indifferent. In other words, the search is
totally useless in such cases.
The Chairman. Well, if there are fraudulent practices in the prose-
cution of patents before the Patent Office, that certainly is a subject
which ought to be thoroughly examined by the Patent Office or maybe
eventually by some committee of Congress. I don't know that it is
really part of the functions of this committee, working on a much
broader subject.
Mr. Farnsworth. I have said all that I want to say on that
subject.
The Chairman. Fraud in the prosecution of patents is certainl}'- a
subject of great concern to the public and to the law profession, I
would say.-
Representative Reece. If I may venture to express an opinion. I
should doubt, in my present state of mind, the advisability of the
patent attorney undertaking to pass upon the utility of a patent or
idea that was sought to be patented. As was brought out earlier in
the hearings on this question, sometimes an idea might look utterly
futile, useless, but turns out to be a very valuable idea. That isn't
always the case, but sonietimes it is the case, and if an attorney
assumed the responsibilitj^ of passing upon the utility of a patent,
and then someone else got a patent on the idea, and it turned out to be
of value, he would be left in a very untenable position, it would seem
to me.
Mr. Farnsworth. I recognize, of course, the difficulties of the
situation. That is why it is there.
Tho Chairman. Commissioner Coe, you look as though you wanted
to sny something.
Mr. Coe. I will be verv brief, but I think I should make a few
remarks risrht at this particular moment. I agree with Congressman
CONCENTRATION OF ECONOMIC POWER 999
Reece that the function of a patent attorney is to advise an inventor
as to whether or not he can obtain a patent, and it seems to me that
the case that the witness is complaining against really vindicates the
patent attorney, because his judgment turned out to be correct. He
did get the patent.
The Patent Office has what I think is one of the most effective con-
trols overits attorneys of any Federal bureau. We have a Committee
of Enrollment and Disbarment; we receive and take testimony and
have hearings on every complaint registered by any inventor or
patentee against any attorney. We frequently disbar attorneys
when fraud has been indicated. So at the present time we are
exerting every possible means in protecting the inventor.
In the last session of Congress the Patent Office suggested and the
Congress passed a law that was designed wholly for the purpose of
protecting inventors against any attorney who misrepresented his
status or who in any way took advantage of the inventors to their
detriment."
Mr. DiENNER. Mr. Chairman, I think we ought to bring out the
fact that there was a relation between a popular magaizne and the
present point. Was that the fact, Mr. Witness?
Mr. Farnsworth. What was that?
Mr. DiENNER. I think we ought to bring out the fact that there
was a relation between a popular magazine and the point under dis-
cussion, and I was asking you whether you would bring that out.
That is, where did your father learn of the particular attorney whose
services he employed?
Mr. Farnsworth. Yes; that was through a nationally advertised
mail-order attorney.
Mr. DiENNER. And you think that does not fairly give the inventor
show for his hard-earned money?
Mr. Farnsworth. I don't think it does. I think that it presents
a situation against which the inventor needs to be protected.
Mr. DiENNER. That is particularly the boy on the farm.
Mr. Farnsworth. Yes; the inventor with very lilnited means and
with only a vague idea as to what kind of a thing a patent is, what
kind of protection he is supposed to get.
Mr. DiENNER. Mr. Chairman, the witness's examination is complete
from my standpoint.
The Chairman. Do any members of the committee have any
questions?
Dr. LuBiN. Mr. Farnsworth, I was very much interested in your
statement a few minutes ago to the effect that if you were compelled to
license other people to use your patents the value of your patents
would automatically disappear and there would be no further stimulus
for o;oing on with your work. I was interested in that comment and
I msh you would develop the idea. To me it appears that if, for
instance, you could fix any reasonable royalty that you wanted to fix,
there still would be a tremendous stimulus to activity, would there not?
Mr. Farnsworth. Yes ; but when you say "fix a reasonable royalty,"
what is reasonable becomes so vague as in jffect to nullify the ar-
rangement; in other woids, to make it unnecessary to license anyone
who wants a hcense. In other words, manufacture for own use is
prevented. When yoil undertake a given development you don't
know whether you will want to give Hcenses on that development or
1000 CONCENTRATION OF KC(^NO.MIC POWER
not, or make it available to the public yourself, or be entitled to
manufacture it yourBelf.
Dr. LuBiN, Do you issue licenses to anybody?
Mr. Farnsworth. We issue licenses on a uniform basis.
Dr. LuBiN. Are they available to anybody who wants them on
that basis?
Mr. Farnsworth. That is the intent of our policy, to make it
available to everyone on the same basis. Now there must obviously
be a few exceptions to that, people who aren't qualified.
Dr. LuBiN. Would you feel that a system whereby anybody who
does license patents should be compelled to license anybody else on
equally equitable terms would be a deterrent to further invention?
Mr. Farnsworth. If you could interpret what you mean by equally
equitable terms. The situation gets so much more complicated
than that when, for example, someone may be interested in a particular
field and be much better suited to manufacture that than anybody
else. They may be willing to undertake development on their own
part and there may be a thousand and one other factors which make
it appear that you are giving them a preferential license, when, as a
matter of fact, when all factors are taken into consideration, the license
is no better.
Dr. LuBiN. You may not want to commit yourself, and if you
don't care to let's forget about it, but I would like to ask this ques-
tion: Would you favor legislation which would compel licensing in
the event that licenses had been issued to any particular person; in
other words, once a license has been granted, to make such licenses
available to other people?
Mr. Farnsworth. Well, I don't know, frankly, offhand whether
I would favor that or not.
Dr. Lubin. I don't want to press it.
Mr. Farnsworth. That is one I would have to think about.
The Chairman. You think that a system of compulsory licensing
would have a tendency to enable large aggregations of capital to com-
pel individual inventors to subject their devices to the desires and
purposes of the large aggregation?
Mr. Farnsworth. Yes; I am afraid it would. That would be one
of the evils of it, in my opinion.
The Chairman. In other words, compulsory licensing would
extend to promote concentration rather than break it down.
Mr. Farnsworth. Yes; if I could be forced to allow a railway com-
pany to cut off this corner of my property or that corner of my prop-
erty, and had no recourse outside the law, I wouldn't have a very
valuable piece of property.
alleged suppression of patents in television field
The Chairman. Mr. Farnsworth, I suppose my experience is that
of other members of the committee and other members of Congress,
that there seems to be in the public mind a feeling that if there is any
suppression of patents, it is in the field of television. Is there any
basis for that feeling?
Mr. Farnsworth. I most assuredly think there is not, I don't
know of any suppression of patents as such in any field, to my personal
knowledge.
CONCENTRATION OF ECONOMIC POWER IQOl
The Chairman. The thought which is expressed most frequently is
that there is such a large investment in the present radio field, and in
various fields that are subordinate and contributory to it, that there
is a desire on the part of those who control radio not to permit tele-
vision to come into pubhc use as soon as it might otherwise do. Is
there any basis for that?
Mr. Farnsworth. No; except in this respect. When television
standards are adopted it so freezes the art that we must be very sure
before the standards are adopted and made available to the pubhc
that we aren't delaying ourselves by years and years and years by the
very starting of the service too quickly, and I think that anything
that might be interpreted as a desire to suppress invention or to hold
it back from the pubhc has been a natural desire to see that it be
properly organized and the industry properly planned before commit-
ments are too strong.
Personally, I think it has been carried to an extreme, but I am
willing to grant that some holding back is necessary in the interest
of the public, as well as the interest of the workers in the field.
The Chairman. There has been some holding back for this purpose?
Mr. Farnsworth. For the purpose of knowing when we standardize
on so many images per second and one wave band here and sound up
on top and vision down below on the carrier, making receivers which
will pick up all kinds of transmission with one tj^pe of receiver — well,,
it represents an enormous engineering problem and one which as a
committee in the Radio Manufacturers Association we have worked
hard on for 3 years.
The Chairman. Has the art of television been developed as yet to
that point where it would be possible to install a receiver in your home
which could receive various kinds of transmission?
Mr, Farnsworth. Yes; it has. It has been developed to standards
which are tentatively agreed on, which will make it impossible for
you to tell from which kind of transmitter the signal originates.
The Chairman. What kinds of pictures can be transmitted by the
present system of transmission and reception on one instrument?
Mr. Farnsworth. What kind of subject material?
The Chairman. I am talking now about the reception instrument.
What kinds of pictures, studio pictures or pictures in the field?
Mr. Farnsworth. Outdoor pictures of news events, scheduled
sport events, indoor studio pick-ups, stills for purposes of advertising,
back projection, and motion-picture film — the whole scope of tele-
vision.
The Chairman. In other words, you can divide pictures which are
desirable to traiismit into two types, broadly speaking, I would say.
One is the studio type where the scene is enacted before the camera
or the lens, and the other the outdoor type in which a scene proceeds
which is not rehearsed, which may go any way.
Mr. Farnsworth. The television is incidental to it.
The Chairman. Now, either one of those can be transmitted
today?
Mr. Farnsworth. Either one of those may be transmitted by
Farnsworth today.
The Chairman. And you have a reception machine which can take
either one of those.
1002 CONCENTRATION OF ECONOMIC POWER
Mr. Farnsworth. And the signal sent out is not any different in
either case. One reception device gets them both.
The Chairman. Would a picture of a baseball game, let us say, or
the landing of a distinguished visitor at the dock in New York —
would that picture be clearly reflected upon the screen of the recep-
tion instrument in the home?
Mr. Farnsworth. Yes. I will be glad to show you what the
picture does look like. I have photographs of a girl on a bicycle.
That will be clear there, a totally flickerless picture, a steady image,
and I have heard it remarked many, many times that the picture
could not be told from a motion picture if they hadn't known it was
television.
The Chairman. In other words, a perfectly satisfactory image can
be shown on the reception instrument.
Mr. Farnsworth. Yes.
The Chairman. Now, then, if that is the case, why is it not on the
market?
radio manufacturers association television standards
committee
Mr. Farnsworth. Again we have the tremendous preparation
necessary to get broadcasting under way and receiver production
scheduled. Receivers will be sold this year. We hope to go to the
Federal Communications Commission as the R. M, A, standards
committee and say "We have reached the standards and are ready to
go ahead. Do you think it is ready for commercial use?" We hope
their answer will be "Yes."
The Chairman. When you say "we" whom do you mean?
Mr. Farnsworth. 1 mean the engineering committee of the Radio
Manufacturers Association.
The Chairman. Would you care to show those photographs now?
Mr. Farnsworth. Yes; I have those right here.
Mr. DiENNER. Mr. Farnsworth, might there not be some inter-
ference with present radio channels in placing television on the air?
Mr. Farnsworth. There is an enormous problem there of putting
out these tremendously wide television bands, working them in an
already overcrowded ether spectrum. The Commission has tenta-
tively planned to give seven channels.
The Chairman. So there are interferences in the ether as well as
in the Patent OfRce.
Mr. Farnsworth. There certainly are. There are problems of
trying to find space for this new service with the short-wave spectrum
expanding so rapidly.
The Chairman. You referred to the Radio Manufacturers Asso-
ciation. How many members are there of that Association?
Mr. Farnsworth. As a matter of fact, our company is not a mem-
ber. I have been invited to serve on that committee. Any time that
activity appears in the television field that technical committee
requests the engineers or the company to participate.
Mr. Patterson. Who constitutes the Radio Manufacturers' com-
mittee on standards?
Mr. Farnsworth. The personnel?
Mr. Patterson. Yes.
CONCENTRATION OF ECONOMIC POWER ^QOS
Mr. Farnsworth. There is Chairman Albert F. Murray, of the
Philco Radio Television; Mr. Engstrom, RCA Victor; Dr. Gold-
mark, Columbia Broadcasting System; a member of General Electric
Co. — I have forgotten just offhand who is the official respresentative
for General Electric; our own company is represented; the National
Broadcasting Co. is represented; the Allen Dumont Laboratories
have recently joined, and in general the attempt is to include repre-
sentatives of all active work in television.
Mr. Patterson. Is their decision on standards the last word?
Mr. Farnsworth. It is not the last word by any means, no, but
it is so far the only committee that has seriously undertaken the
problem of getting the various workers to agree on proper procedural
methods.
The Chairman. These are all independent workers?
Mr. Farnsworth. They are all independent except they are tied
together on the committee.
The Chairman. Could one of these workers undertake to proceed
in marketing the television enterprise without the consent of the
others?
Mr. Farnsworth. It could, it definitely could, but if it did it would
be probably faced with production of four-fifths or nine-tenths
appearing some place else on a different standard, and it couldn't hold
out. It is purely an informal arrangement but nevertheless still
effective.
The Chairman. In other words, the importance of agreeing upon a
standard is so great that these independent enterprises are cooperating
rather than competing.
Mr. Farnsworth. Yes. They recognize the very future of tele-
vision depends upon close cooperation in adopting the standards.
The Chairman. Now, then, am I to understand tha^. there are
television compaines whi,ch control the art, several different companies
which control the art, I mean so far as the use is concerned, for them-
selves?
Mr. Farnsworth. As regards patents, I think you mean now?
The Chairman. First as regards patents and then secondly as
regards any other method of control.
Mr. Farnsworth. I might say there that the principal research in
this country has been done by our laboratories, the RCA laboratories,
and the Philco laboratories, that is as regards the production of board-
casting of television. The Bell Laboratories have been responsible
principally for the coaxial-cable development, and there are other
laboratories that are getting into television now concerned with the
application of it more than they have been in its development prior to
a few years ago.
The Chairman. No patent then excludes them from getting in?
Is that the idea? , i t3/-,a
Mr. Farnsworth. Their licensing policy, as with the RCA com-
pany, is included in the radio license, so that all of the licensees for
receivers, for example, have a license to manufacture RCA television
receivers. Our only licensees for teleyision receivers are the Philco
Co. and the Bell Telephone Laboratories.
The Chairman. How many different types of television receivers
are there?
1004 CONCENTRATION OF ECONOMIC POWER
Mr. Farns WORTH. There are just as many as there are workers,
but essentially they are all the same thing.
The Chairman. These different receivers, however, are all based
upon the same patent, are they?
Mr. Farnsworth. The same system of patents, our own patents,
the RCA patents, the Bell Telephone patents.
The Chairman. And then these different receivers are possible
because of the Ucensing system which enables different companies to
develop their own particular type.
Mr. Farnsworth. Yes ; their own particular application.
The Chairman. These types are not essentially different?
Mr. Farnsworth. In any fundamental way they are not different.
The Chairman. That is, the differences are merely incidental.
Mr. Farnsworth. Engineering preference.
The Chairman. The Philco television receiver would not be any less
effective than your television receiver.
Mr. Farnsworth. It would not be any less effective unless possi-
bly they didn't do a good job designing it. There is no fundamental
reason why it shouldn't be just as good.
The Chairman. In building.
Mr. Farnsworth. Yes.
The Chairman. But is there any patentee which controls the
patent by which these television receivers are constructed?
Mr. Farnsworth. It is not possible to build a television receiver
without working under our patent; it is not pjossible to build a tele-
vision receiver, in my opinion, without working under RCA license.
The Chairman. What is the difference between your license and
the RCA lictense?
Mr. Farnsworth. It covers a different — well, you see this art has
grown up so interwoven that part of the patents belong to RCA, part
belong to us, part belong to Bell Telephone.
The Chairman. But the fundamental patent is yours.
Mr. Farnsworth. Several of the fundamental patents are ours
and I think several of the fundamental patents are RCA's also.
The Chairman. Then to get the perfect result, all of these funda-
mental patents must be worked together.
Mr. Farnsworth. They must; yes; they must be regarded as a
unit.
The Chairman. What are the restrictions that are contained in
these various licenses?
Mr. Farnsworth. As far as we are concerned we are not attempt-
ing to control an industry, we don't think that is our function, but one
limitation is that there are no exclusive licenses, we won't grant any
exclusive license. There is no attempt to fix price. Rates are made
small because we believe in that, and there is no restriction in an
attempt to control the industry.
The Chairman. What restriction on your licensees?
Mr. Farnsworth. They are restricted because they have to pa}^ us
a royalty.
The Chairman. Do we understand, then, that practically the sole
purpose of your hcenses is to secure a royalty for your company?
Mr. Farnsworth. Yes; that is the sole reason.
The Chairman. And you do not use the license in any way to
restrict iLc dc\ul«.)piiient of tlit; industry?
CONCENTRATION OF ECONOMIC POAVER JQQS
Mr. Farnsworth. No.
The Chairman. Does anybody who holds a license in this field in
your opinion use the license for that purpose?
Mr. Farnsworth. In my opinion, no; because if they did they
would be very foolish to constitute themselves a policing agency.
The Chairman. Do you wish the committee to understand that
the development of television is as free as it can be within the limi-
tation of the general purpose not to bring it into public use before
the standard has been sufficiently developed to prevent freezing
the art?
Mr. Farnsworth. Yes. It is my contention that the only thing
holding back television is its own problems of getting it under way.
The Chairman. Do you know of any person in the television field
who might not agree with the conclusions which you have expressed
here in answer to my questions?
Mr. Farnsworth. I don't know of anyone? I should certainly
like to know of anyone and I would attempt to convince them other-
wise.
The Chairman. That is, you haven't heard of any complaint from
any person who knows of any attempt to suppress or restrict the
development of this art?
Mr. Farnsworth. No. At leaet nothing coherent. I have heard
mumblings, perhaps, but no coherent complaint has come from
anyone that I know.
The Chairman. Are there any other questions to be asked?
Mr. Patterson. Mr. Farnsworth, before you leave the stand, you
testified this morning that since 1926 you have put 12 years of labor
into your corporation, and approximately a million dollars has been
spent, and you hope for your profits in the future. Has not your
incentive to go forward been based on your patent protection?
Mr. Farnsworth. Yes. It has been based on the value of the
inventions both as represented in technic and in patents, but obviously
the technic is necessarily more or less a secret part of the asset, whereas
the patent is the only really legal evidence aside from the result that
we have,_and our patents measure^the extent of our success.
The Chairman. It wasn't the desire to get a patent that first
started you out as a boy of 12?
Mr. Farnsworth. No; but I regarded a patent as a necessary
adjunct to it, even at 12.
The Chairman. Don't you think it is likely that you would have
proceeded with this great desire you had regardless of the patent
system as such?
Mr. Farnsworth. I don't doubt it, but even then the patent
situation influenced or colored the type of disclosures I made. I
attempted to keep the whole world from knowing that I was an
inventor just as long as I could, and I would counsel any young
inventor to do the opposite. He had better run a chance of having
his work stolen than not to get more help on it and be more open
on it. I think that the impression in the whole United States of the
necessity of secrecy in inventions in the fact that somebody is likely
to steal this and steal that works backwards.
The Chairman. The patent system which affords protection to
the inventor so far as it does afford that protection is the instru-
] 24491— 39— pt. 3 12
1006 CONCENTRATION OF ECONOMIC POWER
mentality, as it were, or the means by which discoveries may be
broadcast and made eventually useful to the whole public.
Mr. Farnswoeth. Yes, it is; it constitutes the basic guiding
system.
The Chairman, So you think the patent system should be improved
so far as it can be improved to give greater protection to the inventor
for the period in which protection should bo granted.
Mr. Farnsworth. A streamline situation just as much as possible,
improve it as much as you can without changing it basically.
The Chairman. And improve the strength of the patent so that its
validity may be more certain than now.
Mr. Farnsworth. Yes; and then make it easier for independent
inventors of small means to complete with companies who have arrived
because there is where the valuable material originates. It won't arrive
in our laboratory from now on; it will be a perfexjtion of art, which is
very important, but fimdamental ideas which require the patent situ-
ation most basicalljr and niost urgently are those which originate in
the small laboratories.
The Chairman. Out of your experience have you any suggestions
to make to this committee as to the manner in which the individual
inventor can be protected as you have just described against the large
corporation?
Mr. Farnsworth. Well, only in such small particulars as could at
least be better handled by the patent attorneys, such as printing of
certain documents and simplification of interference procedure, and
so forth.
The Chairman. Are there any other questions?
Representative Reece. If you know, I think it would be interesting,
not that it has anj^ particular bearing on the question, for you to state
how you became interested in this question. We hear a great deal
said about the inventor being born, not made. I think it would
be interesting to know how you happened to get started to think-
ing along this line, since this is a more or less new field.
Mr. Farnsworth. Why, it is difficult for me now to make an accu-
rate guess as to what originally got me started. I invented perpetual
motion at the age of 6 — I don't know whether that means anything.
I studied everything I could get hold of in the way of aviation maga-
zines, and I was reading relativity at the age of 13, and while I learned
the words I believe at that time I knew just as much about the sub-
ject as the author who wrote the book because he only knew the words.
[Laughter.] It is an intriguing art. I believe I had decided before I
was 12 that I could be an inventor. It was my grand secret and
therefore I just worked on it, night work, pleasure, which probably
led to certainly the invention of the dissector tube, which came right
out of the air in a second as soon as I knew enough to understand that
an electron was an entity; in other words, with the actual discovery
in my life of an electron, perhaps more accurately the photoelectric
effect, I had the basis on which to go ahead.
The Chairman. If there are no other questions the committee will
stand in recess until 2 o'clock.
(Whereupon, at 12:10 p. m., a recess was taken until 2 p. m. of the
same day.)
CONCENTRATION OF ECONOMIC POWER IQO?
AFTERNOON SESSION
(The committee reconvened at 2:25 p. m. at the expiration of the
recess.)
The Chairman. Mr. Dienner.
Mr. Dienner. Senator, the witness we now produce is a man of
wide and expert knowledge of the laws relating to patents on inven-
tions in the various countries of the world. His testimony will give
us a new and I believe very helpful light upon questions raised before
this committee as to the operation of certain provisions of the laws in
the chief industrial countries in Europe.
Mr. Langner, will you please be sworn?
The Chairman. Do you solemnly swear the testimony you are
about to give in this proceeding will be the truth, the whole truth
and nothing but the truth, so help you God?
Mr. Langner. I do.
TESTIMONY OF LAWRENCE LANGNER, MEMBER OF LANGNER,
PARRY, CARD & LANGNER, PATENT ATTORNEYS, NEW YORK
CITY
Mr. Dienner. Will you please state your full name and your pro-
fessional connections?
Mr. Langner. My name is Lawrence Langner. I am the senior
partner of Langner, Parry, Card & Langner, of New York City, and
I practice as an international patent solicitor.
I passed the qualifying examination of the British Chartered In-
stitute of Patent Agents in 1910. That is the body which deals with
practitioners \>eioTe the British Patent Office, and I came to this
country in 1911, and T have practiced since that time in the taking
out of foreign patents for American companies. I also have an office
in London, in partnership with English partners who represent our
firm in that country.
The Chairman. Of what country are you a native?
Mr. Langner. I am a native Britisher, naturalized United States
citizen. I was adviser to the committee appointed by Mr. Woodrow
Wilson to prepare the patent section of the Treaty of Versailles.
comparison of provisions of foreign and u. s. patent systems
Mr. Dienner. Mr. Langner, will you please discuss the chief pro-
visions of the patent systems of the most important industrial coun-
tries of Europe and compare the same with the provisions of the
United States patent laws?
Mr. Langner. I will be glad to do that, but I would like to begin
by explaining the provisions of the international convention which
connects all these systems together. We have coming from the
different countries an exchange of inventions, you might call them
a two-directional stream, that is a streani of inventions coming from
Europe, coming from the different countries of Europe, and then our
inventions going over to those countries. That stream of inventions
is regulated by what is known as the international convention. Forty-
five countries of the world, including all of the leading industrial
countries, are parties to that convention, and the theory behind that
1008 CONCENTRATION OF ECONOMIC POWER
convention is this: That no country shall give to its own nationals
benefits which it does not give to the nationals of other countries.
In other words, an American is treated in England the same way an
Englishman is treated in England, and over here, we being parties to
it, the nationals of other countries are treated under our patent laws
the same way the United States nationals are.
When you get to these different countries, we have three types of
patent systems.
The Chairman. Is the convention any broader than that?
Mr. Langner. There are certain specific provisions under this
convention which, for example, allow a man who has filed an applica-
tion in this country, 12 months priority to file in the other country,
and he is protected during that 12 months' period from the consequence
of publication which otherwise would invalidate his patent.
In other words the other features are matters of detail and of pro-
cedure ; and every now and again they will agree on some new provision
because this convention has been going on since 1883. They meet
about every 6 years, I believe it is, and make changes in it. But the
thing is a continuous conventional treaty.
The Chairman. How is the convention constituted?
Mr. Langner. It is constituted by — it is a treaty document that
has to be ratified by the Senate, and at these meetings of the inter-
national convention we send over delegates. The last one was in
London in 1934 and they formulate new suggestions and proposals.
It covers not only patents but also trade-marks, designs, petty patents,
and trade names.
The Chairman. What sanction is there for the suggestions or regu-
lations that may be adopted by the convention?
Mr. Langner. They bring them back, each set of delegates brings
them back to their own country and they must be ratified by the
governments of the respective countries before the changes go into
effect. We have three types of patent systems. I divide them in
that way, based on the thing that most fundamentally distinguishes
them, the fact as to whether they are examination patent systems, or
registration patent systems. The leading industrial countries of the
world, except France, have what they call an examination system
that originated in the U. S. Patent OflSce and was copied by other
countries rather slowly; and in fact it was only in 1904 that it
was copied in England. It does not exist in France even at this date,
although a project is before the French Parliament to introduce the
examination system.
The second type of system is the registration system where you
merely file a specification in the Patent Office, no examination is made,
and the patent is granted without any examination at all.
The third type of patent system is the Russian patent system.
That is the only system of its Idnd in which rewards are given to
inventors. I think in view of some of the remarks made this morning
about patent attorneys, you may be interested to know that prac-
tically all the patent attorneys in Russia were shot after this new law
came into existence, and that is not a joke; that is absolutely true.
The Chairman. That was an effective way of dealing with that
problem.
CONCENTRATION OF ECONOMIC POWER IQOO
Mr. Langner. Yes, sir. Then we understand there is a system
of rewards for inventors and I have been told, although I have never
been able
The Chairman. Diptinguish that from the system that you have
just described. It is not a reward?
Mr. Langner. I do not knov/ how I could distinguish it except to
say this, that we know in one case that has been reported to us where
the inventor of certain inventions that were adopted in a factory
was given an automobile and one of the most expensive apartments
in the town, and the system of reward is that type of economic reward,
as far as we are able to understand it. I have not found any case
where a foreign corporation ever got a reward in that sense of the word.
Now, we have those three kinds of systems, and I would like to
make this general remark, that I have noticed that the simpler the
type of industrial civilization and the simpler the country, the simpler
the patent system. The patent systems of these countries that foUow
what I call the registration type are extremely simple and they fit a
more or less backward type of industrial civihzation. The more com-
plex the industry the more complex the patent system., and it is my
opinion that as industry grows more complex the patent system must,
if it is to serve that system, necessarily grow more complex. So for
instance, we find that the English, German, and American patent "sys-
tems are the most complex systems, perhaps the American the most
complex o^ all, in its ramifications; and for instance, 3^ou can go to the
other extreme and the Chinese patent system is about as simple as
you can possibly have. That is, the need or necessity for a patent
system in a country where the standards of living are ver}' low, where
wage scales are very low, the necessity for labor-saving machinery, for
that kind of invention, is very sniall. Just about 5 years ago they
adopted a patent law which only Chinese citizens could get patents
under, and as far as we know very few patents have been issued.
The United States patent system differs from practically all the
other patent systems of the world in two essential particulars. The
right to obtain a patent is an absolute right for the inventor. That
does not obtain in any other country. It is always surrounded by
modifications which I will explain to you in a moment. The patent
monopoly in the United States is an unconditional monopoly. In
practically every other country in the world, in fact in every other
country, it is a conditional monopoly, you are only granted the
monopoly provided you do certain things, many of which are objection-
able from the standpoint of the patentee and reduce the extent of his
monopoly. Because of this, it is my opinion that we provide by this
imconditional monopoly the greatest stimulus to invention that exists
in any patent sj^stem. Indeed, I am constantly hearing from Euro-
peans who come over here or people thnt I meet in Europe that that
part of our patent system (they have criticisms for other parts of it)
that grants this unconditional monopoly, in their opinion gives us the
greatest stimulation to invention as compared with any other country.
Now, there are a number of provisions which we have in our laws
as compared with foreign laws or provisions which they have which
are objectionable which I would like to paint a picture of for you so
that you can see how we differ.
1010 CONCENTRATION OF ECONOMIC POWER
In this country, as I have said before, the first inventor, under the
Constitution, has the absolute right to the invention, Under the laws
of most of the foreign countries it is the man who first either originates
it and rushes to the Patent Office or even in Great Britain the first man
who has found it in a foreign country and brings it into England that
gets the patent. In other words, it is not the act of inventorship that
is the condition for the grant of a patent, but the act of inventorship
and being the first to bring'it into the Patent Office. The result is
that under the European system, when a man has invented something
he is under a tremendous necessity to keep that thing secret until he
files his patent application, because if it leaks out in any way^ if it is
published first, even if it comes from his own publication, even if it
leaks into a newspaper, that publication prevents him from getting
his patent.
The Chairman. Do I understand that in England inventorship
really is not an essential qualification so far as the foreign patent is
concerned?
Mr. Langner. For example, let me explain it this way. If I see
an invention over here and I go over to England with it and file a
patent application before the American does, or before the American
applies under the international convention which gives us 12 months'
priority, that is mine even though I -didn't actually invent it; that is
the idea. I will explain why that is later. It sounds like a very
bad thing, but as a matter of fact it came from a very old provision in
the law which I will explain as we go along.
But the fact is that instead of having the ample opportunity to work
out an invention to develop it, to get together with other experts in
order to see how the thing should be developed, you have to rush to
the Patent Office. In fact, my early training in this idea of secrecy
was so great that it took me many years to get over that idea that
we must keep the thing absolutely secret before the patent application
is filed.
In this country, as you know, we grant a period that isn't limited.
We give a man the opportunity to work out his invention before he
files the patent application. He can get the cooperation and-eellab-
oration of others, and his patent isn't invalidated if something is
published or leaks out. He can even test it out by having samples
on sale before he need go to the expense of filing his patent application.
That doesn't exist at all abroad.
Another evil goes along with that, and that is that they file, very
often, what I call half-baked patent applications; that is, applications
that just are sketches, hardly enough to really be working exemplifica-
tions, and the result is that the patents that come out are often very
Ambiguous because they are mere sketches, and as compared with the
thoroughly well woi'ked-out patents applications that we file in this
country they constitute a rather ambiguous document.
They have tried to overcome that defect in England by the practice
of what they call filing a provisional application. That is to say when
a man makes an invention he may just put in a brief description of the
application. He is given 9 months to file the completed documents.
That, however, leads to other troubles; disconformity between the
provisional and the complete results in the patent being invalid, iSO
you see it carries along with it these other disadvantages.
CONCENTRATION OF ECONOMIC POWER IQll
Now, you will realize one thing about this European system— that
it doesn't involve interferences. There is no interference practice
abroad because it is the man who first rushes to the patent office that
gets the patent, and it practically never happens that both go in on
the same day. If you had the invention second and j^ou filed it on
Ivlonday and somebody else had it first and he filed on Tuesday, the
man who filed on Monday is the one who gets the patent, so you have
practically no interfering practice like we have in this country.
The Chairman. Suppose it were demonstrated the man who filed
it on Monday really derived his knowledge from the man who filed on
Tuesday?
Mr. Langner. In that case, if it were in fraud of the other man's
rights he would have a remedy, but not otherwise. You would have
to prove that fraud.
The Chairman. Then the purpose of the system is to grant the
patent to the man who first makes application, provided he is not
operating in fraud of another person.
Mr. Langner. Yes; the theory being that merely making the in-
vention does not entitle you to a patent. It is making the invention
and then disclosing it to the Government which entitles you to a
patent, that makes you the first inventor. That theory in my opinion,
while it eliminates the interference practice, has so many other dis-
advantages that I would much prefer the complexities of interference
practice with such simplifications as you can bring into that practice
than to go what I would call a step backward to this other theory.
The next place where your patent system is more liberal is in respect
to the fact that the patent dates from the date of grant. In niost
other countries of the world the patent dates from the time of filing,
and however long it may take you to prosecute the patent application
is counted out of the term of the patent, so if for no fault of your
own, as I have seen happen in Germany through people filing opposi-
tions and obstructing the grant of your patent, you are kept in the
Patent Office, as might happen there, 6 or 7 or 8 years; instead of
your getting an 18-year patent all you get is the difference between
the time that it was in the Patent Office and the unexpired term of the
patent.
The Patent Office in the United States is considerably more liberal
in the amount of time it allows a man to prosecute his patent applica-
tion. In foreign countries we are very greatly rushed in getting a
patent application throu^^h. In England we are allowed only 18
months, and if we don* . get it through in 18 months the patent is
abandoned. They give us 3 months' grace on top of that by paying a
fine for each month's extension, but it results in very hurried last-
minute rush work, and I have known cases where we have lost valuable
claims owing to the fact that we didn't have enough time to get the
application through.
Now, the Patent Office practice in this country is criticized for
allowing an application to stay too long, but we have the criticism in
the other direction in some of the foreign countries.
The practice in this country on reissue is very much more liberal.
There is no such thing as a reissue practice in foreign countries.
We do allow corrections of the patent after the patent has come out,
but we don't allow the generous type of reissue that is allowed in this
country.
1012 CONCENTRATION OF ECONOMIC POWER
In this country we have no annual taxes. In foreign countries the
patent system is based on the idea that the Patent Office should be a
revenue-producing office, and every patent has to pay an annual tax.
This tax grows progressively higher as the patent grows older. For
example, in Great Britain the cost of the British patent in Government
fees is over $600; that is, the man has to pay to the Government for a
16-year patent over $600. In Germany he has to pay over $2,000.
That is, I am now talking about the man over here; that is the rate
of exchange; I wouldn't want to say what a German mark was in
Germany, but at anv rate in the international market it is costing
him $2,000.
This tax system often results in a poor inventor who hasn't very
much money to pay for these taxes dropping his patent, when if he
had been able to wait 2 or 3 years he might have had the opportunity
of exploiting it.
It is said by people who are in favor of this tax idea that it has the
result of causing the obsolete or paper patents to drop out as people
do not bother to pay the taxes on them. On the other hand, it also
causes a certain number of good and valuable patents to drop out.
The Chairman. But when the patent drops out, is it thereby
dedicated to the public?
Mr. Langner. It then becomes dedicated and it is not possible to
revive it unless the failure to pay the fee was due to accident or inad-
vertence. As a general rule they do not regard poverty as a good
reason for reviving the patent.
Mr. DiENNER. It is no accident.
Mr. Langner. No.
The Chairman. In other words, it means the foreign system re-
quires the inventor as a consideration for keeping his patent alive,
to make a certain payment annually to the State.
Mr. Langner. Yes; in addition to the other taxes that he has to
pay if he is earning an income. That is the reason that I said just
now that it is a conditional monopoly, that is conditional on your
paying that annual tax.
Representative Sumners. May I ask a question? You speak of the
difference ui the length of time permitted in England and the time
permitted here in which to prosecute the conclusion of your applica-
tion for patent. Is the Patent Office in England, or whatever country
you may have had in' mind, so organized that they are always pre-
pared to proceed when the applicant is ready to present his applica-
tion?
Mr. Langner. In replying to that I would say that they are not
always. It depends on the state of the work in the particular division
of the Patent Office. Some are more behind than others and I think
that it has to do with the fact that shorter terms are allowed; that is,
when the examiner issues an objection he gives an Englishman only
2 months in which to reply and a foreigner gets 3 months. So if you
don't reply in the 2 months or the 3 months, you have to pay a fine' for
a month's extension, and then if you don't reply then, you pay another
fine, and after a while, after that has happened once or twice, they
give a final term and then if you don't reply you are rejected.
Representative Sumners. What I am trying to get at for the
specific value of the thing is whether or not any delays which may occur
in our procedure beyond those which you observe in the foreign
CONCENTRATION OF ECONOMIC POWER JQIS
countries are due to the lack of proper equipment governmentally,
in order to expedite the determination, or is it due to, perhaps, too
much leeway which is given by us to the applicant?
Mr. Langner. Well, I think it is largely due to the leewav of 6
months which is given in this country, and I don't think that itls due
to comparatively any worse workings on the part of the United States
Patent Office as compared with the foreign patent offices.
Representative Sumners. This period of 6 months which we give,
which results in a longer time between the application and the con-
clusion of the effort to get the patent: Could that in safety, or rather
in justice to the applicant, be reduced, in your judgment, or would you
like to express a judgment about it?
Mr. Langner Well, I feel that the system that exists abroad is a
better system. You start off with a shorter period and you give the
Commissioner the right to prolong it if there is a good reason for it.
In other words, you don't simply say to him, "It is 6 months." You
say 2 months or 3 months, as the case may be, with the right to
extensions if you can show good reason for the extensions.
Representative Sumners. One other question while you are inter-
rupted, if I may ask it. You say that there is a tax levied against the
patent, that that tax is progressive as the age of the patent extends.
Can the patentee escape the tax by abandoning the patent? Is there
any arrangement under which he can declare an abandonment and
escape the tax?
Kir. Langner. He has a perfect escape, wliich consists in not pay-
ing the tax, and then the patent is dropped.
Representative Sumners. Is the tax levied against the patent or
against the person? We in tliis country do not have the possibility
of escaping taxes so easily. We could not in this country just not pay
the tax. What I am trj'ing to get at is, is the tax levied against the
patent?
Mr. Langner. I would say it was levied against the patent, because
the patent expires automatically if you don't pay the tax.
Representative Sumners. That is the question I asked you.
Thank you, sir.
The Chairman. May I ask whether the patent appUcant abroad
must bear the burden of delays in the Patent Office?
Mr. Langner. No.
The Chairman. So the term doesn't begin to run against the
appUcant until he receives notice of action by the Patent Office.
Mr. Langner. I think I have misunderstood your question. Of
course if the Patent Office waited for 6 months, or 10 months, before
it started action, that is counted off the term of the patent.
The Chairman. So the burden is on the patent applicant for any
delay that may be
Mr. Langner (interposing). Made by the Patent Office.
The Chairman. Made by the Patent Office.
Mr. Langner. And it is subtracted from the term of the patent
all the time, wliich is a bad feature compared with the practice in this
country.
Representative Sumners. May I ask one question. Does the fact
that delay operates against the time of the appHcant tend materially
to stimulate the applicant in speeding up the conclusion of his appU-
cation?
1014 CONCENTRATION OF ECONOMIC POWER
Mr. Langner. I don't think that that contributes nearly as much
as the shorter terms that the patent office provides and the fact that
you are apt to pay a fine if you don't file within the period of the term.
I tliink that that has more to do with it. You will reahze that under
our opposition practice we have a practice that also delays applica-
tions going out of the patent office, just as you have with your inter-
ference practice.
't Mr. DiENNER. You are on the wrong side of the fence — you mean
in Europe.
Mr. Langner. I beg your pardon, I meant in the European practice,
which is the practice that I practice and so I call it "our." The
opposition proceedings are proceedings which exist in practically all
of the countries which follow the first type, that is the examination
system. They exist in Great Britain, Germany, Holland, Denmark,
Czechoslovakia, practically all the industrial countries. When the
patent application has been allowed it is laid open for public inspec-
tion, that is to say the documents are either printed or available in
the Patent Office, and a period of 3 months is allowed during which
anyone who wants to make an objection against the grant of that
patent may do so, and that results in practically giving everyone in
the country who has an interest to do so, an opportunity to attack
that patent before it ever comes out; that is, they can come in there
and show prior patents, they can attack its validity, they can bring
in, as they very often do, alleged prior uses, and they can subject
the patentee to practically what amounts to a litigation proceeding.
The Chairman. Isn't that interference practice?
Mr. Langner. No, sir; for tliis reason. It differs from interference
practice in this way. The interference practice here is a contest
between two parties ab to who really owns the invention. That is
what an interference practice is.
This practice, this opposition practice, has nothing to do, generally
has nothing to do — there might be a case which I will explain in a
minute — but generally speaking has notliing to do with the question
of ownership of the invention. It simply has to do with the fact that
A has filed a patent application; it is laid open for public inspection,
and B thinks he ought not to have it, and so B comes along and says
he ought not to have that because it is old; I can show you some pat-
ents that are like it. In other words, it gives them an opportunity
to attack the decision of the Patent Office in granting the patent,
and that
The Chairman. Now, A. is about to get his patent. B undertakes
opposition proceedings on the ground that he, B, has a prior patent
which covers the same art?
Mr. Langner. Not necessarily; it could be that, or it could be
that the thing was in some workshop or that it was being used some-
where, or that it was illustrated in a magazine. It does not have to
be necessarily his, or, as I should say, in 9 cases out of 10
The Chairman. The distinction that you make is — I am stating
this intending it as a question, though it is not in that form— is that
the opposition practice appears rather on behalf of the pubhc than
upon behalf of another inventor. Is that right?
Mr. Langner. No, sir; I do not think that is correct, either. It
is practicallv the attack is made in the same way that an attack is
made in an infringement suit. You attack the patent in every way
CONCENTRATION OF ECONOMIC POWER IQIS
that you can possibly knock it out before it ever comes out of the
Patent Office.
The Chairman. Then in other words this opposition practice
probably arises when a person wants to use the device without recog-
nizing the obligations which come from that?
Mr. Langner. Yes ; and in 9 cases put of 10 they will take, in certain
countries, 3 or 4 devices, none of which are really the same thing, and
say that there is no invention in combining those 3 or 4 things together
and getting this device.
Representative Sumners. Now when you have a practice of that
sort where any person, where all persons are given at least constructive
notice, and ftny person may appear in opposition, alleging, setting
up any ground, any recognized ground for an issue to the patent,
does that at all affect the right to ui^e those same objections in any
suit in a court after the patent has been issued, or may there be suits
in courts where that procedure obtains after the patent has been
issued?
Mr. Langner. Yes, sir; the mere fact that the patent is granted
does not estop the opponent from later on urging those same patents
before the courts.
Representative Sumners. Well, is there resort to that tribune — if
we may so designate it, and I believe we may, from your description —
because of the fact that it is less formal and more economical and more
easy to get at than to wait and go into ordinary court?
Mr. Langner. Yes; it results in certain abuses in this sense; it is
an inexpensive way of attacking a man's patent before he actually
has it, and it results, for instance, in some instances where a very
large industry which makes a practice of opposing every patent that
comes into that industry, and putting onto the applicant for the
patent at a time when he is still in a state of financial difficulties that
go with promoting ah invention, the burden of fighting against them
for this patent, at a time when he is really not ready to do so.
Representative Sumners. Now suppose there is an adverse decision
to the applicant. Would his remedy be to go into court and do what
we would call in this country attempt to mandamus the agency of the
Patent Office and compel the issuance of a patent?
Mr. Langner. No, sir; there is not that right in these foreign coun-
tries. I would like to explain that part of the system to you. •■
. Representative Sumners. Am I interrupting your order of pro-
cedure? . .
Mr. Langner. If I could have just a Uttle time to explam it to you
I think I could give you the picture. Take for instance the German
patent system, from the decision of the opposition department the
appeal is taken to what they call the "Senate" of the Patentr Office, so
that both the opposition itself and the appeal is heard right inside
the Patent Office. There is no opportunity of going out to the court.
In England — —
Representative Sumners. Would you mdicate before you go
further the constituent elements of the senate so we can have the-
picture? ^^ o •
Mr. Langner. It is made up of three— the patent office Senate is
made up of three men who are the examiners of that particular di\dsion
of tlio Patent Office.
■^QIQ CONCENTRATION OF ECONOMIC POWER
The Chairman. Offhand, I should say that was probably a very
good system, Judge.
Reprtsentative Sumners. I don't like th:; name, but it is all right.
Mr. Langner. In England there is aii appeal from the patent
office to a court. Now, the opposition system, however, is not as
simple as it sounds. One of the practices that happens, and that I
have run across several times in my experience, is this. You will
get a letter from a competitor saying that they are going to file an
"oppo-sition unless you will give them a license on practically a nominal
amount; or I have known at least 12 cases in my practice where they
say a free license. In other words, "unless you give us a free license
under this patent we are going to oppose."
They will come and show you what they are going to use. They
say, "We are going to put in this patent and that patent and the
other patent, so you better give us a free license or else we will make
trouble for you."
Representative Sumners. Is that penalized in any sort of way in
the countries where that practice obtains?
Mr. Langner. No; it is not.
Representative Sumners. It is legitimate if you can make him do it?-
Mr. Langner. Yes; it is done as a common practice in some of
these countries.
Representative Sumners. That is very interesting.
Mr. Langner. To my way of thinking, I regard the opposition
practice as one of those things that superficially seems like a good
thing, but actually when j^ou go into it it is not a good thing at all.
It puts the man without resources in a position where he can ])e at-
tacked by the man who has t.he resources to do it.
The Chairman. The interference process, in other words, is infi-
nitely superior to it from the point of view of the inventor, even with
all its defects.
Mr. Langner. Yes; on account of the thing I told. 3h:»u about
earlier; that is, the fact that he has this time to go ahead.
The Chairman. Because if the inventor, under the interference
process, eventually gets his patent, he has protection.
IVIr. Langner. He has that protection; he doesn't have to defend
his patent at a time when he is not really ready to do so.
Representative Sumners. Is this proceeding before the Senate a
public proceeding, a proceeding of record?
The Chairman. If you don't like that word, don't use it.
Mr. Langner. Call it the appeal department.
Rei)rcsentative Sumners. I don't mean to be facetious. Tliat is
better. What I am trying to find out, is that proceeding a proceeding
of record? Is there a record made of the proceeding before the
Senate, and is there any appeal from that record to any other agency
of the Goyernnient, or do you have to start de novo if anything else
is (lone witli reference to a' question of the patent?
Mr. Langnkh, The files of the Patent Office in every country of
the world outside of the United States are not open to the public'and
under the German practice 3'ou are only allowed to se« those files if
you are involved in litigation under the patent, and therefore those
are not open to the general public.
After we get through the opposition period, a patent is granted.
Now, under the European system, and in some countries for limited
CONCENTRATION OF ECONOMIC POWER JQ^y
periods but in other countries throughout the entire life of the patent,
anyone can bring what they call a nulHty suit, or a revocation suit.
In Germany that is limited to 5 years after the grant of the patent.
In England there is no limitation. You can at any time bring an
action to revoke that patent, which again means that the patentee
may be put to the expense of defending his patent without there
being, perhaps, any real reason for it, and again perhaps under
threat.
The Chairman. If a patent should be revoked, is there any retro-
active effect upon the patentee?
Mr. Langner. In what sense?
The Chairman. Well, as for royalties that he may liave received
from some licensee.
Mr. Langner. No, not if the patent was in force at that time.
In addition to that, patents in most of these countries are subject
to what they call the compulsory license provisions. Those com-
pulsory license provisions have to do largely with questions relating —
that is, they arose in our jurisprudence owing to the fact that paients
were used in many of these countries to prevent the development of
an industry by importing the goods from abroad.
I would like to explain that to you in further detail, but I have
prepared myself to go into that quite fully with you, to explain those
compulsory license provisions, but before I do that I would Uke to
run through the general explanation of the foreign systems, and then
come back to this compulsory license.
The Chairman. That will be quite satisfactory.
Mr. Langner. So that you can go into it in further detail.
Now, when you add up these different things which exist and which
harass an inventor in the foreign countries, you will see what I mean
when I say that we give the finest patent, that is we give.an uncondi-
tional monopoly as compared with their conditional monopoly, and
I feel that the result of that is reflected in the tremendous interest
that exists in the United States as regards invention as compared with
the interest that exists in other countries. I have made a note here —
I mean I can speak from my own experience, coming from the other
side with a certain amount of knowledge of inventions— that I found
the entire attitude over here a great deal more stimulating, there was
a great deal more interest, more excitement about new inventions,
and it is intersting as a matter of historical fact that many other
foreigners have come over to this country and under the stimulus
of the patent system have become some of our leading inventors.
I have made a note of some of those men. One of them was Pupin,
whose name has been mentioned here, who came over here from
Serbia. Another man was Alexander Graham Bell, who came from
Canada, I believe. Another man was Steinmetz, who as you know
was one of the great inventors— they called him the wizard of Sche-
nectady, the man who built up through his inventions the great
General Electric Co. In my own experience I have run across a
number of European inventors who have come over here, and I be-
lieve under the opportunities and stimulations in our law have made
extraordinarily interesting inventions. You have all noticed this
great improvement m refrigeration in trains, that is the air condi-
tioning systems. There was a Belgian who came over here, Dr.
Henney, a number of years ago, who invented the nonpoisonous
1018 CONCENTRATION OF ECONOMIC POWER
refrigerant — he did that in Columbus, Ohio — which is used in all these
trains now. Before his invention, practically any refrigerant was
poisonous, so that if there were a leakage in the carriage with the
\vindows all closed, I was going ^o say you would wake up in the
morning dead. But under the development of that nonpoisonous
refrigerant, which is called Freon, you have the possibihty of bringing
air conditioning into the home, into the theaters, into closed places
where it was never possible before. That was the invention of a
Belgian.
The Chairman. In other words, you are saying that our system
has attracted to this country foreign mventors and we thereby get
the benefit of their brains because of our system.
Mr. Langner. Yes, sir. I think that throughout the world the
word "American" is almost associated with the word "inventioti."
Representative Sumners. Somewhere are you going to discuss the
ease or practical ease with which foreigners have access to results of
the inventive genius that have assembled themselves in America?
Mr. Langner. I will talk about that in a minute when I get to
this particular part about the use of our patents in export trade.
I am going to cover that in a moment.
We have liere, as I say, an unconditional monopoly; we have
the differentiation between our system and all others. There are,
on the other hand, certain features in the foreign practice for
which I would Uke to say a good word, as you are considering the
whole of the patent system. First of all, among the good features of
our foreign patent practice I would Uke to refer to the claims that
we use. I think a great deal of improvement could be made in the
American* form of claim. The European form of claim which we use
in our European specifications is much simpler, it is much easier to
Understand, and I beheve that a great deal of litigation which goes
on in this country today is due to a rather complicated method of
drafting claims which could be improved by using the very simple
method that we draft claims in England, especially in England. We
very often have turned over to us something Uke 30 or 40 American
claims, perhaps, and when we get through drafting the foreign claims,
there wUl be only 5 to 10, and they \vill cover in considerably simpler
language the same invention that is covered by this large number
of American claims.
I must explain to you that the reason why claims are drafted in
that way in this country is due to literally thousands of decisions of
the courts on claims, and therefore, when I say that it would be better
to have our iorm of claim, I don't know how you are ever going to
get it
The Chairman (interposing). When you use the word "our"
Mr. Langner (interposing). I mean the British form, remembering
that I am always practicing before those patent offices and not before
the American.
The Chairman. I wanted to have it in the record.
Mr. Langner. Yes. The British form of claim differentiates from
the American claim in that a man is allowed to use entirely his own
language in drafting the claim; he is not called upon to claim a com-
bination of elements, and this simplification makes it much easier for
the patent office to examine the patent application, it saves time in
the prosecution of the patent application, and it also reduces the
CONCENTRATION OF ECONOMIC POWER ^Qjg
amount of litigation because the claims are not nearly so ambiguous.
The next point where I think the foreign practice is better than the
United States practice is in respect of the fact that we have two dif-
ferent classifications of inventions. We have the patent and petty
patent, or, as it is called in England, that is the corresponding method
of protection in England is called the design; it isn't called the design
patent, it is called the registered design. In this country you haVe
the patent and the design patent, but the design patent in this coun-
try covers an ornamental design, whereas the design registration in
England can cover a function such as the shape of a tool, something
that isn't ornamental at all, and in Germany the petty patent and in
many other countries where they have petty patents, any little device
which isn't important enough to warrant the granting^ of a regular
patent can be protected under the petty patent.
The Chairman. \Miat is the difference in the term?
Mr. Langner. The term is usually much less and the scope or the
interpretation placed by the courts on these patents is very much
more limited. Actually in the British registered design you have to
put the two side by side and come to a conclusion as to whether one
has been copied from the other. I believe the fact that we have no
special provisions for such protection in this country throws a load on
the patent office to have to take care of inventions of a minor charac-
ter as well as of a major character; the same system has to take care
of minor inventions as well as major inventions. That load might be
reduced by introducing something in the nature of a registered design
system. In fact, many attempts have been made, I myself have as-
sisted in many attempts that have been made to provide a better
design system in this country, and those attempts have always failed.
We have never been able to succeed in getting them through Congress,
largely due to the opposition of the drygoods stores w^o complain
that they never would know whether they were infringing one of these
petty patents or not, and they were always very convincing in their
argument. But the fact remains that I believe the patent system
suffers from that.
The last part of what I had to say, before I came to compulsory
licenses, was the question of what our inventions accompHsh for us
in the export trade. Naturally as I take out these patents in these
foreign countries I inquire into the reasons for the protection they
afford. They are taken out in these foreign countries for perhaps
two main reasons. ^ One is that where we are doing business abroad,
we are sending out business machines, typewriters, calculating ma-
chines, cash registers, and so forth, automobiles, and we want to pro-
tect our article so that the German manufacturer or the EngUsh
manufacturer isn't able to cop^ it immediatiely and go into competition
with us. In other words, it is a great selling point for our goods to
have a protected inventive feature, and I think we have kept ahead
of the whole world in the export markets through our patent system
and through the fact that our American machinery is the best of its
kind, and the most ingenious and up-to-date.
Now yoa have to remember that we are competing against much
lower standards, that is goods made under conditions of much lower
standards of living, and very often lower-priced goods. Nevertheless,
our goods sell in those markets and I think sell very largely, our spe-
1020 CONCENTRATION OF ECONOMIC POWER
cialty goods, on the basis of the inventive features which they carry
with them.
Another interesting aspect of our inventions abroad which I have
noticed is that one reason why our inventions have helped our export
markets is because they embody with them what I call democratic
ideas. When I first came over to this country I met Mr. Kettering
who has been before you, and I took out the patent in foreign countries
on the Delco self-starter. This will illustrate what I mean about
democratic ideas in invention. Mr. Hunt, one of the engineers, and
myself went over to England and we tried to introduce the Delco
starter among British and other companies. Mr. Hunt went to one
of the big Enghsh companies and said, "We have this electric starter
for automobiles and we would like to have you put it on your car."
So the man said, "You know, it will cost 20 or 30 pounds more.
Why should we put it on the car?"
Mr. Hmit said, "Well, if you have this starter on the car, when the
car stops the owner won't have to get out and crank the engine, he
can put his foot on the pedal and start it."
The man said, "You know, the people who use our cars have their
own chauffeurs, they wouldn't dream of driving a car themselves,
you see."
"Well," Hunt said, "if the chauffeur gets out and cranks the car
it might backfire and break his arm."
So this man said, "I don't know that that would be very much of
an argument. You know our chauffeurs are all insured."
Hunt was baffled but not beaten, and so he said, "I'll tell you, you
will sell a lot more cars if they have this starter on, because with this
starter on the car women can drive."
The man said, "Women drive? God forbid."
The idea didn't exist at that time that an automobile might be
something that was owned by a farmer or a workingman or used
by a woman, and it wasn't until our cheap American cars got onto
these foreign markets that they began to competitively put electric
starters on automobiles.
What I have said in regard to that exists in a way that very few
people have realized. Here we have a country where we have raised
the standard of living of the masses of the people. A farmer can
afford to help his wife out by giving her a little washing machine or a
vacuum cleaner, or some little electrical household device or some
mechanism to make her work easier. Mr. Kettering invented the
Delco light system, a little farm lighting plant. Now, when we took
out the patents on that device, that little lighting plant, and when
we came to take out the English patents, we had cited against us the
only art that the British industry knew about, and that was lighting
plants for lighting country houses, big country estates, where they
had to generate electricity in order to take care of some duke's estate
up in the highlands, his hunting lodge or something of that kind.
Now, those inventions of ours brought our goods into markets
like Australia and South Africa where there were farmers, like our
farmers, who had the condition of long distances; and the English
cars and the English goods which were made for the gentlemen of
England, so to speak, couldn't compete with us in those countries
and we were years ahead of them.
CONCENTRATION OF ECONOMIC POWER IQ21
So I feel that it is extremely important for our export trade that we
keep up our patent system in the way we h^ve; as much as we possibly
can, keep this stimulus.
Now, we are coming into a new era of competition in foreign coun-
tries. We are going to have to compete, and are competing now,
against the barter system. We are also going to have to compete
against what I call the government-subsidized, totaUtarian manu-
facturer. We are already reading in the papers about a Volkswagen
which is going to be sold for 900 marks. We are hearing about a
Volksradio which is being sold for 14 marks. The governments of
those countries that feel that they should subsidize artificial rubber
substitutes, and so forth — we are going sooner or later to meet that
competition in foreign trade.
I feel very strongly that the one thing that we have always had and
that we have always beaten the Europeans at is invention. We have
always been able to put out somethmg that is 3 or 4 or 5 years ahead
of what they get, and when they come along they come along that
much later.
The Chairman. What is the effect upon the International Conven-
tion of the totalitarian plan of subsidization? Or to simplify the
question, have you anything to say about whether or not in Germany,
Italy, or Russia any effort has been made by the government to com-
mandeer American patents within the boundaries of any one of these
countries?
Mr. Langner. No, sir; there has been no effort made, and in fact
we have in a number of instances witliin the last 2 or 3 years, Ameri-
cans have obtained patents against the opposition of large German
industrial companies. They get together afterward and make a
license on them, perhaps, but there has not been anytliing of that
nature in the patent relation. You will realize that every country
is vulnerable in that respect.
The Chairman. But if this subsidization plan is pursued an inevita-
ble consequence would be the suppression of patent rights to foreign-
ers, would it not?
Mr, Langner. I do not know that it would necessarily be so.
The Chairman. Unless that was protected by treaty?
Mr. Langner. They are now, you see, and of course you must
reaUze that, as I am going to explain to vou shortly; every industrial
country is in a bad position if it treats the nationals of another country
badly, and therefore there is a great balance against such a possibility.
In fact, as I am going to explain to you now, perhaps I am ready to
come to that point, in connection •
The Chairman. Before you get to that may I ask whether or not
ther« — there are two questions running through my mind; first,
what your experience is with the Canadian law; and secondly, whether
the patent systems of European countries have been used or are
being used by industriahsts in those countries for the purpose of
cartilization. That is to say, control of industries for monopolistic
purposes.
Mr. Langner. Well, I will answer as ikr as the Canadian system is
concerned it is half-way between the European and the American.
It is very much like the American patent system as a whole. On the
question of cartilization, in Germany, for example, and sortie other
countries there is undoubtedly a tendency to concentrate industiy
124491— 39— pt. 3 13
1022 CONCENTRATION OF ECONOMIC POWER
into large groups. I do not believe the patent system has contributed
to that nearly as much as I believe it has been encouraged by the
governments. In other words, I do not believe that is a phenomena
of the patent system, although the patent system is undoubtedly
involved in it because there is a good deal of cross licensing in that
country; that is the division of patent rights and so forth between
different companies.
But I would say that it was a deUberate governmental pohcy.
The Chairman. In other words, the Government poHcy, rather
than the utiUzation of patent law, has been the cause of the growth
of the cartel system.
Mr. Langner. I would say so.
The Chairman. Thank you.
Mr. Langner. Now, when you come to the compulsory license
question, in which I know you are very much interested, I am going
to be the second person to explain the statute of monopolies to you.
I think you got a little wrong information yesterday on that subject.
I don't think Dr. Jewett quite understood what was meant by that
statute, but in order for you to understand the compulsory license
I think you should go back to that part in our history, and I will give
you the picture.
The Chairman. Our history is — which history is that?
Mr. Langner. The history of all patents — American, English, and
so on. It all stemmed from the early English patent system.
The statute of monopolies prohibited monopoly of any kind except
in respect of inventions and manner of manufacture. It is generally
a popular misconception that the purpose of that statute was to
encourage psychological invention. It was not the purpose of that
statute at all to encourage psychological invention, which was some-
thing that was hardly known at that time. It was the purpose to
encourage the bringing in of new industries to England from other
countries, and by invention — the use of the word invention at that
time was, "invent" had the meaning of "bringing in." The period of
the patent was taken from two periods of apprenticeship, each period
being 7 years, so that the idea was that they would attract the Flemish
weavers or they would attract printers from Germany or other in-
dustrialists to come over to England, which was at that time indus-
trially speaking just a beginning country, and bring their industries
over there and teach two sets of English apprentices the industry so
that the industry could go along.
That conception continued for around 100 years, and gradually
became replaced as mechanical invention began to grow with the idea
of psychological invention, which gradually developed into the fihng
of a patent specification and the gradual dropping out of the British
practice of this idea of manufacture going along with the grant of a
patent.
I may tell you that as a young man I was very curious to see what
patent No. 1 was in the English Patent Office library, and patent
No. 2, so I went over there and took a look at them. Patent No. 1
was the manufacture of playing cards; patent No. 2 was for the printing
of a map of London by a French designer who had printed a map of
Paris that looked just'hke it, so when you hear that you realize that
that statute of monopolies was a little different from what is often
thought.
CONCENTRATION OF ECONOMIC POWER 1023
Now, this idea of manufacture went out of the British patent
system completely, until the year 1883. Then it was brought back
again for an entirely different reason.
At that time, or perhaps a few years before, the German chemical
industry began to develop and this chemical industry — well, an
Englishman had invented the original coal-tar dyes, but the German
chemical industry had got hold of it and with their methodical methods
of scientific research and so on had begun to spread out and become
a world dominating chemical industry, and this thing became such a
peril to the British chemical industry that a jgreat deal of agitation
broke out on the subject.
To give you the atmosphere under which compulsory licenses were
introduced and the v.'orking of compulsory licenses, I would like to
read to you something that was written by Joseph Chamberlain, father
of the present Neville Chamberlain. He did not believe in appease-
ment, by the way. He said:
It has been pointed out especially in an interesting memorial presented on
behalf of the chemical industry that under the present law it Would have been
possible, for instance, for the German inventor of the hot blast furnace, if he had
chosen to refuse a license in England, to have destroyed almost the whole iron
industry of this country and to carry th^ business bodily over to Germany.
Although that did not happen in the case of the hot blast industry, it had actually
happened in the manufacture of artificial colors connected with the coal products,
and the whole of that had gone to Germany because the patentees would not
grant a license in this country.
In other words, the fi.rst British compulsory license law was directed
against the prac.tice of the Germans in taking out patents on the
chemical industry in England and using those patents to kill the
British chemical industry.
The Chairman. When did Joseph Chamberlain make that state-
ment?
Mr. Langner. I believe in 1882 or 1883. I can perhaps find the
exact date.
The Chairman. That is an approximation.
Mr. Langner. Yes. It was in introducing the act of 1883.
The Chairman. In other words, Joseph Chamberlain sponsored the
compulsory licensing bill in the British Parliament.
Mr. Langner. In the British Parliament; yes.
The procedure under those laws, before the Board of Trade and
later before the Privy Council, was pretty much of a wash-out. It was
very expensive. It cost as much as $20,000 to go through with it,
and the same condition continued from 1883, in spite of this com-
pulsory licensing law, until 1907.
The Chairman. If I understand you correctly, then, Chamberlain
sponsored the compulsory Ucensing bill in the belief that without it
British industry might be exported to Germany or elsewhere, and it
was to prevent the exportation of British patents and industries de-
veloping under those patents that he sponsored this measure?
Mr. Langner. Yes, sir. . . .
The Chairman. Was he justified, in your opinion, in that activity
at that time?
Mr. Langner. I think perhaps it would be more correct to state
that already the German industry had estabhshed that condition that
the British industry was suffering under, and this law did not help
to solve the problem because the procedure was far too expensive,
1024 CONCENTRATION OF ECONOMIC POWER
and in 1907 they tried to cure the procedure by a new law, and that
law was introduced by Mr. Lloyd George, and I will tell you what he
said in introducing that new law.
He said:
The object of the patent laws is to reward ingenuity and by so doing to en-
courage invention and to promote British industry. Unfortunately, however,
they have been used in many respects to discourage the British inventor and to
destroy many British industries. What is happening at the present moment?
Out of 14,700 patents issued last year, 6,500 are foreign. I do not object to that,
but a good many of these patents have been taken out not for the purpose of
working the patents in this country, but for the purpose of preventing their being
worked. That I consider to be an abuse of a privilege conceded by British laws.
The British inventor who takes out a patent is very often a poor man who has
been able to get his patent financed up to a certain point. After he has started
and set ^p works and purchased machinery there comes a powerful foreign syndi-
cate which has found there is something in his patent which they imagine is
covered by an invention they have alieady patented, for these patents are very
often in exceedingly vague terms. This syndicate then brings to bear the whole
machinery of their powerful organization to crush the inventor.
He <?oes on to say:
Big foreign syndicates have one very effective way of destroying British indus-
try. They first of all apply for patents on a very considerable scale. They
suggest every possible combination, for instance, in chemicals, which human
ingenuity can possibly think of. These combinations the syndicates have not
tried themselves. They are not in operation, say, in Germany or elsewhere,
but the syndicates put them in their patents in obscure and vague terms so as to
cover any possible invention that may be discovered afterward in this country.
This again was aimed at the German chemical industry.
Some of you gentlemen niay remember that at the same time that
agitation was going on in England a great agitation was going on in
this country against the German chemical industry for the very same
reasons. That resulted in the negotiation of a treaty between this
country and Germany which treaty is still in existence. It was
renewed after the war. And the purpose of that treaty was to en-
deavor to meet this situation which, in England, was met by the
passage of these working laws.
Under that treaty an American does not have to work in Germany.
The Chairman. May I interrupt to ask what the principal features
of the Lloyd George Act were?
Mr. Langner. As compared to the earlier one? I will be glad to
do that. The Lloyd George Act was much more drastic. It provided
not for compulsory licenses under these conditions, but for revocation
of a patent if the invention was being mainly manufactured abroad,
and again it came before the courts of England for a number of years.
A number of patents — not very many — were revoked, and gradually
there grew up in the courts certain practices which made it almost
impossible to get a patent revoked. One of those practices was that
the burden of proof was on the applicant for revocation to prove how
much the invention was being manufactured abroad, and it was
awfully difficult for him to show that it was being mainly manufactured
abroad. It was very hard to establish that it was mainly manufac-
tured abroad. Again the remedy of revocation was very bad, because
while these English manufacturers wanted to have the field clear,
once the patent was revoked they didn't have a patent to work
under, so that it was difficult for them to invest money in that process
when all their competitors could also invest money in the process
and come into competition with them, so that for that reason again
CONCENTRATION OF ECONOMIC POWER ^025
the British patent laws were revised in 1919 — 1883, 1904, 1907, and
1919 — and a new compulsory hcense law was provided which again
attempted to meet this problem, but to do so by putting in as an
alternative to revocation the grant of compulsory Ucenses. So that
only in the case where compulsory license was not a sufficient remedy,
could the patent be revoked and that law is in effect right at the
present time.
The Chairman. Do you think that is an effective law?
Mr. Langner. Well, tliat law has — I can give you some figures
about that law. The purpose of the law, as I have explained before
is to prevent — largely, not entirely, but the main idea beliind the law
is to prevent foreigners from coming into England and supplying the
demand irom abroad while using the English patent to prevent the
development of British industry. Now since 1919 to date, wliich is a
period of around 19 years, only nine cases have come up for decision.
Of these nine cases six v/ere applications of a British company for
licenses against a foreign or British company in which the grounds
for a license wejre general!}^ that the invention was being manufactured
abroad, and not in Great Britain. The other three cases were where
British companies applied for compulsory licenses under patents
oviTied by other British companies. Of the six cases where a British
company asked for a license under a patent, where the invention' was
manufactured abroad, in five cases nonexclusive licenses were granted
and one case was refused. In the three cases where British com-
panies applied for licenses under patents granted to other British
companies, in all three cases the licenses were refused.
That is, that up to date this law has only been effective in England
in the case where the patent was being used to benefit a foreign
industry at the expense of the British industry.
Representative Sumners. Have you discussed the basis of com-
pensation, how compensation is arrived at in a case of compulsory
issuance of license? You have to pay sometliing for it, don't you?
Mr. Langner. Yes; the question is argued before the British
Controller, corresponding to the Commissioner of Patents, and he
finally comes to a conclusion. I have not gone through the decisions.
Representative Sumners. Any statutory provision?
Mr. Langner. No; it is within the discretion of the Controller
with an appeal to the court to fix the amount of the license.
Representative Sumners. But in the determination of the question
I assume you have expert testimony, or whatever testimony would
seem to bear upon the question, as to what ought to be compensation,
but there are no statutory standards or standards fixed by any agency
of the Government?
Mt. Langner. No standards of that kind.
Representative Sumners. A moment ago or several times you have
spoken of the invention being manufactured abroad. Would that
apply to machinery with which the commodity is produced, or through
the commodity itself?
Mr. Langner. If the commodity itself is patented it would refer
to the machine and if both of them, as sometimes happens
Representative Sumners. To make it clear for the record, suppose
it is a process for manufacturing cotton goods, would the British law
become effective, become operative, if the machinery only was manu-
1026 ^ CONCENTRATION OF ECONOMIC POWER
factured abroad— I would like to change my question. In a proceed-
ing where this provision of the law is brought into operation, would
the question as to where the cotton cloth is manufactured be affected
by the place where the machinery is manufactured?
Mr. Langner. Well, -sir, it would depend on what the patent itself
covered. . .
Representative Sumners. Assummg it covered machinery.
Mr. Langner. If jt covered the machine then you should manu-
facture that machinery in England. If you manufactured the
machinery in America and supplied the English demand only by
importation, a condition arises under which an English manufacturer
could ask for a Ucense.
Representative Sumners. If you manufactured the machinery m
America and sold the machine in England for instance as cheaply as you
sold it in America, you still would come under the inhibitions or
regulations of that law?
Mr. Langner. Well, if it constituted what they call an abuse of the
monopoly rights. You would have the right to say in your defense
that perhaps the demand was so small that the machine would cost a
great deal more if it were manufactured in England. You would have
several rights of defense because you are allowed to give reasons why
you have not manufactured, but generally speaking you are in a
difl&cidt position if you have used your English patent to supply the
market entirely with machinery from America.
Representative Sumners. I do not like to press it, but I would like
to be very clear on this point. Assuming that in one particular
country they did not manufacture the cloth, to make the illustration.
Mr. Langner. They did not manufacture?
Representative Sumners. Assuming that in a particular country
they did not manufacture cloth, did not manufacture cotton cloth at
all, but did manufacture the machinery with which you manufactured
the cloth, and that machine was sold generally in the markets of the
world at an equal price, freight being considered, everywhere. Would
that state of facts justify possibly a successful procedure under the
English law?
Mr. Langner. Where is the machine manufactured?
Representative Sumners. Assuming in any country, not in Eng*
land, but in any other country and in that country they manufacture
the machine; they manufacture no cloth at all; they only manufacture
the machine with which the cloth is manufactured, and that machine
may be bought freely in England at the same price it may be bought
anywhere else in the world, freight being considered.
Mr. Langner. And it is a patented machine?
Representative Sumners. And it is a patented machine and the
machine of course is patented and made in order to produce, pri-
marily, cotton cloth.
Mr. Langner. Well, I would say that if that sale was niade and it
could be established it was hurting the British machine industry o'f
that type; that is, you were putting the British manufacturers out of
business with that foreign-made machine, that this law, unless there
were exten\iating factors, this law would apply and a British manu-
facturer might get a compulsory license.
The Chairman. In other words a manufacturer of machines in
Great Britain would be authorized under this law to file a proceeding;
CONCENTRATION OF ECONOMIC POWER ^027
against a foreign holder of a British patent to make the machine to
require a compulsory license?
Mr. Langner. If the manufacturer was supplying the English de-
mand only by importation.
The Chairman. That is the point; that is the question.
Mr. Langner. And there was no factor such as extreme expense
which sometimes comes up, where there are only two or three — —
The Chairman. So that if the foreign holder of a British patent to
make such a machine as Congressman Sumners has described was
granted an exclusive license to warrant a British manufacturer to make
that machine, a competitor of that licensee would be authorized under
this act to bring his proceeding to compel the issuance of a Hcense to
him also?
Mr. Langner. I do not understand that, sir. Would you mind
repeating that? I do not think that is the case.
The Chairman. I will admit it was probably a rather involved state-
ment. I assume that a foreign manufacturer of machines has secured
a patent in Great Britain for his device and has granted an exclusive
license to a British machine manufacturer, then would not a British
competitor of that licensee be authorized under this act to bring his
proceeding against the foreign patentee for a compulsory license?
Mr. Langner. No; absolutely not.
The Chairman. He would not?
Mr. Langner. Not if that British licensee is manufacturing in
Great Britain.
The Chairman. That is exactly what I mean. So that the British
compulsory licensing which you describe does not operate where one
license is granted within Great Britain.
Mr. Langner. Providing that licensee is not abusing the monopoly
rights, which means that he is supplying the demands of the British
market.
The Chairman. But suppose he were supplying it at a price which
his competitor regarded as a competitive price, and wliich the com-
petitor felt he could beat?
Mr. Langner. I don't think he would get very far with that. The
competitor would have to show that in order for the competitor to be
able to secure a compulsory license, that patent had been used to the
general abuse of British industry.
Now we have some cases which are very illuminating on that point.
We have three cases in England where one British company tried to
get a license from another British company.
The Chairman. Of course, specific cases would be much more illu-
minating than hypothetical cases.
Mr. Langner. I am going to try to give them to you because I
think you would be interested in them because they relate to these
same tubes you were examining this morning. Two out of three of
these cases applied to such tubes which are called valves in England.
The third case related to gramophone records. In that case, they have
over in England cooperative stores which are chain-store cooperatives
which sell at a lower price than regular stores, and the Columbia
Gramophone Co. refused to supply these particular stores because
they were then able, with these benefits, to undercut their other
customers. This particular group of stores brought an application-
for compulsory license and the court turned them down. The court
1028 CONCENTRATION OF ECONOMIC POWER
refused to grant them a license because they claimed that the company
was supplying these records through recognized stores and that they
have a perfect right not to give a license to somebody if they didn't
want to. , .
Representative Sumners. Would it interrupt for me to mquire so
we can go along together — , is this license the license to buy or the Hcense
to manufacture; I mean the privilege to buy or the privilege to pro-
duce?
Mr. Langner. They wanted the privilege to manufacture a com-
peting record, you see.
The next case — as I explained there were two cases relating to
valves — was a case which was brought by a German conipany by the
name of Loewe for a license from the British Marconi Co., which
corresponds to the Radio Corporation in this country. They came
over to England, this German company, and they wanted to put up
an establishment in England and they asked for a license. The
Marconi Co., which had a policy of granting licenses under such con-
ditions, got into an argument with them as to the amount of the
royalties, and during the arguments they applied for a compulsory
license. The court held that the British Marconi Co. had not refused
to grant a license, and they threw the case out, telling them to go back
and settle the matter among themselves, and no license was granted.
The third case is the most interesting case of all and I think will be
the most interesting to you, because this dealt with the pooling of
patents in a sense, perhaps even to a greater extent than has ever been
thought of in this country. In that case the Marconi Co., on these
valves or amplifying tubes, refused to grant a license to a certain out-
fit, a manufacturer called the Brownie Radio Co, They had an
argument over terms of the license and the radio company refused to
.modify its conditions that it had with its other licensees, whereupon
the Brownie Co., an English company, brought an action for a com-
pulsory license. You must remember that in this case there was no
question of the goods being manufactured mainly abroad. These
goods were being manufactured in England and there were plenty of
British manufacturers manufacturing the goods, but they were all
manufacturing under an agreement with this Marconi Co. I think
the case is so interesting that I would like to read to you from the
judge's decision because it is about the only decision that we have in
England on this question of pooling of patents.
It is very short.
The Chairman. What was the complaint of the Bro\vnie Co.?
Mr. Langner. These people had refused to grant them a license
and the Marconi people in ti.rn took the position that they did not
want to do business with thi:^ man they refused.
The Chairman. Was it the position of the Brownie Co. that if it
got a license, it would put the device on the market at a lower price
than the Marconi Co. and its licensees would make it?
Mr. Langner. I don't believe that was so; no, I don't think that
was involved.
The Chairman. Then was it merely a question of Marconi not
wanting to recognize th's particular manufacturer for purely personal
or arbitrary reasons?
Mr. Langner. I believe they were engaged in making a very cheap
set; they had been manufacturers of wliat they called crystal radios,
CONCENTRATION OF ECONOMIC POWER 1Q29
and they had stuck to that until this other system, that is, the tube
system, had come in, and then after staying out for quite a* while
they wanted to come in and take a license and the same license was
offered to them which was offered to the other people and they refused
and said that the terms were unreasonable, and applied for a com-
pulsory licepse on more reasonable terms.
The judge, in deciding the case, made this statement:
First, is it in the public interest that a license should be granted? I put this
consideration first because each of the parties who have argued the matter before
me have put this forward as the first and paramount consideration. The learned
controUer-
that is the commissioner who decided the case in his department
decided it in favor of the Brownie Co. —
Representative Sumners (interposmg). Is that the court of last
resort?
Mr. Langner. This is the court of last resort in this matter. [Con-
tinues reading:]
The learned controller has answered this question in the affirmative on this
narrow ground. The Marconi Co. has secured what he calls a supermonopoly
by aggregating in its hands all the vital patents controlling the manufacture of
broadcast loudspeaker receiving sets, that is, valve receiving sets, and has licensed
a large number, over 2,300, of manufacturers were engaged in the vast trade of
manufacturing such valve receiving sets, and has therefore precluded itself from
proceeding arbitrarily to grant any license to a particular manufacturer, while,
as the controller puts it, granting licenses to his competitors.
Do you get that point?
The Chairman. I hope so.
Mr. Langner (reading):
The learned controller goes on to state that such an arbitrary exercise of
monopoly rights seems to be contrary to every principle of public policy. I
cannot agree with this view. In the first place, the Marconi Co. is entitled to
such monopoly rights as flow from the ownership of the patents it has acquired;
such rights are no greater and no less by reason of the fact that the patents were
acquired by assignment or purchase rather than by original application or by
reason of the fact that the patents are contained in a number of grants instead
of a single grant. It is admitted that a patentee is entitled to work his invention
either by himself or his licensees. He may limit the number of his licensees and
he may select such licensees at his own free will and pleasure, subject only to this,
that he must not abuse his monopoly rights. If the patent is in fact being worked
in such a way that the public demand is being supplied to an adequat^ extent
and on reasonable terms, no one can complain, and public interest does not in
such circumstances require that a particular manufacturer who desires to manu-
facture and sell the patented article should be granted a license so to do. Indeed,
the public interest may itself require that the number of licensees shall be limited,
because it may well be that the public interest is best served by insuring a steady
supply of the patented article by preventing the flooding of the market and a
drastic reduction of price by wholesale- competition. The question to be deter-
mined in the present case is not whether any license should be granted but whether
a license should be granted to a particular person. In my view there is nothing
on the evidence or in the circumstances of this case to establish that it is in the
public interest that a license should be granted to the applicant, the Brownie Co.
The Chairman. That, of course, was the contention of the Hart-
ford-Empire Co. when the glass industry was before us.^
Mr. Langner-. I don't know about that particular point in this
country, but in England, even with a compulsory-licensing law, the
court (and this is the court of last resort on this point) has decided
that the mere fact that a man has given 15 licenses doesn't mean that
he is iorced to givQ 16, 17, or 18.
> See Hearings, Part II.
1030 CONCENTRATION OF E('ONOMIC POWER
The Chairman. As I recall the language of the court, it was to the
effect that the patentee under the British compulsory-licensing law
has the right to limit the number of licenses, so long as he doesn't
abuse his patent monopoly. Now, what constitutes abuse?
Mr. Langner. Well, I don't think— may I go back to the beginning
of your question — that this is under the British compulsory-licensing
law. This is under the British law; it has nothing to do with com-
pulsory hcense. Under the British law they have set up a group of
licensees.
The Chairman. I misunderstood, I thought that Brownie Manu-
facturing Co., whatever its proper name is, had applied to the con-
troller, who is the Commissioner of Patents for Great Britain, to
compel the Marconi Co. to grant them a hcense.
Mr. Langner. Yes.
The Chairman. I thought that apphcation was under the com-
pulsory-Ucensing law.
Mr. Langner. That part is correct The setting up by Marconi
of its group of licensees was not under the law; that was what I was
trying to explain; that was not unAer the law.
The Chairman. Oh, I see.
Mr. Langner. Now, as to what would under those circumstances
constitute an 'abuse of the monopoly rights I have no way of telling,
because since .1919 there has never been a case of this kind where they^
have held there was an abuse.
The Chairman. I mean so far as the language of the statute is
concerned it is wholly a judicial question?
Mr. Langner. Yes.
The Chairman. As to what constitutes abuse?
Mr. Langner. As to what constitutes abuse, and they have never
held that as being done in England. I would like to add this: that I
beheve, as I have explained to you, that the purpose of this compul-
sory hcense law in England and in other countries has been to try to
handle a different kind of abuse rather than this rather modern con-
ception which didn't really exist in those days. If you will remember,
in England at that time the whole pohcy of the country was free
trade and they had no tariff system; they were trying to cure some-
thing that their tariff allowed; it allowed these chemicals to come in
from other countries and goods to come in on a free-trade basis, and
they were in a very difficult positjpn as free traders; they couldn't
put up a tariff; they tried to ma6e the patent law handle the tariff
situation, and in the taxes on patents they were trjdng to make the
patent law handle a revenue situation. In both of those cases they
subtracted from the patent monopoly. Now, what is the effect
from a practical standpoint on this? It seems to me the effect is this:
that you have so many restrictions on the patent that when you try
to make the patent take care of the tariffs and take care of revenue
you reduce the incentive to invention and you reduce the research
that is done. I don't think that we can find in the European coun-
tries anything like the amount of research that goes on in this country,
with perhaps the possible exception of the German chemical industry.
There is nothing like the amount of research being done.
Representative Sumners. In the Enghsh pohcy they recognize
the right of the patentee to a monopofy, insofar as domestic pohcy
is concerned, as I understand the testimony, but do not permit him
to use that power of monopoly to abuse and hurt the public interest.
CONCENTRATION OF ECONOMIC POWER IQ31
Mr. Langner. Well, the words" public interest" isn't the expression:
"abuse the monopoly rights" is the word.
Representative Sumners. But they give him a monopoly. The
purpose of a patent as recognized insofar as domestic poUcy is to
give him the monopoly.
Mr. Langner. Yes.
Representative Sumners. But the right and power which the
government gives to the patentee may not be used oppressively insofar
as the general public of Great Britain is concerned. Is that about the
situation?
Mr. Langner. Well, it depends on what you mean by the word
"oppressively." That has so many- interpretations.
Representative Sumners. Sell it for an extortionate price. Would
that get it down somewhat more narrowty?
Mr. Langner. There are no decisions'on the subject. There has
never been a case.
Representative Sumners. Can you give us some idea as to their
philosophy, what motivates their policy? If you will pardon me, we
understated that insofar as the major policy, the major motive, if I
may use that expression, resulting in compulsory Ucense is to prevent
somebody froni the outside coming in and taking the business. Maybe
you wouldn't like to say that, but I express it that way.
Mr. Langner. Yes.
Representative Sumners. Now, then, as among Britishers is it the
policy to grant as an incentive to the inventive genius, a patent,
which patent shall be the right to the exclusive use and privOege of
producing that article, but they mustn't go so far as to, as we say in
America, hold up the public?
Mr. Langner. Well, sir, when you speak of charging extortionate
prices or any of these pther features, as I have said before, it is
difficult to answer you because we have had only three court decisions,
but I want you to bear in mind that the fact that we have had only
three court decisions is a very significant fact. If it had been con-
sidered by British lawyers that they would have been able to get a
compulsory license on the ground that the price that was being
charged was too high, I think you would have found far more cases
than you have found in 19 years. In other words, I cursorily think
that that would not be an abuse of the monopoly, the mere fadt that
you were charging a high price, because, after all, that is the way
you are getting your reward from your invention; if you charge too
nigh the public won't buy from you, and therefore you get your own
punishment without a compulsory license.
Representative Sumners. But wouldn't you make the policy work
at cross-purposes by driving the British buyer to a foreign market to
get his conmiodity? I don't want to argue, I am just trying to get
the picture in my own mind, and I assume my colleagues here would Hke
to have it. Here we have a situation where something is said about
compulsory license, and the only definite explanation we have is that
the purpose of that law is to prevent somebody frona beyond the
realm getting the money. But is there no domestic policy, no policy
that is of concern to those who fix its public policy and who grant
the right of exclusive use to prevent an abusive exercise, if I may use
that expression, and I use the word "abusive exercise" in charging
what would be far more than a fair profit in manufacturing? Is there
any policy?
1032 CONCENTRATION OF ECONOMIC POWER
Mr, Langner. No, sir; I think there is no such poUcy. I think
that if somebody went to an EngUsh lawyer and said, "Do you think
we could get compulsory license under those conditions?" the English
lawyer would say "No."
Representative Sumners. Let me state it again. You have some
general policy against monopoly in England, 1 suppose. Do you or
not?
Mr. Langner. That is corresponding to your antitrust laws?
Representative Sumners. Yes.
Mr. Langner. Yes.
Representative Sumners. "Would you be able to go into an English
court — let me state it this way: If you went into an English court,
alleging the fact which would constitute an abuse of what we call our
antitrust laws in. this country, would the defense be good that the
goods were being manufactured and sold by a licensee of the patent?
I think that is about as clearly as I can put it.
Mr. Langner. I really couldn't answer that question.
The Chairman. 'Can you give any exaniple of a ease in which you
as an expert in patent law would be willing to advise a client who
came to your office that you could secure for him or that you would
be willing -to prosecute for him a case under the compulsory licensing
law upon the ground of an abuse?
Mr. Langner! I would have very great difficulty in advising him
except in the case where the goods were being manufactured abroad.
The Chairman. In other words, so far as your opinion goes, the
compulsory licensing law in England does not set up any abuse that
the 'controller or the courts would recognize except in the case Where
the goods are being manufactured abroad and there is no British
licensee.
Mr. Langner. No, sir; I didn't say that, I simply said that the
decisions that we have had to date under that law as to what consti-
tutes an abuse of monopoly all indicate that the controller only con-
siders these foreign abuses; when I say controller, the controller and
the court, only considers that and he has thrown out every other.
The Chairman. That was quite clear. We understand there have
been very few decisions, but what I am trying to ask you is: Can
you give us your opinion as to what would constitute an abuse which
ought to be recognized by the court, under the present state of British
law?
Mr, Langner, No; I could not give an opinion on that. It would
be purely hypothetical. There are conditions that are complained
of in this country in relation to pooling of patents that would come
under antitrust legislation in this country that might conceivably
lead to somebody saying, "Here is something going on and we want
a compulsory hcense to cure it," but that has not happened. It
might. I couldn't tell you how you would get off under the British
law under those conditions.
The Chairman. You as an expert in international patent law
cannot now think of an abuse which m your opinion would be cogni-
zable by the courts under this law in Great Britain.
Mr. Langner. I would have difficulty m thinking of such an abuse.
The Chairman. We are fortunate this afternoon in having with
us the chairman of the Senate Committee on Patents, Senator Bone
of Washington. He has just indicated to me that he would like to
ask a question.
CONCENTRATION OF ECONOMIC POWER 1033
Senator Bone. Our own court has banned unreasonable competition
in restraint of trade. Is there any parallel between that judicial con-
cept and the attitude of British courts toward the problem you
described?
Mr. Langner. I am not familiar with the British legislation corre-
sponding to our antitrust legislation.
Senator Bone. Our court has referred to unreasonable restraint.
I wonder if there would be any connection in the international ap-
proach to this problem.
Mr. Langner. If I may explain my point of view in regard to this
situation, I believe that the English sj^stem has gone wrong in the
sense that it punishes the patent owner for what I might call a tariff
offense, if you like, by subtracting from liis monopoly. I think that
it has gone wrong in putting taxes on it. I think in this country
that we should not subtract from the patent monopoly for an anti-
trust offense. I think if patents in this country are being used for
unreasonable restraint of trade, that the remedy lies not in breaking
down the patent monopoly, not in reducing the incentive to inven-
tion, but in strengthening your antitrust laws to prevent the unrea-
sonable use of patents, if I may express myself that way. My experi-
ence with the European practice leads me to say, don't punish a man
under the patent law for offenses that he commits under the anti-
trust law.
Senator Bone. Do you think that the ultimate price of an article
to the general public ought to furnish some standard of whether or
not it is a reasonable exercise of the patent monopoly, because after
all isn't that the suprem.e test what the general consumer public have
to pay for an article?
Mr. Langner, Not always, sir. If I may say this to you, millions
of dollars, as has come out here today, are gambled on m invention/.
That produces a new article, let us say, which is sold to the public
that has to return not only the investment but in order that the
risk is worthwhile it has to return a little more than that in order
to keep the profit incentive. Now if you are going to say that the
price at which it is sold to the pubhc is the only thmg that has to be
considered I would say yes, plus something that makes that gamble
worthwhile for the inventor, and for the people back of the inventor,
and the public does not actually have to buy that invention neces-
sarily. It is in very few fields that the invented device is the only
device in that field. Probably the mvented device is a better device,
that is it is nice, it is more ingenious, it is cleverer, and you are usually
willing, in order to get the latest thing, to pay a httle more for it,
so for that reason, sir, I don't entirely agree with your idea.
Senator Bone. I am not suggesting that as a remedy. I am merely
inquiring to explore this field.
I wanted to ask you another question, suggested by one of your
answers. Assume that there is a British patentee and another citizen
of Britain apphes for the use of that patent, it being a purely domestic
patent, does your compulsory licensmg system over there permit one
citizen to apply for the use of the patent of another citizen of Great
Britain?
Mr. Langner. Yes, sir; it does. , x ^
Senator Bone. Precisely as they would apply for the use of a patent
of a German?
1034 CONCENTRATION OF ECONOMIC POWER
Mr, Langner. Yes; it does, but in these 18 years only three have
done so, and of those three not one was given a license. That is what
I was trying to explain.
Senator Bone. That must be a very vague thing if lawyers cannot
understand it any better than that.
Mr. Langner. It is surrounded by so much protection for the
patentee and the judges are always so loath to let someone come in
under it, and as I explained to you, I have given you the three cases
in detail and my feeling about the situation of what you can learn
from it is that we have a system here which is the greatest stimulator
of invention in the whole world. The reason that it is the greatest
stimulus for invention is because it is an unconditional monopoly.
Now, if people take tliis wonderful patent that we give them and by
conspiring together, by schemes and plots, they do something with
that that they should not do, make that the wrong thing, make that
the thing that you do. Don't subtract from the patent itself. It is
like this, which is a good illustration. Supposing I have developed a
fine shovel, and you buy it from me and then you use it to hit some-
body with. Now don't make a law which says that every shovel shall
have a hinge in it so that when you aim it to hit somebody the shovel
will have a bad aim. Just make a law that does not allow a wrong
use of it. Now that is the way I feel about compulsory licensees.
Senator Bone. I have one more question. Does the official in
Britain whose duties roughly correspond to those of our Commissioner
of Patents, have a continuing jurisdiction where the use of a patent
is granted to an applicant? That is to say, can he from time to time
change the royalties dependent upon mass production, consumption
upward, and what not, or is his order with respect to the royalties res
adjudicata, so to speak?
Mr. Langner. No, sir; I think that is always subject to change,
and I would like to explain one other feature to you and that is under
the British law if you want to avoid paying half these taxes, we have
a curious provision which is not very often used, and that is a patentee
may go into the patent ojffice and write on his patent "License of right."
Now, if he writes "License of right" on his patent he only has to pay
half the taxes, and that means that anybody can get a license.
Well, how does the thing work out, practically? Practically, no pat-
ent lawyer in England ever — there may be one or two concerns in
England that ever advised their clients to do such a foolish thing. I
have right here with me a case where — I will tell you about it; I do
not need to refer to it — an application was made to strike out the words
"License of right" from the British patent and the reason they gave
was this. Somebody was willing to back this invention but they
would not put the money up to put up a factory unless that license of
right was stricken off the patent. Somebody opposed it, and the
British controller held that the words should be stricken off because
that was the only way they could get this money invested behind the
patent.
Wliich goes to prove what I have been saying to you, that if you
want to get people to invest in a patent, give them an absolute monop-
oly and make them behave afterwards.
The Ch.\irman. Commissioner Lubin, do you want to ask a
question?
CONCENTRATION OF ECONOMIC POWER 1035
Dr. LuBiN. I was very much interested in these three cases that
you cite. Am I correct in assuming that these were three cases that
came before the courts and adjudicated?
Mr. Langner. Yes.
Dr. LuBiN. Now is there any record of any decisions madfr by the
controller relative to applications for compulsory licenses where he
has ruled in favor of the applicant and the person who owned the
patent had not appealed to the courts?
Mr. Langner. In certain of those decisions no appeal was made to
the court but not in the cases where it was one British concern against
another concern. They were mostly cases of foreign manufacture.
Senator Bone. In other words, there were no instances where people
have made application for compulsory hcense and had the apphcation
granted that have not been appealed to the courts?
Mr. Langner. No instances where one British firm asked for a
license from another British firm. There were only three cases, and
they all went up to the courts.
Senator Bone. In your opinion, does the fact that you have a com-
pulsory hcense system in Great Britain lead manufacturers to grant
licenses more freely because of the fact that then after this they do
not — the case may go to the controller and eventually to the courts
and they might have to grant a patent?
Mr. Langner. I think it has a certain bad effect. I think that
when a man who has an invention is approached, he feels that if he
does not give the license — and it may be to a very big company that
wants the hcense — he is always afraid that if he does not give it to
them very cheaply he may be hauled up to Court. On the other hand,
as time goes on we are beginning to see more and more that this law
is a dead letter, which is perhaps raising the courage of the individual
small manufacturer.
But it is a cloud on the title; that is, it does make the man afraid,
especially the httle man, that he is going to be hauled through expen-
sive htigation if he doesn't give a hcense.
Dr. LuBiN. Of course, it may also have the effect of having a big
man give a little man a license if he knows the little man can force
the fight.
Mr. Langner. Yes; but the little man isn't in such a good position
to fight.
Dr. LuBiN. I was very much interested in your approach to the
problem of licenses and patents as a device for solving problems that
should be solved in other ways. You mentioned the case of the
Sherman Act and using patents for revenue purposes and things of
that sort, and you recommended that in the event of the abuse, let's
say, of our monopoly laws, we should approach the problem not through
the patent end but through the Sherman Act end. We have heard a
lot here in recent weeks about people taldng out patents apparently
for the purpose of keeping somebody else from improving another
patent. The term used was "fencing in," people making an improve-
ment on an existing patent which they didn't own, taking out a patent
to prevent the competitor from improving his own patent.
There you don't have collusion in the sense you describe it. Is
there any way of approaching that problem through any device other
than the patent law?
1036 CONCENTRATION OF ECONOMIC POWER
Mr. Langner. Well, sir, it seems to me that if it is an unfair trade
practice you have laws that deal with unfair trade practices. It
isn't the fact of inventing and taking out a patent that is the wrong,
it is the fact that it is then used to hurt a competitor, which is the
way the patent is used, not the patent itself.
Dr. LuBiN. Well, it is the absence of use of the patent.
Mr. Langner. Yes; and I think that it might come under the
general classification of an unfair trade practice.
Dr. LuBiN. Do you feel that foreign corporations come here to
take out patents in order to prevent American manufacturers from
using certain devices and methods?
Mr. Langner. I think there may be a certain amount of that in
the chemical industry, but you would have to practically go into
each individual substance, because as you know, the chemical in-,
dustry has so many ramifications that very often a substance is
produced in Germany because Germany is the most economic place
for that particular substance to be produced, ^ and by tariffs we can,
generally speaking, force the bringing in of industries where, if the
price is too hi^h, American goods will compete.
Dr. LuBiN. One more question, if I might ask it. I was very
much interested in what you said about the place of invention in
American life, particularly as it affects the standard of living of the
American people, and more particularly the part that our patent
laws play in stimulating invention in America. You have said that
people have come here because of our patent laws and developed
new inventions^ and the American has been more ingenious in part
because of patents.
I don't think there is any denying the fact, but how important do
you think that factor is as compared with the fact that the American
standard of living, the American attitude toward life, is such that if
you do invent something, you can sell it? You talked about the
electrical refrigerator, air cooling of cars; the fact that we have an
installment system, we have an advertising system that stimulates
demand — isn't that much more important than the fact that you
can get a patent on a product you have? After all, with a poorer
patent system you still would have the stimulus to do things here
that you don't do in other countries because you know you can make
money by it, whereas in other countries the standard of living is
such that there is no incentive for doing it.
Mr. Langner. It is like "Which came first, the chicken or the
egg?" I claim the standard oi living in this country is such because
of the patent system and inventions. Through our mass-machinery
methods and so on we have been able to pay our workers much higher
than other countries and to hold up that price in world markets with
our goods, therefore, I say that it is, "Which comes first?"
N ow, following that comes the fact that we have the money to
buy these things from our inventors.
Dr. LuBiN. The same inventions, the same technics, the same
machines, aie available in other countries. Despite their patent
system, people can use our methods.
Mr. Langner. And they usually do, 7 or 8 or 9 years afterward,
but they don't originate them. It is much easier to sell an American
invention in Europe than it is to sell a European invention. I will
tell you why that is: Because when an Englishman comes to an
CONCENTRATION OF ECONOMIC POWEIl 1037
English firm with an invention it is usually just an idea, but when
an American goes over there he has 2 or 3 years of development work
behind it, and the EngHsh company doesn't hg^ve to spend ail that
money on development work.
The Chairman, We had some testimony here at one of the earlier
sessions, Mr. Langner, which indicated that in one industry, at least,
there was an uitemational agreement of cross-licenses which was in
effect being used as a substitute for the tariff, not as a revenue-produc-
ing measure but as a measure for excluding the products of another
country.^ The testimony had to do with the. glass industry, and we
were told of an agreernent between certain manufacturers in Italy and
certain manufactures in the United States by which the exportation of
ItaUan manufactures into the United States was limited.^ In your
experience, as an international patent lawyer, have you had any
examples of that kind?
Mr. Langner. That is very common, sir, in the sense that most
Americans who license abroad don't want those goods shipped into
the United States. Now we have quite complicated license agree-
ments; for instance, I have just been looking at one recently in con-
nection with airplanes. An airplane must be free to fly in every other
country. The same is true of automobiles. They must be free to
travel in other countries, so they have to work out a system of licensing
by which they license to manufacture in one country, but to use them
in all countries.
The Chairman. In other words, by our American patent system we
have developed an arrangement, a condition, under which the holder
of a 17-year monopoly from the United States Government, that is to
say from the people of the United States, may issue a license to a
foreign manufacturer to use that device, that patent, for the manu-
facture of the device in a foreign country, provided he doesn't export
it to the United States.
Mr. Langner. That is, the American patent system itself does that.
You see, although he has given him the right, under the Itahan patent,
to manufacture and sell in Italy, the moment that device comes into
the United States it becomes an infringement of the American patent,
if it is a patented device. If it is an unpatented device, it is not an
infringement.
The Chairman. But if it is the same device, licensee A has a patent.
He grants a license to B, an inhabitant of Italy, let us say, or an
Italian corporation, to manufacture this device, which is covered by
his patent.
Mr. Langner. In the United States.
The Chairman. Yes.
Now, is that same device, manufactured under that hcense which
is issued by virtue of the American patent, an infringement of the
patent which brought it into existence?
Mr. Langner. That license could never have been issued under the
American patent, because the American patent doesn't extend to Italy.
It must have been issued under the Italian patent, and the moment
those goods, if they are patented, leave Italy and come into the
United States, they constitute an mfrmgement of the United States
patent.
1 See Hearings, Part II, p. 660 et seq.
124491— 39— pt. 3 14
2038 CONCENTRATION OF ECONOMIC I'OWER
. The Chairman, ^o that if manufacturer A in the United States,
holding American patents, enters into an arrangement with manufac-
turer B in Italy, who has an Itahan patent for a siniilar, if not an
identical device, and they agree with one another under a cross-
licensing system to control exportation between the two countries,
what, in your opinion, is the effect of that upon industry and employ-
ment and economic conditions generally?
Mr. Langner. Well, it might be that under those conditions a
much more cheaply made European article would be imported into
the United States, and there I would say the tariff would be the thing
that should take care of it.
It might be, on the other hand, that if the situation were reversed,
a great many American-made bottles would go into Italy, wliich would
increase employm.ent in this country. It would depend, it seems to
me, on the way that thing was worked out in practice, but I feel a
tariff can always correct that particular evil and should be adminis-
tered to correct it.
The Chairman. You spoke of cross-licensing systems in the air-
plane industry. Can you think of any other industry? You said it
was rather a comm.on practice.
Mr. Langner. I wasn't speaking of cross-licensing. I was speaking
of the fact that it was com.mon practice in the airplane and automotive
industries to limit the right of manufacture, but to allow the goods to
be moved freely into other patented territory without infringing
patents.
The Chairman. That is rather a liberalization than a restriction.
Mr. Langner. Yes; it is.
The Chairman. I was thinking of restrictions. Do you know of
any restrictions?
Mr. Langner. Do you mean in international agreements?
The Chairman. Yes.
Mr. Langner. No; I don't, not any that I can recall offhand.
Practically every agreement that we draft that deals with licensing
limits the patent to the country — that is, the use of the invention to
the country — in which the patent exists.
Senator Bone. Assuming and conceding the propriety and justice
of giving the patentee the rights he has enjoyed under our patent laws,
it is very evident that he couldn't realize anything out of his control
of a patfent unless the people bought it. He wouldn't even dare
gamble, and therefore the public generally has a stake in that patent
as much as the owner and holder of a patent, for without their patron-
age his patent wouldn't be worth the paper it was written on.
Approaching it with that viewpoint, which immediately thrusts
into this picture the question of public interest
Mr. Langner. I will tell you my idea about it. The way prices are
brought down is by competition, bj'^ free competition, competition of
inventions, one against another. You have heard testimony here
about liow that works out. Price raising under patents can only
take place, in my opinion, that is general price raising, where, for
some reason or other, the competitive system no longer exists, and I
think that invariably you can divide such types of price raising under
two groups: No. 1, the case wliere price raising is done, maintenance
of pricing, under a perfectly valid patent, a very- good patent ; and the
other case where perhaps it is done under a patent that isn't valid,
CONCENTRATION OF ECONOMIC POWER IQ39
I think that if price maintenance is made under a perfectly valid
patent you are going to suffer for 17 years somewhat of the incon-
venience of having to pay more for that article than you would have if
there were free competition, hut in return for tjiat you liave obtained
from the inventor this tremendous investment in energy, in individual-
ism, which after all we are trying to continue under our system of
government, you have this thing that encourages people to put up the
money, and under those conditions my feeling is that if it is a good
patent and a good invention, that man should be alkwed to charge
perhaps more than he would With competition. Howe^ ^r, if there are
systems set up whereby a number of people get t( c^ether under
patents that are ambiguous or not what they should be,^patents that
there is so much question as to the validity of, and make agreements
that they are all going to sell the articles at their own price, you have
your remedy under the antitrust laws.
Senator Bone. If you concede the right of the owner, the holder of
a patent to retain in all its purities the monopoly the law gives him, it
seems to me your antitrust laws are nullified to that extent. I
practiced law all my life, and I can't follow those two thoughts in their
parallel columns and reconcile them, because if the law on the one
hand gives a man a monopoly right, T-want to be realistic e.nough
that we mi^ht as well throw the antitri^ ' laws out of the ,w'"ndow
if we are going to recognize the right of a lAen to do what he p. "^ases
with his patent. This is not an argument; it is one of the reL5ons
why this inquiry is being conducted.
Mr. Langner. My reply to that is this: That where we have
decided, that is, the framers of the Constitution in their wisdom
decided, that in order to encourage invention and the promotion of
the useful arts and industries, that there should be this monopoly for
17 years in order that after that the pubhc might have it for perpetuity,
that Is the bargain, and it seems to me that you don't have to throw
your antitrust laws in the wastepaper basket at all. That monopoly
is all right. That is where that man is going to get his reward.
There is nothmg the matter with that.
The Chairman. Wouldn't it be proper, if I may interrupt you, to
say that the patent monopoly does not arise by virtue of — I don't
want to use the word "virtue" — a combination or conspiracy, which
is the thing the antitrust law prohibits?
Mr. Langner. That is exactly it, and if patent monopolies are
used as part of a conspiracy, that is another matter entirely.
The Chairman. The antitrust law would apply in the case where a
patent was the basis of a conspiracy or a combination in restraint of
trade, and there is nothing in the patent law that prevents the opera-
tion of the antitrust law in such a case, that I know of.
Senator Bone. One would not have to conspire where he has the
whole thing in both of his hands? No.
Mr. Langner. Then I say he has not committed a wrong.
The Ch.'^.irman. As the witness has stated, and if I understand his
position, it certainly is mine, it is decidedly in the public interest to
hold out to inventive genius the certainty, as far as our patent laws
go, that that genius will be rewarded by a complete monopoly for a
limited period of years, in order that we may get the benefit of every
invention that may possibly be devised, but at the same time it
seems to be, I think, general agreement, certainly among the wit-
1040 CONCENTRATION OF ECONOMIC POWER
nesses who have appeared to date, that no device should be permitted
to extend unduly the period of the monopoly, and that is the reason
why the Commissioner of Patents has recommended that there should
be a specific hmitation to 20 years, and that devices which are used
for the purpose of extending monopoly are not in the public interest.
Senator Bone. You heard Mr. Coe's testimony, where so many of
these things have been projected over 40 years. ^ Would you consider
that an abuse of the patent laws?
Mr. Langner. Very definitely, and it is not possible for that to
happen in foreign countries.
Senator Bone. Evidently there has been some laxity in this country,
in that respect, under our statutes.
Mr. Langner. No, I do not think it is laxity; I think it is due to
the fact that in our great desire to preserve the rights for the inventor
we have allowed complicated procedures of interference to grow up,
but in the 25 years since I have been in this country it has been get-
ting better all the time. Mr. Coe has done a wonderful work in
getting patents out of the Patent Office much quicker than used to
be the case and wdiat was common practice when I first came to this
country, 25 years ago is the exception to the rule today. I thinlv I
am correct in stating that.
Senator Bone. I am assimiing of course that whatever the cause of
this it must rest ultimately on the wording of the statute, attributed
to Mr. Coe and his Department, but to the wording of the statute
which permits that sort of thing to continue, if it be a wrong. There-
fore our inquiry, it seems to me, might legitimately be directed to-
ward the wording of the statute so if there be abuses we can correct
it so the courts could not authorize or permit or seem to countenance
that sort of tiling. My own questions are not intended to indicate
my own state of mind; I want information about this business, but
I suspect that our beloved ancestors in this countiy could hardly have
contemplated this technological age in which we live and envisioned
the possibilities of monopoly and abuses none of which I assert here,
but obviously they are here or we would not be having this inquiry.
But they could not possibly have envisioned the tremendous growth
in our industrial life, the use of machinery, the scientific achieve-
ments and gadgets of this age, else probably they might have had
somewhat a different slant to it.
Mr. Langner. I think they thought very clearly on one point, and
that was they thought very clearly on the fundamental idea of how
you should encourage an invention, and I think, they thought much
better than most of the people who had to do with the formulation
of the European patent systems. I think that is evidenced by the
results and those results are due to those men who thought out the
Constitution and their ideas were good.
Senator Bone. Have you contemplated the drafting of any sug-
gested amendments to the act?
The Chairman. Mr. Langner was invited here, Senator, to com-
ment upon the foreign laws and not so much to make suggestions with
respect to our own.
Are there any other questions, Mr. Dienner?
Mr. Dienner. No, Senator.
> Supra, p. 853.
CONCENTRATION OF ECONOMIC POWER 1041
The Chairman. Any other questions by members of the committee?
Do you care to state now who will be your witness tomorrow morning?
Mr. DiENNER. We shall put Mr. Carlton, C. C. Carlton, on the
stand. He is an automobile parts manufacturer and will present the
picture, typical picture, of that industry. Then we hope to have
further Mr. Baekeland, who will present the picture of plastics, the
plastics industry.
The Chairman. Thank you, Mr. Dienner. ?vlr. Langner, the
committee is very much indebted to you for your testimony this
afternoon. Wo thank you for appearing here. The committee
stands in recess until 10 o'clock tomorrow morning.
(Whereupon, at 4:4o p. m., a recess was taken until 10 a. m. Friday,
January 20. 1939.)
INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER
FRIDAY, JANUARY 20, 1939
l"iNiTED States Senate,
Tempoiiahy National Economic Committee,
Washington, D. C.
The Temporar}- National Economic Committee met pursuant to
pursuant to adjournment yesterday, at 10:30 a. m. in the Caucus
room of the Senate Office Building, Senator Joseph C. O'Mahoney
presiding.
Present: Senators O'Mahoney (chairman), and King; Repre-
sentative Keecc; Messrs. Patterson, Peoples, Thorp, and Coe.
Present also: Senator Homer T. Bone of Washington chairman of the
Senate Patents Committee. Counsel: John A. Di<>rmer, special coun-
sel for committee; CJeorge Ramsey of New York, assistant to Mr.
Dienner; Justin W. Macklin, First Assistant Commissioner of Patents;
and Henry Van Arsdale, Assistant Commissioner of Patents.
The Chaikman. The committee will please come to order,
united states patents held by foreigners and foreign patents
held by americans
The Chairman. When Commissioner Coe was on the stand a few
days ago, at the oj)ening of this phase of the hearing, he was asked
by Di . Liihin and I think some of tl>e other members if he would be
good enough to compile some figures from the Patent Office on the
number of patents held by foreigners. The Connnissioner indicates
that he is now ready to jH'esent that material, and if 3^ou will be good
enough to wait just a moment, Mr. Dienner, I thhik we will ask the
Commissioner to put that material in the record now.
Mr. CoE. Mr. Chairman, as indicated, interest has been expressed
by members of the committee in the number of patents this country
grants to citizens or residents of foreign countries. In order to answer
the question, as well as others which might arise, I would like to
introduce several tables into the record.
The first table shows the number of patents granted by the United
States to residents of foreign countries for the 8 years 1930 to 1937.
The annual averages are also given. Looking at the last column it is
seen that out of the average number of 48,697 patents that we grant
each year, 6,421, or 13.2 percent, are granted to residents of foreign
countries. Just to mention a few of these countries— 2,375, or 4.8
percent of our total, are granted to residents of Germany; 1,273, or
2.6 percent of our total, are granted to residents of England; 632, or
1.3 percent, to residents of France; 493, or 1 percent, to residents of
1044 CONCE^'TRATION OF ECONOMIC POWER
Canada; and other countries receive a smaller nimiber of patents.
These are all set out at length in the table.
(The table referred to was marked "Exhibit No. 210" and is in-
cluded in the appendix on p. 1150.)
Mr. CoE. The second table shows the number of patents which
are granted by some foreign countries to citizens or residents of the
United States. Figures are not avilable for all countries and only
11 are given m this table. As seen from the last or average column,
Canada grants 6,161 patents to United States citizens. 1'his is 06.5
percent of all patents granted in Canada. England grants, on an
average, 2,685 patents to Americans, which is 14.6 percent of their
total patents granted. France grants 1,540 patents, or 7.7 percent,
and Germany 1,355, or 6.6 percent of their total. The other coun-
tries grant a smaller number of patents to Americans.
(The table referred to was marked "Exhibit No. 211" and is in-
cluded in the appendLx on p. 1151.)
Mr. CoE. The third table is merely a balance sheet listing in parallel
columns the patents granted by a particular country to Americans
and the patents granted by the United States to residents of that
countiy . The differences between these two figures are stated and
from these it is seen that Americans receive more patents in foreign
countries than those countries receive from the United States, except
in the case of Switzerland and Germany. Germans receive 2,375
patents in this country and Americans receive 1,355 patents in
Germany per year. -
(The table referred to was marked "Exhibit No. 212" and is-
included in the appendix on p. 1151.)
Mr. CoE. The fourth table is a list of the number of patents granted
by a number of foreign countries (those which grant over 1,000 patents
per year). These figures are annual averages for the 8-year period'
1930 to 1937. This table also indicates the number of patents which
some countries grant to foreigners. Thus, Germany grants 20,621
patents per year and of these 5,327, or 25.8 percent, are granted to
foreigners. France grants about half of its patents to foreigners.
Great Britain grants shghtly more than half of its patents to foreigners;
Italy, 63.8 percent. Canada grants a very high proportion of its
patents to foreigners, namely 90.3 percent. A few other countries
are noted on this table.
(The table referred to was marked "Exhibit No. 213" and is
included m the appendix on p. 1152.)
The Chairman. Thank you, Mr. Commissioner,
Are you ready to proceed, Mr. Dienner?
Mr. Dienner. Yes, sir, Mr. Chairman. We are now ready to call
Mr. Carlton, Mr. Carlton, will you please be sworn?
The Chairman. Do you solemnly swear that the testimony you are
about to give in this proceeding will be the truth, the whole truth, and
nothing but the truth, so help you God?
Mr. Carlton. I do.
CONCENTRATION OF ECONOMIC POWER 1045
TESTIMONY OF CLARENCE C. CARLTON, VICE PRESIDENT, MOTOR
WHEEL CORPORATION, LANSING, MICH.
Mr. DiENNER. Mr. Carlton, please state your full name and your
business connections.
Mr. Carlton. My name is Clarence C. Carlton. I am vice presi-
dent and secretary of the Motor Wheel Corporation at Lansing, Mich.
I am president of the Automotive Parts and Equipment Manufac-
turers Association, a trade association representing a large part of that
industry. For 27 years I have been engaged as an official connected
with the parts industry. During that time it has been my duty to
supervise patents, their securing, prosecution, and management, and
I have also been connected with sales practically all of that time.
The Motor Wheel Corporation is a manufacturer of wheels and
automotive stampings. Wheels, as we talk about wheels, consist of the
wheel itself, which you demount from your automobile, which consists
of a rim and, at the present moment, a disk; the attaching parts that
hold it onto the hub ; the hub with its bearing liners inserted therein,
and the brake drum attached thereto permanentl3^ So that a set of
wheels consists of two front hubs, with brake drums attached; two
rear hubs with brake drums attached; bearing Imers are pressed in
ready for the bearings, which are attached to the axle shaft; the wheel
with its rim attached permanently; and the attaching parts, either
cap screws or bolts and nuts to hold them on.
So when I mention wheels hereafter, I shall also consider that
wheels mean all of those things that we are talking about.
At the beginning of the National Industrial Recovery Act it became
necessary, almost, for industry to get together and find out who they
were, and this mdustry didn't know much about itself, and so a meet-
ing of the leaders of the industry was called and we found that we
didn't know the members of our industry, how many of us there were
or who we were or where we were located, and this organization known
as the Automotive Parts and Equipment Manufacturers Association
was organized in 1933, and I was selected as the executive vice
president of that association, and Mr. Charles Davis, president
of the Borg- Warner Corporation of Chicago, became its first president
and I succeeded him a year later as president and have been ever
since, the president of that association.
The Chairman. What do you call the association?
THE AUTOMOTIVE PARTS AND EQUIPMENT MANUFACTURERS
ASSOCIATION
Mt. Carlton. The Autofhotive Parts and Equipment Manufac-
turers Association. The word equipment gets into the name because
of the manufacture of shop equipment and service tools that go along
with the automobile.
Mr. Patterson. Can you name just four of the companies that are
in the association so I have them clear in my mind, three or four of
the outstanding companies?
Senator King. While you are giving that, will you give us the
number of organizations that are members of the association, if you
know?
lO^Q c(>X(i:ntuati()N oiM':(;ono.mi(' powkk
Mr. Cakltox. Yes; we have 375 member plants at the present
time who employ 200,000 employees. I can ^ive you some of the
leading mxmes of the people in just one moment. Possibly the best
way to answer your question, Air. Patterson, would be to give the
names of tlie board of directors because those people would probably
be representative, inasmuch as they are elected by the membership
at large. The board of directors consist of Mr. C. S. Davis, president
of the Borg- Warner Corporation of Chicago; Mr M. C. DeVitt,
vice president of the Champion Spark I^iug Co., of Toledo; Mr. i uiL'h
Weed, Carter Carbtire tor Co., of St. Louis; Mr. C. E. ^\ils()^., vice
president of the General Motors Corf)oraiicrn, Detroit. Mr. I). W
Rodger, vice president of the Federal-Mogul Corj)ornti(in, of Detroit;
Mr. C". C. Bradford, president of the Baton Products Co., of Cleveland ;
Mr? Dan Kelly, vice president of the Electric Autolite Co., of Toledo;
Mr. E.F. Deacon, president of the Climax Engineering Co., of Chicago;
Mr. J. E. Otis, Jr., president, Stewart-AVarner Co., of Chicago; Mr.
J. P. Mahoney, vice president of the Bendix Corporation, South Bend,
Ind.; Mr. Charles Getler, president of the IToudaille-irershey Corpo-
ration, Detroit; Mr. F. C. Crawford, president, Thompson Products
Co., Cleveland; Mr. E. A. Hall, president of the Hall NIanufactuiing
Co., of Toledo.
Mr. Patterson. Thank you; that satisfies me as to your quali-
fications.
Mr. Carlton. The parts industry, of which I shall speak today,
consists of three main divisions, the original equipment division,
whose products are sold to the manufacturers of automobiles; the
replacement parts division, whose products, a re sold either as service
parts or replacement parts for J,hose parts of an automobile which
wear out; and the accessory division, which manufactures convenient
gadgets which the car owner-purc4iases after he has bought his auto-
mobile, which add to his convenience and comfort.
I will not discuss at all the shop equipment and service tools divi-
sion, an^d so we will discuss really the automobile parts division rather
than referring to the equipnient division today.
The function of this association of which I am president is to collect
statistics on employment, wage rates, and sales, and make all of these
statistics available to all members of the association in every possible
division and classification. We^• maintain a legal department. We
advise our members on all types V>f national and State legislation
aflecting our industry, and we maintain a labor relations department.
We have no. business and no connection whatever with sales or costs
or selNng prices.
I am not authorized officially to speak for this association, and
naturally I am not authorized to speak for any other company than
my own. But 1 feel that after 27 years in the industry and having
been president and executive vice president of the association for 6
or 7 years, I do have a very intimate knowledge of what is going on
in the association, and at a very recent meeting the entire subject
of patents and their relations to this industry was discussed very
fully, and I was very happy to find that my personal ideas coincided
fully with the ideas of all of the members of the industry.
I might say, therefore, that I am sort of an unoUicial representative
of this association here today, with their full knowledge and consent.
The 375 members of this association are located in 23 States of the
Union and in 139 cities. If a circle is drawn with its center in Detroit,
ooncp:ntration of economic power 1Q47
Mich., a circle 600 miles in diameter, 73.6 percent of the number of
manufacturers in this mdustry and 97.7 percent of the employees of
the industry are located within that radius.
Senator King. Which would be the outer rim w'esfw\ard, beyond
Chicago, of course?
Mr. Carlton. Yes; it extends beyond Buffalo, beyond Pittsburgh,
beyond Chicago, beyond Milwaukee, north of Lansing, Ivlich., south
of Cincinnati.
The majority of the members of this association, of these 375
members, employ less than 100 employees. We represent employers
of as few as five and we represent employers with as many as 10,000
employees.
You would be interested to know that in the election of the board of
directors for each $100,000 of sales, or fraction thereof, a member
has one vote. Those votes are audited by Ernst & Ernst, and it is
interesting that every year since the association was organized, if each
member had had just one vote regardless of size, the result of the
election would have been exactly the same. I mention that in order
to show you that there has been a perfect unanimity of opinion and
that no large group of employers, or no large manufacturer or group
of manufacturers, is in any way dominating this industry.
The last available sales figures for this association are as of June
30, 1937. The figures reported at that time to this association showed
sales of $800,000,000 by the members of this association. I wouldn't
have you believe that all manufacturers of automotive parts belong
to this association, because there are at least as many more who do not
belong to the association as those who belong. Those who do not
belong, however, are practically all replacement parts manufacturers
who depend for their business upon going through catalogs and deter-
mining what parts of the three leading automobiles wear out first,
and duplicating those parts and selling them -to garages and service
stations as replacement parts.
Senator King. Have you any figures showing the proportion of
sales made by this second organization, the proportion of the eight
hundred million?
Mr. Carlton. That eight hundred million are the sales of this
particular association, Senator King.
Senator King, \^^lat are the sales of the other organization?
Mr. Carlton. I can only guess at that. Duruig the N. R. A.
days we tried to estimate the sales of the entire industry, and we felt
sure that it- was a billion dollar industry, and therefore, I believe that
it is possible that the sales of those members of the industry who do not
belong to tliis association may total $200,000,000.
Senator King. Then, of course, with the increase in the use of
automobiles, there would be an increase in the demands for parts,
and therefore, there would be an increase in the output of the second
organization.
Mr. Carlton. That is right. Of this $800,000,000 of sales, 83.5
percent are original equipment sales, and therefore it can be said
that this. parts association of which I am president sold last year
$650,000,000 worth of parts to the manufacturers of automobiles and
trucks.
Mr. Davis. Mr. Carlton, do any of those manufacturers of parts of
automobiles which you mention in effect compete with the parts manu-
1048 CONCENTRATION OF ECONOMIC POWER
factured for or by the automobile manufacturers themselves, members
of your association?
Mr. Carlton. Yes, sir; I think our largest competitor is our own
customer. At least our potential competitor is always our own cus-
tomer. There are some parts of automobiles that are not made at
all by the manufacturers of automobiles and trucks. There are other
parts that are made, some by one and some by the other.
I know that you will be interested in Imowing what parts of auto-
mobiles are manufactured by the member^ of this association.
I am sorry that I have only two copies of this list available and I
wouldn't attempt to read into the record a list of these parts, but I
would like
Mr. Davis (interposing). Mr. Chairman, may we have that in-
serted in the record without reading?
The Chairman. Without objection that will be done.
Mr. Carlton. I was going to offer these as exhibits to be added into
the record because the names of over 300 parts of automobiles that
are manufactured by the members of this association are on that list.
The Chairman. Looking at the title of this exhibit which you have
just handed for inclusion in the record, it reads "Parts of an automobile,
excluding the body proper and automotive equipment." Do you care
to qualify that title any further? I understand that you were giving
us a list of parts which were made by parts manufacturers rather than
by automobile manufacturers.
Mr. Carlton. No. Many of those parts, are made by the automo-
bile manufacturer. Senator.
The Chairman. This, then, is merely a .list of the various parts
which go into the construction of the automobile.
Mr. Carlton. But there isn't one part on that list that is not also
made by a parts manufacturer. They may make a part of those
things (hemselves, or one manufacturer may make none and the other
one may make all, and it is all mixed up in that way.
(The list referred to was m^arked "Exhibit No. 214," and is included
in the appendix on p. 1152.)
Mr. Carlton. In giving these sales figures and talking about this
irdustry I would have you know that rubber and rubber tires are not
in this group, they belong to the rubber association. I would also
have you know that bodies are not in here, they belong to the auto-
mobile manufacturers association.
Senator King. Some of the parts manufactured by members^ of
your association are likewise made by the automobile companies
themselves?
Mr. Carlton. That is right, very many of them.
I think you would be interested to know that we have recently
made a survey to find out how much engineering, experimental work,
experimental samples, research and development cost this industry,
the members of this association, in the year 1937, and that figure
amounted to more than $20,000,000 in the year 1937. The tool and
die expense of this industry in the year 1937 amounted to more than
$20,000,0uJ. In other words, this industry in research, development,
engineering, tools and dies spent more than $40,000,000 in the year
1937.
The pay roll of the industry in 1937 was in excess of $250,000,000.
Senator King. You mean your association?
CONCENTRATION OF ECONOMIC POWER ^049
ROLE OF PATENTS IN IMPROVEMENT OF AUTOMOBILE PARTS
Mr. Carlton. The members of tliis association only. It is prob-
able that you are wondering why we spend so much money in ex-
perimental and development work. The parts manufacturer selhng
to the manufacturer of automobiles and trucks is a servant to his
customer. The parts manufacturer must hve by his wits. He can
only be successful in holding liis business so long as he can continue
to improve liis product. He must make his product better constantly,
Ughter if possible. His customer, the automobile manufacturer, may
bo able at any one given moment to make the product that he is
buying from the parts manufacturer as cheap or as well, but ue must
be convinced that the parts manufacturer because of his specialization
in one product; because of the fact that he has a large volume of
business gathered from a large number of manufacturers of automo-
biles and trucks, because of those things he can make it cheaper and
he can afford to specialize, be can afford to do all of this research, all
of this experimentation. As long as the parts manufacturer main-
tains tliis position of research and experimentation constantly, then
he has a successful business. The minute he lets down then he is
going to lose liis business, because, as I said before, his greatest po-
tential competitor is liis own customer.
The parts manufacturer, in my opinion, and I believe it is the
unanimous opinion of our industry, could not afford to engage in this
very large amount of development and experimental work without
the protection afforded by the patent system.
Looking over the large number of parts manufactured by the in-
dustry, it is evident that practically all of the companies manufactur-
ing those parts started because of patents. Speculative capital was
attracted to these new parts industries when they were new, because
investors were convinced that here was something that could be sold
in a large volume to the automotive industry, and that they could
secure protection long enough to secure the return of their capital
and make a fair profit on it. So in the beginning of practically all
of these various parts industries the patent was the nucleus around
which they were built.
It is not unusual for a parts company to spend a half-million or
even a milhon dollars, and well over that in many cases, in the develop-
ment of a single new part or device. The patent affords the parts
manufacturer the opportunity to get his initial developrnent and
tooling expense back before his competitors start copying his device.
The parts manufacturer doesn't ask for a continuous monopoly,
because experience has taught him that his industry changes so
rapidly and competition is so mtense and so fierce in the industry that
nothing that he patents today is going to continue in the forrn in
which he patents it. It would be foolish to insure speculative capital,
for example, that if he puts his money into this given part in this
industry, that for 17 y^ars we are going to continue to make this part
in this given form, because we know that we must progress and that
competition is going to build something better, and therefore we must
build something better or we will have no business in a very few years.
AH we want is a hesitation period, a head start, as we used to say
when we were boys, to give us a chance to get the experimental and
developmental money back.
•1050 <HJN( KNTKATION OF ECONOMIC POWER
Senator King. I suppose the mortality in your industry is very
great?
Mr. Carlton. It has been exceedingly great. It has settled down
now to a much more stable business than it has been.
A patent granted to a competitor in tiiis industry has proved to be
the greatest incentive possible to other competitors. For example, if
one of my competitors tomorrow'Should bring out a wheel which would
revolutionize the wheel industry and threaten to put the company
with whicii I am connected out of business, that in itself would be the
greatest incentive in the world for us to use every possible means to
get around that patent and to devise something quickly to save our
very lives and our physical existence, and I am sure we would do it.
We have been faced with that situation time after time. We have
lived through the days when all wheels were wood, as you remember
on your automobiles, where we had investments of several million
dollars solely for wood.
Then you remember how we all switched to wire, and we switched
to wire along with it. Then you saw the switch to steel and we
switched to steel along with it. We obsoleted equipment and equip-
ment and equipment, and we learned to do new things and to do them
better, so I say that patents granted to somebody else are the greatest
incentive to force the other fellow to do sometliing new himself.
PATENTS INCENTIVE TO PRODUCTION OF NEW INVENTIONS
Mr. Carlton. Patents, then, as I say, instead of becoming monop-
ohes, become incentives to produce other inventions.
The Chairman. How many diilerent ways are there of meeting the
new competition winch arises from such a patent? I am asking you
now from your experience.
Mr. Carlton. Well, I think those ways are endless. They have
to be endless or you would give up.
The Chairman. What has been done. Could you give us one or
two examples of just what has been done to meet a particular situation?
Mr. Carlton. Well, a few years ago a new brake drum came on
the market. You can remember only a few years ago, if you got
seven or eight or ten thousand miles from a set of brake lining, and
mentioning brake lining, I should have said that that also is not
within this industry. There are a lot of sales; I should have said
that the fabric upholstery in your automobile isn't in our sales either.
You can remember that if you got 10,000 miles on a set of brake
lining without having your brakes relined at a considerable expense,
that was something. Then along came cast-iron bi'akc drums, and
they wore better. Then along came another type of drum.
A few years ago we brouo;ht out what we believed to be a real
invention in brake drums. We were practically forced to bring that
invention out. We had to have something better. We had to have
it or we weren't going to hold our business. We were going to lose
all of our brake drum business, and that is a terrific lot of business.
Of course we had a nice replacement business in brake drums. That
replacement business is gone now, because the drums last almost the
life of your car. They do, today.
We spent over $2,000,000 in the development and in highly special-
ized machinery which can't build anything else but this braise drum,
co^'•:I■:^■^]{ATI(>^• of kcoxomk; poavkk 105 j
and in a building, tlie bnildins: cost onl}^ a little over $300,000 to
build that one item.
The Chairman. That is one method. That method I should
describe as the invention ol another and better device. Another
method would be to purchase an outstanding patent.
Mr. Carlton. Yes, sir.
The Chairman. Another method would be to license a new, an
improved device.
Mr. Carlton. Yes, sir.
The Chairman. You have followed all three of tho^^e proceedings,
have you?
Mr. Carlton. We have done all three of those.
Another method is to find a better method of manufacture, so you
can manufacture more cheaply than the other lellow.
The Ch.\irm.\n. Do you have in this industry which you have
described, in this association, a cross-licensing system?
Mr. Carlton. Well, not in the association at all, as an association,
because we are competitors in the wheel business; they are in the
carburetor business; they are in all these lines of business. There are
cross-licenses existing among groups of competitors.
The Chairman. All right. Now let us take the carburetor manu-
facturers, for example. Do they cross-license their devices?
Mr. Carlton. I don't know about that. I know about the wheel
business.
The Chairman. All right, let's ask about the wheel business.
Mr. Carlton. All right.
The wheel business is an old industry. The company with which
I am, and its predecessor company, started in 1903. The Motor
Wheel Corporation owns over 500 patents. I asked our competitors
how many they owned, and I know that they ovvm well over 500
patents. We never sued anyone, with all the patents that we own,
except once. A fellow got a little nasty and we sued him and we settled
it out of court and we gave him a license, and they went out of business
anyway.
If those people in that wheel industry, with those thousand patents,
started suing each other, the management ought to be discharged,
because they would ruin themselves financially. You take a thousand
patents and start clubbing each other over the heads with them, all the
people in the industry would be broke, so common sense dictated just
one thing, to stop this monkey business of fighting each other, and I
will give you a license and you give me a license, and we will stop any
further law s'uits in this industry.
Those licenses are just simple cross-licenses, nonexclusive licenses,
in which we license a competitor, but we retain the patents ourselves
and the rights to license anyone else that we please, and he does the
same thing.
Mr. Patterson. Mr. Carlton, does your association have any
kind of an arbitration board where, once you see that some of these
companies are about to go to war, you step in and try to help them?
Mr. Carlton. No, we do not. There are groups within the asso-
ciation that get together and try to do that among themselves, but
we have such a varied lot of different kinds of competitors, and they
are so very independent, that each fellow wants to be independent
and he doesn't want any association or anybody else to tell him
anything.
1052 CONCENTRATION OF ECONOMIC POWER
LICENSING OF PATENTS
The Chairman. Well, now, these Hcenses are nonexclusive. Do
they carry any restrictions of any kind?
Mr. Carlton. No restrictions of any kind.
The Chairman. They are open hcenses?
Mr. Carlton. Wide open, nonexclusive licenses.
The Chairman. What provision is included in the Ucense by way of
consideration for the granting of the license?
Mr. Carlton. No royalty.
The Chairman. No royalty? Then what do you receive by way of
consideration for the granting of the license?
Mr. Carlton. A Ucense from the other fellow.
The Chairman. It is merely an exchange of licenses with the other
fellow.
Mr. Patterson. A quid pro quo.
Mr. Carlton. Exactly.
The Chairman. So that every license from the Motor Wheel
within this association is available to all the competitors on equal
terms, nonexclusive, without restrictions, absolutely open and no
royalties.
Mr. Carlton. That pertains only to passenger car wheels. When
you get into truck wheels, it is a very varied industry.
The Chairman. With respect to passenger car wheels, have I stated
it correctly?
Mr. Carlton. Yes, sir.
The Chairman. With respect to the other types of wheels, what is
the difference?
Mr. Carlton. With respect to the truck industry, that is a varied
thing — cast-iron wheels, and so on.
The Chairman. What you mean to tell us is that in that industry
you do not grant these nonexclusive, open licenses.
Mr. Carlton. In that industry, when it comes to a demountable
pressed steel wheel, so far as I know, the same people that make pas-
senger-car wheels are making those wheels, and those people are cross-
licensing the same as they are on passenger-car wheels, but when you
get into all these other types of wheels I know very httle about them.
We know very little about them; we don't make them.
The Chairman. When you made that qualification it was only be-
cause you didn't know what the facts were, and not because you knew
it was different from this other phase?
Mr. Carlton. That's right.
The Chairman. Thank you very much.
Mr. Carlton. I would like to finish the story of this brake drum
thing because I know it is very interesting.
Having spent this $2,000,000, we couldn't go ahead with the thing
until we got this patent through, because we couldn't venture
$2,000,000 to build an article which is selling for approximately 60
cents, and that 60-cent price is competitive with another article which
our competitors are building — it is different, but it accomplishes about
about the same tiling, so if you are going to sell an article for 60 cents
and spend $2,000,000 to develop it, you have to have some protection
there to be sure the other fellow isn't going to step in and take it
away from you before you get your $2,000,000 back nnd a little profit
on the $2,000,000 if you can get it.
CONCENTRATION OF ECONOMIC POWER IQ53
The Chairman. Now with respect to the manner in which you use
this patent or the manner in which you grant these Hcenses, I should
have said, do you grant them to any apphcant?
Mr. Carlton. You are now talking about this cross-licensing on
wheels?
The Chairman. Yes; your licenses on wheel patents.
Mr. Carlton. It just happens that in this passenger-car wheel
business there are only 3 manufacturers that have survived. I
can remember within my time in the industry when there were 18,
and they have fallen by the wayside financially until there are 3
left, and I have explained the situation within those 3, and that is all
there are.
The Chairman. Now suppose that another group were to form a
new corporation to engage in the manufacture of motor wheels in
competition with you. Would you freely grant a license to such a
new group?
Mr. Carlton. I will now speak for my company only. There is
no agreement between the 3 people as to what they would do. A
licenses B, B licenses C, and each fellow acts as an individual, but
within this industry, where these three people are today, we are
terribly overtooled and overbuilt or have over-production. We have
a capacity to build mare than 5,000,000 sets of this material, and
in 1939 we are looking forward^to maybe a 3.K million car year.
Now I am very positive that our company wouldn't license another
fellow to get into this business when there is an overproduction.
Why allow another fellow to get in? We would do everything we
could to keep him from getting in with all the patents we had, and
my guess is the other fellows would ACt about the same way with
their patents.
The Chairman. Of course you would be entitled to do that, because
a patent is an exclusive right; but I was curious to know whether there
was any understanding in the cross-licensing system by which you
would exclude any but those who v/ere in the system for using or re-
ceiving a license?
Mr. Carlton. There is no understanding to that effect.
Mr. Davis. Mr. Carlton, you spoke of there being within your recol-
lection 18 manufacturers of these car wheels, and that that number
has been reduced to 3. How many of those 18, if any, were merged
with or acquired by one of the 3 remaining companies?
Mr. Carlton. Several of them were. For example, I think, Judge,
you remember that the Motor Wheel Corporation purchased the physi-
cal assets of two of these companies because we were sued and we
bought ourselves out of difficulty.
In the beginning of the steel-wheel situation in 1923 we got into
trouble. We started the manufacture and we thought we developed
something, and one of these companies sued us and we took a license
and were paying a very high rate of royalty. Then another company
sued us, and then that company sued the one we were paying royalty
to, and neither one of them had any business, had no customers to
amount to anything. Each of them had about one customer, anti
they had a very small volume of business, and financially they were
both broke, and so they were suing us for a livelihood.
The Motor Wheel Corporation, smce 1920, has spent over $2,000,000
in patents. Now, we acquired those patents by buying the physical
124491— 39— pt. 3 -15
1054 CONCENTRATION OF ECONOMIC POWER
assets of those two companies and also buying some other patents
directly, but we didn't acquire anything when we acquired the com-
panies. I know one company, the net liquidated amount we got out
of it was $72,000. That is what we had in physical what-have-you
that we got, but we did get the patents, and we bought ourselves out
of a lawsuit and out of trouble.
From the other company we got some patents, oh, several hundred,
and I would hate to pick one patent out of them and say it was very
good, but there were so many of them that they scared you to death.
Now, t^ answer the rest of your question, another company pur-
chased at least one — at least one other company was purchased by
one of our competitors, and the rest of them went out of business be-
cause of financial difiiculties.
A large number of those. Judge, went out of business when the wood
wheel went out of business. When the wood wheel vanished they were
tooled to make nothing but wood wheels, and when, they no longer
could convince the public to wear that kind of bonnet — and that is
about what it is, the public is changeable about the way wheels look
about the way women are with their hats — they couldn't afford to
tool up to go into wire wheels.
Incidentally, there was a serious patent on wire wheels, and we took
a license under that and paid very high royalties for some length of
time.
Some of them just folded up and liquidated and went out of busi-
ness. More of them did that than failed. They quit. Some of them
died of old age; some of them died of stagnation, because they couldn't
keep up with the parade.
That is about what happened to the rest of these fellows, until it
got down to three who are in pretty good shape today to stand the
battle.
The Chairman. That was before the stabilization of which you
spoke a little bit earlier?
Mr. Carlton. Yes.
The Chairman. Now, under the present understanding, what is the
position of future patents?
Mr. Carlton. There are a large number of these licenses. There
is no agreement among these three companies that says we will give
you a license under everything we have. It started back in wood-
wheel days, when we got into an awful jam about rims, and we got
sued by an outsider, as we call him, and then we bought his patents.
You would be surprised; we paid $750,000 for some patents just on
a rim that goes on wheels. Then we licensed everybody that wanted
to be licensed, everybody who wanted a license on rims, and we gave
him- a paid-up license without any royalty.
Then it went into mre wheels, and then it went into brake drums,
and then it went into the processes of manufacturing. I don't know
how many of these licenses there are, but they have accumulated, but
each one of them is an individual license froni me to you in return for
a license on the same thing from you to me, without any restrictions
whatsoever or any conditions or any royalties.
The Chairman. In other words, you don't have a general cross-
licensing agreement.
Mr. Carlton. No.
The Chair]^n. It la merely an understanding.
CONCENTRATION OF ECONOMIC POWER 1055
Mr. Carlton. Then in some of these licenses there is this pro-
vision about new patents, which says that "The license gives you
everything that I now have and all that I shall in the future invent
for 15 years, but if at any time I make what I consider an outstand-
ing invention, that I feel is revolutionary, and I don't want to give
it to you, I shall then notify you of that invention and it is then my
privilege to withdraw it from the cross-licensing agreement."
Mr. DiENNER. Mr. Carlton, at this point you might well tell us the
effect upon the quoting of prices by a competitor. Assume that he
had a license which he got through compulsion or otherwise, not in-
tending actually to use it. What would be the effect of that?
Mr. Carlton. Well, Mr. Dienner, that has been a wicked practice
in this industry. I have known people within this industry who were
so anxious to be free and easy with their patents that competitors
have come to them and said, "I sort of like that thing you make; I
would hke a license imder it." They agree upon one and agree upon a
royalty, and this has actually happened: The competitor who got
the license didn't want to manufacture it. It costs a lot to tool up
to make it. He had a device which he was selling. YHiat he wanted
to do was to quote on the other fellow's product. Having got the
license, he quoted a low price, a lower price than the article should be
sold at, and he made a monkey of the other fellow's product and
boosted his own product.
In one case he got some business and he couldn't manufacture it
and he couldn't deliver. Then he asked for time to tool up. At the
end of the year the original fellow got the business back.
There is great danger in a free idea of just handing the other fellow
a license unless you know he is going to use it. Of course that could
be stopped by a very high minimum royalty which would be so high
that he couldn't afford to pay it unless he was serious and was going
into the manufacturing business, but in this industry, wherever there
are licenses granted, the rate of royalty has been very low, because if
you are going to stay in business in this industry your profit area is
very small. The profit area in this original equipment business you
can easily determine by looking at those companies that are listed
upon the national exchanges. In 1937 you will find they ran as low
as 2 percent, and, I think, none of them higher than 10 percent. Does
that answer your question, Mr. Dienner?
Mr. Dienner. One more point. Assume that there were a sys-
tem of compulsory licenses, how would that operate on this quoting
practice?
Mr. Cahlton. What is that?
Mr. Dienner. Assurhe that there were a system of compulsory
licenses, namely, that another competitor could come to you and
demand a license, what would be the effect of such compulsory license
law or provision on this practice of quoting?
Mr. Carlton. Well, it would be just the effect that I now mention.
It would be ruin to the fellow's business if it got in the hands of a
vicious competitor.
Senator King. Mr. Dienner, I haven't heard the suggestion made,
and perhaps it is because of my lack of information or inquiry, that
there should be compulsory hcense for patents which are being used.
The suggestions which I have heard made were that if a patent was
not used, within a reasonable length of time, and there was no evidence
]^Q56 CONCENTRATION OF ECONOMIC POWER
that the patentee intended to use it, then application might be made
to the court under proper restrictions, to Ucense the patent.
The Chairman. Senator King, I merely wanted to bring out prac-
tically the full picture of where the compulsory Ucense certainly
should not extend.
Senator King. May I ask one question, hardly pertinent to what
has been stated. I assume from what you have said, however, that
with all of these changes, this mortaUty that has occurred, there has
been a general improvement in the products which have been manu-
factured by your association as well as by organizations not within
your sssociation.
Mr. Carlton. Yes, sir; Senator, and to my very best knowledge
and belief, there is not one part of an automobile manufactured and
sold today by a parts company which is not better from every stand-
point than ever before, and w|juch is not being sold to the manufacturer
of automobiles and trucks at a lower price today than it has ever
before sold in the history of the industry. A wheel, for example,
today, is being sold for 20 percent less than a wheel for the same car
was sold 5 years ago.
Senator King. In "view of the small profit you have indicated,
from 2 to 10 percent, and the great mortahty, I marvel that there
should be capital available for the automotive industry, especially
the parts. People must have a good deal of the gambling spirit, it
would seem to me, to invest in an enterprise, in an industry, where
the mortality was so great.
Mr. Carlton. That is true, Senator, and it is true that very few
new companies are coming up in the parts industry today. It is
very rare that a new company starts. On the other hand, we deal
in terrific volume of business, and once a company is started and
acquires that volume, a percentage of net return at the end of the year
of 5 percent will net the investor a very fair return, and parts compan-
ies have made a fair return on their money over a period of years.
Senator King. That is, some companies.
Mr. Carlton. Yes.
The Chairman. The survivors.
Dr. Dienner. Mr. Carlton, you have mentioned the fact that parts
now sold are generally of better character and lower price than they
have ever been. How is that possible? How are you able to do that?
Mr. Carlton. You are able to do that by better manufacturing
methods, and particularly by constantly improving your product so
that it is more easy to manufacture. For instance, a wheel today is
manufactured on machines that produce greater quantities of wheels
in an hour, and that wheel can be produced of material which can be
purchased at lower cost than formerly. The wheel is just a type of
wheel which can be made lighter^ than every before.
Mr. Dienner. Do you thijik that patents had anything to do with
this situation?
Mr. Carlton. They had a very great deal to do with the situation.
The development has been constant and everlasting, and the improve-
ment patents are the protection that we have, and without those
continuing improvement patents, our customers and those people
that look upon our industry and see us make money in 1 year might
step in and take our business away from us.
Labor rates have increased constantlj^ in this industry until we have
a situation today that seems very unusual, in that the wage rates
CONCENTRATION OF ECONOMIC POWER 1057
paid the factory workers today in this industry I am very safe in
saying are 20 percent higher today than they were in 1936.
That means that wage rates today are higher than ever before in
the history of this industry, and still our product is being sold at lower
prices than ever before in the history of this industry.
Representative Reece. May I ask, Mr. Chairman, what percentage
of the business of your industry is with the motor manufacturers?
Mr. Carlton. I have that figure in the very beginning; as I remem-
ber, it is 83 and a fraction percent of the business of this association
that is directly with the manufacturer.
Representative Reece. And one other thing. Are all of the more
important parts patented devices?
^Ir. Carlton. All of the parts are patented. I wouldn't say that
there are fundamental patents covering all of them, but there are
improvement patents, hundreds of them, covering every part, and
it is upon those improvement patents and many fundamental patents
tiiat this industry relies.
Mr. Dienner. Right at that point, Mr. Carlton, is there any patent,
fundamental patent, on an}- part which is supplied on an automobile
wliich would prevent somebody from supplying that part either in
one form or another, to your knowledge?
Mr. Carlton. That is a very interesting question. I have looked
into that very thoroughly, Mr. Dienner, and I find that there is no
one part of an automobile all forms of which are covered by a single
patent or by a group of patents so that any one company has a
monopoly on that one article. Now that means, saying it the other
way, that a purchasing agent of an automobile company has competi-
tion today offered him on every single part that he wants to buy.
He may want to buy a Carter carburetor, and that is protected, but
he can buy a half dozen other kinds of carburetors. That is the way
it goes down the line. He doesn't have to buy that one kind of a
carburetor, so that there is competition for every one of these various
items, and that is really a very healthy situation all down the line.
The Chairman. Would it be proper in your opinion to draw as a
conclusion that the effect of the patent system when it is not diverted
by means of closed patent pools is to maintain competition?
Mr. Carlton. Yes, sir; very decided^ so.
EFFECT OF ABOLITION OF PATENT SYSTEM ON COMPETITION
The Chairman. And would it be proper in your opinion to say that
if the patent system were abandoned or were abolished, the effect
upon competition would likely be bad?
Mr. Carlton. Very bad, and result in a lessening of incentive; it
mi.^cht result in some stagnation.
1 would like also just to mention one other phase that has come
up so many times in this association. Patents are valued so much
more by the small manufacturer than they are by the large manufac-
turer. "^The large manufacturer has built himself a terrific volume and
l3y that volume possibly he is able to buy materials cheaper, he is
able to set up one continuous line and he can run that one item without
end, he may be able to set up a machine that will run it a year without
ever changing his dies. Die changes are very, very expensive on
these complicated dies. And he has that great advantage over the
1058 CONCENTRATION OF ECONOMIC POWER
small fellow, who has a very small amount of business here and there.
Now the advantage that the small fellow has is a trick method of manu-
facture that the big fellow doesn't know about or that he can't afford
to put in, or he has a patent on some Httle device that he can make a
fine little living on. I have been surprised at the small manufacturers
of this industry who employ 10, 20, 30, 40 men, and how well they do
and how at the end of the year their percentage of profit is better,
way higher, than the fellow who does business in millions, and so I
thank that if anything happened to tliis patent system the fellow \^ho
would be hurt more than anyone else would be the smaller manufac-
turer! The bigger man gets his volume, and the more volume that
he has accumulated and the more volume he is assured of the less he
values the whole patent system, in my experience. At least I am sure
that is true of this industry; I wouldn't want to translate that into
any other industry except this one with which I am so familiar.
Mr. DiENNER. Mr. Carlton, one more important point I think you
ought to cover. Do. you know of any instance in yo\ir industry where
a patent improvement has been deUherately withheld from the public
or shelved in order to prevent its use? ,
Mr. Carlton. No; I have never heard of anything of the kind.
At a recent meeting of a large number of the members of this industry
somebody brought that question up and they were all on their feet
at once and everyone said, "Well, we have got over-capacity, we are
looking for new things to make. If any of you have got a patent, and
you are trying to hold it back, will j^ou give us an opportunity to buy
it or take a license under it and tell as what it is?" I don't believe
there is anything lilvc that in our industry. I am sure that there
isn't.
PATENTS NOT USED TO ESTABLISH MONOPOLY
Mr. Carlton. I would also like again to bring out that no one in
this industry tries to establish a monopoly because of a patent. That
works about this way: We realize that no one parts manufacturer
can get all the business in the world. Therefore, we must recognize
our competitors in the business. We <realize also that all of the large
manufacturers of automobiles are not going to confine themselves to
one source of supply. They won't do that because of strikes and fiies
and all the other things that go into that, and therefore if we had a
patented article that they wanted to buy and we wouldn't give anyone
a license, that article woidd never go on the market in a big way. We
realize that. We have found that out by experience. So common
practice with us-^and it is common practice with a lot of other people
making other things than we make — is to try to get ourselves some
business from these large manufacturers and then say, "We know that
you won't give us all this business and we don't want it all. Give us
a part of j'-cur business and we will give you a license to make or have
made." So all we want is protection to get ourselves some business
and get our development expense and so forth out of the thing.
1 think I am about through. I had a little philosophy of my
theory of tliis thing.
Mr. Peoples. Mr. Chairman, before Mr. Carlton gets down to his
summary, I would appreciate very much, by reason of his intimacy
with tlie trade in general, if wiien you come to the marketing practices
CONCENTRATION OF ECONOMIC POWER 1059
of your corporation, you would say, Do you establish list prices for the
guidance of the different dealers and the sale of spares to the public?
Mr. Carlton. I am glad you asked that.
Mr. Peoples. And also what effect that list may have on the list
prices of your competitots.
Mr. Carlton. First of all, practically all of my discussion so far
has been directed to the original equipment business, that is, stuff
sold to the manufacturer of automobiles. In my company our auto-
motive sales are 90-odd, 96 or 97 percent of all of our volume. We
sell nothing to the consumer, nothing to dealers, except service parts.
Your question is directed to those people who sell replacement parts
and accessories. The practice of those people selling replacement
parts and accessories is almost universally to sell an accessory at a
net price to the- distributor. They don't sell to dealers — some of them
do, some sell to dealers — the great majority is sold to the distributor;
the majority of them, not all of them but the majority, sell to that
distributor at a net price. They may have a recommended Ust price,
resale price, but that varies all around the United States. I know of
no attempt in this industry to try to maintain the resale price, if that
is what you mean, a list price or a resale price. There are companies
that follow the other practice of a Ust with a discount from list.
Now they do that we do that in some instances on a wheel;
where a service station wants to handle "a wheel out of New York
City we go to our customer and find out what his prices are on wheels
in order that we may sell to the Packard dealer in New York City —
we don't sell the consumer at all. We want to be able to have our
distributor in New York City sell to that Packard dealer at the same
identical price that Packard can sell to the Packard dealer. We
prefer in the beginning that Packard sell that dealer all of his service
parts, but Packard says to us, possibly not Packard, but I am using
that only as an example, "Over a period of 10 or 20 years we have
changed wheels and sizes and types until any one dealer just can't
have all these wheels so that if you break a wheel, have an acci-
dent, and you come in and pick one of those out of stock, you just
can't do it." So there has grown up in this country wheel service
stations who specialize in carrying w^heels back 20 years, where that
dealer can pull that wheel out of stock if it is 20 j^ears old. That
dealer wants to buy that wheel at the same price he would if he would
wait 4 or 5 days and get it from the factory, so there is a list price, not
a list price buu a net price to our dealer so that he can sell the car
dealer at the same price as though he got it from his own factory.
Mr. Peoples, .tind your competitors follow the same practice?
Mr. Carlton. Yes; in the wheel business.
Mr. Peoples. Then the prices, when it comes to the ultimate
purchaser, may be essentially the same.
Mr. Carlton. Probably about the same.
Mr. Peoples. The same over a period of time, 2 months, 3 months,
6 months?
Mr. Carlton. Yes; and those prices, for example on a wheel on a
car that you want this year, are lower than on a car 10 j^ears old.
Mr. Peoples. Exactly so. ■
Mr. Carlton. Because it costs a lot of money to carry that thing
around for 10 years, but that fellow may be glad to get rid of it, he
might sell it at any old price. We don't try to maintain those prices.
1060 CONCENTRATION OF ECONOMIC POWER
Senator King. The prices would differ, I imagine, based upon your
freight rates. You would sell to some person in Omaha or San
Francisro
Mr. Carlton (interposing). That is right, very materially.
Senator King (continuing). Wliere the freight rate would be much
greater than if you sold in New York City at a price entirely different.
Mr. Carlton. Yes; and again I want you to understand that we
don't sell the retailer, the car owner, anything under any conditions.
Mr. Peoples. I was trying to arrive at the practice.
Mr. Carlton. Neither do we maintain any retail prices.
The Chairman. You don't maintain a standard price throughout
the country?
Mr. Carlton. No, sir.
Representative Williams. Do the dealers?
Mr. Carlton. Not throughout the country.
Mr. Peoples. They do it by regions?
Mr. Carlton. Oh, they set their own price. The man on the
Pacific coast figures what he can get out there and adds whatever the
freight is and sets any kind of price he wants to set.
Mr. Peoples. Does any leading dealer in the industry, say, fix
the price through a list price which is follo\ved by his competitors in. a
given region or zone or geographical area?
Mr. Carlton. Not in our industry. Not in my business. I am
not talking of the industry because I am not familiar with all that
retail thing.
Mr. Davis. Mr. Carlton, I didn't catch the exact name of the
association of which you are president, the large association.
Mr. Carlton. It is Automotive Parts & Equipment Manufac-
turers, Inc. Now it is commonly called the Automotive Parts &
Equipment Manufacturers Association.
Mr. Davis. That is an incorporated association?
Mr. Carlton. Yes, sir.
Mr. Davis. Is stock owned in it, issued and owned by the different
members thereof?
Mr. Carlton. No. It is a nonprofit corporation.
Mr. Davis. How many members has your association?
Mr. Carlton. 375 at the present time.
Mr. Davis. As I understand, that is made up of the manufacturers
of most of the parts, some of which are not related to or in competi-
tion with other parts. For instance, there is fto relation or competition
between a car wheel and a speedometer.
Mr. Carlton. That is right.
JVIr. Davis. Just what function generally is performed by this asso-
ciation of people manufacturing different parts which do not have
any relation to each other except that they are parts of an automobile?
i\[r. Carlton. First of all, every 4 weeks every member of this
association reports the number of men on his pay roll, the number of
wonun, his pay roll, his actual wage rates, his productive and non-
productive labor, the number of salaried people, his total salaried pay
roll. Once a year he reports his sales volume broken down into all of
the various classifications of our industry. Our industry (I haven't
gone into detail) is broken down into a lot of classifications.^ 4Fhen
there is available for any member of the industry — if a labor union
comes and says, "You are DOt paying the right wages," they can call
CONCENTRATION OF ECONOMIC POWER 1061
upon US at any time and we can furnish them not any individual rates,
we don't furnish the individual wage of any competitor, that is secret
information, but we can furnish them the average wage being paid by
all of his competitors, or we classify those by cities and by all of the
various classifications of jobs in cities; we have big job sheets by which
we classify wages b}'- jobs in a city. We have one for Toledo, one for
Chicago, and Detroit, every ' ity in which we operate, so that a man
has that sheet and he can look at that at any time and find out whether
or not he is in line with the other fellow, whether he is up to the other '
fellow, whetlur he is liable 'to get in trouble because he isn't up to the
other fellow. It isn't any attempt to hold wages down, it is an attempt
to be sure tb.at he keeps out of trouble. Those sheets are even made
available to some of these customers of ours. He has a source of
supply and he hears of trouble and he calls us up and says, "How
does that fell6w chec^ up in his home town?"
We say, "Well, l^e is a little bit low." He calls him in and says,
"Hey! What ar you paying in yo;' ■ home town? What wages are
you paying?" jl he is too low he im so. That is a healthy situa-
tion in an ind stry.
In additioT; io that — pardon me.
Mr. Davi.~. Are the wages uiiifonvi, we will say, in the same city or
same area wliether they are workiiig on car wheels 'or speedometers
or shield wipers or any other parts? Are they all uniform?
Mr. Carlton. Oh, no; they do vary somewhat, Judge, by industry.
In other words, a man doing a ver}- heavy type of work may get a
little different rate, but in a given group if a man is making leaf springs
in the city of Detroit, the chances are that the wages for leaf springs
are all about the same. The union takes care of that pretty well. It
is a pretty thoroughly unionized industry, especially in cities, not in
the smaller towiis, and if the union came to you and said, "We want an
increase and you are not paying as much as your competitors," you
wouldn't kno^s , you wouldn't have to call your competitor, you could
call the association and it would tell you exactly where you stand with
the other people in town, Mr. A, B, C, D; you wouldn't know who
they were, but you would have them all.
In addition to that we have a labor-relations department that is
advising them on all matters of labor difficulties in order to keep
peace -in the industry. It is very active in that matter. It is a very
necessary thing. If one of these parts plants closes it is a very
serious situation; it stops the automobile plant immediately. They
carry very, very small inventories. The inventory is in the parts
plant, in the plant of the parts company, and in transit to a large
extent; there is some on hand there; and it can't be closed without
closing the automobile company and caushig a terrific lay-off in all
other industries. So they are working very carefully with a consider-
able cooperation with the union at the present time.
The Chairman. Wliere do most of your patents come from? I
mean where do the ideas come from? From within your organization
or from outsiders?
Mr. Carlton. Speaking first of all of my own company, th§
majority of our patents have come from within our own organization,
from our own development, although we have bought a large number
of patents from the outside. We are buying from time to time patents
that come to us from the outside.
1062 CONCENTRATION OF ECONOMIC POWER
The Chairman. What would you say is the opportunity for the
unattached inventor to dispose of a useful patent in this industry?
Mr. Carlton. I think it is very, very great. I know that in every
branch of tliis industry there is a constant procession of purchases of
patents going on all of the time.
The Chairman. You said earlier in your testimony that your
industry has reached that degree of stabiHzation in which the members
have abandoned litigation among themselves with respect to patents.
Mr. Carlton. That isn't true of the \\hole industry. There is
litigation going on among members of this association, not rrp'the
wheel industry there isn't, but among other people.
The Chairman. You mean among members of the association?
Mr. Carlton. Oh, yes.
The Chairman. So that that has not been completely eUminated?
Mr. Carlton. Oh, no.
The Chairman. How about litigation between members of the
industry, manufacturers, and these unattached inventors? Is there
much of that?
Mr. Carlton. There is plenty of that going on all the time, sir.
The Chairman.- Your associates or companies have been defend-
ants in infringement suits,, have they?
Mr. Carlton. Many times.
The Chairman. The reason I am asking the question is the com-
plaint IS frequently made to Members of Congress, I know it has
been made to me many times, on the part of inventors that their
devices have been pirated by manufacturers who just put them to
their remedy in the courts and when they, are unable to finance a
lawsuit they are unable to protect themselves. A case was described
to m.e only yesterday after the conclusion of the testimony here, by
a woman who was seated in the audience who came to my office later
on, to say that her husband had invented a certain device and a
patent had been issued, that this device was being used by a large
business concern, that she went to a lawyer, the lawyer originally
said it was a good case and he would take it, but that he afterward
withdrew from the case; she had no money, her husband had no
money, there was no possibility of her paying the lawyer's fee.
I wonder whf>+ out of your experience you would care to say to
this committer with respect to the chances of an independent, unat-
tached inventor to protect himself under the present patent system
from the use of his device by a well-established concern, fortified with
money and la\\n»^ers, and so forth.
Mr. Carlton. First of all, I tliink, in fact I know, that the people
in this entire industiy are basically very honest.
The Chairman. I believe that is true of most industries, too.
Mr. Carlton. Thc}^ have found that it pays to be very honest.
They have gotten in more trovMe by trying the other thing, and it is
just financially good business, and therefore every improvement or
so-called invention
The Chairman (interposing). Are we to infer that the other thing
has been tried?
Mr. Carlton. I think it has; yes. Every improvement or so-
called invention is put into tliis patent office in order that we may
protect ourselves. Secondly, we have never put anything into pro-
duction without the most careful and thorough search to be sure that
CONCENTRATION OF ECONOMIC POWER lQg3
we are not infringing something else. It is easier to do it that way
than to have the fellow jump on you after you get into production.
When we find there is sometliing that wc might infringe, we contact
that patentee and we try to get a license. In practically eveiy case
we are satisfied with a nonexclusive license, or if he wants to sell the
patent for a reasonable amount we might buy the patent. Now
where the manufacturer gets in difficulty, my experience lias boon in
25 years that practically everj^ time we have gotten in trouble is
where we have unknowingly and unwittingly mfringed a patent, or
where we have gotten into production and then after we have gotten
into production and gone along for a number of years, a patent has
popped out of the Office that we didn't know was Ixere. Then we are
in difficulty.
In those cases sometimes we settle, sometimes we take a license
and pay royalties, sometimes our attorneys advise us that we don't
infringe and it goes to suit, and wc lose, and we pay what we have to
pay.
I know of no cases of an inventor who has been unable to finance a
lawsuit. There seems to be about the same degree of overproduction
of patent lawyers as there is of wheel production, and there seem to
be plenty of them that are willing to take these cases and take their
chance on what comes out of the case. .1 know that we have been
prosecuted, and maybe persecuted, in cases by lawyers who took the
thing on a contingent basis, and I think your friend was unfortunate
that she didn't contact the right man.
The Chairman. Your judgment, out of 5'our experience, is that
the unattached inventor has an opportunity to exploit his device
under the present system.
Mr. Carlton. I certainly think so; yes.
The Chairman. And do you want us to understand that out of
your experience you believe that manufacturers as a practice do not
attempt to pirate devices ^vithout proper compensation?
Mr. Carlton. No, sir; they do not in this mdustry.
The Chairman. I was interested in jour discussion at the outset
of your testimony of the relationship between the members of your
industry and the automobile manufacturer. You spoke of sort of a
competitor-customer relationship. Can you go into that a little
further? Tell us something about the effect, if any, which the auto-
mobile manufacturer exercises or exerts upon members of youi'
association.
Mr. Carlton. That effect is probably a very excellent incentive.
That effect keeps the parts manufacturer on his toes because the
automobile manufacturer is going to buy the best product that he
•can buy and he is going to buy that product at a price which he
thinks is very fair. There are all sorts of variations of this tiling,
but we might take this example. A m,anufacturer might make a part
of a given automobile device h'mself in his own factory. Making
that device, he keeps very careful check of his "cost, and therefore he
determines about what he is going to pay for that device, and he has
a club over the parts manufacturer's head.
I think he has been fair abctut it. He knows if he doesn't allow
the parts manufacturer a profit, he won't be in business and he will
lose his source of supply. But he isn't going to allow him an exor-
bitant profit. On the other hand, another manufacturer may buy
1064 CONCENTKATIOX OF ECONOMIC POWER
all of that piece that he uses of the parts manufacturer, and he will
continue to do that as long as he thinks that parts manufacturer is
ahve, that he has an engineering force that is bringing him con-
stantly new ideas, that he is improving his product, that his prices
are never going up, that th.ey are going do\yn, and that he is really
his research and development and engineering department for that
one specific part.
Now when you can get yoursr-^: co the point where they look upon
you as behig smart as engineer^, and where they will say, "\\'ell, wo
w^on't try to design tliis wheel, we will just leave that to you, this is
the kind of body we are going to have this year, now come on in and
help us design a wheel," when you get a design they look at it and
help you, and when you get all through they say, "All right, build
some samples," and we build the samples and we change and we
change and we change, and we work and get the weights, and so forth,
we know how much the car is going to weigh, we test in our labora-
tory for strength, and so forth.
The Chairman. Is that done before or after you have made the
contract for delivery?
Mr. Carlton. That is before the model is ever brought out.
The Chairman. So this experimental expense is borne by the
manufacturer of the part?
Mr. Carlton. Yes; and when you get that done you may have
spent $25,000 in just this one little job, to do that job, and wdien
you get through they call your competitors in and say, "Boys, here
is what we are going to do this year and here is the blueprint of it,"
and the other fellows come in and bid on your work and you may
lose the business.
I never saw an industry, I don't believe there is an industry which
believes in free and unrestricted competition to the point of coming
nigh to assassination the way this industry does. They seem to
110^
Ti
'he Chairman. No effort is made then among the members of the
association to prevent one another from underbidding on a case such
as you have just now described?
Mr. Carlton. Oh, I should say not, and the large manufacturer
wouldn't give us all of his business. He will have another competi-
tor in there. On one model "^e will have our part and the other
fellow's part on another one, an^l^^et the wheels as close together as
he can, and there you are.
The Chairman. Maybe that is the reason there are, as you call it,
in the uidustry, bugs in one car and not in another.
Mr. Carlton (la\igiiing). I wouldn't answer that. You see, we
are trained in the sales school where we were taught years ago that-
the customer is always right, and therefore we never criticize any-
thing that he does, we just try to make a living.
I would like to close with just this statement—
EFFECT OF PATENT SYSTEM IN INCREASING EMPLOYMENT^
The Chairman (interposing). I was going to ask you j\ist another
question before you get into your philosophy— I think that was the
word you used. What in your opinion is the effect of the patent
system as you have experienced it, upon unemployment?
' ^f"" addiMonal tesstimony on fhe relation if patents to employ nent, see supra, p. 857 et sea. n. S07 et
■ X] ■-' '.KM .^* seq. and p. 932 et scq. '
CONCENTRATION OF ECONOMIC POWER lQg5
Mr. Carlton. The patent system lias certainly increased employ-
ment: New devices have made automobiles, the sale of automobiles,
possible. The original equipment manufacturer can't create any
business himself. We sign a contract for the year's requirements of
a given model, an automobile, and then we have to sit and hope that
that car sells. We are pround of the part we have had in designing
that one part, and if all of the parts fellows together, plus the efforts,
the very great efforts, of the automobile manufacturer, liave made
that car a success, then that car has the call that year.
I think the patent system, which I like to call a part of the American
incentive system, has been the greatest factor in creating this great
automobile that we have today which is being sold at the lowest
price ever known before in the history of this country.
Does that answer your question, sir?
The Chairman. Do you have any suggestion to the committee as
to any change that might be made in the patent system that would
have the effect of increasing the opportunities for employment even
more?
Mr. Carlton. I think I have no specific recommendations. Of
course, I am not a patent lawyer. I think I should receive some sort
of degree, probably an "employer of patent lawyers." I have spent
fortunes for companies employing patent lawyers, and so I check
them up, I know what they do and I follow them up and I know
what they spend and what happens, and I do know that over the 25
years that I have watched this Office — it is about 27 years that I have
been intimately famihar with what the lawyers that I have been
employing have been doing — there has been a constant improvement
in things generally in the industry with which I have been connected,
and it has always been this one industry, some branch of it.
What we want of course is better patents, with more assurance of
their validity. What we want is faster action, and stijj the assurance
that those patents are valid. I rather think I favor the 20-year
limitation, although I can see some cases where that might work a
hardship upon an inventor. We purchased a patent not long ago
that had been in this Office a long time. I don't know why it was
here so long but the inventor swore he didn't hold it here. It had been
here 7 years, I think, when we purchased it. But it got into a very
bad interference, and those things get very costly. It went clear
through the Court of Customs and Patent Appeals, and so forth.
I have no very definite reconomendations ; only just those recom-
mendations that patent lawyers and this Patent Department know
will improve the Department generally. Certainly I don't want any
fundamental changes in this patent system that I believe has been the
greatest incentive that has made America what it is today in many
respects.
The Chairman. Thank you, sir.
patent system responsible for development of automotive
industry
Senator King. As I understand you, the automobile industry by
and large, including trucks and all, has largely been developed through
the patent system. At any rate, the patent system has encouraged
this great development in the automotive industrv that we witness
in the United States.
1066 CONCENTRATION OF ECONOMIC POWER
Mr. Carlton. It has in the parts industry. I am sticking to my
story in tlie parts industry, Senator.
Senator King. And would you say that the patent system by reason
of the security which it affords has encouraged a larger expenditure of
capital in the development of industries?
Mr. C.\RLTON. It certainly has in the parts industry, very
decidedly so.
Senator King. And has that development increased the amount
of employment, the number of employees?
IMr. Carlton. It has, because it has increased the sale of the items.
Senator King. In your association are more persons employed now
than there were 2 years ago, 3 years ago, 5 years ago, 10 years ago — at
any prior period?
Mr. Carlton. Of course now is a bad time to measure that. We
are picking up very rapidly. We have been through a year in which
we were off 40 percent in the last year, but taking 1937, I believe it
is a true statement — and Dr. Lubin can check me on this; he and I
have had some correspondence about the employment in this coun-
try— to say that in the automotive parts manufacturing industry
that we employed as many men as were ever employed at the peak of
the industry, which was probably 1928 and '29, and the number of
automobiles built was very much smaller, of course.
Senator King. Are you paying a higher wage now than you paid
in 1927, '28, and '29?
Mr. Carlton. Oh, very much higher. If you said 40 percent
higher, you would be very low.
The Chairman. Do you require a high degree of skill among your
workers?
^Ir. Carlton. I wouldn't say a high degree of skill. In the busi-
ness with which I am connected you can take a good farm mechanic—
and I mention a farm mechanic because a good farmer is a swell
laboring man in a shop — and in 60 days you can teach him practically
any operation there is in our factory and he becomes an expert working
mall, with the exception of the tool and die industry, which of course
requires an apprenticeship and a good many years of training. I am
talking about the production lines.
The Chairman. But you do employ these tool and die workers
al?o?
Mr. Carlton. Oh, yes.
The Chairman. \^Tiat stability of employment do you give the
latter type of worker, generally speaking, in Iho industry?
Mr. Carlton. The tool and die man? A very high degree of
stability. We work very hard on that job because in the small town
where we live we can't lose those men. Once having trained them to
do our particular job — and they are very high paid men, they earn
better than $2,400 in a year — we can't lose those men, we can't let
them get away from us.
The Chairman. What do you do to keep them?
Mr. Carlton. We do everything we can to keep them, by spread-
ing our dies any way we can, and when we can't do that we transfer
them to any other kind of job we have in the plant to hold them.
The Chairman. When your work falls off and there is actually not
enough work in the plant to go around, do you attempt to keep
these people on the pay roll?
CONCExNTRATION OF ECONOMIC POWER 1067
Mr. Carlton. Yes, we haven't lost them. We have about 100 of
them that we have kept for many, many years, and as I say, those men
will average better than $2,400 a year.
The Chairman. And what about the less skilled employee, what
stability of employment do you offer him?
Mr. Carlton. Well, it is not as good as it ought to be. It is
getting better.
The Chairman. In what way is it getting better?
Mr. Carlton. We are the victims of circumstances, as are the
manufacturers of automobiles. You can't convince people to buy
automobiles in Northern Michigan when the snow is right now, as I
understand it, over 3 feet deep just north of us. Consequently, the
dealers can't afford the inventory and nobody has a place to put them,
and therefore production slumps off in that time of the year.
The automobile mamlfacturer has done everything within his power,
I am positive, to assist this situation. He formerly used to give us
very sudden orders to do this and that and he doesn't do that any
more. He gives us a contract for a year's business, and that isn't
anything that you can do anj^thing with, and then he gives you an
order to purchase raw material for a portion of that contract, possibly
100,000 sets of our material. Then you have gotten a start. You
can go out and buy some raw material. Then he will give you an
order to fabricate maybe half of that, 50,000 sets, and then you really
are getting some place. Then it is your own expense. You can go
out and fabricate that and you don't know when you are going to
ship it, but you can keep your men working during the month of
February, for example, when his shipments may fall down, you can
keep that production running pretty level, because you fabricate at
your own expense. Maybe you semifinish a lot of that material and
that helps materially. Then of course I haven't mentioned the
diversification that automotive parts plants are trying so hard to do,
to get into something entirely outside of this industry. I haven't
seen our figures for this year, but I am sure that considerably more, or
at least 30 percent of our sales volume in the year 1938 was entirely
outside the automotive industry, and we tried to get that into sorae-
thing that doesn't have the same peaks we are in in the automotive
industry, and that helps to transfer those men from one job to
another. You run into all sorts of difficulty with the union when
you do that because they don't want to be transferred.
The Chairman. This Is just developing, then, is it, this effort to
stabilize employment?
Mr. Carlton. It has been worked out for a number of years, and
I would say that the very serious effort has been going on about 7
years, untU these people are carrying much bigger inventories than
they used to carry. It wasn't very many years ago they carried 24-
hour inventory in some of our customers' plants and today the majority
of them are carrying 30 days. That helped us.
The Chairman. Could you reduce your experience to a rule or a
standard that might be helpful to those engaged in other industries
who are confronted by similar problems of unstable labor supply?
Mr. Carlton. Senator, there has been so much thought given to
this whole business of stabiUzation of labor that I know of not one
more thing to do. We spend a great deal of time among ourselves
as parts makers and with our customers, and I will say that we haven't
1068 CONCENTRATION OF ECONOMIC POWER
one customer that isn't giving us every bit of cooperation that he
knows how to give, and if you get an idea and go to him with it
he will try it out for you to try to help you cut out these terrible
peaks and valleys. But until the pubhc can change its buying habits
I don't know what more can be done than we are doing now in this
particular industry.
Dr. LuBiN. Mr. Carlton, prior to 1935, new automobile models
were shown at the January shows, which meant that your automobile
season was limited to about seven or eight months. In 1935 the indus-
try changed its policy and put its new models out earlier and had the
November show, thereby in a sense lengthening the automobile season.
Has that had- any effect upon your abiUty to keep your people more
regularly employed?
Mr. Carlton. I think it has, Dr. Lubin. There is a very great
difference of opinion about that at the moment. You will remember
last fall the automobile dealers' association was divided about that
thing. Some of the dealers thought it was very bad and some thought
it was very good. It possibly is a questionable thing right now, but
from the standpoint of the parts manufacturer I think it is a very
good practice. I think it tends to stabihze employment in the manu-
facturing end of the business.
Dr. Lubin. It makes it possible, does it not, for you to keep your
people employed over more months in the year and not have to build
up your labor supply to meet a relatively shorter market?
Mr. Carlton. I think it tends to do that.
Dr. Lubin. I was interested in what you said about the place of
patents in your industry, in reply to a question asked you by Senator
King. You said that as far as your own industry was concerned you
felt that patents had been a very effective factor.
Now after all, your industry is dependent entirely upon the sale of
automobiles, and irrespfective ot4he patent situation in your own indus-
try, if automobiles weren't sold in large nunibers, patents or no patents,
you people would be in a difficult position. Do you beheve that
patents have had anything to do with the development of the auto-
mobile industry as such, I mean has it been a really significant factor?
Would we have had the development we have had of General Motors,
of Ford, Chrysler, and so forth, without patents, or without our
present patent system?
Mr. Carlton. I made the statement, which I will try to repeat
exactly as I made it. In my opinion our patent system, which I hke
to call a part of the American incentive system, has been the greatest
single factor in the development of the great automobile which we
have today, which is being sold at the lowest price that it was ever sold.
Now, I make that statement after consulting this parts industry
very carefully. I realize that so far as an original parts manufacturer
is concerned, his business depends entirely upon the sale of automo-
biles. Once having signed a contract for a year, then we have to sit
down and wait to see how much business comes in and we can't do
anything about that, but we can do a lot about that before that year
starts. If we can do something in the way of a part that makes that
automobile more attractive to you, then we will make you want to
buy a new car, and without any fear of our customers resenting it, I
can say that I think that the parts fellow has contributed a very great
deal to make this automobile what it is today, and when I say that
CONCENTRATION OF ECONOMIC POWER JQgg
I am coupling with it the fact that without patents the parts fellow
just wouldn't have been there. He couldn't have existed and devel-
oped and been what he is today.
Now, I am giving all the credit in the world to the great automobile
manufacturer who by almost superhuman manufacturing methods and
research and development of his own has done this, but for this indus-
try which I so unofficially represent, I am also taking its share of the
credit.
Dr. LuBiN. In other words, you don't think we would have 27,000,-
000 cars on the road today if it hadn't been for our present patent
system?
Mr. Carlton. No, sir; I do not think so.
Dr. LuBiN. I would hke to ask a question as to what happens in
your industry when a manufacturer suddenly decides that next year
he is going to make his own parts of a certain type. Does it fre-
quently happen that manufacturers who have been purchasing their
parts from people in your organization suddenly make up their minds
that next year we are not going to buy any more, or only buy a few
of them, and we are going to produce those things ourselves?
Mr. Carlton. Oh, that happens occasionally, I think. However,
they have been pretty fair with it, and I believe that in most cases
they have had pretty good reason for doing it when they did it.
Possibly the manufacturer of the part went to sleep; maybe he didn't
continue the development and research that he should have; maybe
his prices got out of line; maybe he got into a jam one way or another.
And then sometimes it happens that nobody knows why he did it.
Dr. LuBiN. But it is not a frequent practice for the manufacturer
suddenly to make up his mind that hereafter he will make the part?
Mr. Carlton. Not frequent; it is very occasionally that it happens.
Dr. LuBiN. But it does happen?
Mr. Carlton. It does happen.
Dr. LuBiN. One hears a lot of rumors, a Lot of stories round to the
effect that the parts manufacturer who had geared his output to the
demands of a given automobile manufacturer, and who because of
the orders coming through has put in large amounts of capital, new
investment, expanded his plant, and then finally wakes up one morning
and has the manufacturer say to him, "I want half a million units
this year, but you will have to sell them dt X price," a price which the
parts manufacturer cannot afford to produce at and make a profit.
Does that thing every happen in the industry?
Mr. Carlton. Oh, of course, purchasing agents will be purchasing
agents. They have to go through about so much of that hysteria; but
salesmen have to be salesmen, and when it is all boiled down I think
that is mostly conversation. I don't think there is any unfairness about
the whole thing, as a rule. If I am selling an article at $1.50 and the
purchasing agent says "I am only going to pay $1 for it" and I am
simple enough to say, "Well, if that is all you will give I will take it,"
then I am a lousy salesman and my company ought to get a new sales
manager. If I come out at $1.40 or $1,395, I am pretty lucky.
Dr. LuBiN. But the purchasing agent knows you have invested a
large amount of capital in order to meet his demand, and there is no
market but his, and you either take it or not. Chances are you have
to take it or shut down. It isn't so much a question of being simple,
it is a question of being in a position where you can't say "No."
124491— 39— pt. 3 16
1070 CONCENTRATION OF ECONOMIC POWER
I don't know whether that happens or not.
Mr. Carlton. They have a terrific club in their hands, but they
don't wield it. They wave it around a httle bit, but when you- get all
through they put it behind the door and are pretty decent about it.
Senator King. Has your association helped the effect of that club?
You are still making parts.
Mr. Carlton. We would all be out of business if they swung it
very hard. We get along just beautifully, as a matter of fact.
The Chairman. The power exists, but it hasn't been exercised upon
the three members.
Mr. Carlton., It must be they don't want to put us out of business.
Senator King. You are a part of the contract, so you may wave
the club over the automobile manufacturers, who don't produce the
commodities you are producing, and you might say, "We will not
produce this particular rim for less than so many dollars per unit."
Mr. Carlton. We are pretty meek.
Senator King. You have to find consumers for your products.
Mr. Carlton. We have a very limited market.
Senator King. But you produce something like how much —
$800,000,000 a year?
Mr. Carlton. That's right.
Senator King. And the other organization produces two or three
hundred million dollars a year?
Mr. Carlton. That's right.
Senator King. So that there is over $1,000,000,000 you and your
associates produce.
Mr. Carlton. We don't dare tell them where to go for fear they
might go, and we. have great respect for their manufacturing ability.
'The Chairman. I think the witness's answer that the industry is
meek probably stands.
Are there any other questions, Mr, Dienner?
Mr. Dienner. I have nothing further, Senator.
The Chairman. We are very much indebted to you, indeed, for
this very interesting testimony, sir, and you may now stand excused
with the gratitude of the committee.
Mr. Carlton. Thank you, gentlemen, for your patience.
(The witness, Mr. Carlton, was excused.)
The Chairman. The committee will stand in recess until 2 o'clock
this afternoon.
(Whereupon, at 12:05 p. m., a recess was taken until 2 p. m. of the
same day.)
afternoon session
The committee reconvened at 2:20 p. m. on the expiration of the
recess.
The Chairman. Mr. Dienner, are you ready to proceed?
Mr. Dienner. Thank you, I am.
The next witness we shall call is Mr. Graham, an independent
inventor. Mr. Graham, will yon please be sworn?
The Chairman. Do you solenuily swear the testimony you are
about to give in this procectliiig shall l)c the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. Graham. I do.
CONCENTRATION OF ECONOMIC POWER 2071
TESTIMONY OF MAURICE H. GRAHAM, MINNEAPOLIS, MINN.
AN INDEPENDENT INVENTOR
Mr. DiENNER. Mr. Graliam, will you please state your full name and
occupation?
Mr. Graham. Maurice H. Graham. I believe you would qualify
me as an independent inventor.
Mr. DiENNER. What was your training which brought you to that
state?
Mr. Graham. Well, I went to high school 2 years and then I figured
I needed a job more than I did any more school, so I hired out to a
telephone company, digging post holes, and I worked at that for about
90 days, and then I became a hnenian, and from that I became a
trouble shooter, and from there I was in switchboard work. In 1914,
when I practically quit the telephone business, I was district super-
intendent for the plant for the British Columbia Telephone Co. at
Vancouver. In 1914, when the war broke out, the telephone company
wanted to transfer me to Kamloops, and give me the commercial de-
partment as well as the plant department. I didn't like the com-
mercial department so well so I came home. In 1915 I went into the
automobile business.
I took up a Ford contract in the Uttle town of Zumbrota, Minn.,
and I met another fellow that I had known when I was a boy. We
bought the Ford agency. I operated that until 1925. I had done
fairly well in the automobile business, and in 1925 there was quite a
lot of trading, so I sold out the automobile business. I had a desire
to get into the manufacturing business. I had always leaned more
or less that way, so I took a year and went down to Florida and
monkeyed around and came back to Minneapolis in the spring of
1926. I tried out several little penny ante inventions; some of them
worked. For instance, a cigarette case I made would eject cigarettes
out. I sold 250,000 and it was fairly profitable.
There was a limit to it, it was a kind of once-over and then it was
all done.
I also tried out a garage door, an automatic garage door with a
weight on it. You would come up to the post and trip the trip, at the
post and the door would fly open, and when you got through you
would close the door and wind the weight back up. But that wasn't
so good. The door opener was all right but the doors would stick.
The garages those days were made in such a way that when the
wind was in one direction the garage usually leaned in the other
direction and the doors were always stuck, so it didn't work so well.
Representative Reece. The idea was good but it didn't work.
Mr. Graham. Yes; it was just one of those things. At any rate,
I tried some little schemes, some of them would come out, some of
them wouldn't, so in August of 1930 I went over to the McGraw
Electric Co. which was then known as the Toastmaster Co. under
the name of the Waters-Gonter Co., and I asked Mr. Waters why he
didn't make a toaster that wouldn't burn the toast, that I figured the
one he had did burn toast, and he said, "Well, that is a hard job."
I said, "Give me a tclfaster and let me try it."
He did and I fooled with it for a while, and all of a sudden I con-
ceived the idea that a clock was operating on a given time but a
JQ72 CONCENTRATION OF ECONOMIC POWER
toaster doesn't operate on a given time. As a toaster gets hotter,
the time cuts down. In fact, it almost cuts in half. So I thought
first that maybe the best thing would be to take the clock out, so I
made a toaster for him with two electrodes that come up against the
side of the toast, and when the bread toasted it would dry the toast
out eventually so that the electricity wouldn't go through the toast
any more, and then it would be automatically finished.
Well, that worked pretty good, but it left its mark on the bread
and some people objected to that.
So then I made one where the bread was pulled down over a pin
that had a very fancy little thermostat inside of a needle that timed
the toast by the inner temperature of the bread. That was quite a
popular toaster around the factory for quite a while, it worked very
good, but it had its troubles. People toast molasses on bread, and
butter, on bread, and everything else, and you have so many things
to contend with.
So I was not so sure that the clock in the end was not possiblv the
best that we could make, if we could synchronize it with the time that
it required to toast bread, from a cold toaster to a warm toaster, and
one of the most difficult things in the toaster to overcome is when you
have toasted until the toaster was warm; then you want to wait
about 2 minutes, or you did wait about 2 minutes for some reason,
you got an increase. On a minute and a half wait of a Toastmaster-
toaster you have to increase the time about 30 seconds. Well, it was
hard to cool off the piece of bi-Metal in the toaster as fast as the
toaster cooled off. Finally, I found that by taking advantage of the
radiant head and various other conditions in the toaster that it was
possible to do that. I built one; I built two of them, and I gave one
to Mr. Waters and one to Mr. Genter, and they tried them out and
they were very pleased with it.
It was during the first part of 1932 and things were not very good.
So we started to put that in production. It was very simple; it didn't
take a great deal of time. We tooled up and in August of that year
we put that into production. It increased production some during
that fall, we think — that is a guess, of course, as to what it did do —
but anyway in the season of 1932 it was not on the profit side for the
McGraw Electric Co.; 1933 it was on the profit side by considerable;
1934 was considerably better than 1933 and 1935, and so forth; and
1938 better than any one of the other years. I should judge that it
amplified the business practically three times over what it was before
that improvement was put on.
Well, after that, I was pretty well finished with the toaster business,
I had a royalty contract with McGraw Electric Co. so I opened up
a small shop or laboratory you might call it, and started to develop
some other toasters. I developed one with a thermostat that would
heat for a given time, and^jthen cool for a given time during each
toasting cycle. It had a lot of merit but the toasting art covers so
many principles that you must cover. So I worked with several
concerns; I would make a business of watching what somebody had
in the electrical appliance field and if I did not think it was just right,
or I could make it better, I would make a business of going over and
telling them, why don't you do this or that?
So I developed a pressure cooker for the Pressure Cooker Co. with
electric controls, the National Pressure Cooker Co. at Eau Claire,
CONCENTRATION OF ECONOMIC POWER 1073
Wis. That took quite a little time. I also made a flatirou and I
licensed that, of which I will tell you later. It wasn't such a good
experience, but it was a good flatiron. Then I shifted over into the
coffee business. I had an entirely different idea for coffee urns. With
most coffeepots the trouble is that you could only heat the water up
about so far and then you started to circulate it through the coffee,
then it should have no more heat, but to make coffee the way the book
says it should be made is rather hard to do, so I think I pretty well
accomplished that. When I got through with this particular coffee-
pot, 1 decided I wanted to show it to some bigger manufacturer to
see what they could do with it. I took it up with the General Electric
Co. and in conversation they were very much interested in this coffee-
pot, but they were also interested in this toaster that heated up and
cooled off.
I negotiated a deal on the toaster first, which ended up in making
a contract with the General Electric Co. — I don't know just how to
put it — it was handled through the McGraw Electric Co., but it is the
same patent that I got up that fall. So they took the coffeepot in
their laboratory and studied it for about a year. You might wonder
why I would take it to the General Electric Co. They have a large
sales organization and a great many jobbers, over 100 jobbing houses
and subsidiary jobbing houses, and I Imew that this particiUar coffee-
pot needed advertising. I would like to show it- to you.
Mr. DiENNER. Please do so.
Mr. Graham. It looks just like a percolator; in fact it is buUt on
a percolator but it has entirely different action than a percolator.
The Chairman. Is there enough to go around?
Mr. Graham. Not now; I could make it. It has a basket, just
the same as a percolator, and so forth, but what actually happens to
the thing, it heats the water up to 150°; then it turns that heater off;
then it has another trick in here that causes the water to heat further
by no direct contact with the heating element at all, on a different
principle that heats the water from there on up to 204°, where it seems
to be the right temperature for coffee to finish.
The General Electric Co. was very much sold on it. In fact there
is a contract agreed to between the engineering department and their
patent department. It has not been signed yet by the General
Electric Co., but is has been O. K'd as far as the patent division, and
the enghieering division at Bridgeport. The pomt of it is I have found
that the General Electric Co., "even though they have a large labor-
atory, they have many engineers, I have found that they were in
lots "of ways easier to deal with than some of the smaller concerns.
I haven't had a bit of trouble witli them.
The McGraw Electric Co. had a lot of engmeers, seven or eight
when I was with them. I had no trouble with them.
INTEREST OF INDUSTRIAL CONCERNS IN INDEPENDENT INVENTIONS
Mr. Graham. As an independent inventor it is my contention that
if you have got something that has any merit to it you won't have any
trouble findmg plenty of people in the large organizations that are
glad to listen to you and see what they can do.
1074 CONCENTRATION OF ECONOMIC POWER
Mr. DiENNER I take it, Mr. Graham, that you have taken out
patents on the items that you have mentioned, such as the toaster and
the coffeepot.
Mr. Graham. I have.
Mr. DiENNER. Now, tell us approximately what you obtain in the
way of royalties on the toaster, roughly.
Mr. Graham. Well, I would have to get those figures, but it has
been over $113,000.
Mr. DiENNER. Have you an illustration of a device wliich you were
unable to patent, unable to market?
Mr. Graham. Yes; there is another one dov/n here, if I can get it all
together. Tliis is not an awfully elaborate thing but in some sections
of the country it answers the same problem as the toaster. It is for
making biscuits, baking cake, it will bake most anything along the
liiif s of cornbread, biscuits, and so forth. You mix your biscuits
and put them in this pan here when it is cold ; you don't have to pre-
heat it or anything, you stick it in there, lift this up and set it over
there, you set this for what you are going to bake.
Mr. DiENNER. That is a thermostatic control, I take it.
Mr. Graham. It is more than that The idea is that it takes 20
minutes or 15 minutes to bake some things. If you had a thermostat
in there it would get hot before that period. You have to have more
than a thermostat to give you that long a period, so when it is done the
ball will fall down and shut off the current and you take it out when
you get rsady.
I had a deal negotiated with the Scott-Atwater Co. in Minneapolis.
T was negotiating a deal with them, and we thought we had the
possibilities of a pretty good patent on our control heater, but after a
complete search we found a reference that just took all the teeth out
of the patent; you might say all we would have was a design and we
were never able to get anybody to take it because we couldn't get
patent protection on it.
Mr. DiENNER. Would you tell us any criticism you have in connec-
tion with the securing of patents?
Mr. Graham. Well, I have taken out, I assume, 15 to 20 patents in
the last 10 years, all of that, and in that sum I have had one, two,
three, I have had four interferences; one interference cost me $8,000
and that is a lot of money. That was a toaster interference. Owing
to my set-up I had a royalty contract with tlie McGraw Electric Co.,
even on a patent that had not been issued, and this particular inter-
ference was on this particular patent, so it was up to the McGraw
Electric Co. to try to help out ir. the expense, otherwise they may
lose the main patent that they were working on, so they had to co-
coperate with me, otherwise I don't know whether I would have
wanted to go to that extent and spend that much to fight that inter-
ference with the patent.
I have had four other interferences, and it seems as though when you
get a good item that you are ready to put on the market, if yon put it
on the market before tiie patent is actually issued it just'^ seems to
me that I always run into an interference; in fact, that has been my
experience as far as I have gone.
I can't help but believe that there must be some way of shortening
the action of interferences or declaring somehow who the inventor is
other than, you might say, leavuig it" to this one and that one and
CONCENTRATION OF ECONOMIC POWER IQ75
the other one who may want to come in and witness this, that, and
the other thing. It is just a complicated set-up. I wish there was
some way it could be changed. That is the only complaint I have
under the patent system.
INABILITY OF INVENTOR TO ENLIST CAPITAL WITHOUT PATENT
PROTECTION ^
Mr. DiENNER. Let me ask you one more question. What would
be your attitude in regard to any change in the patent system which
would allow anyone to come to you and demand a license on the pay-
ment of royalty. How would that affect your situation?
Mr. Graham. What was that again?
Mr. DiENNER. Suppose there were provision in the law allowing
anyone to come to you and request a Ucense^ offering to pay royalties.
How would that affect your situation? In other words, compulsory
license law.
Mr. Graham. I don't think in the electrical appliance field that I
have ever built an item that I could go out to somebody and get him
to build it if he only had the use of it for a year or two or three, as the
case miglit be, and then the so-called "gyp" manufacturer could come
in and take advantage of it, because this particular coffeepot is so
much different and yet it looks just like a coffeepot, and somebody
has got to spend a lot of money in advertising to let the public know
what this thing does. It is not a coffeepot, that is an old-fashioned
percolator, because that is a discarded system. With the Silex and
the other ways of making coffee, you can hardly sell a percolator
today, and this looks just like a percolator. All manufacturers want
to get into a metal coffee maker if they can, because with stainless
steels and various other alloy steels there is a steel that is just as good
for making coffee in as glass. If I would go to them, for instance the
General Electric Co., and ask them to spend $50,000 to advertise this,
then in a given time anybody could come in, I don't think I would
ever be able to sell it. I couldn't interest them in it.
Mr. DiENNER. Mr. Chan-man, that is aU the inquiry on which I
wish to examine this witness, unless the witness has something further
to say to the conmiittee.
The Chairman. Do any members of the committee desire to ask
Mr. Graham any additional questions?
Dr. LuBiN. Mr. Graham, do you still own the patents on these
devices and rent them on a royalty, or have you sold some of them?
Mr. Graham. Some of them I still own, some of them I have had
the patent transferred to the man — well, for instance, the McGraw
Electric Co. has a great number transferred to them on a royalty
contract. I have that come up every once in a wliile: "Will you assign
the patent to us, or are you bound to have just an exclusive contract?"
I don't know. In some instances it is better to hang onto the patent,
and in some instances it is just as well to take on the exclusive con-
tract and give them the patent.
Dr. LuBiN. Is this biscuit device on the market now?
Mr. Graham. No; I have never been able to put it on the market,
because I haven't got a patent and I can't get one that amounts to
anything on it. There are designs and a few little features to it, but
it is one of those patents like many of them, that don't mean anything.
1 This subject is resumed from p. ,996, supra.
1076 CONCENTRATION OF ECONOMIC POWER
Dr. LuBiN. Is there any danger, in the event it might be put on
the market, it might be held infringing some other patent?
Mr. Graham. No. There is an old refesence that I found, an
expired reference, but it just took the teeth out of the possibiUties of
getting a claim that was any good on this.
Dr. LuBiN. In consulting with various manufacturers about that
device do they feel there is a market for such a thing?
Mr. Graham. Yes. This has been made for possibly 4 years.
The Knapp-Monarch Co. came out with a biscuit maker, anyway, and
the General Mills has tried to get me to find some way to simplify this
so they could put it out with their Bisquick. I may some day gej: hold
of some way of putting it out as a premium, but so far as putting it
out with a staple manufacturer as a year in, "year out product, I don't
think it is possible to do it.
The Chairman. Why not?
Mr. Graham. I can't get them to take it. The tool cost is too much
to tool up for a thing like this, with the possible profit there is in it and
then have somebody else come in and copy it and take away that
portion of the business that there is.
The Chairman. In other worIs, to bring an instrument of this kind
into production a patent is necessary.
Mr. Graham. I think so.
The Chairman. But on the other hand you have there a device
which is actually the result of prior expired patents which never went
into production.
Mr. Graham. That is true to some extent. The reference is a long
ways from this type of a device. There are many patents that are
cited to a fellow that are not practical and still they have something
about them that makes the practical device hard to get into perfection
and get any claim on it.
The Chairman. And do you mean to tell us you haven't been able
to find a patent lawyer in Washington who is unable to distinguish
this from the others?
Mr. Graham. I live in Minneapolis.
The Chairman. There is an opportunity here for somebody, I
would think.
Mr. Graham. Then again, in Minneapolis we are located quite a
little way from the logical manufacturing center. We have many
things against us; we have freight rates against us up there and,
where we go to a home manufacturer, if we can't protect him so that
he can have a protected price, it is difficult for him to compete with
the eastern manufacturer.
The Chairman. What is your judgment, in the light of your experi-
ence with this device, with respect to the recommendation which has
been made to us practically universally by all of the witnesses thus far,
that the period of exclusive use of any patent should be limited to
20 years?
Mr. Graham. Well, I know of only one patent in my life that ran
17 years, speaking now of electrical appliances. I have never seen
more than one patent that actually lived its life in actual production.
I think the 20-year idea has its niorit. It n\ay hurry some inventors
to try and answer an amendment cjuicker and finish the pntent sooner.
The Chairman. But if the reference in this case had not expired
it would be possible for you to acquire that right and thereby put this
macJiine on the market.
CONCENTRATION OF ECONOMIC POWER 1077
Mr. Graham. Well, that didn't have much bearing on it. I still
could put this on the market without interfering with that patent,
because- it was an old patent.
The Chairman. But I understood you to say that it was because
of that patent that you can't get the protection that you want for this.
Mr. Graham. I know; it was an old patent, but nevertheless that
was an old patent, so this would be an old patent, so anybody could
copy it.
The Chairman. But if the life of that old patent had not expired,
it would be possible for you to acquire it and enter into an agreement
with the holder of that patent, and then you would have the patent
protection that you say you need.
Mr. Graham. Well, I may understand it a little wrong as far as
this 20-year idea, but as it is now, some of our patents— I have had
one 6 years before I got it issued, one I had several interferences with,
and that will make 23 years on that one.
The Chairman. That is exactly the point. The suggestion has
been made that Uie period during which a patent may be permitted
to remain in the application state should be shortened, or if it remains
in the application state, that the term of exclusive use shall be cut
down, so that altogether the period is 20 years.
Mr. Graham. I think I would be in accord with that 20-year idea.
I believe it would be better for the average small fellow who is trying
to make both ends meet.
The Chairman. It is very interesting in the light of your experience
and in this respect.
Dr. LuBiN. I am interested in the baker. Did you have a search
made on that device before or after you built the instrument?
Mr. Graham. That is where I stuck my neck out a little wrong.
I usually do, but I did not on tliis one, and then the funny part of it is,
after I made the search, it was about a $60 search, I had no reference,
but when I was down here one time and I was looking through the
Patent Office and found it myself.
The Chairman. If there are no other questions, the witness is
excused. We are very appreciative.
(The witness, Mr. Graham, was excused.)
Mr. DiENNER. Mr. Chairman, may I call my next witness. It is
Mf. Baekeland. Will you please be sworn, Mr. Baekeland?
The Chairman. Do you solemnly swear the testimony you are
about to give in this proceeding shall be the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. Baekeland. I do.
TESTIMONY OF GEORGE BAEKELAND, VICE PRESIDENT OF THE
BAKELITE CORPORATION, NEW YORK CITY
Mr. Dienner. Mr. Baekeland, will you please state j^our full name
and occupation?
Mr. Baekeland. My name is George Baekeland. I am vice presi-
dent and secretary of the BakeUte Corporation, and president of two
of its subsidiaries.
Mr. Dienner. Will you please tell us your education and training
for the position which you now occupy?
JQ7g CONCENTRATION OF ECONOMIC POWER
Mr. Baekeland. I received an A. B. degree from Cornell, an E. M.
from the Colorado School of Mines. I practiced mining engineering
until 1923-24, when at the request of my father I gave up my profes-
sion with some reluctance and went to work for the Bakelite Corpo-
ration. I have been with Bakehte Corporation since that time, and,
well, a jack of all trades, and my experience has been somewhat
rounded and full, I think.
Mr. DiENNER. Are you famihar with your father's earlier work
preceding the invention of bakelite?
BACKGROUND OF BAKELITE CORPORATION'S FOUXDER
Mr. Baekeland. Well, the earliest work that brought him any
prominence was done at a timiC w^hen I was about born, or perhaps a
year or two previous to it. He invented Velox paper in the early
nineties. He went into partnership — it was not a corporation or a
company, a pure partnership — with a man who put up the necessary
money. At the time my father had only recently resigned as professor
of physics and chemistry and had gone into photographic research
work, following work he had done as a student in pliotochemistr}-.
The result was his invention of Velox paper, or photographic paper
to which h^ gave the name Velox, which was manufactured under this
partnership arrangement.
He took out no patent; it was a secret process. The business was
small, of course. He alone knew the formula, although there was a
written formula sealed, I believe, I am not sure-of that, in escrow in
case he died. He himself mixed the emulsions daily that were used
for the making of this photographic paper.
Perhaps some of the members of the committee will recall that in
the early days of photography it would take about half an hour in
sunlight to get a print. This Velox paper made a print instantane-
ously, and in that way greatly added to the improvement in the art.
The paper, of course, ])ccame strongly competitive with the old
types of paper on the market at that time, and the Eastman Kodak
Co., on two occasions, came to my father and his partner with a desire
to purchase the business. They were reluctant, however, to part with
their business, but finally, when it became a nice running business and
the troubles were over and it became routine manufacture, I think
my father became a bit bored with the whole thing, and it was decided
to sell on the third attempt by the Eastman Co. to purchase, so the
whole thing was sold, lock, stock, and barrel, and my father dropped
out of that business and went into the thing that he wished to do.
He was then quite comfortably off. In fact, for those days he was
quite a wealthy man. He devoted his time to chemical consulting
work and at his home in Yonkers he converted an old barn, a stable,
where he carried on work in a number of fields, and at the time of the
Russo-Japanese War, among other things he was working on syn-
thetic camphor. Natural camphor had become very high-priced
owing to the Japanese War. He was not the only one, however,
who was working at that time on that particular problem. He was
also working on synthetic shellac. Shellac, as you may know, is a
product from an insect in India.
CONCENTRATION OF ECONOMIC POWER 1()79
DISCOVERY OF THERMOSETTING PLASTICS
Mr, Baekeland. The result of those researches led him to certain
observations and conclusions, and following these he developed the first
thermosetting plastic. Perhaps I might just explain that a little bit,
because this business on which I am going to touch today is really the
foundation of the plastics industry as we know it. Until my father's
invention of these synthetic resins which were thermosetting, plastics
were what we call thermoplastics; thej^ never became hard except on
cooling, they were cold setting rather than heat setting, rather than
thermosetting. The plastics in use then were shellac (it is still used
for making Victrola records, it w^as then used for maldng a number
of things besides Victrola records) and the other one was hard rubber.
Hard rubber was at that time used as an electrical insulator in
electric installation, which of course had not developed to its present
stages, but it was used in the main electric insulators aside from
porcelain and glass.
The trouble mth these old plastics was that upon heating they al-
ways softened, just as when one puts a Victrola record near a radiator
or in the smi it will soften and fold over. Of course such a plastic
as that has veiy great limitations because so many insulators and other
products which can be made of plastics have to withstand higher
temperature than normal temperature.
This was an entirely new plastic in this sense. The old plastic was
put into a warm mold and as soon as it became plastic, until it was
cooled it remained plastic, so while it was in the mold the mold had
to be chilled, and then having become chilled it could be opened and
the piece could be taken out without becoming deformed in handling
or setting down on the bench. That applied to the shellac and to the
hard rubber plastics then in use.
The curious and unique thing about these new plastics that were
introduced by my father was this: The technique was very much the
same; it is placed into a hot mold; the heat of that mold begins to
fuse or soften this plastic so that when pressure is appKed to the die,
to the mold, the plastic flows through the mold and takes the form
and shape of a mold, but continued heating in that mold does some-
thing that hadn't happened before. Continued heating brought on a
chemical reaction within the material itself in the mold and it set up
hard and then having reached that point the mold could be opened,
the piece taken out at a temperature so hot that it isn't convenient to
handle, and there was no deformation and no more change, and any
further heating would never sdften that material again.
Unlike shellac and hard rubber, after this material is once set
The Chairman (interposing). What is it, the amount of heat or
the length of application?
Mr. Baekeland. A combination of the two; low. temperature takes
longer; high temperature requires a shorter time.
After the material had once become cured it couldn't be dissolved
and softened with solvents. Shellac, hard rubber, and those things
are all subject to being dissolved in ordinary organic solvents. So
was this new plastic that my father invented, in its initial stage, but
once it had beer heated and set it wouldn't soften and couldn't be
dissolved in an , .olve'nt.
1080 CO^'CE^'TRATION OF ECONOMIC POWER
Since then there have been certain solvents, but they are very un-
usual thinj^'s, so that for all intents and purposes these materials are
not attacked by solvents, oils, alcohol, benzine, anything of that
kind, and they are not afl'ected by heat.
IMPORTANCE OF BAKELITE IN AUTOMOBILE MANUFACTURE
Mr. Baekeland. They made possible thinj^s that have never been
possible before. Mr. Kettering testified here I understand last week.
He recognized he could not have made a self-starting lighting system
without these Bakelite molding materials. In a motorcar tlie insu-
lators are subject to quite high temperatures and the}^ are also covered
with grease, oil, or gas, and what not, and those two things would
have ruined any known insulator except glass or porcelain, which were
not at all adaptable to automobile installation; they are very cheap
materials and if they were to be used today they would have been
used in the past. This material or these materials of plastics have
made possible the development of a great many things wjucli today
we see in all business and which are only possible owing to the pecuhar
characteristic of these materials.
It is the combination of characteristics which has given them the
very wide use and utility which they have enjo3^ed. These first ma-
terials, first resins, invented by my father were patented, patents issued
in 1909, they were applied for in 1907; they went through the office in
2 years, which is rather good time — or less than 2 years. A business
seemed to be indicated from what was at hand and my father with his
own money and with the monov of friends whom he invited in, formed
a company in 1910, General BakcUte Co., to begin the manufacture of
these materials.
The company was financed by the original stockholders privately
and it might interest this committee to know that although this corn-
pan}- has grown and has pcreased its investment and. plants and all
that, several times to a very great degree, there has never been another
cent put into the business and the company has never borrowed money,
never -put out a bond issue. The stockholders wece not greedy and
they were sensible ; they saved from earnings when they began to make
earnings, enough to keep up and continue the research work that was
necessary, additions to plant, increasing the selling force, and they have
always maintained or had maintained, or rather the tax laws made
possible, a conservative and sensible dividend policy.
Fortunately none of them were people who wished to get an inordi-
nate amount of money ; they were more interested in getting good ma-
terials and seeing that the business was souiul and managed hi a
sound and sensible financial way.
To digress for a minute, it might interest the committee to know
that as a result of that policy in the year 1931 and '32, when we
were in the midst of the depression, out of surplus, out of sums saved
from past earnings, we built a four-and-a-half-million-dollar plant, at
a time when business was at a standstill; we phiced orders, gave men
employment, and built a four-and-a-half-milhon-dollar plant. That
was only possible through this policy that had been carried on tlirough
the years.
The Chairman. Was there any displacement that you know of?
Air. Baekeland. Displacement?
CONCENTRATION OF ECONOMIC POWER IQgJ
The Chairman. Did the developJnent of this industry disphice any
other industry?
Mr. Baekeland. The only thing it did was to— I think it cut down
the hard-rubber business, which was a sninll business at that time,
anyway, because of the few materials, the few articles that were dis-
placed in hard rubber by these Bakelite products were offset— well, I
should say a thousandfold by the new products that were made which
were never made of hard rubber.
The Chairman. Then we are to understand that as a result of this
invention, and the development of this industry, we have new uses
which in the main are not substitutes for any other uses?
Mr. Baekeland. Oh, j^es; entirely so.
The Chairman. And new materials which are actually not sub-
stitutes for old materials?
Mr. Baekeland. It has created a new business and it has created
new products which never had been made, and as a matter of fact
today could not be made without these materials.
Mr. Patterson. In other words you are tellmg us, Mr. Baekeland,
that new employees — you took on new employees and it helped the
unemployment situation?
Mr. Baekeland. Yes.
Mr. Patterson. How many byproducts have you from the original
plastic invention, or secret process?
USE OF BAKELITE IN 35 MAJOR INDUSTRIES
Mr. Baekeland. How many products are made today? Well, I
didn't believe it would be possible to answer that question until the
other day I asked in our office whether we had such a record, and I
found we did. We sell to 35 major industries and they have a record
at the office of the articles made in each industry and the}' amount to
over 15,000 different articles.
Mr. Patterson. Different articles?
Mr. Baekeland. Yes. For example, a radio tube base would be one
article; a safety-razor handle would be a second one; a switch plate
would be a third. There are 15,000 such made of our plastics.
The Chairman. Now of course in each one of those instances which
you have mentioned, the Bakelite is a substitute for something else?
Mr. Baekeland. There were no radio tube bases in those days.
The Chairman. Certainly there were razor handles?
Mr. Baekeland. Safety razors? There were no safety razors —
oh, yes; they were just coming in. That replaced brass.
The Chairman. How about your Ught-switch plates?
Mr. Baekeland. They were brass.
The Chairman. So there was a little substitution?
Mr. Baekeland. A little substitution, but over all very little
substitution; it is mostly new business.
Mr. Patterson. Over all you are pretty well convinced that you
helped the unemployment situation?
Mr. Baekeland. Oh, yes; no question about it.
Mr. Dienner. Mr. Baekeland, have you some sarnples of articles
that you could exhibit? I think that would be very interestmg.
Mr. Baekeland. I might have some here; they may give a clearer
idea of what we are talking about.
2Qg2 CONCENTRATION OF ECONOMIC POWER
Representative Reece. To what extent is this new plastic material
that is made out of synthetic material derived from wood or cotton
fiber, such as rayon, the base for rayon?
Mr. Baekeland. We make a number of plastics. We make phenolic
plastics, aminoplastics, cellulose acetate plastics, glyptal plastics, and
polystyrenes.
Representative Reece. Just new material, is it, based upon your
process?
. Mr. Baekeland. Yes. Here is a phenolic.
Mr. Dienner. You may be referring to cellulose acetate, a clear
almost glass-like material?
Representative Reece. Yes.
Mr. Baekeland. Here is a piece of cellulose acetate that goes on
the head of the steering wheel of a car; that is cellulose acetate.
Representative Reece. But that is made on your process?
Mr. Baekeland. Well, you know we are plastics headquarters;
we make different — -you might say comparing us to the metal people,
we have several metals that we turn out; one might be brass, another
lead, another one iron. Something of the sort. They are not identi-
cal in characteristics. Each has its own characteristics and fills its
own particular needs and uses.
Now this thing here can be made colorless and where they want a
Ught color like this why we give them cellulose acetate, the amino
or polystyrene-resins which are colorless. This material can only
be made in amber color. Here is the pure resinoid here. So that
where color does not make any difference and where certain other
qualities are wanted, then we give them somethhig, we will say, hke
this for the telephone company. This is a piece for the telephone.
That is a phenolic plastic. That is the original thmg my father
invented. These phenolic plastics are the ones that really started the
plastics industry as we know it today, and then followed these other
things.
Here is a polystyrene. Now that material incidentally is an
interesting thing. You see they are made in quantities of this kind;
those are put through automatic machines and they make a quantity
of them, and they break them off. Now this incidentally is an insu-
lator for a television set. The peculiar characteristics of this
material are such that nothing else will serve as well for tele-
vision. The efficiency and the high degree of perfection in television
require material of these peculiar electrical characteristics. This
material here does not have it. Neither do some of these others
that we have, so these several materials find their uses in a variety
of places where their peculiar characteristics are demanded or are
preferable.
BAKELITE PATENTS
Mr. Patterson. Mr. Baekeland, do you lecall how many patents
you have?
Mr. Baekeland. We have at the present time in force 205 patents.
We have had a total of 365 patents.
Mr. Patterson. With applications pending?
Mr Baekelkand. We have applications pending; yes.
Mr. Patterson. Would you have done without the patent sj^s-
tem? Suppose you did not have that protection, silppose you had
not had that protection?
CO>X'E-\TKATION OF ECONOMIC TOWER 1Q§3
Mr. Baekeland. Well, I don't think my father would have gone
ahead and tried to build a business on it. The answer to that would
be, of course, then somebody else would do it. That might be
the obvious answer, but tlie real answer is shnply this, that having
patent protection, living and working behind, we will say, glass walls
that protected him but which anyone could look in tlu-ough and see
what he was doing, he had an opportunity to carry on his \\ork and
improve these products, develop new ones, and work on them in
safety, develop a business and do work which he could not have been
induced to do if everything he did were to be copied by those who
had not been subject to the risk and the exp^n^ e of development and
research and introduction to which he was subject. There is the
trouble with not having a patent. It is not so easy to introduce new
materials or new uses.
The pioneer always has to overcome resistance, has to do the
demonstrating, and showing that these things are necessary and
useful, and then having done so and established a market, his com-
petitor can come in without any of that pioneering expense. Now a
patent of course gives the inventor, the pioneer, the protection which
he needs for that pioneering work.
Mr. DiENNER. Were your patents ever in suit?
Mr. Baekeland. We have had three patent suits. One immedi-
ately after the first patents issued, which was won; another one later,
about 1920, which we won; another when some of the patents winch
had previously been adjudicated w^ere infringed and we won that one.
Mr. DiENNER. And your patents were all sustained?
Mr. Baekeland. They were always sustained, and we have never
had to defend any patent suits; we have always taken the attitude that
patents were good and we have not trod on others' toes.
Mr. DiENNER. One more question. Along that line, when your
basic patents expired, and the market was then open to others, did
others then manufacture the material under the original patent?
Mr. Baekeland. Yes. A number of competitors or new companies
came into the field and some of our larger customers also were tempted
to go into the manufacture of plastics on their own for their own uses.
So that we have lively competition today and the patents under which
we are operating now are not basic patents; they are just improve-
ment patents.
Representative Reece. Are you able to estimate the number of
people who have been given employment as result of the creation of
this new industry?
Mr. Baekeland, That would be a difficult thing for me to do. I
tried to find out. We have a great many customers who are in busi-
nesses that just would not exist without these materials.
This, incidentally, is a distributor head for a Delco ignition system.
Here is a phenolic denture, a little gruesome, 1 suppose, but a very
excellent denture, the best there is, as a matter of fact. And thi^ is a
small radio cabinet. Here is a grinding wheel. The interesting tiling
about tins is that these wheels turn at twice the speed that the best
wheels heretofore had been able to turn.
The Chairman. What is that?
Mr. Baekeland. A grinding wheel with a phenolic Bakelitc rosin.
The Chairman. That is a substitute?
Mr. Baekeland. Well, I will tell you what it is a substitute for;
it is a substitute for clay, and the people who used to make the clay
108.4 CONCENTRATION OF ECONOMIC POWER
wheels still do make clay wheels, they ,take the clay and fire
it. Or they take the rubber; they also make some rubber wheels, and
it does replace, we will say, clay, a small amount of clay and a small
amount of rubber, but these wheels will turn at twice the speed the
ordinary wheel turns.
The Chairman. Would it be proper to say that with respect to
most if not all of these articles which you make, even in the case
where they are substitutes, they can be made so much rnore cheaply
and of such a character as to perform so much more efficiently?
Mr. Baekeland. Better service, exactly.
The Chairman. Than the things for which they are substitutes that
there is no real comparison?
Mr. Baekeland. No. I do not know
The Chairman. That is the impression I get from what you say
and I am wondering
Mr. Baekeland. That is the right impression. I know of no case
where we have done anybody any harm or hardship. Most of this is
new, most of these are improved uses. Now, for example, a lot of
those cut-off wheels — that might be a cut-off wheel there — were used
instead of hacksaws and things like that, and they will cut through
steel and glass and everything at a tremendous rate, and they have a
different cutting effect. For example, a fine steel tube can be ground
down without drawing its temper with these wheels; they run very
cold; they run much faster than the ordinary wheel, and therefore
they do more work. The amount of cutting is in direct proportion
to the speed, the peripheral speed of the wheel, and those wheels run
twice as fast as the ordinary vitrified wheel, and they do the work in
half tlie time, and they have also changed some of the machine tool
technique; instead of milling operations they use grinding wheels now.
Mr. Dienner. The sanding wheels for grinding automobile bodies
and the like; there is an interesting point.
Mr. Baekeland. Well, there is a disk about the size of that grinding
wheel there that is used on the end of a flexible shaft. The shaft being
at right angles to the face of the disk and it is used in the automobile
industry and in other places, but particularly the automobile industry
to dress down steel bodies.
The body has little dents in it that you fill with solder and the
body also has little bumps on it. Those have to be dressed down and
smoothed out before they can put on the primer and paint coats.
Those disks were made of a paper-cloth combination with animal glue
and grits, like ordinary sandpaper. Of course, if the glue was soft the
disk would be useless. They resulted in dust; the men had to wear
masks; it was unpleasant and dangerous if the proper precautions
were neglected. This disk was waterproof, which made it possible to
do all these sanding operations with a heavy dose of water which
eliminated all the dust hazard.
Mr. Patterson. Mr. Baekeland, all these objects, these products
that we have here for inspection, every one of them is made of BakeUte?
Mr. Baekeland. Yes, sir.
Mr. Patterson. And the variation was so minor that it wasn't
necessary to go to the Patent Office?
Mr. Baekeland. Oh, yes; in some of them there is quite a little
difference. You know, we have several thousand products that we
sell.
rONCE.\TKATI()N OF ECONOMIC POWER 1Q§5
Mr. Patterson. I asked the question to draw out that ansAver,
because you just a moment ago said you had a great many patents,
but the basis is Bakehte.
Mr. Baekeland. Bakehte is a trade name; it is not possible to call
any material Bakehte because we make such a wide variety of materials
so dissimilar that if anyone would ask for 10 pounds of Bakehte, with
all the good will in the world we don't know what he might want; he
might want a liquid, he might want a solid powder, he might want a
number of things.
Mr. Patterson. What do 3'ou call that glass?
Mr. Baekeland. That is a pure phenolic resin.
Mr. Patterson. Wouldn't the layman call that Bakelite?
Mr. Baekeland. I don't know. He might call it Cat ah n"; he might
call it Durez.
Mr. Patterson. Of course, we don't know the professional rmmes.
Mr. Baekeland. There arc a great many names in the trade which
are currently used.
Mr. Patterson. Congressman Wihiams asked to what extent this
is breakable.
Mr. Baekeland. Oh, that is breakable, not as breakable as glass,
-but it is breakable. Now there is another example. That thing is
more friable, more breakable, than, we will say, this material. This
material has a certain shock resistance, and so have some of those
others that you have there, which those phenolic resins don't have.
They have great tensile strength and these phenolic resins have been
used for many years in making gears. They impregnate canvas with
the original uncured resin in an alcohol solution, coat the canvas,
the solvent will dry out and then in a hydraulic press they press tliis
pile and get a very tough, hard, high-shock resistant material which is
used in gears, which were used in airplane propellers during the war,
and here is an automobile gear. Now most of the cars going around
the roads have these gears in the engine, timing gears.
The Chairman. How long will that gear stand up?
Air. Baekeland. Oh, it uill last as long as the car. It will outwear
metal gears.
The Chairman. Heat resistant?
Mr. Baekeland. Oh, yes. You see, this is down in the engine
crankcase, it is pretty hot down there. They use them on rolling
mills, coal crushing mills, paper mills, wherever they want silent gears.
The Chairman. That is a substitute for metal gears?
Mr. Baekeland. That is a substitute for metal gears.
The Chairman. We are finding lots of substitutes here today.
Mr. Patterson. Your company is known as the Bakehte Cor-
poration.
Mr. Baekeland. Yes, sir.
Mr. Patterson. Most of us think that all your products have some-
thing as a base, and I don't know what that something is — I think
of vaseline as a petroleum product, and that is what I am trying
to unravel concerning your products — what is the base?
Mr. Baekeland. I Avill go into that. We have here before us a
variety of materials which are made of different materials, too, they
are not all the same. For example, here is- a door' knob that is a
phenolic resin. Carbolic acid (phenol) and formaldehyde are reacted
together in a big kettle sort of thing, and the result of that is a sirupy
12441)1 — -.iU — pt. 3 17
1086 CONCENTRATION OF ECONOMIC POWER
resin ; in the warm state it is sirupy and when chilled it is hard. That
is the initial resin before it has been heated enough to set it, heated
enough to cure it.
Phenolic resin is then used in various ways. For that gear it was
dissolved in alcohol, the canvas was saturated with it. In this instance
that resin was ground to a powder, with wood flour, and molded in a
steel die in a hydraulic press.
The Chairman. Now this gear was constructed, if I understand
you, by laying together several layers of impregnated canvas.
Mr. Baekeland. Yes.
The Chairman. And then after that had been done, it was cut into
the form of a gear?
Mr. Baekeland. That is right, it was put in a gear cutter; yes.
The Chairman. How hard is it? What do you have to use to cut
that?
Mr. Baekeland. They use regular gear-cutting equipment, but
there is a peculiar thing about these phenohc resins; they are very
hard to tool, they are harder on tools than metal is.
The ChairxMan. That is what I was getting at. You used a metal
tool, however, to cut this?
Mr. Baekeland. Oh, yes; there was a metal tool used. The great
advantage of these materials, and the reason for their wide utility, is
they don't need machining operation. A thing like that comes out
of the mold as you see it. The telephone handle the same way, the
distributor head, come out as you see them. There isn't any further
machining or further mechanical operation, sometimes a Httle buffing,
or where there is a fin Hke that on it, we cut that off.
The Chairman. Could you make a cutting tool out of this material?
Mr. Baekeland. No, I don't think you could.
The Chairman. Isn't it hard enough for that?
Mr. Baekeland. It hasn't got the strength of steel for a cutting
tool. It wouldn't stand up. It hasn't got the toughness that steel
has.
Now, that material there has a tensile strength around 15,000
pounds to the square inch, and that is all it has.
The Chairman. So our iron mines are still safe from this?
Mr. Baekeland. Oh, very safe.
Now here is another type o^f resin that is used here in these pencils.
This is a Glyptal resin, and it' is akin to the material which is used for
making Dulux finish, the Dulux finish that du Pont makes. That is a
Glyptal material. We use it on grinding wheels and some other com-
mercial applications. These pencils are made of it. That material
is colorless and it lends itself to this use. In this case, tliis is a ma-
chining operation. That material is not easily molded.
The Chairman. Have you counted them?
Mr. Baekeland. No; t don't need them back. If they are useful
to anybody, you are welcome to them.
We also developed a new material in 1927 and 1928, we developed
a peculiar kind of phenolic resin on which we got a patent, and this
resin did something that had never been done before. Here was a
synthetic resin which was soluble in oils for paint and varnish. If
you remember paint and varnish, if you dropped a little alcohol on
It, anything of that kind, it dissolved away. Put it on a boat or out-
of-doors, and very shortly it was all gone. The wood was discolored,
CONCENTRATION O'F ECONOMIC POWER 1087
and it was all gone. This new resin, which was patented, made var-
nishes which were unheard of before. Their weathering characteris-
tics were phenomenal. They were imattacked by sulphuric acids,
alkalies, heat, alcohol. You could take a table like this, beautifully
finished, and pour brandy on it, light the brandy and let it burn off,
and the finish wouldn't have been touched. You couldn't have told
where it happened.
Well, that is a trick demonstration. It isn't important. The main
importance was the great durability, the great life of these finishes,
and the high luster and protection that they gave.
The story is an interesting one from a patent point of view. Here
was a company, the Bakehte Corporation, which was nationally and
internatibnally known, whose products were accepted whenever they
brought them out in the various fields in which they had been serving.
If we introduced something in the electrical field or the grinding-wheel
trade, they accepted it and put it through a few tests, and they recog-
nized when we came out with something new it was worth looking at
and something useful.
But we were not known in the paint and varnish field. In spite of
our reputation, our demonstrated ability to introduce new products
aij'l new things, here is a new product, very useful in the paint and
Vhrnish field, and we couldn't get anywhere with it. Nobody would
listen to us; nobody would pay any attention to it: "No; we don't
want to be bothered testing that out. We have so many of these
things."
We have no desire to go into the paint and varnish business. We
can't go into the grinding wheel industry and the radio industry and
all these things. We stay out of them. We supply the materials
and that is all we do. We don't get into competition with customers
or anything of that kind. We certainly didn't want to go into the
paint and varnish trade. It meant building up a whole nevv- organ-
ization, a new sales force, and we were not going to do it.
There were about 1,100 companies in the paint and varnish busi-
ness and we wanted them as customers and not competitors. We
would have been the one thousand one hundred and first, and we
didn't want to do that. We v/ould rather have 1,100 customers than
1,100 competitors. But because we couldn't go anywhere with it
we did go into the varnish business temporarily, solely for this pur-
pose: to take business away from existing varnish companies, and
having taken a man's business away from him, he then takes you-
seriously. So we went at it.
We picked the marine field because that was the tougn one. What
would do in the marine field would do anywhere. So when we went
out in the inarine field and started taking^ accounts away from, the
well-known old-line paint and varnish people. As soon as they started
to lose accounts they started to take us seriously, and we went to them
individually and said, "If you want this account back again, if your
customer wants this stuff, not what you used to sell, we will sell
you the resins, we will give you the formula, and we. will do every-
thing we can to help you,"
So we eased out of that and we are the leaders in that field today.
We do a big business in it. We have the outstanding materials,
materials that' are used wherever real quality is wanted.
1088 CONCENTRATION OF ECONOMIC POWER
Mr. Patterson. Have you any competition with this?
Mr. Baekeland. Oh, plenty.
Mr. Patterson. I ask that for the record. What is it, Mr. Baeke-
land?
Mr. Baekeland. Oh, we have a number of competing companies.
We are the only company, however, that make all of these. Our
competitors all make either one or the other of these that I have
pointed out. We are the only ones who make all of them.
Representative Williams. You are the pioneers in that field?
Mr. Baekeland. Yes, we are.
Representative Williams. Organized in 1909?
Mr. Baekeland. 1910.
Representative Williams. What capital at that time?
Mr. -Baekeland. I am not sure, but I believe it was $250,000. ^
Representative Williams. And what is it now? What has it
grown to?
Mr. Baekeland. There were common-stock dividends as the bus-
iness grew. In 1927 there was a 150-percent preferred dividend;
6K percent preferred stock was issued as a dividend. There have
been no increases to capital except through earnings, no new money,
no new financing, no borrowing.
Representative Williams. You have increased it by the issuance
of dividends, stock dividends?
Mr. Baekeland. Yes, sir. As the business grew a stock dividend
was declared. Our capitalization, however, is still low. It is about
8% million.
Representative Williams. How many are employed by your com-
pany now?
Mr. Baekeland. We don't employ a great many people. Our
manufacturing processes are such that one man can handle a whole
battery of chemical apparatus, and our total pay roU has never ex-
ceeded, I thittk, about 1,300, but it is interesting to note that in 1936
it was double that of 1929.
Representative Williams. And has it increased smce 1936?
Mr. Baekeland. Not much. It is less now than it was then, I
think.
Mr. DiENNER. How many men do you have in your laboratory?
Mr. Baekeland. We have a research laboratory; we have 250 men
there. Sixty-five percent of the cost of our research is pay roll; the
other 35 is taxes, depreciation, and insurance and such things as that.
Our budget for 1938 was $682,000 for research. It has been over or
around half a million dollars a year for quite a number of years.
And on our research we depend for our safety and future existence.
Without it I don't think we could maintain our organization. I
know we couldn't in this field where it is very competitive and where
there are a great many developments going on all the time, and an
mcreasing amount of research work.
The Chairman. What contributions have been made to improve-
ments of these various devices and methods from outside of your
organization or your laboratory?
Mr. Baekeland. There have been some of them from outside.
The Chairman. What proportion of them would come from outside?
Mr. Baekeland. At the present time of our sales I should say 95
percent are our own.
CONXENTRATION OF ECONOMIC POWER JOgg
The Chairman. In other words, the bulk of the extension of this
art is a result of your own laboratory, your own work?
Mr. Baekeland. Yes, sir.
The Chairman. How many persons are employed in that sort of
work?
Mr. Baekeland. In research work, 250. That also includes some
janitors and a few maintenance men around the laboratory.
NECESSITY FOR PATENTS IN PROTECTING RESEARCH WORK
The Chairman. Yes.
Are all your research workers under obligation to give to the com-
pany the patents which they may devise and the discoveries which
they make?
Mr. Baekeland. Oh, yes; we supply them with the equipment, we
pay them to do the work, we direct what work they are to do. We
can't permit our research men to work on their own. They might
go into very interesting fields which would be of no use to us, not
commercial. We do not run an academic laboratory. We are in
business, and although we do some molecule chasing and let a few
men have their heads in work along lines in which they might feel
inclined to do something, a greater part of our research work is
directly applied to the needs of the business, and much of the research
work is dictated by our customers or by prospective customers.
Someone will come to us with a problem. Well, the man with the
new sandpaper disk, for example. He wanted something that would
replace glue because he was having trouble with glue and knew its
limitations. I give this only as one of a great many examples. He
came to us to try to develop something to replace glue and give a
better sandpaper, a sandpaper that would be waterproof and have
longer life. We went to work on the problem, gave it to the research
laboratory, and they developed resins which had the characteristics
necessary to do that particular job, and much of our research work
is dictated to us from the outside.
The Chairman. But it is all planned by a general staff.
Mr. Baekeland. All planned directly by the management and not
only by the research management ; it is also directed by the executive
management— sales and executives also have their say in what we are
going to do or what we are going to quit working on in research.
The Chairman. In other words, each person in the research labora-
tory is told just what his task may be with the exception of a few who
are engaged in what you call molecule chasing?
Mr. Baekeland. Yes.
The Chairman, In other words, the phrase that I think Dr. Jewett
. used here the other day is applicable here. It is cooperative effort
under control.
Mr. Baekeland. That's it, and the men themselves help each
other. They cooperate. Each has something to contribute and
those men have meetings together in which they exchange problems.
That is the way it works out.
The Chairman. Of course, since you have been associated with this
company and with this industry you have had occasion to observe the
work of other laboratories?
Mr. Baekeland. Yes.
1090 CONCENTRATION OF ECONOMIC POWER
The Chairman. And the development of patents generally, have
you not?
Mr. Baekeland, Yes, sir.
The Chairman. What could you tell the committee with respect
to the position that the researcti laboratory occupies in the modern
field of invention aftd patents? Have you reached any conclusions
about that?
Mr. Baekeland. Yes, I have. I was just trying to say it as
succinctly as possible, because it is a large subject. The great technical
advances that we have witnessed have been the result of research work,
either by individuals or by organized research in laboratories of large
companies. The advances, the improvements, have been largely, I
am convinced, owing to research. New products, new use^l things,
new ways of doing things, can only come from carefully applied work
done in scientific laboratories— improvements in our paints, in our
fabrics, in the materials we use such as these.
The Chairman. In other words, we couldn't make the advances
which are b^ing made without the extensive and expensive equipment
which is supplied in these large laboratories?
Mr. Baekeland. That is true. They are making the advances.
No one else is doing it. Without those laboratories, naturally these
advances wouldn't be there.
The Chairman. That is exactly what I am^ trying to develop.
In other words, the collective work of a group of individuals is becom-
ing gradually more important than the individual work of an' individual
inventor*-
Mr. Baekeland. That is true.
The Chairman. And as the frontiers of science are pushed further
and further back, it is the collective and cooperative enterprise rather
than the enterprise of the individual which is bringing the greatest
returns to civilization.
Mr. Baekeland. Very likely.
Set^iilor King. However, the field for the inventive -nius of the
individual is not narrowed, even by the collective activ ties to which
the chairman has referred.
Mr. Baekeland. No, sir. I think that it is increased, because
each new development opens new vistas and new avenues that suggest
theinselves, avenues of approach to the solving of another problem.
Our increased knowledge, our increased information as a result of this
is giving us more and more liints and suggestions to follow, and the
thing I think is cumulative in a geometrical progression rather than an
arithmetical progression..
Senator King." Isn't it true that frequently a basic patent which
may have been obtained by this collective energy and collective
effort becomes the basis of a large number of imi>rovements which
are developed by the inventor in a small way, and as a result of his
interpretation of the defects, as there are defects even in basic patents,
and he addresses himself to improving the basic patent, and as a
result of that many of the patents which are obtained merely cluster
around the bjisic patent.
Mr. Baekeland. That is very true. That is particularly apt in
this case. That is precisely what happened. My father came out
in 1909 with a few patents. Following that he continued his re-
search work, brought about improvements and modifications of those
first materials as well as bringing out additional new materials.
CO:>[CENTRATION OF ECONOMIC POWER 1091
, Senator King. Did you give a definition which would be compre-
hensive as well as detailed of what plastics are, how broad a field
they cover?
Mr. Baekeland. Well, that is a large order. You see — well, I can
read you a Hst here of some of the industries.
Senator King. Generally, when you speak of plastics what does
the ordinary ignorant man such as myself and others comprehend it
to be?
Mr. Baekeland. Of course, some of these people call paint and
varnish resins plastics. I don't think they are palstics. I think any-
thing that can be shaped by applying pressure to something, squeez-
ing it mto shape, is a plastic. A piece of marble, Uke this marble, ifi
shaped by machinery. That is not a plastic operation. If, on the
other hand, these columns had been formed out of a loose unconsoli-
dated material, and under pressure had been formed into that shape
there, they would then have had to be a plastic material.
Senator King. Almost any element, then, that might be congealed,
if I may use that expression, might be the basis of plastics. The
principal elements, though, are carbon, are they not, and oxygen
and nitrogen?
Mr. Baekeland, All of these plastics are organic materials and all
organic materials contain carbon, and these here, for example.
Here is a urea material. This thing is made out of a base for
fertilizer.
Senator King. I beg your pardon?
Mr. Baekeland. This is a urea material made out of the base of a
fertilizer. That is an organic material, carbon, nitrogen. Urea is
largely used for fertilizer. It is very cheap. It is made from the air
and the supply is unlimited.
The Chairman. The word "plastic" no longer actually covers the
field. of the articles that you produce. Take that wheel, that gear,
for example, that is cut rather than pressed.
Mr, Baekeland. Yes, but you see that gear is moulded.
The Chairman. That is what I was getting at. I understood you
to teU me it was cut.
Mr, Baekeland, Afterward. When that gear was made it was
just as you see it except no teeth were cut into it.
The Chairman. I see.
Mr. Baekeland. And the metal hub was pressed in or moulded in
in the original operation, moulded in as a matter of fact. That is a
plastic; that was moulded in that shape. So was that box in your
hand.
The Chairman. That is what I conceive to be plastic, anything
that is molded.
Mr. Baekeland. These are truly plastics. These are cloth cover-
ings made of some of our materials ; they are alcohol and oil and water,
weather resistant. They have their uses for gas masks and upholstery
and raincoats and things of that sort.
The Chairman. Tell me, is tliis a substitute for wool?
Mr. Baekeland. Oh, no. No; that is not a substitute for wool.
We would like to find one, as a matter of fact. I don't think we ever
shall.
The Chairman. Well, you know I have been hearing some rumors
of such a substitute. You haven't heard of it?
1092 CONCENTRATION OF ECONO.MIC POWEIl
Mr. Baekeland. We hear a great many rumors before we actually
find one.
The Chairman. Now I am asking you a question which I may
transmit to some of my constituents. You have not yet seen a
substitute for wool as rayon is for silk?
Mr. Baekeland. No, I have not.
The Chairman. Thank God for that. [Laughter.]
Mr. Baekeland. Speaking of plastics again
Jiepreseiitative Reece (interposing). If you will permit a digression
there, don't the rayon people themselves however make a woolen
blanket or blanket to be used in place of a woolen blanket?
The Chairman. Well, I am sure that if it hasn't colne to the at-
tention of the witness it is not worth much. [Laughter.]
Kepreseiitative Reece. I would be glad to have you come down
home and look.
Mr. DiENNER. Mr. E ekeland, what is the latest development
which would be rather unusual in regard to your industry, with regard
to your company which you could tell us about?
]\Ir. Baekeland. There are a great number of them; there is one
perhaps more spectacular than some of the others. Using our mate-
rials (we take no credit for this development, we have been merely
supplying materials for it and in a small way helping — I want to
repeat that we don't take credit for the thing) it is possible, in fact
it is being done, to produce an airplane wing or an airplane fuselage
on a cycle of every 2 hours with rather simple and inexpensive equip-
ment. It is a material which the Bureau of Standards shows has a
strength weight ratio greater than any of the materials employed at
the present time. You can well imagine what that means in pro-
duction of aircraft. Whereas jigs and tools and a lot of expensive
equipment would take a long time to build, that is now unnecessary
to make. The separate units that go into the construction of a wing
or a fuselage can now' be eliminated. The great period of time re-
quired for assembling is over, simply by use of plastics in combination
with some otlier materials. An airplane fuselage, an airplane wing,
can be turned out every 2 hours with one piece of equipment.
The Chairman. You said a wing or a fuselage.
Mr. Baekeland, Yes; or both.
The Chairman. Could you turn them out together?
Mr. Baekeland. They are made separately, they are made on a
different form, a different mold, but it takes the same amount of
time for a wing as for a fuselage. When that shell has been made,
adding merely the internal bracing, models can be very quickly changed
in case of war, or in commerce. When amodel becomes obsolete or less
desirable a new one can readily be made; without very much delay
and with very little cost you can make the change.
The Chairman. Is this method being used?
Mr. Baekel.^nd. Experimentally only. It is being tested, it is
under observation; yes, it is coming.
The Chairman. Is it your judgment that it is beyond the experi-
mental stage? I mean there is no question in your mind of its utility?
Mr. Baekeland. That is true.
The Chairman. Hav>e the airplane manufacturers been advised of it?
Mr. Baekeland. This is still very new. There are rumors about it.
The Chairman. Is that method covered by a special patent?
CONCENTRATION OF ECONOMIC POWER 1093
Mr. Baekeland. There are patents applied for on the method, not
by us, but by the people with whom we have been working.
Mr. Peoples. Mr. Chairman, I take it, it has been called to the
attention of the air forces of both the Army and the Navy.
Mr. Baekeland. Oh, yes; they are well aware of it- and as a
matter of fact I have been given permission to mention this thing
today or I shouldn't have done so.
The Chairman. These applications have been made by citizens of
the United States?
Mr. Baekeland. Oh, yes.
Senator King. Does this fuselage take the place in all of its parts of
aluminum or magnesium. There is a magnesium alloy which is
stronger and lighter, as I remember, than aluminum.
Mr. Baekeland. You couldn't make a magnesium airplane, wing
and fuselage, in 2 hours with 9 men.
Senator King. What I mean is so far as the durability is concerned.
Mr. Baekeland. The durability is far greater.
Senator King. Than the metal?
Mr. Baekeland. Oh, yes. You see the metal has fatigue, for one"
thing, it crystallizes and has flaws; its strength ratio is lower than this
material, and there is great fabrication cost, there is trouble with all
these metal things in an airplane. Each of these metal parts — there
are a great number of them — are assembled, each is shaped, machined
and drilled and milled andjthen assembled with nuts and bolts and
rivets and one thing and another, and as a matter of fact the absence
of rivets in these planes has shown an increase of 35 miles an hour,
just by cutting out skin friction, the resistance of the air to the rivets.
There is an increased speed of the planes under test of 35 miles an
hour.
Senator King. Then the utihzation of these products to which you
have just referred would supersede the present method of constructing
fuselages and' other parts?
Mr. Baekeland. It would simpUfy it a great deal.
Senator King. Of course you haven't as yet succeeded in manufac-
turing something that would take the place of the steel for the engine?
Mr. Baekeland. Oh, no, no, this is just the wing and the fuselage.
The Chairman. Give him a chance. Senator.
Mr. Baekeland. They will still make the engine the same way.
Senator King. The Senator was afraid you might intrude on the
sheep. I don't want you to intrude upon the iron ore mines.
Mr. Baekeland. I don't tliink it is going to intrude on that.
Representative Reece. What is its resistance to vibration?
Mr. Baekeland. It has a high fatigue resistance, and it is weather
resistant so that only a cplor coat, not a protective coat, has to be put
on, and you would'^ be amazed how much these airplane designers
worry about a coat of paint on a plane, the added weight.
The Chairman. Is the absence of the bolt the only factor which
tends to increase the speed?
Mr. Baekeland. The rivets?
The Chairman. The rivets and nuts.
Mr. Baekeland. Yes; that is the only thing.
The Chairman. The material itself has no effect on speed?
• Mr. Baekeland. No^ it is a perfectly smooth surface rather than
a riveted surface. Now the same method can be applied to the
1094 CONCENTRATION OF ECONOMIC POWER
manufacture of small boats and other forms of that kind which are now
made of wood or metal, or some other substance, where you have an
assembly cost which is high and where it takes quite a while to build
one. It is very easy to build a boat, or something of that sort; I
don't mean a big ship but I am talking about small boats of which
there are a great many made.
The Chairman. And it would tend, I suppose, to reduce the cost
materially.
Mr. Baekeland. Oh, very materially reduce the cost, and the time
of manufacture. That would be the great advantage of this thing
for the aircraft, they are so costly and they take so long to make.
I was reading in the paper only the other day that the British last
summer ordered 500 planes from Douglass, and the first one was
dehvered the other day and the rest mil be dehvered through the
year, the next 12 months. They have 18 months to deUver 500
planes — a big airplane manufacturer.
Now you can figure out if they were in a hurry and had to do it in
wartime, they could set up a whole number of these forms, molds,
they are not very expensive, but suppose they had only 1 for the
wmg and 1 for the fuselage, they could turn out 10 planes a day.
The Chairman. It is obvious then that there would have to be a
very material increase in the number of planes in use if this method
were brought, into general practice to pro^'ade employment for the
artisans and the mechanics who arc now working to produce the planes
such as the British Government ordered.
Mr. Baekeland. Yes; but there is a great shortage of those
mechanics. There is a dearth of them now, and it has recently been
suggested by the administration that means should be provided to
apprentice men to become mechanics of this kind, on account of their
great shortage.
The Chairman. So that by and large it is still your judgment that
this development would not create unemployment, it would mean
more work rather than less.
Mr. Baekeland. I do believe so.
Senator King. It may not be germane, but do you know whether
the Germans or the French — you have adverted to that — utilize this
method?
Mr. Baekeland. No; on the best information I have they have not
used it. It has been developed in this country by an Army officer.
Senator King. Notwithstanding the high praise we give to the
German chemists and technological investigators, we still wear the
crown of primacy, don't we?
Mr. Baekeland. I tliink so, and I think we do m the field of
chemistry. Our chemical industry has made tremendous advances
since 1920. It has resulted from the protective tariff which was estab-
lished at that time which permitted people to go into the manufacture
of chemicals in competition with the Germans, and as soon as our manu-
facturers set up research laboratories, they made great advances in
chemistry, and have since that time.
It might interest the conmiittee — this perhaps is not germane to the
subject — that we, the Bakelite Corporation, can buy the materials that
wc use, though very heavily protected by tariff, more cheaply tlian
any of the European or foreign companies with which mo are afliliateJ.
CONCENTRATION OF ECONOMIC POWER 1095
Senator King. Yoii mean to say the American manufacturer of
those materials can produce them cheaper than they could abroad?
Mr, Baekeland. Very considerably so.
Senator King. So the tariff really doesn't give protection.
Mr. Baekeland. The tariff isn't necessary, but the tariff made
that possible.
Senator King. That was largely for the coal-tar products.
Mr. Baekeland, Yes; that is what started it. But you see when
a chemical company got into coal tars it went into other things, too.
Senator King. Dyes?
Mr, Baekeland. Dyes, and one thing led to another, and we are
in a more favorable position in this country with respect to our raw
materials than any of our foreign affiliates.
Senator King, You are not afraid of foreign competition along these
chemical developments?
Mr. Baekeland. No; competition from abroad I think is not very
likely.
Representative Williams. Do I understand you to say, Mr. Baeke-
land, that this gear that you have here, or similar gears to that, is in
general use in automobiles at the present time?
Mr. Baekeland. And has been for many years.
Representative Williams. And in general use in machinery in
various plants throughout the country?
Mr. Baekeland. Yes; those gears are used as timing gears in the
motor, not as transmission gears. They are not strong enough to
carry the power load that is on a transmission gear.
Representative Williams. That gear has supplanted, of course,
steel,
Mr, Baekeland. Yes; it has.
Representative Williams. Wliat is the relative basic cost of the
production of that wheel compared with a steel wheel?
Mr. Baekeland. I don't think there is much difference; about the
same. I don't know what the relative costs are, but I should guess
that they are very much the same.
Representative Williams. And this is as durable or more so than
the steel?
Mr. Baekeland. Yes. You knoW, if two substances or two ma-
terials of the same kind work and wear against each other they wear
out faster than if two different substances work against each other.
That is the reason for bronze and lead babbitt bearings on steel shafts.
This same principle applies here. One of those Bakelite phenolic
resin gears running against a steel gear will give greater wear than two
steel gears running against each other, or two gears of that kind running
against each other; and this gear has no ring to it. It deadens the
sound and it is used to keep the gears running silently. Wliere those
gears are not used, then silent chains are used, these wide link chains.
I am not certain of the. figures, but I know 3 or 4 years ago 65 percent
of the cars made had those gears in thorn.
Representative Williams. I understood your capital structure is
now about 8% million dollars.
Mr. Baekeland. Yes,
Representative Williams. WTiat were your gross sales, say, in '38
or '37?
1096 CONCENTRATION OF ECONU.MIC I'OWKK
Mr. Baekeland. Our competitors would dearly love to have us tell
them that. If it isn't necessary, I should rather not shout it out in
open meeting.
Senator King. Are your sales increasing?
Mr. Baekeland. They go up and down. In the last few years
they haven't been so good. Business hasn't been very good and it
has been more difficult than in the past. Our business has been ,a
spectacular one, perhaps the product and the development of the'
products has been a bit dramatic, and their wide use I think has led
people to exaggerate the importance of our business and its size.
The mistake, if a mistake is made, is one of exaggeration of our size
and importance, as far as sales are concerned.
Representative Williams. It has been a business of very rapid
growth during the time it has been in operation.
Mr. Baekeland. It has been a gradual growth. It has not been
very rapid; it has been gradual. We have been in business for 28
years.
Representative Williams. And have grown from a capital structure
of $28,000 to $8,500,000.
Mr. Baekeland. We could have kept the same capitalization today.
Representative Williams. And in the meantime 1 assume you have
paid reasonable dividends.
•Mr. Baekeland. Oh, yes; but our dividend policy has been a
conservative one. We have declared about 50 percent of our earn-
ings iji dividends, and the rest have, been put back into plant and
research and put aside for a rainy day. Of course, these new tax laws
just made that impossible. We went through a long depression where
we cut into our savings, into our surplus, to carry our people through
this last depression. We didn't fire our people, and all that sort of
thing. We kept our people, and if we had to lay off some workmen,
we took them back again. People don't leave us; we don't have a
turn-over; we don't get resignations, and our competitors don't take
them away from us. We are a happy family there. One reason we
are a happy family is because we are loyal to them and they are loyal
to us. We treat them well and we have carried them. That was
expensive.
We also built this $4,500,000 plant during the depression and that
ate into our savings, and we have had years when we haven't had
many profits. Then these new products come along and each time
a new product comes along it is like going into a new business; it
means we have to build additional plants and equipment in' order to
go into production, because our other equipment isn't suited to its
manufacture. When we come out with a new product, it means an
increase in the- sales department, and those things have taken our
money.
Representative Williams. Were they very highly specialized?
Mr. Baekeland. They are unskilled labor but we train them into
skilled or semiskilled for our particular purposes. I mean they know
their jobs, yes. Now we have had to curtail; there are things we
would like to do, products we would like to make we are not going
ahead with today, because — well, these tax laws.
Senator 'King. Lack of capital, is that it?
Mr. Baekeland. We are afraid to take a chance on involvingrany
more of our capital and our surplus in the plant so we could begin to
CUNCEXTRATION OF IX'OXOIMIC POANKR JQgy
build it up again; after going through the last depression it has been
rather hard on savings and then, as I say, a four and a half million
dollar new plant besides.
Kepresontative Williams. Is the stock in your corporation widely
held? ^1
Mr. Baekeland. Xo, it is not; there are not very many stock-
holders.
Representative Williams. Rather closely held?
Mr. Baekeland. You see, my father started with some friends,
invited some frientls to come in with him, and there has not been
any large increase in stockholding.
The Chairman. You have testified, I think, at the beginning that
it was not necessary to borrow any money?
Mr. Baekeland. No,
The Chairman. Either by way of bank loans or by way of bond
issue?
Mr. Baekeland. Or stock issues except the original 250,000. I
think that was the figure. I am not sure, but I beUeve that was the
figure.
Dr. LuBiN. Mr. Baekeland, if I understand you correctly, you do
not make any of these products; you only make the raw materials
out of which these products are made?
Mr. Baekeland. That is correct. Dr. Lubin. Our customers
make those products.
Dr. Lubin. Now you have competitors like Catalin and others; do
you not?
Mr. Baekeland. Yes.
Dr. Lubin. Do they have patents?
Mr. Baekeland. They have.
Dr. Lubin. Is their business built up?
Mr. Baekeland. They have some patents. This plastics business,
though, except in certain branches of it, is not very much restricted
with patents today. Our basic patents expired in 1926.
Dr. Lubin. In other words, then, the use of these plastics in new
forms and developing new arts, as it were, grows out of the possibility
of using new material to do something that was formerly made out of
something else, irrespective of patents; is that so?
Mr. Baekeland. It might have been made out of something else,
and it might not have been made at all before, because these materials
make it possible to make things which before had not been made, and
in other cases it might have been made out of something else. Now
for example, here is a switch plate. If that switch plate has been
made out of brass, what happens? It looked quite nice when you
bought it, and then the dirty thing got all tarnished, black and nasty,
and in cold weather you walk across the rug and get a nice shock from
the brass. Well, this thing here is cheaper than the brass and it is
better than the brass, and never tarnishes. If you want a white
color you have got it. Now, in that way it replaces brass, but in
other respects it gives you what brass never gave you before.
Dr. Lubin. And in addition you can buy it at Woolworth's where
you could not buy the brass ones before. Here is a raw material
that you have developed. Now, the use of that raw material, its
entry into the arts, is entirely independent of any patent system of
any sort? I mean if I conceived the idea of building something and
1098 CONCENTRATION OF ECONOMIC POWER
ITmd that I can build it more cheaply with your raw inatorials thau
I^^can out of steel or wood, or something else, or that through this raw
material I can make something that otherwise could not be made
Mr. Baekeland (interposing). Or better; often it is because it is
better.
Dr. LuBiN. 1 am in a position to take advantage of that and
the public gets that advantage?
Mr. Baekeland. Yes.
Dr. LuBiN. \Mxat I am tr>'ing to get at is the whole question as
to how far this development might have taken place. Somebody
discovers a plastic. I find that I can use that plastic in making some-
thing and I would do it irrespective of the existence of a patent,
would I not?
Mr. Baekeland. I think I lost the trend of your question. You
would have what?
Dr. LuBiN. I would have used your plastic, irrespective of the
existence of a patent system. If I know of the existence of a raw
material that I might use, I would use it if I could produce my product
more cheaply with your raw material than I can with somebody else's?
Mr. Baekeland. Yes.
Dr. LuBiN. Consequently, even though there had been no patent
system and somebody conceived the idea of a plastic, plastics would
have entered into the arts, would they not?
Mr. Baekeland. But you would not have had all these things
without a patent system to protect them.
Dr. LuBiN. There is no patent system protecting this de\'ice or
this device?
Mr. Baekeland. Not today, but it took a lot of work and a lot of
expense and a lot of risk to introduce those things. You would be
amazed how much trouble we had to get that thing into use in the
telephone company, or that for a radio cabinet. It is not as easy as
all that. Now there have been years of development work and sales
effort and introductory effort.
The Chairman. If you told Dr. Lubin what the original patent was,
that would answer the question that he has in mind, and how the
industry was built up in relation to the patents which were received.
Mr. Baekeland. Yes; the industry was built up.
The Chairman. Can you just illustrate that to us briefly?
Mr. Baekeland. Well, of course having patents, having protec-
tion, the industry
The Chairman. The point is this, how much of this industry that
you have been describing to us this afternoon is based upon the patent
system and how much of it could have been developed without the
use of a patent at all?
Mr. Baekeland. Every bit of it under patent system, every one
of these materials. Their modifications have all been patented.
The Chairman. But some of those patents have now expired?
Mr. Baekeland. Oh, that is true.
The Chairman. The basic patents are expired. So you are telling
the committee the industry is a direct result of patented devices?
Mr. Baekeland. Precisely.
Senator King. And the public now are getting the benefit of those
patent devices because of the expiration of the patent?
Mr. Baekeland. Certainly.
CONCENTRATION OF ECONOMIC POWER 2Q99
Senator King. But you built up the industry under the patent
system?
Mr. Baekeland. We dad.
Dr. LuBiN. What I am trying to get at is whether you might not
have built up the industry without the patent system. I am not
€onvinced.
Mr. Baekeland. I certainly am.
Mr. DiENNER. Dr. Lubin, it may be you fail to appreciate the point
that those materials or those devices that you have there require
certain raw materials to be prepared and that you cannot walk out
into the open market and in a drug store buy raw materials. The
raw material which you must mold is the subject matter of the
patents that Dr. Baekeland took out.
Mr. DiENNER. Now it would not have been possible for you to get
the materials unless someone had supplies the m.aterials and that is
where Dr. Baekeland's patents and his industry come in.
Dr. Lubin. My contention is that Mr. Baekeland's father had
developed this new material and it became known to industry that
such a material was available; they should use it and he produce it,
whether or not there were patents if he could make it and industry
wanted it?
lack of incentive to invent without patent protection
Mr. Baekeland. Well, now, Dr. Lubin, when he invented this it
was the basis of this industry. It required a great deal of work to
bring it to a point where it could be commercially utilized. He spent
his own money on it in the early days, before the company was formed,
and then with his own money and that of others be conducted research
work; profits came in; they were put back into the business; more
research work, development, more introductory work. He would not
have gone ahead with that if he had not been protected because
anybody could have come along and copied him. Who would have
had to amortize the expense that he went to, the money he spent on
research, in equipment that did not work and had to be junked, and
other materials tried? And all that sort of thing. People don't go
ahead without an incentive.
The Chairman. There would have been no motive for the develop-
ment of the industry if there had not been a patent system? Your
father would have found himself in precisely the position of the
gentleman who left the stand just before you took the seat, who has
been unable to find any person who is willing to manufacture an
apparently useful device which he exhibited to the members of the
committee because he cannot offer any patent protection?
Mr. Baekeland. Exactly, and there would not have been the con-
tinuing development. Now what this did for him, this patent system
enabled him to build up a glass wall around himself, behind which he
could work in security without being rushed and through which the
public on the outside could peer in and see what he was doing, and wait
until 17 years when they knocked the walls down and everybody could
then come in. Now that is all that it did. It gave him a chance to
work and develop, to improve and to do the things that a research
worker does.
j^^QQ CONCENTUATION OF ECONOMIC POWER
Dr. LuBiN. Perliaps I can clarify what I have in mind better by-
adding this question. In your research laboratories do you work
only on the development -of new materials or the improvement of
existing materials, or do you also work on the possible uses of existing
materials?
Mr. Baekeland. Yes; we work on those, and then we run into an
anomaly when is a patent not a patent, or when is a patent monopoly
not a patent monopoly? I will tell you how that is.
Suppose we developed, suppose we had taken out a patent on this
adhesive tape. On this adhesive tape, incidentally, a patent was applied
for. It is coated with one of our materials and what it produces is an
adhesive tape that you can keep on for weeks, and go in swimmmg
twice a day, and it doesn't come off or come loose. You can wash it
right off; dirt doesn't stick to it. It has certain advantages.
We developed the material. We did not develop the adhesive
tape. We turned it over to an adhesive tape manufacturer who came
to us wanting this kind of coating. He applied for the patent.
Suppose we had applied for that patent, or taken out a patent on
adhesive tape. The law doesn't permit us to issue a license to an
adhesive tape manufacturer under the patent with the proviso that
he must buy his material from us. That is against the antitrust laws.
So what we have to do in those cases is to give the dear old customer
the right to use the patent and hope that we can get our share of the
business with our competitors.
We are not manufacturers of adhesive tape We are not in the
patent licensing business, and although in theory we could license
him and collect a royalty and sell him material, it doesn't work that
way. When a man pays you a royalty he thinks he has given you
enough, and if he is going to buy materials, he is going to do that from
your competitor. He says, "Those fellows get enough from us on a
royalty, and I'll be darned if I'll buy material from them too."
Dr. LuBiN. Here you have these laboratories, people working, find-
ing new uses for existing materials upon which patents have expired.
Despite the fact that you have no patent protection you go ahead and
develop new uses for your materials.
Mr. Baekeland. Because they are added outlets for our materials.
But if we didn't have the materials to fill the needs and use, we
wouldn't be bothered with developing a use patent.
Dr. LuBiN. Wliat I am getting at is, you can develop a new use for
a certain product you have on which there is no patent, and your com-
petitor can make exactly the same thing tomorrow once they have
discovered it, yet you continue to produce these new things, despite
the fact that your competitor can produce them immediately there-
after.
Mr. Baekeland, You mean in the case of a use patent?
Dr. LuBiN. You use your product in making these. Assuming now
that the product out of which this is made — your research laboratory
develops this, but you don't make them, other people make them.
Mr. Baekeland. We didn't develop the switch plate!
Dr. LuBiN. I mean you do, in your laboratory, seek new uses for
materials upon which patents have expired.
Mr. Baekeland. That is true.
Dr. LuBiN. Despite the fact that you have no patent protection
and despite the fact that tomorrow, once you have found a new use
CONCENTKATION OF ECONOMIC POWER J^QJ
for your product, anybody can go out and make that product, just
as you do.
Mr. Baekeland. Yes. If we run across it accidentally, yes; but
we don't put our men to work on something like that. We would
rather put them to work on something that is protected.
The Chairman. To what extent are the materials which your
father and your company have developed, and upon which the patents
have expired, being used now by competitors?
Mr. Baekeland. Widely.
The Chairman. That is the point, I think, the doctor was trying
to develop.
Mr. Baekeland. These materials on which patents expired
The Chairman (interposing).- Your counsel is making applications
for patents which are really improvements upon the basic patents?
Mr. Baekeland. Yes; that is true too, but we hold our own in the
field where the patents are expired through service to our customers.
The Chairman. Then it comes down lo what in the trade is called
the "know how" and the reputation and the goodwill.
Mr. Baekeland. It is more than that. We give almost a pro-
fessional service. Our customers are in constant touch with our sales
engineers. They are not salesmen who go out and take orders.
Let us assume you are ready to go into business to make hardware.
You are a hardware manufacturer and you want to make this kind of
hardware. You don't know anything about the technic or anything
of the sort. Our people will lay out a plant for you, specify optional
equipment, recommend certain equipment for you to put in there. We
will go so far as to try to get you personnel for a skeleton organization
of that kind and get you started.
The Chairman. Yes; you endeavor to render an efficient service.
Mr. Baekeland. An engineering service.
The Chairman. But there is nothing in the patent system or in any
other system which prevents competitors of yours from using the
materials upon which your patents have expired?
Mr. Baekeland. None whatever.
The Chairman. I think that is what Dr. Lubin had in mind.
Senator King. In your research work do you discover new elements,
if I may use that expression, and get a patent upon that new discovery?
Perhaps the new element or the new proc^uct would be the result of a
rearrangement of the molecules or the atoms of the various compounds
out of which the product is made.
Now, do you find, in your investigations and in your researches,
that you discover new processes which would permit you to obtain
inventions for plastics?
Mr. Baekeland. We do; yes.
Senator King. And upon those new inventions and new discoveries
out of the same elements you get patents?
Mr. Baekeland. Yes; and frequently our older materials are in
competition with the new, or some other material might be in com-
petiti6n with it.
The Chairman. You find yourself putting yourself out of business
as you go along.
Mr. Baekeland. Sometines we do, and then there are substitute
materials that can be used, too, where it is a matter of choice, and we
124491— 39— pt. 3 18
1102 CONCENTRATION OF ECONOMIC POWER
have to try to convince the customer that the new material is better
than what he is accustomed to using.
Mr. Patterson. Mr. Baekeland, your father started the plastic
business?
Mr. Baekeland. The plastics industry in this country with the
exception, I should say, of celluloid, which is cellulose nitrate, gun
cotton, invented by Hyatt. He was endeavoring to develop a billiard
ball material which would be a substitute for ivory, and he invented
celluloid. That was the first synthetic plastic, but its field, you know,
is limited.
Mr. Patterson. Are not 95 percent of the buttons men wear on
their clothes plastic, or some very high percent?
Mr. Baekeland. It is increasing.
Mr. Patterson. To what proportion would you say that the plastic
industry has grown— 60 million per annum, 80 million per annum, or
have you- an idea?
Mr. Baekeland. The Department of Commerce has those figures.
Mr. Patterson. I don't have them.
Mr. Baekeland. I don't have them in my head; no.
Mr, Patterson. I want to ask you one other question. Some time
ago you spoke of airplanes and plastic wings. Can you speculate as
to whether these new planes might meet the administration's much
discussed problem of having adequate facilities for mass production
in case of need?
Mr. Baekeland. Yes; it would do so admirably.
Mr. Patterson. And what is the comparison of the length of time
it might take to make a plastic wing over the other tj^pe of wing?
Mr. Baekeland. Well, I will have to guess at that.
Mr. Patterson. I won't ask, you to do that. I don't want to press
Mr. Baekeland. It would be many times the amount of time; oh,
I should say it would be 20 or 30 times.
Mr. Patterson. More difficult?
Mr. Baekeland. As long to make the other.
Mr. Patterson. To make the present wing.
Also is anyone ready to go into commercial production of these
wings?
Mr. Bapkeland. The plant has been designed, and pl'oduction
awaita'a contract which is pending.
Mr, Patterson. Is there an invention of this plastic wing, any one
man responsible for it?
Mr. Baekeland. Yes, Colonel Clark.
Mr. Patterson. Colonel Clark?
Mr. Baekeland, Formerly of the United States Air Service.
Mr. Patterson. An ex-Army man?
Mr. Baekeland. He is the man who developed the thing, and he
got a backer to support him on his development work, and that devel-
opment work was carried out by one of our customers, the Haskelite
Co., of Grand Rapids, Mich.
Mr. Patterson. What is Colonel Clark's first name?
Mr. Baekeland. I might have it here in a letter. I think he was
in command of Wright Field, at Dayton, and he is the man who
developed the. Clark Y-section wing, which is widely used. He is one
of the ablest and foremost technicians of airplane design.
CONCENTRATION OF ECONOMIC POWBE 1103
Representative Reece. Have you explored the possibilities for this
material in the building supply industrj^?
Mr. Baekeland. Yes, sir. There is quite a little work bemg done
in that field. Here is a piece of plywood. That is made up of a num-
ber of pieces of, veneer welded together with this material here which
is a bakelite plywood bond. Those sheets are established in between
the layers of veneer, the whole is pressed together warm, and it makes
a water-resistant, weather-proof ply.
The Chairman. The material that you supply there is the bond.
Mr. Baekeland. That is the bond.
The Chairman. The veneer is wood.
Mr. Baekeland. Wood. The first plywoods were made with ani-
mal and vegetable glues, which are water soluble, and as soon as the
plywood goes out-of-doors and gets in the weather it splits and comes
apart. This plywood here is usable under water. Anthony Fokker
built a new 1 10-foot triple-screw yacht out of that material. Even his
engiue beds were made of it, and he has three 1 ,000-horsepower motors.
He had built plywood airplanes; he knew the value of plywood; he
knew its strength. He is perhaps as well versed in the use and hmi-
tations of plywood as anybody I know. He had the courage of his
convictions and he built this expensive, large yacht entirely out of
those materials.
The Chairman. Are there any other questions?
search for suppressed patent unsuccessful
Mr. DiENNER. I have one more question. Do you know of any
patent which is being suppressed?
Mr. Baekeland. No ; I don't, Mr. Dienner. I don't know of one,
and as it is interesting, I might tell you that Mr. Parsons, who is Secre-
tary of the American Chemical Society — the American Chemical So-
ciety is quite an organization, it has a large membership, it runs into
the thousands — was aware of the fact that some people beheved that
patents were being suppressed and that perhaps they were right, so
he circularized the membership of the American Chemical Society and
asked the membership to submit to him cases of a suppressed patent.
He didn't get a single example. I can't conceive of a patent being
suppressed. I don't know why anyone shpuld suppress a patent when
he could use it.
Senator King. Don't some inventors claim a suppression of patepts
because after brmging them to the attention of manufacturers or
persons engaged in a particular industry they didn't see fit to utilize
them and the inventor then claimed that they were suppressed? Per-
haps the person to whom he exhibited them had better patents or at
any rate felt that there was no necessity of utihzing tms because it
would not add to the success of the products which they were giving
to the pubUc.
Mr. Baekeland. I can conceive of an inventor that you might say
was perhaps a bit of a sorehead or whose vanity was hurt because he
had sold someone a patent and that patent wasn't outwardly used.
For example, suppose that Mr. Graham here had bought a patent on
an article that wasn't commercial and wasn't useful, but a patent
which was valid and had not expired, one feature of which might
remotely bear upon his biscuit maker. The patent nright have been
1104 CONCENTRATION OF ECONOMIC POWER
taken out to something very remote to biscuit making, but it had one
claim in it that covered the point that he brought up here. He might
have bought that patent so as to be covered on that one particular
point. The inventor might have looked upon it as a suppression of his
patent because the patent might have called for — I don't know what
it might have been, it might have been a perfectly useless object but
had one claim which bore upon this particular baker. Now the
inventor might through some reasoning say, "Well, my patent was
suppressed." Mr. Graham might never have had any intention,
desire, or hope of commercializing the article on which that patent
bore. That possibly, you might reason, was a suppressed patent;
there may be some cases of that kind. I know of none: I know of
no valid, real case of a suppressed patent.
APPROVAL OF PROPOSED SINGLE COURT OF PATENT APPEALS '
Mr. DiENNER. One more question. Are you familiar with the
proposal for a single court of patent appeals in the system, and what
are your views on that, briefly?
Afr. Baekeland. I think it would be an excellent thing if we had a
single court of patent appeals, a court composed of several justices
who were technically trained, because as scientific inventions and
discoveries become more complex it is even difficult for technicians
within the field to follow some of these things, and it is wholly unfair
to expect the judge to be able to pick his way through a mass of
technical detail and facts presented in a patent case. Even technicians
within the field themselves are sometimes at a loss, experts in patents
are sometimes at a loss to follow what is going on. Much that is
brought up in a patent suit is new, it is novel, or it wouldn't be the
subject of a patent. The more we could have patent suits conducted
or judged upon by men who are competent to judge technical situa-
tions I think the better will be our decisions in the patent cases.
A Federal judge told me thatit was terribly bewildering to him to try
to fathom his way through one of these cases, and I can readily under-
stand it, so that if we had a court composed of, say, three judges who
had been patent attorneys, men who were trainetl, say, one in elec-
tricity, one in chemistry, who at least knew the terms that were used
and could refer to the literature, or anything of the sort, to bring them-
selves up to date on the point in question, it would be a great help;
or we could have a court with permanent paid experts, technical
experts, whose sole function was to aid the court, not men who were
brought- in from the outside from time to time, but men who had
permanent positions and were properly paid. That would also be a
great help, but I think those men should be subject to cross-examina-
tion by attorneys in the- case.
Mr. Diennek. Mr. Chairman, this is our last witness that we wish
to call, and I shall now turn the proceedings back to you and to
Secretary Patterson.
The Chairman. Mr. Baekeland, I think I can say lor the committee
and certainly I say for myself that I feel my education has been very
much advanced this afternoon. We are very much indebted to vou
for a very illuminating statement.
Mr. Patterson. Mr. Chairman, I should hke to call upon Mr. Coe,
the Commissioner of Patents, to make a closing statement on our
patent situation.
' For previous discussion of the pr.- ■^d fmirt, sco p. 900 et seq. and p. 906 et seq.
CONCENTRATION OF ECONOMIC POWER 1105
The Chairman . We will be very glad indeed to hear him.
(The witness, Mr, Baekeland, was excused.)
Mr. CoE. Mr. Chairman, on behalf of Secretary Patterson and my-
self I wish to state that, with the testimony just offered, the oral evi-
dence in respect to tlie part played by the patent system in our indus-
trial organism is concluded. I regret that we have had. insufficient
time to offer to you the testimony of additional witnesses who have
been here and were prepared to take the stand. However, their testi-
mony would have been to a large extent cumulative, and for that rea-
son we do not regard it necessary to prolong the hearing.
By providing for the expression of the views of some of those mak-
ing use of the p/itent system — inventors and manufacturers, large and
smfiU — we have sought to give a fair and objective, though necessarily
incomplete, portrayal of the system in operation. It is our hope that
we have assisted 3'ou in appraising the actual importance and the
potentialities of the S3'stem in out national economy.
In the statement made to you by the Commissioner of Patents we
have identified certain abuses which exist in the system, in our judg-
ment, and have proposed remedies for them. The studies which have
prompted the presentation of these facts and recommendations 'will
not, of course, be abandoned with their submission to your committee.
Both the Department of Commerce and the Patent Office will con-
tinue their studj^ of the patent system and their efforts to improve it
still further.
These hearings on the patent .ystem have stirred widespread inter-
est in the subject, and, we are persuaded, will result in beneficial action.
For all of these reasons, Mr. Chairman, we wish to record our grateful-
ness to the committee, our appreciation of the cooperative and frank
attitude shown bj-^ the witnesses, and the valufable assistance of the
able counsel who have conducted the hearings or us.
Senator King. I would like to ask this question. I recall the
recommendations which were made with respect to procedural rnatters.
I suggest that it might be of advantage to the committees, I am sure
it would be to me, if those recommendations were put into concrete
form, in the shape of amendments to the existing law, so that we could
consider them at the conclusion of the testimonj^ in the event that the
committee should decide that the patent law should be amended, par-
ticularly the procedural features. The measures which would be-
drafted pursuant to those recommendations I am sure would be
helpful, , .
Mr. Patterson. As part of the record. Senator King?
Senator King. Oh,' no.
/Mr. CoE. Senator, I might assure you of our wholehearted co-
operation in that respect.
The Chairman. The committee is very much indebted to the
Department of Commerce for this presentation, and we also thank
Mr. Dienner and. his staff.
Mr. Dienner. I appreciate that very much, sir.
The Chairman. The committee will stand in recess, subject to the
call of the chair.
(Whereupon, at 4:40 p. m., an adjournment was taken subject to
the call of the chairman.)
APPENDIX
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1112 CONCENTRATION OF ECONOMIC TOWER
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CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
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ONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
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124491—30 — pt.
1118
CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
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COXCENTKATION OF ECONOMIC POWER
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COXCENTKATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
1123
Exhibit No. 179
APPLICATIONS AND PATENTS
INCLUDING DESIGNS AND REISSUES
1836 TO 1937
100.000
50.000
1836 40 J45 '50 -SS/eO «5 -70 'TS/BO BS '90 '95 igOO-QSMO 'IS •20/& '30 / '351
Y?Sr<; WORLD FANC
T L ARO WAR ff
- 0
SPANISH
AMERICAN
WAR
US PATENT OFFICE
Exhibit No. 180
APPUCATK>B AND PATENTS
laai TO 1938
(exojucxNG oesKSNs «. Reissue^
90,000
SO.000
1921 -22 '23 -24 '25 '26 27 '28 '29 '30 31 '32 '33 '34 '35 36
YEARS
PREPARED BY
U S PATENT OFFICE
1124-
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 181
RATIO OF
PATENTS TO POPULATION
!0-
10.000 RESIDENTS
_PATENT5 ISSUED.
PER
10.000 RE9DENTS
Exhibit No. 182
RATIO OF
PATENTS TO TECHNOLOGICAL WORKERS
10-
9
8-
7-
6-
5-
4
3-
2-
1-
0-
PATENTS ISSUED
. PER 100
TECHNOLOGICAL-
ID
CONCENTRATION OF ECONOMIC POWER
1125
Exhibit No. 183
PATENTS ISSUED TO LARGE CORPORATIONS
(EXOJJOItJG DESIGNS i REISSI^S)
100%
AROE CORP'S
ASSETS OVXS SijOJOOOO-O
i. THEIR SUBSIOARIES
12.8%
17.2%
193 22 -23 '24 25 '26 '27 23 29 '30 31 32 '33 3a 35 36 37
YEARS p°^
Exhibit No. 184
60.000
50.000
40,000
30,000
20.000-
10.000
PATENTS ISSUED TO LARGE CORPORATIONS
(excluding designs t. reissues)
30,000
1921 22 23 24 '25
32 33 '34 35 -35 37 1933
YEARS
1126
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 185
PATENTS ISSUED TO LARGE CORPORATIONS
fASSETSOVER $50 000 000)
RATIO OF PATENTS TO TOTAL ASSETS
•29 30 '31
YEARS
ExniiiiT No. 186
60,ooa
50,000:
40.000
30.000-
20,000
10.000
000
50,000
-40,000
30.000
20.000
10.000
CONCENTRATION OF ECONOMIC POWER
1127
100'
90
80
70
60
50!
40
30
20
%.
Exhibit No. 187
DISTRIBUTION OF PATENTS AS ISSUEti
(EXCLUDING DESIGNS «. REISSUES!
INDIVIDUALS
5p6s5i-
1 o/ TO LARGE CORP'S
/O (assets OVER iw.ooo.ooo)
AND SUBSlDtArtlES (450)
42.9?^
5.4^
3455^
17.2?^
1921 '22 -23 -24 25 26 '27 28 29 30 31 32 33 34 35 36 37 1938
YEARS
Exhibit No. 188
PATENTS ACQUIRED BY CORPORATIONS
TOTAL PATENTS ISSUED JAN. I. 1931 TO JUNE 30. 1938 - 334.970 '\
B0UGHT_J124 BOUGHT 7.448 BOUGHT 976
LARGE SMALL CORPORATIONS
I L/lSSUED\jL
i; l\48.427y^,|
/ISSUE[J\ J
\ll7.IOL/
I '.5.403
PREPARED BY
U S. PATENT OFRCE
1128
CON'CENTRATION OF ECONOMIC POWER
Exhibit No. ISO
UNEXPIRED PATENTS OWNED BY CORPORATIONS (EST.)
Subsidiaries not rombined with parent cotporations
Number of
CLASS OF CORPORATIONS
Owned By
Each
Corporation
Large
Foreign
Small
Total
No of
Corps
1
0
1
2
3
7
435
No. of
Patenrs
8,488
0
4,467
7.558
8,011
1 1 ,033
36,043
No. of
Corps.
No. of
Patents
No. of
Corps
No. of
Patents
No. of
Corps.
No. of
Patents
8001-9000
[
1
0
0
1
1
2
4
13
21,235
8,488
7001-8000
0
6001-7000
0
5001-6000
1
1
5,112
4001-5000
4.467
3001-4000
7.558
2001-3000
1
2
3,233
2.734
2.335
24.182
10,745
1001-2000
1-1000
4
17367
5,236
243,915
18,604
304,140
Total
450
80.712
3.236
29.251
,17.571
249,151
21,257
359.114
3- L 5 PATErjT Qf^F
Exnuiir No. 19»>
UNEXPIRED PATENTS OWNED BY COf^PORATIONS (EST.)
Corporations owning less than 1,000 patents each
Number of
CLASS OF CORPORATIONS
"
Owned By
Large
Foreign
Small
Total
Each
No. of
No. of
No, of
No. of
No. of
No. of
No. of
No. of
Corporation
Corps.
Patents
Corps.
Patents
Corps
Patents
Corps.
Patents
901-1000
0
0
0
0
0
0
0
0
801-900
3
2512
0
0
5
4,285
8
6.797
701-800
3
2.295
780
3
2.228
7
5,303
601-700
6
3,702
642
4
2,645
11
6.989
501-600
6
3,346
583
16
8,870
23
12,799
401-500
7
3.180
428
17
7,643
25
11,251
301-400
7
2,408
306
30
10,417
38
13.131
201-300
21
5,313
6
1,553
70
16,981
97
23.847
101-200
44
6,290
9
1,285
227
31,670
280
39.245
1-100
338
6,997
3,213
18,605
17,195
159.176
20.746
184.778
Total
435
36 043
3,233
24,182
17.567
243.915
21.235
304.140
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 191
PATENTS ISSUED TO CORPORATIONS
JW«MRV 1, 1931 TO JUNE 30, »3e-7i YEARS
1129
■f^jcurs
CLASS
OF CORPORATIONS
TO
LARGE
TOTAL
XDRPOBATION
■NUMBER
PER CENT
NUKBER
PER CEhrr
NUMBER
PER CELNT
NUMBER
PER CENT
IN
OF
OF
OF
OF
OF
OF
OF
OF
CORPS,
TOTAL
CORPS
TOTAL
CORPS.
TOTAL
CORPS
TOTAL
8
9
308
2
34
1
351
,
7
10
351
2
43
p
404
2
6
13
491
3
57
2
561
3
5
!«
666
4
100
3
782
4
4
14
940
5
134
4
IfiSO
5
3
17
1.505
9
227
7
1.749
8
2
3«
2.7 71
16
503
16
.rSiO
16
'
66
7.823
44
1880
58
9.789
46.
-TOTAL or
'
COOT»ORATIONS
AVERAGING NO
MORE THAN
181
14.865
92
16 014
85
ONE
PATENT
-TOR YEAR
TPTAL OF
COFIPORATIONS
TAILING
45a
100
17^7 r
100
3236
!00
21.257
100
PATENTS
FRSiPARED BY U. S PATENT OFFICE
Exhibit No. 192
organization chart — u. s. r«,tent office
COMMISSIONER
OF
PATENTS
COMMISSIONERS STAEF
" ASSISTANT COMMISSIONER
ASSISTAMT COMMISSIONERS
ADMINISTRATIVE ASSISTANT
SOLICITOR
DOCKET
DIVISION
-J
-
IWT£lir£RtNCE
OIVI»ON
DD
ffl
PUBLICATIONS
MANUSCRIPT
■SCIENTIFIC
LIBRARY-
ASSIGNMENT
DIVISION
FINANCIAL
CLERK
CPAFTING
DIVISION
PREPARED BY
U S PATENT OFFCE
1130 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 193
procedure /a/ obt/j/ma/g p/tte/vts
ExuiuiT No. 104
EXAMINATION PROCEDURE OF PATENT APPLICATION
VEHICLE LIGHTING
CHANDELIER
2 BOWL SUPPORT
3 REFLECTING TIP BULB
»OBTABLe UNITARY
ILLUMINATION
SUBCLASS 71
I
L^
SUBCLASS 105
LIGHT SUPPORTS
CHANDELIERS
SUBCLASS 76
SUBCLASS 52
AVIATION LIGHTS
SUBCLASS 12
SHADE OR BOWL SUPPORTS
INCANDESCENT
ELECTRIC LAMPS
SUBCLASS 16
GAS ». VAPOR
SUBCLASS 122
SUBCLASS
PREPARED BY
U S PATENT OFFICE
CONCENTRATION OF ECONO.
1131
Exhibit No. 195
PATENT 2.058.139
ORIGINAL CLAIM:
(a) SOCKET
(bj BULB
(Cl REFLECTOR
Id) REFLECTOR CLOSE TO TIP OT
(el SHADE
CLAIM ALLOSVEO AFTER REJECTION:
lal, (b). (Cl. mi. (el. AS ABOVE Ah©
(f) SRACED SCREEN
HELD VALID D. C. M ILL. 482 O. G. 655
PREPARED BY
U S PATENT OFFICE
1131
L\( KM RATION UF E" » '.Nc ».M 1' ' l'( iWEIl
i:<5^
CO^-CENTRATION OF ECONOMIC POAVER
Exhibit No. 197
113a
J
5 OR
MORE YEARS
i
i
i
1 3 TO
5 YEARS
UNDER
3 YEARS
TOTAL
APPLICATIONS PENDING
4,015
2,879
2976
2.731
2,283
1.924
13,529
-
i
6357
5,994
97,793
91,371
108,123
1
1
180,355
114.201
106.151
104.095
109,735
116,041
1932
1933
1934
1935
1936
1937
1938
PREPARED BY U S. PATENT ' OFFICE
Exhibit No. 198
PATENT MONOPOLY
PERMITTED UNDER PRESENT LAW
EXPIRES 44
YEARS AFTEf*
FIRST FILING
M.L EXPIRE
WITHIN 20 YEARS
AFTER FIRST
FILING
PREPARED BY
U S PATENT OFFICE
124491— 39— pt. 3 20
1134
CONCENTRATION OF ECONOMIC POWER
Exhibit No. 199
PATENT MONOPOLY
27JfE;ARS.J>BOSCamON.NCU)pE
STEIMER PATENT AND DIVISIONS
l5rERrEHENCES_&_*PP5;ALSj I 17 YEAH PATC^^• GRANT
F
PREPARED BY
U S PATENT OFFICE
Exhibit No. 200
INTERFERENCES DECIDED ON EVIDENCE
1924 - 1933
(id YEAR&)
ULTIMATE
TRIBUNAL
NUMBER OF
CASES
DURATION
MINIMUM
MAXIMUM
AVERAGE 1
YEARS
MONTHS
YEARS
MONTHS
YEARS
vONTHS
EXAMINER
1,612
-
5
6
4
1
II
BOARD OF APPEALS
784
-
9
8
5
2
II
COURT
317
1
2
10
9
4
5
ALL CASES
2,713
-
5
ID
9
2
^
TOIAL NUMBER DECLARED DURING PERIOD- 17,162
PREPARED BY U S PATENT OFFICE
CONCENTRATION OF ECONOMIC POWER
1135
_§-
X
^ X
X
"g X.
X
^ X X
X
^
X X
"^x
X X g
5!X B
X S
5S X
^ S
^ X X
/ X •*
^ X Kl
XX ',
15 X X )<
X
1
«0
^ XX X
«} XX X
XX
ss X :
5 X X
X
r6"x X
X X
1 0) X X
^
«[> 'X
N X ^
<
«
<
^
"0 X '
s>
't X ^
<
rJ
•f> X X X
1
0» XX
- X
^
gill
ill!
513
1136
CONCENTRATION OF ECONOMIC POWER
ExHisrr No. 202
PfJTENTS IN LiriGfrnoN
BLOCKS R£Pff£5£Nr NUMBSff Or
FHTENTS lfWOLV£D /N D/Srf?/Cr
COC/ffT P£CIS/ONS /f^ C/ffCl//r
WHICH weffefiLso ar/a^reo -■
SOME (jTMe/? c/ffcu/r
CtPCUS /fEPffa£/vr NUMB£f? Of f^r£/V73
Aa/uo/c/9r£0 orv t^fv^e/?/-
FfGUP£S i^ff£ TOr<9lS /T?/? TJWT /^C^/P
F/SCfiL y£/f/?S /S3~S-/S^a
PKPfKeo Bfus. f¥iref^ off/cs
EXHIBIT No. 203
71H£ UT/C/tT/O/V CW OA/£ P/fr£/VT
29 30 31 32
•34 35 36 -37 1938 PffCPA^FO Br
u s /*^r£rA/r oFF/ce
'ONCENTRATION OF ECONOMIC POWER
1137
ExiiiRir No. 204
PATENT LITI0/9T/0N
124 ISO
l934-5~
SUITS
9/3
1115
SUITS
IIZ8
1138
mms
1510
leS 185
1357-8 ~^'
-500
Pm'£Nr SUITS r£ffM/N/9T£D /AT rHFO/Sfff/CT COUfffS.
/9fs/P P/?T£/Vr5 /T\/\^OL i^eO, ro/? /^/SC/9jL yS/9f?5.
5H^D£0 Pecr^/VGLeS /TVD/C/9re /9P/=>£/9^3
r£f?M/N/9reo BY r/y£Offca/rcoc/,'?r3 op
PPP£/^LS /?A/P P/97-eA/rs //vvoLyec).
Exhibit No. 205
160
USA GOVERNMENT FEES
£130
JAPAN
FRANCE $400
TOTAL FEES FOR
MAXIMUM PATENT
A
(J
/
/
GREAT BRITAIN 3.660
A
A ^J N U A L /
k
/
ITALY $930
FEES
A
/
/
/
/
/
GEf
MA
sJY
GERMANY $1965
/
/
/
IT
6-
V
/
/
/
^
^
-
"AT
BF
?ITA
N
^
RANGE
_
-^^
~"
~
—
^p-f-
—
^
AP/i
1 1
N
5 6 7 8 9 10 II 12 13 14 15 18 17 18
YEAR OF PATE^:T LIFE
PPlPARED by U S PATENT OFFICE
1138
CONCFNTRATION OF ECONOMIC POWER
1 f
rV
-N
%
CONCENTRATION OF ECONOMIC POWER 1139
Exhibit No. 206
SCIENCE ADVISORY BOARD
Report op the Committee on the Relation op the Patent System to the
Stimulation of New Industries
Washington, D. C, April 1, 1935
personnel of the committee
W. H. Carrier, chairman of the board, Carrier Engineering Corporation,
Newark, N. J.
D. M. Compton, industrial consultant, Chicago, 111.
F. B. Jewett, vice president, American Telephone & Telegraph Co.; president.
Bell Telephone Laboratories, New York City.
H. A. Poillon, president, Research Corporation, New York City.
V. Bush, chairman, vice president, and dean of engineering, Massachusetts
Institute of Technology, Cambridge, Mass.
introduction
This report results from the i»equest from the Secretary of Commerce to the
Science Advisory Board for a broad policy and program for the stimulation of
new industries in this country. The inquiry is directed to the stimulation of new
noncompetitive industries, taking noncompetitive in the sense that they should
not merely replace an existing industry or product by a substitute of no greater
social value; but rather should increase the potential aggregate of gainful em-
ployment, increase the comfort and safety of living, or confer other important
social benefits.
This problem was broken down by a steering committee into several parts,
some of which have been referred to the Business Advisory and Planning Council.
The-committee which presents this report was given the specific assignment of
the relationship of the patent system to the stimulation of new industries.
The committee has proceeded on the problem by consulting the literature of
the subject, and the i"eports of previous investigations, by studying the operation
of the patent systems of other countries, and by securing a consensus of opinion
in regard to the (^eration of the system in this country. The opinion of users
of the system has been primarily sought. These include inventors, engineers,
scientists, businessmen, and others who have had much to do with the operation
of the system in a broad way. Their opinion is of greatest importance, since the
functioning of the patent system is a matter of much larger scope than its mere
legal aspect.
The opinion of prominent patent attorneys has also been available, and the
point of view of various committees of patent attorneys is on record on most of
the points considered, as a result of the hearings before the Patent Committee of
the House of Representatives. The committee has thus reviewed_ carefully the
judgment of those in a position to know concerning the extent to which the patent
system operates smoothly and effectively for its intended purpose, and the ways
•in which it may be caused to be of greater benefit than at present. It has con-
sidered specilic remedies, and on these has studied the arguments which have been
presented. On the basis of this study the committee has formed its o^vn opinions,
and it is the object of this report to point out defects and recommend remedies.
The patent system of the United States was set up originally to bring benefit
to the public by advancing the useful arts. It does so by creating a temporary
monopoly, thereby renderhig possible the hazardous development of untried inven-
tions, which would otherwise not come to fruition to add to the general well-being
and increase the standard of living of the people. By its substantial rewiards it
stimulates invention, and the assiduous study and persistent effort_ on which
invention is based. That it has been successful needs no demonstration, for its
results are all about us.
The primary purpose of the patent system of this country is to stimulate new
industries. This is always an important matter, but it becomes particularly
important as the country now emerges from a serious depression. The history
of previous depressions shows that the time of emergence is usually marked by
important technical advances resulting in the creation of new and extensive indus-
tries. If this had not occurred we could not have attained the present high
standing of living. For the prosperity of the country it is imperative that this
trend should continue.
1140 CONCENTRATION OF ECONOMIC POWER
The patent system in the past has been one of the primary influences in shaping
American industrial h'fe, and it has assisted enormously in the development of the
country. In the considered opinion of those best able to judge, it is not however
at the present time functioning to full advantage. There are serious difficulties.
The use of scientific results in industry is a much more complicated matter than
when the patent system was first set up, and the system has not been altered to
bring it closely in line with the modern complex matters with which it has to deal.
If it is to fulfill its proper functioi\ lo the greatest possible extent it is therefore
essential that it be changed in certain ways in order that new industries may be
stimulated and not inhibited by its operation.
The patent system of this country is old, and it has gradually developed into a
complex structure. Radical changes in such a system should of course not be
undertaken without serious and careful consideration. It would be equally fatal
however to refuse to consider alterations at all when the changed times dictate
modification. It is in this spirit that the committee has approached this work,
in the attempt to combine a just conservatism with a willingness to actually face
facts and conditions. The report is directed primarily at the essential problems,
leaving untouched many minor details and methods of procedure.
In a complicated situation, such as this, it is not possible to point out panaceas
which will automatically treat every individual case that can be cited for the
optimum public benefit and with complete equity. Objections can be raised,
and will be raised, to every suggested change in a system which so closely affects
the interests of widelj' different classes of individuals. The attempt has been
made to recommend as faw changes as possible, and to make these changes in
such manner as to bring the greatest good to the greatest number.
There are three primary defects in the system as it stands at present, considered
in connection with the functions which it is called upon to perform in a modern
complex technical world. The first defect arises by reason of tlie issuance by
the Patent Office of an enormous number of patents, many of which should never
be issued, due primarily to an unduly low standard of invention. The second
defect has to do with the excessive cost and delay in the litigation of patents,
by reason of the present system of appeals. The third results from the difficulty
met by the courts in handling scientific or technical questions without com-
petent non-partisan assistance.
As these defects exist there is a question in the minds of many serious minded
and experienced men whether the system is not after all more of a liability than
an asset. It is seriously suggested that the system has become so complex and
cumbersome that it may break down of its own weight. Your committee feels
that the situation, while serious, it- not at all hopeless; and that it is possible to
make certain changes in procedure, not in themselves diflicult to put into effect
nor expensive, and not changing the existing structure in any essential or radical
manner; but which may restore the system to its former condition of importance
and beneficent influence on American industry. This results in our three major
recommendations. The advisability of a system of compulsory licensing has
also been seriously raised. The committee has studied this problem, and recom-
mends that no steps be taken in this direction at the present time.
Finally, the opinion of the committee is expressed on several minor changes in
procedure or desirable undertakings.
I. INCRE. SE or THE PRESUMPTION OF VALIDITY OF ISSUED P.\TENTS
The Patent Ofl^ce now issues many patents which are later found invalid in
the courts. It issues a much larger number which never can have commercial
importance. With two million United States patents issued, the situation is
unduly complex and is growing worse. When approximately 90,000 patents are
applied for in a year the amount of attention which can be' paid to each one in
the Office is not sufficient to insure a strong presumption of validity in issued
patents. The staff is overburdened. It has neither the opportunity nor the
facilities to make the study and search necessary to clarify the situation, and the
trivial, and the obvious are issued to confuse American business. This situation
IS not the fault oi the Patent Ofl^ice pers^iuiel. It results from the nature of the
technical advance wliich has taken place in the past few decades. It should
however be positively corrected.
The standard of invention cannot be arbitrarily raised bv creating a new
definition of invention. The courts can influence the standard through their
decisions only gradually, and by the undesirable means of finding mvalid a large
fraction of the patents which come before them, wliich, temporarjiy at least,
decreases rather than increases the presumption of validitv of patents as issued.
CONCENTRATION OF ECONOMIC POWER 1141
The Commissioner of Patents should be supported in his efforts to eliminate the
trivial and the obvious; but merely increasing the number of patent office person-
nel will not effect a cure. There is needed a change in procedure which will aid
the office in raising standards, and positively increase the presumption of validity.
Publication before issuance. — The British and German systems provide for
publication of an application before issuance, thus inviting contests within the
Office prior to the issuance of a patent. There are obvious objections to this
procedure. The most serious objection is that the inventor is often unduly
burdened with the expense of a contest, which is particularly serious for the
individual inventor without resources. It is much better procedure to maintain
the action in the Patent Office ex parte, as is our present practice. However,
without incurring the difficulty of the system involving contests, it is possible to
secure much of the improvement in the presumptiorT of validity of an issued
patent which such a system produces. This benefit is very real. At the present
time our office issues patents without a thorough search of American and foreign
literature, but with a search often devoted to American patents only, with some
small attention to publications and foreign patents. The result is that many
patents are issued which va-c. clearly invalid in view of prior patents and publica-
tions. Such patents often cause expensive litigation before they are finally
found invalid. The theory that the Ofl^ce should issue patents with little or no
examination, leaving the determination of their validity to the courts, is either
practically inoperative or unduly expensive. This is substantially the French
system. The American systein is preferable, and it goes a certain distance toward
the examination of prior art in order that a patent when issued may carry strong
presumption of validity, instead of being merely a means for entering litigation.
Hov/ever, our procedure does not go far enough, and the provision of an adequate
corps of examiners, with sufficient time and training to be aljle to review ade-
quately the entire prior art, whether in patents or in the literature, would be
highly' expensive. A modification of the system of publication before issuance
will secure the desired result without great cost. It will aid the Patent Office in
increasing the presumption of validity of issued patents.
We recommend, therefore, that, when an application is ready for allowance, it be
published in the Official Gazette, and the submission of pertinent facts by interested
parties invited.
The publication should be made in the manner employed at present in publish-
ing an abstract and sample claims when a patent is issued; and the allowed
claims, and preferably also the specification and drawings should be opened to
inspection. The publication and material opened to inspection should not dis-
close the date of filing, nor give any other information unnecessary for the purpose
in hand. Upon such publication "the Office should allow anyone interested, and
within a stated time, to submit facts which are pertinent to any application thus
published. These facts, however, should be limited to references or photostat
copies of prior patents or other published printed papers, books, or documents,
such as are available in libraries or other public sources.
Arguments and affidavits should be rigidly excluded. The procedure in the
Patent Office should be maintained strictlv ex parte. However before the patent
is finally passed to issue, the Examiner should give it a further review in view of
any new material thus brought to light, and either pass it to issue, or make neces-
sarv xejcction of claims. Of course in case of rejection on this basis the applicant
should have an opportunity to present arguments as he has at present, and an
opportunity of appeal. The documents filed should be made part of the file-
wrapper of the appliction. • , , ,. x- v u
An applicant who files an interfering application after such publication should
be under the same heavy burden of proof as the applicant who now files an
interfering patent application after the granting of a patent.
The committee believes that this change will not cause undue expense to the
inventor, but will aid him bv givint? him a stronger patent, much less likely to be
voided by the courts. The" burden of submitting evidence will be welcomed by
those interested in special fields of development, as it will largely avoid the more
serious burden incident to the issuance of unwarranted patents.
It appears that this change can be effected by amending the Patent Office
Rules of Practice. A relativclv small increase in expense of operation of the
Patent Office is involved, and this should be provided for in the proper Congres-
sional legislation.
1142 CONCENTRATION OF ECONOMIC TOWER
2. HARMONY AND ACCURACY IN JUDICIAL INTERPRETATIONS OF PATENT QUESTIONS
A great deal of delay and confusion results from our present system of litigation
of patents. The patent suits on a single important patent may cost several
hundred thousand dollars. Such a burden confronting a young and struggling
new industry often results in its thorough discouragement. It is possible under
the present system for very many years to elapse between tlie initiation of pro-
ceedings and their final disposition, and indu.stry in the meantime falters. It is
possible for suits to be brought simultaneously on the same patent in several
district courts. Moreover, on their appeal to the circuit courts of appeals it is
sometimes the case that conflicting decisions are given in different circuits. The
result of this entire situation is a serious burden on growing industry, and on this
point there is the strongest feeling among users of the system of a need for
simplification.
A Single Court for Patent Appeals.— We recommend, therefore, that there he
established a single Court for Patent Appeals, in order to establish and maintain
harmony and accuracy in judicial interpretations of patent questions, by confining
the appellate jurisdiction in civil patent causes to one court, composed of permanent
judges having the necessary scientific or technical background.
Each judge should be learned in the law and proficient in knowledge of the
industrial application of science, and should have had a reasonable experience in
the trial of patent suits on the bench or at the bar. If, in order to grasp more
fully special technical questions, the court wishes to call temporarily upon experts
to advise and consult on difficult points, it should be enabled to do so.
In view of the importance of this court the salaries paid to the judges should
be adequate to attract men of the highest stamp. The qualifications have two
aspects, and it is accordingly desirable that scientific as well as legal opinions and
suggestions concerning appointees be given weight.
In the phrase "civil patent causes" we include suits in Federal Courts, other
than the Court of Claims, (1) alleging infringement of a patent, (2) alleging breach
of a license agreement involving a patent or invention, (3) in equity to ol)tain a
patent, (4) in equity alleging interfering patents, or (5) under the declaratorj--
judguient.law, involving any of the above issues.
The Court should be composed of a sufficient number of permanent judges, any
tliree of whom should constitute a quorum. The Court should be located in
■Washington, D. C. ; and should also hold terms at least once a year in each judicial
circi.it, except as these may be omitted at the discretion of the senior or chief
justice of the Court.
It appears desirable that there should be transfen-ed to this new Court the pres-
ent juri.sdictioji uf tlie Court of Ctistoms and Patent Appeals of all patent and
trade-mark appeals from the Patent Office. On these matters of scope of juris-
diction and regiilations concerning place of sitting your committee entertains no
strong convictions. Rather it wishes to place emphasis on the desirability of a
single court, adequately provided for, composed of judges of high qualificitions,
with final jurisdiction in patent causes except as their findings may be reviewed
by the Supreme Court on writ, of certiorari. Such a court will bring to industry
that certainty and expedition which is essential if the patent system is to be fully
effective in stimulating new industries.
In order to put this recommendation into effect congressional legislation is
neededc
3. ADEQUATE SCIENTIFIC OR TECHNICAL ASSISTANCE TO COURTS OF FIRST INSTANCE
IN PATENT CAUSES
The determination of the just equity in a patent suit involves two diverse
aspects, the law and the technical facts. When the technique involved was
simple, before science had made the great strides of the past generation and before
the fruits of its progress l)ecame applied and embodied in patents, the judge could
readily acquire during the i)rogress of a suit that background necessar^^ for him
to understand the technical facts -presented to him. To expect him to do so
today, with the present specialization and intensification of technical knowledge,
leads to a severe burden upon him, and to undue expense to the litigants. It is
true that the litigants call their own experts; but this does not fill the need. The
Court itself should be so composed as to understand and deal adequately and
promptly with the matters brought before it. This has been embodied in the
previous recommendation of a single couft for patent appeals. It is especially
desirable that courts of first instance be also, so constituted as to treat difficult
technical questions with precision and promptitude..
CONCENTRATION OF ECONOMIC POWER J 143
Advisors to the Court and Technical Jurors. — We therefore recommend that there
he provided scientifc or technical advisors or juries to furnish adequate scientific or
technical assistance to courts of first instance in equity patent causes.
The phrase "equity patent causes" is used to exclude suits at law, but is other-
wise synonymous with "civil patent causes" as used in the preceding section.
The advisors or jurors should be United States citizens of sufficient scientific
or technical qualifications so that they are expert io the art to which the suit
relates. They should be selected by the Court, with such suggestions from the
litigants as may be solicited; but without the necessity of securing agreement of
the litigants to the selection.
. Initially they should be selected at large. It is recommended however, that
steps be taken to prepare and maintain an adequate list of qualified experts, and
that upon its establishment selection should be confined to this list. It is believed
that the National Research Council, in cooperation with the national scientific
and engineering societies, would be the proper agency to be charged with the duty
of preparing and maintaining a list for this purpose.
It has been stated that it would be difficult to find properly qualified experts.
Your committee is convinced that no such difficulty will exist. It is true that
there are many fully qualified scientists and engineers who consistently decline
to act as experts for litigants in patent cases; often because the partisan presen-
tation of a cause, while necessary and proper, is natural for an attorney but un-
natural for a scientist or engineer. To a call from the courts for dignified and
non-partisan aid in 'the handling of patent cases there will be ample response.
Nor does this country lack men of the highest type, both from the standpoint of
their professional attainments in the sciences and their applications, and from the
standpoint of Uieir trustworthiness and public spirit.
It should be mandatory upon the Federal district courts in .equity patent causes
to utilize the services of either a technical advisor or a technical jury, but the
court should be free to select either alternative, and should make selection anew
for each suit.
When a technical jury is utilized its report should be final as to questions of
fact. Three jurors should be sufficient.
When an advisor is utilized he should be merely advisory to the court, and his
report, if called for by the Court, should have the same presumption of accuracy
as a master's report has, under the Equity Rules.
The advisor or jury should act in conjunction with the court and under its
direction as to procedure. _ ^
The compensation of experts employed in this manner should be common surate
with their usual earning power. It should preferably be fixed by the tourt, as is
done now with masters under the Equity Rul^,/but it may be fixed by statute,
in which event the maximum per diem should be^ich as is customary for consult-
ants with high standing in their professions^. This compensation may be taxable
as part of the costs of the suit, , as is done*" now with masters under the Equity
Rules; or it may be paid by the government as a part of the cost of maintaining
the courts. On the matter of the allocation of the expense your committee ex-
presses no convictions.
This modification in procedure will notably and properly increase the prestige
and dignity of the courts. It will utilize, iivthe speedy and just disposition of
patent causes, the great asset which this country has in its body of scien-tific and
technical men. It will, by causing expedition, decrease the costs of litigation;
and by rendering our patent system more sure and effective, it will benefit es-
pecially inventors and new industries, and thus benefit the people generally.
It appears that this change can be largely effected by the United States Supreme
Court thronjili an amendment to the Equity Rules, although congressional legis-
lation may be needed on some points.
4. THE GUESTION OF COMPULSORY LICENSING
There have been repeated suggestions that some systein of compulsory licensing
be introduced in this country. The usual reason given for "the need of such a
system is that patented articles are sometimes not manufactured and made
available to the public, for one reason because of the failure to reach an agree-
ment on the part of those owning several patents, all of which are involved. The
principal argument against compulsory licensing is the statement that by decreas-
ing the strength of the patent monopoly it would reduce the incentive to invention
and development, and vitiate to a considerable extent the effectiveness of the
system in the development of industry The point is a diflScult one, and it goes
directly to the heart of the system.
1144 CONCENTRATION OF ECONOMIC POWER
We recommend that no system of compulsory licensing be introduced at this time.
Your committee has given serious consideration to the problem, and concludes
that it has not as yet been constructively analyzed with the completeness which
should precede any such fundamental alteration in our patent system as is here
involved. Such a study should be made, by a group combining legal, scientific,
and business points of view; which can approach the problem judicially and
without prejudice, and with ample time for its full consideration. The nature of
the problem is brought out by the following:
There has been enormous change in technique and commercial practice in the
last hundred years. The patent system at its inception contemplated an indi-
vidual inventor, given a monopoly for 17 years as a reward and stimulant for
invention, and to enable funds to be obtained for commercialization. This
simple situation no longer obtains. What was originally a self-sufficient patent
to an individual for 17 years has developed into a patent structure or assemblage
of patents, giving a substantially permanent monopoly in an advancing art to an
industry or a group of industries. The justification for the extension in a demo-
cratic country of an absolute monopoly to an inventor for 17 years, On the basis
that this is a reasonable reward for his disclosure of his invention in lieu of main-
taining it secret, no longer applies generally. In these days of intensified research
and development it is the usual experience to find that important advances arise
nearly simultaneously at many points. They are the result of an advancing
knowledge and technique, and the advent of a specific human need and com-
mercial opportunity. The individual inventor plays an important part in recog-
nizing the situation and supplying the needed combination. In most cases how-
ever he could not hold it secret and use it privately if he wished. Moreover if he
did not appear with his invention it would not be long in these intense times
before some other inventor would supply the necessary creative thought. This is
not exclusively the situation of course. There are still brilliant and striking
flashes of intellect which create startling inventions which would not otherwise be
made for perhaps a generation. The point is that inventions of this type are few
and far between, and they are insignificant in number compared to the nearly
100,000 patents now issued annually. Moreover most of these brilliant advances
would be made and disclosed whether or not there were a patent system designed
to produce a reward. The old justification for the extension of exclusive monopoly
no longer holds.
There is still however a fully valid reason for continuing the system of extending
a patent monopoly. New developments are hazardous. Only a small fraction
of the attempts to bring into public use new and untried combinations are com-
mercially successful. It is imperative that there should be an opportunity for
the successful venture to reap a speculative profit. If it were assured only of a
competitive . profit, funds would not flow into new ventures, and this country
would soon lose its place in a rapidly advancing technique. The opportunity for
the necessary speculative profit can be secured only by the extension of a monop-
oly. Moreover there is great danger that an ill-advised restriction of this mo-
nopoly would cut the heart out of a system on which a great part of the striking
industrial development of this country has been based.
Certainly a system of compulsory licensing based merely on failure to manu-
facture under a patent, such as has been in effect with dubious results in several
countries, is not an adequate solution of the problem. A group which succeeds
in arriving simultaneously at two new ways of adequately supplying a public
need should not be penalized by being forced to manufacture both resulting
devices.
Much of the difficulty arises because, under the law, all inventions are treated
on an equal basis. A new collar button and a new flying machine result in patents
granting similar rights and privileges. Careful consideration should he given to
the desirability of creating two classes of patents, major and minor, with a rela-
tively limited grant under the latter. A part of the distinction should result
from the fact that some inventions" are of such nature that they demand large
and perilous expenditures, such as become expedient under monopoly, in order to
bring them to fruition for the public benefit; whereas other inventions would
come into use whether tlTere were a patent system or not.
Under the present system, when a suit for infringement is successful, the court
hfl'^ no alternative than to assess profits and damages and order the cessation of
infringement. When a patent has thus been found valid and infringed the court
cannot consider the public interest when called upon to issue an injunction to
stop the use of the combination by others than the owner anil his licensees.
Often the infringed patent is incidental or minor, or its primary utihty may lie
in an entirely different field. It would appear reasonable that in such cases, and
CONCENTRATION OF ECONOMIC POWER *, 1145
to prevent unwarranted disruption of industry, the Court should be enabled to
order the payment of reasonable royalties, rather than simply to order cessation.
Such a provision would resolve- the quandary in which Courts are forced by the
strict letter of the law to act in a manner contrary to what appears to be broad
public interest. Yet the determination that such a situation really existed would
be difficult, and the evaluation of the extent to which a given patent controlled a
given situation would be bound to be vague. In order to be definite such a
change in our basic patent law as is here envisaged should therefore wait until the
classification of patents into major and minor groups has been established; or
until some equally positive way has been developed of delimiting the discretionary
power of the courts.
The situation is thus a complicated one, in which hastily considered changes
are highly inadvisable. It is believed that the modificationsVecommended in this
report will result in a firmer base from which to approach the whole question of
compulsory licensing.
6. SECONDARY MODIFICATIONS AND MINOR RECOMMENDATIONS
Your committee reiterates that it believes the three major modifications
recommended above are of primary importance. However, there are many
secondary modifications, some of which are already receiving effective attention
on the part of the Advisory Committee to the Patent Office, on which comment
is in order.
A. Patent Office Personnel and Facilities
Every effort should be made to increase the standing and ability of the personnel
of the Patent Office. They are handling an exceedin^y difficult piece of work,
which is an essential undertaking for the good of the country. In this work they
should be generously supported. There are various ways in which they can be
assisted, outside of the simple matter of remuneration. It appears desirable that
examiners should have an opportunity to become acquainted with the develop-
ments in their field, by visits to industry and by further study, in order that they
may perfect themselves in the handling of their advancing arts. They should
have better library facilities. It appears also desirable that there should be a
mechanism by which they may consult experts on scientific or technical questions,
of course without disclosure of any matter under their consideration. They
represent the public in important negotiations and the dignity of their position
should be enhanced, and real accomplishment in this important public service
recognized. The appropriations to the Patent Office for the purposes above should
be liberal. It should receive direct subsidy in addition to all income from fees.
The benefit to industry will return this investment tenfold.
The committee wishes to record that, in its extensive contact with inventors,
scientists, and industrialists during this study, it has been impressed with the fact
that the Patent Office personnel, and the Commissioner of Patents, have almost
uniformly been commended.
B. Delays
The matter of delays is always serious. The burden which this places on indus-
try at large is not always comprehended. Technical matters move much more
rapidly in these days than they did a generation ago, and there is no inherent
reason whv legal matters should not also become accelerated. We are in a vastly
different age from that when it took months to communicate with Washington.
It would appear that the time allowed for the answer to an Office action and the
time allowed before the payment of a final fee might with propriety be still further
reduced. Similarly the allowable delays in interferences should be cut down.
Since, in American practice, the monopoly runs from the date of issue rather than
the date of application, and since attorneys often delay the prosecution of applica-
tions in order thus to extend the effective monopoly, the Patent Commissioner
should in the public interest rigorously restrict the pendency of applications and
the duration of interferences to the minimum period consistent with proper
examination and adjudication, and the Office rules should be modified wherever
necessary to bring this about. These matters are receiving attention by the
Advisory Committee to the Patent Office, together with others affecting the
procedure in that Office. Progress has been made, particularly in regard to
interferences, and further progress is desirable.
Another type of delay occurs in connection with litigation. Your committee
feels that wherever these are unnecessary they should be studiously avoided,_as
they constitute a serious drag on industrial progress. There is a delay which
1146 concp:ntration of economic power
sometimes occurs by reason of the failure of a judge to give his decision promptly
after the conclusion of a suit. It is realized that an interval at this time is necessary
in order that a judge may read the law. However it appears that the interval
which occurs between the conclusion of the suit and the rendering of the decision
is often much longer than is necessary for this purpose. This appears to be
often due to the difficulty experienced by the judge in fully understanding the
technical facts presented to him, and' in such cases the modification in court
procedure recommended in this report will remove much of this difficulty. If
delay occurs by reason of undue burden on the judge, then the burden on the
court should be relieved in order that it may be reduced. It is entirely possible
that some judges do not realize the serious harm which may be occasioned by
delay, and that a better realization of this fact would automatically result in
greater expedition. The committee wishes merely to record the conviction that
it is essential that delays be reduced at all points as far as is consistent with proper
deliberative procedure, for the correction of the existing situation lies within the
purview of the courts.
C. Joint Inventions
There is confusion regarding the matter of joint inventions. This is sometimes
the reason why a patent becomes invalid on what is substantially a technicality.
If the law stated that the actual inventor must sign the application, but that he
may be joined if he wishes by others who have in his opinion contributed, without
danger of his patent being found invalid because of the fact that their contribution
is later found not to have been essential, the situation will be thoroughly clarified.
This has been suggested many times.
D. Reissues, Disclaimers, Renewals
There seems to be strong argument for abolishing the granting of reissues and
for simplifying the law concerning disclaimers. Expedition and clarity would
also result if the practice of allowing renewals were discontinued. These matters
appear to be in the nature of unnecessary complications, which confer a proper
benefit in relatively rare instances, but the continuance of which in their present
forms causes more confusion and cost to the public than is warranted by the
results.
E. Equitable Treatment of American and Foreign Inventors
The American Inventor is at a disadvantage in certain respects as compared
to the foreign inventor. This whole situation is involved with the international
agreements regarding patents. It requires careful study in order that any
modifications introduced shall not give justifiable offense.' However, the rights
of the American inventor should be maintained on the s^me plane as those in
foreign countries who apply for United States patents, or for patents in other
countries.
F. Reclassification of Patents
There has long been need for a thorough reclassification of patents in the Patent
Office. The funds necessary for this piece of necessary work are not large, and
should be provided.
G. Annual Taxes
There is much confusion due to the enormous number of issued patents in this
country. As far as concerns those which are issued, not expired, considered
valuable by their owners and yet probably invalid, little can be done except to
leave the matter to litigation. There are^ however, many issued patents which
are now known to be worthless by those who hold them. It would be of great
help if these could be removed from consideration. There are in various countries
systems whereby patents are subjected to an annual tax. The result of this is
promptly to remove from consideration all patents which are regarded by their
owners to be not worth payment of a tax upon. Such a system would greatly
clarify the atmosphere in which industry operates by removing dead material, as
patents upon which the tax remained unpaid would lapse.
The introduction of such a system should, however, be made in such a way as not
to increase the burden on the individual inventor. In fact he is already over-
burdened financially by the present filing and final fees, taken together with his
attorney's fees. The part played by individual and isolated inventors in cur
industrial development is not proportionately as great as it once was, for tne
greater part of modern invention comes from the joint work of many in labora-
CONCENTRATION OF ECONOMIC POWER 1^47
tories. However, the day of the individual inventor is not past, and his services
to the country are needed and should be encouraged. He often points out the
new and useful combination v/hich would otherwise be overlooked if it were not
for his discerning eye. The careers of successful individual inventors show that
an expense at the time of making an invention is often a serious burden indeed,
especially on the first invention of a series. Expense at a later stage, however, is
not likely to be serious at all; for if the invention is truly important it soon attracts
funds for its development, and further patent expenses in the patent office are a
minor matter compared to the expense of such development, which is usually
carried by others. It is desirable therefore that the initial burden on the inventor
be reduced by cutting the filing and final fees, and that this be oflFset by imposing
annual taxes.
There should then be a system of annual taxes, beginning several years after
issuance, and on an ascending scale. These should be so adjusted that the total
income from fees and taxes Vv'ill be approximately the same as at present. By this
means the burden will be no greater than at present, it will be placed where it can
most readily be borne, and there will result the rem.oval from consideration of a
vast number of patents which are now simply an impediment.
6. RELAftoN OF THIS REPORT TO THE BROAD PROBLEM OF STIMULATING NEW
INDUSTRIES
The United States has developed marvelously in a technical way. Much of this
advance has been due to the innate ingenuity of its people, and the patent system
has been one of the main rocks on which the prosp.rity of the country has been
erected. The character of the people has not changed, but the times have changed
decidedly. Other countries, not previously technically minded, are going forward
rapidly in this direction. Competition in technica,l affairs will be keen, and any
nation which does not rapidly progress will drop into a secondary position in a
technical world. The patent system, built exceedingly wisely in the early days of
our history, and developed carefully and skillfully in the hands of the patent
office, the attorneys and the courts, is no longer completely in tune with modern
conditions. It should be maintained and strengthened. Alteration is now essen-
tial if it is to continue to be a firm foundation for industrial advance. Modifica-
tions should be entered upon carefully and thoughtfully, without destroying any
vital part of the structure, but nevertheless courageously and thoroughly. Such a
procedure is essential for the welfare of the country.
This report treats merely a part of the greater problem of the stimulation of new
industries. It is related to the more comprehensive program, and the benefits to
be derived from a modernization of the patent sj^stem are dependent upon the
treatment accorded by the people of this country to their industries generally.
Yet it deals with an aspect of industry which is strong in the aptitudes of the
people; the pioneering aspect on which our greatness is founded.
The frontiers have disappeared. No longer may a citizen break new ground
beyond the horizon. But the opportunity for pionc -ing in the application of
science to human needs remains, and calls for the same virtues of courage, inde-
pendence, and perseverance. It still is possible to enter uncharted regions in
industry, and it is still hazardous to thus open new territory for the national
welfare. ^ , r ,
There has been a powerful trend toward stronger government control of large
industry in recent years. Unfortunately this has r>\>ulted in many measures
which have borne heavily, and which have added artifici u hazards to those natural-
ly in the path of new ventures. Independence has been curtailed. Legal com-
plexities have been multiplied. The making of a large profit has been frowTied
upon. The creation of truly new industries and products has been rendered
nearly impossible. Before we emerge from our present difficulties this trend must
rGVGrsG.
The removal of unnecessary hurdles in the patent system will help. It can
provide, however, only part of the essential correction. He who brings a new
product or a new industry into being, with consequent gainful employment and a
quickening of the national tempo, must be truly encouraged. As he takes great
risks, and as many failures in new ventures are inevitable for each success,_ so
must he feel secure in the earning of that speculative profit which is his incentive.
It is the function of government to protect him from badgering by any organized
group, so long as he regards the primary rights of others in his attempt to advance.
Above all it is the function of government to see that he is constrained in his activ-
ities within the path of legitimate effort in as simple a manner as possible.
1148 CONCENTRATION OF ECONOMIC POWER
The patent system requires modification in this regard. But the welfare of the
pioneer should be always prominently in mind wherever government control of
industry is considered, in regulations concerning fair competition, in systems of
taxation, in rules regarding the issuance of securities, and in all other control
which affects him. Upon his progress depends the standing of our country in a
shrunken world of intense competition, and the standard of living of our people
compared to those of other lands. We sadly need to return to the realization
that the pioneer is a benefactor, against whom the door of opportunity must not
be closed.
Exhibit No. 207
[Source: Submitted by Ralph E. Flanders, President, Jones & Lamson Co.]
The United States of America
To all to whom these Letters Patent shall come:
Whereas Asahel Hubbard, a citizen of the United States, hath alleged that he
has invented a new and useful improvement in the revolving hydraulic engine,
which improvement he states has not been known or used before his application
hath made oath that he does verily believe that he is the true inventor or dis-
coverer of the said improvement, hath paid into the treasury of the United States
the sum of thirty dollars, delivered a receipt for the same, and presented a petition
to the Secretary of State signifying a desire of obtaining an exclusive property
in the said improvement, and praying that a patent may be granted for that
purpose: These are therefore to grant, according to law, to the said Asahel Hub-
bard, his heirs, administrators or assigns, for the term of fourteen years from the
twenty-second day of April one thousand eight hundred and twenty-eight, the
lull and exclusive right and liberty of making, constructing, using, and vending
to others to be used, the said improvement, a description whereof is given in the
words of the said Asahel Hubbard himself, in the schedule hereto annexed, and
is made a part of these presents.
In testimony whereof, I. have caused these letters to be made Patent and the
Seal of the United States to be hereunto affixed.
Given under my hand at the City of Washington, this twenty-second day ol""
April, in the year of our Lord one thousand eight hundred and twenty eight and
of the independence of the United States of America the fifty-second.
J. Q. Adams.
By the President:
H. Clay, Secretary of State.
City of Washington, to wit:
I do hereby certify That the foregoing Letters Patent were delivered to me on
the twenty-second day of April in the year of our Lord one thousand eight hundred
and twenty-eight to be examined, that I have examined the same, and find them
conformable to law and I do hereby return the same to the Secretary of State,
within fifteen days from the date aforesaid, to wit: on this twenty-second day of
April in the year aforesaid.
W^M. Wirt,
Attorney General of the United States.
CONCENTRATION OF ECONOMIC POWER
1149
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12 1191— 39— pt. 3-
1150 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 210
[Source: Prepared by Staff of U. S. Patent Office]
Number of patents granted by the United States to residents of foreign countries,
1980-37
Aver-
age
Patents Granted
To Foreigners
Foreigners, %„.
To residents of Qermany.
England.
% —
France...
Canada.
Switzerland
Sweden
Holland
Aufilria
Italy
Australia
Japan
Scotland
Belgium
■Czechoslovakia.
Norway
Denmark
Hungary
47, 955
6,0S5
12.7
2,066
4.3
1,162
2.4
617
1.3
660
1.4
277
54, 708
6,897
12.6
2,479
4.5
1,255
2.3
756
1.4
541
1.0
313
228
127
56,463
7,374
13 1
2,751
4.9
1,463
2.6
741
1.3
627
0.9
421
211
149
156
142
96
9
75
92
55
62
32
45
61,230
7,170
14.0
2,854
5.6
1,350
2.6
690
1.3
451
0.9
341
281
174
47, 382
6,489
13.7
2,482
5.2
1,275
2.7
632
1.3
485
1.0
329
221
184
138
110
90
57
75
49
40
44,549
5.980
13.4
2,196
4.9
1,237
2.8
550
1.2
444
1.0
284
193
197
127
98
84
73
70
65
43
35
29
44, 398
5,734
12.9
2,068
4.6
1,262
2.8
507
1.1
420
0.9
274
221
181
102
83
70
61
66
66
49
37
42.887
6,638
13.1
2,106
4.9
1,178
2.7
559
1.3
418
0.9
251
186
182
105
48,697
6,421
13.2
2,375
4.8
1,273
2.8
632
1.3
493
1.0
311
216
164
129
111
86
70
70
66
49
41
39
3S
OTHER COUNTRIES
Average per year for period 1930-37
Argentina 29.5
Spain 29. 1
New Zealand 27.8
Mexico 24.9
Cuba 20.4
Africa (Un. South Africa) 19.6
Poland 13.0
Wales 11.0
Ireland 10. 6
Russia 7.4
Brazil 6.3
Finland 6.3
India 5.8
Roumania 4.9
ChUe 4. 6
Venezuela 3.6
China 3.1
Danzig 2.0
Colombia 1.0
Dutch East Indies 1.9
Lu.xemburg 1.8
Honduras 1. 5
Latvia 1.5
Peru... 1.5
Yugoslavia 1.4
Uruguay 1.4
Newfoundland 1.3
Palestine 1. 1
Algeria 1.1
Dominican Republic 1.0
Esthonia 1.0
Monaco 1.0
Other countries, not listed, average less than one per year.
Note.— All figures include design patents, but not reissues. Percentages are based on patents granted
In the United States to both residents and nonresidents.
CONCENTRATION OF ECONOMIC POWER 1151
Exhibit No. 211
[Source: Prepared by Staff of U. S. Patent Office]
Number and proportion of patents granted by some foreign countries to citizens or
residents of the United States
1930
1931
1932
1933
1934
1935
1936
1937
Aver-
age
Canada
7,298
64.8
3,376
16.1
2,291
9.5
1,815
6.7
1,106
10.2
465
9.3
272
7.4
368
5.1
216
9.2
227
15.3
221
10.3
7,465
67.1
2,969
15.6
2,004
8.4
1,870
7.2
1,146
10.5
336
7.8
310
8.5
351
4.8
241
9.8
156
10.4
6,826
66.6
2,524
14.1
1,516
7.0
1,928
7.4
1,265
10.3
392
8.0
340
8.7
271
3.6
281
10.2
294
15.2
165
9.9
5,998
65.7
2,305
13.3
1,237
6.2
1,512
7.0
694
7.4
344
6.3
317
7.9
200
2.8
264
8.7
163
11.0
108
7.2
5,624
64.4
2, 353-
13.2
1,221
6.4
1,021
6.0
741
7.4
205
4.4
282
7.6
261
3.3
8.9
127
9.4
105
7.1
5,010
64.3
2,582
14.5
1,297
7.2
CG4
^.9
750
7.5
219
4.6
256
8.0
227
3.0
8.3
93
7.4
91
7.0
5,709
69.8
6,354
69.4
6,161
%*
06.8
England
2,685
146
France
1,273
7.6
941
5.6
894
7.5
191
3.9
279
7.6
238
3.5
1,482
8.8
785
5.4
727
7.3
"""239'
7.7
1,540
7.7
Germany
1,355
6.6
Italy
915
8.6
Japan
307
%
6.5
287
%
7.9
Switzerland
274
3.7
Holland
245
9.2
Norway
111
7.9
87
6.1
102
7.6
102
6.3
162
11.3
120
%
8.1
•Patents granted in Canada to residents of ttie United States, divided by total patents granted in Canada,
expressed in per cent.
Exhibit No. 212
[Source: Prepared by Stafl of U. S. Patent Office]
Comparison of patents granted to residents of the United States by other countries
with patents granted by the United States to residents of other countries
Patents granted
in country in-
dicated to resi-
dents of the
United States
Patents granted
by United
States to resi-
dents of coun-
try indicated
Difference
6,161
2,685
1,540
915
287
307
162
129
245
274
1,355
493
■■Si
111
49
70
41
39
164
311
2,376
-f 6, 668
E ngland -■
-fl,412
France -
+908
Italy .
-i-804
Czechoslovakia
+238
+237
+121
+90
Holland ...
+81
Switzerland
-37
-1. 020
Figures are annual averages 1
3-37 as shown on preceding tables.
1152 CONCENTRATION OF ECONOMIC POWER
Exhibit No. 213
[Source: Prepared by Siaff of U. S. Patent OflRce.]
Patents granted by various countries showing -proportion granted to foreigners
-
Annual
number of
patents
granted
Number
granted to
foreigners
Percent
granted to
foreigners
4«,697
20, 621
20, 025
18,417
10, 634
9,269
7,315
7,307
4,845
4,475
3,613
2,840
2,674
2,460
2,334
1,845
1,590
1,428
1,078
6,421
5,327
9,994
9,522
6,782
8,368
13.2
Qormany ..
25.8
France ....
49.9
Great Britain (1930-35)
51.7
Italy
63.8
90.3
Belgium . - - - - -
Switzerland (1930-36)
4,066
1,165
55.6
Japan (1930-36) - -
24.0
Czechoslovakia . .
2,749
76.1
Sweden
Holland (1930-35) - -
2,164
80.9
Hungary - -. -- -
Poland
1,056
1,031
66.4
Norway .
72.2
Numbers are averages for eight years 1930-37 unless otherwise indicted.
Exhibit No. 214
[Source: Submitted by Clarence C. Carlton, Vice President, Motor Wbeel Corp.)
September 30, 1938.
Parts of an Automobile (Excluding the Body Proper) and Automotive.
Equipment
A. Chassis and actuating mechanism.
1. Frame, including torque members and other parts used to promote
rigidity.
a. Radius rods and attaching parts.
b. Torque tube.
c. Torque arm.
2. Springs and parts thereof including attaching parts.
3. Shock absorbers and parts thereof including attaching parts.
4. Axles.
a. Front axle and parts thereof.
1. Spring seats with connecting and attaching parts.
b. Rear Axle, housing and actuating mechanism.
1. Axle shaft.
2. Axle tubing.
3. Axle housing.
4. Axle shaft bearings.
5.. .Spring perch.
5. Wheels and associated parts, and parts thereof and attaching parts
including:
a. Rims.
b. Hubs, hub flanges, hub caps.
c. Drums.
d. Lugs and other securing parts.
6. Steering Mechanism, housing, and parts thereof.
a. Steering wheel with connecting and attaching parts.
b. Steering shaft.
c. Gear system and parts thereof including attaching parts and
housings.
d. Drag link and attaching parts.
CONCENTRATION OF ECONOMIC POWER II53
Steering knuckle, tie-rod and attaching parts.
f. Steering balls.
Steering knuckle arms and attaching parts.
Steering knuckles.
King pins and king-pin bushings and shims and attaching parts.
Steering spindle.
Motor and parts thereof including actuating mechanisms.
a. Cylinder head and attaching and connecting parts including:
1. Water outlet manifold.
2. Compression cocks or priming cups.
b. Cylinder block.
1. Pistons and parts thereof.
2. Piston pins.
3. Connecting rods and connecting and attaching parts
thereof.
4. Piston rings.
5. Cylinder studs.
6. Cam shaft and parts thereof, including the actuating
mechanism.
a. Cams
b. Bushings.
c. Timing gears, including idling gear and con-
necting and attaching parts thereof.
d. Timing chain cover and oil seal.
7. Distributor drive shaft, gears, bushings, and their
connecting and attaching parts.
8. Tappets (or plungers).
9. Valves, valve parts and their actuating mechanisms.
a. Valve springs.
b. Valve spring retainer locks.
c. Valve rockers.
d. Valve rocker arms.
e. Valve rocker-arm shafts.
f. Valve push rods.
g. Valve-stem guides.
h. Valve lifters or plungers.
i. \'alve lifter guide bushing.
j. Valve lifter guide clamps,
k. Valve housing covers.
1. Valve adjusting nuts and locks,
m. Valve shims,
n. Valve sleeves, connecting rods, and connecting
and attaching parts.
0. Valve junk rings.
fO. Air pumps.
11. Gasoline power-pressure pump eccentric
12. Gasoline power-pressure pump eccentric locks.
13. Motor-generator sprocket eccentric.
14. Motor-generator sprocket eccentric coupling.
15. Cylinder Avatcr-jacket plate.
16. Fan and parts thereof, including connectins; and
attaching parts.
c. Crank case and enclosed parts.
1. Crank shaft.
2. Crank shaft bushings.
3. Crank shaft shims.
4. Bearings (main bearings).
5. Sprocket.
6. Crank shaft gear.
7. Oil pan.
8. Oil level indicator.
9. Fly wheel with connecting parts.
1154 CONCENTRATION OF ECONOMIC POWER
8. Fuel system and parts' thereof including the actuating mechanisms.
a. Gas tank and parts thereof, including connecting and attach-
ing parts.
b. Auxiliary gas tank.
c. Fuel pipe and inter-connecting and attaching parts.
d. Check valves.
e. Vacuum tank and parts thereof, including attaching parts.
f. Air filter and parts thereof, including attaching parts.
g. Carburetor and parts thereof.
h. Carburetor heater and parts thereof.
i. Supercharger and parts thereof.
j. Intake pipe or manifold and parts thereof, including connecting
and attaching parts,
k. Pressure pump and parts thereof.
1. Exhaust pressure intake pipe and connecting parts.
m. Gasoline power-pressure pump and parts thereof,
n. Gasoline strainer assembly and attaching parts,
o. Gasoline filter and parts thereof.
9. Motor exhaust system and the parts thereof:
a. Manifold and connecting and attaching parts.
b. Exhaust pipe.
c. Muffler and parts thereof with connecting and attaching parts.
10. Ignition system and the parts thereof, except batteries:
a. Ignition switch.
b. Generator and parts thereof with connecting and attaching
parts and including actuating mechanism:
1. Motor generator.
2. Generator drive sprocket.
3. Generator drive chain.
4. Generator drive shaft.
c. Magneto and parts thereof including connecting and attaching
parts.
d. Distributor and parts thereof including connecting and attach-
ing parts.
e. Spark Plugs and parts thereof.
f. Ignition wi'ing harness.
g. Ignition ceil.
h. Relay or cut-out.
i. Fuse,
j. Automatic spark control system.
11. Cooling system and parts thereof, except rubber hose connections:
a. Radiator and parts thereof, with their connecting and attaching
parts and including:
1. Tanks — upper and lower.
2. Radiator core.
3. Radiator shell.
4. Radiator grill.
5. Cocks.
6. Overflow pipe.
b. Circulating pump and parts thereof, including connecting and
attaching parts and actuating mechanism:
1. Drivo shaft and connecting part^-.
2. Thermostat and parts thereof.
12. Clutch mechanism and parts thereof, including mainly the:
a. Clutch cover.
b. Actuating mechanism for cone clutch:
1. Clutch cone and connecting parts.
2. Clutfih facings.
3. Clutch shaft.
4. Clutch disengaging pedal.
5. Clutch disengaging rods.
6. Clutch spring.
7. Clutch bearings.
8. Clutch sliifter yoke.
9. Clutch release sleeve.
CONCENTRATION OF ECONOMIC POWER II55
c. Actuating mechanism for disc clutch:
1. Clutch rings.
2. Clutch discs.
3. Clutch flange.
4. Clutch studs.
d. Actuating mechanism for single plate clutch and parts thereof.
13. Transmission housing and the parts thereof, with the actuating
mechanism included:
a. Grear box.
b. Gears (sliding) and dogs.
c. Shafts.
1. As primary or main.
2. Secondary.
d. Bearings.
e. Shift lever.
f. Shift rods.
g. Shifter cocks,
h. Shifter shaft.
i. Ball crank.
j. Speedometer drive.
k. Ford model T transmission and parts thereof.
14. Drive shaft with interconnecting and attaching parts thereof:
a. Universal joints and parts thereof.
b. Shaft bushing and parts.
15. Differential and parts thereof, including the actuating mechanism.
a. Sleeve lock.
b. Pinion bearing.
c. Pinion-bearing sleeve.
d. Driving pinion.
e. Differential ring gear.
f. Differential bearings.
g. Differential rollers.
h. Bearing adjusting nut.
i. Universal-joint flange.
j. Differential case.
k. Differential case cover.
16. Brake system and parts thereof, with the actuating mechanism.
a. Foot and hand-brake levers and attaching parts.
b. Brake shaft.
c. Brake pull rods.
d. Adjusting turnbuckle.
e. Equalizers.
f. Brake expander ^uu actuating mechanism.
g. Brake shoes.
h. Brake shoe springs,
i. Bands,
j. Band lever,
k. Band lever springs.
1. Brake cam shaft.
m. Brake cam-shaft lever,
n. Brake-adjusting cam.
o. Brake-shoe anchor pin.
p. Brake toggle joints.
q. Hydraulic system.
1. Actuating cylinder.
2. Piston and actuating mechanism.
3. Tubes.
4. Reserve tanks for fluid.
17. Lubrication system and parts thereof.
a. Oil pump and parts thereof, including connecting and attach-
ing parts.
b. Oil suction bell.
c. Oil-pump suction pipe and attaching parts.
d. Filler and level plugs and cocks and parts thereof.
e. Grease cup.
1 i 56 CONCENTRATION OF ECONOMIC POWER
f. High-pressure systems.
1. Individual fittings and parts thereof.
2. Central shot system and parts thereof, including con-
necting and attaching parts.
L«. Small attaching and connecting parts.
a. Shims.
b. Gaskets.
19. Hood, fenders, running boards, cowling, and connecting and attaching
parts thereof. ^
B. Electrical Equipment.
,1. Starting System and parts thereof with the actuating mechanism.
a. Starter M^tor.
b. Starter wiring harnesses.
0. Starting Motor drive assembly, including connecting and at-
taching parts thereof.
d. Switches, including automatic starting switch.
e. Starting pedal rods and interconnecting and attaching parts.
f. Gear reduction system.
2. Signal devices and parts thereof, including the actuating mechanism.
a. Buttons and switches.
b. Horns and buzzers and parts thereof, including connecting
and attaching parts and wire harnesses.
c. Directional signals.
3. Lighting system and parts thereof, including switches and wire hain-
a. Lamps and posts thereof, and posts except bulbs.
b. Resistance coils and parts thereof.
c. Switches and parts thereof^including connecting and attaching
parts.
d. Wire harnesses and connections.
4. Electrical gauges and control equipment and parts thereof.
a. Gasoline gauges.
b. Heat indicator.
c. Ammeter.
d. Other miscellaneous electrical gauges.
5. Windshield wiper.
6. Electrical fuel pump.
7. Electrical defrosters.
8. Cigarette Lighter.
9. Electric clock.
C. Mechanical Equipment.
1. Gauges, hj'draulic or otherwise, including instrument panel with its
connecting and attaching parts.
a. Gas-tank gauge with its actuating mechanism.
b. Gas-pressure gauge and assembly.
c. Water-tcmpcrature gauges.
d. Oil-circulation indicator.
e. Oil-pressure indicator.
f. Other miscellaneous gauges.
2. ContFol equipment and parts thereof.
a. Acceleration mechanism.
1. Throttle lever and rods and accelerator pedal and parts
thereof.
2. Rods, springs, brackets, and connecting and attaching
parts.
b. Choker rod with attaching and connecting parts.
c. Governors and parts thereof, with the actuating mechanism,
and including the attaching parts.
d. Radiator shutter — (1) Hand controlled or (2) Thermostatically
controlled and the actuating mechanisms.
e. Windshield-wiper control and attaching p.arts.
f . Carburetor heat control and parts thereof.
CONCENTRATION OF ECONOMIC POWER 1157
3. Speedometers and parts thereof:
a. Shafts and housings and connecting and attaching parts.
b. Actuating gear mechanism with connecting and attaching
parts.
c. Speedometer head and the parts thereof.
4. Windshield wipers and parts thereof, including the attaching parts.
5. Emergency Service Tools.
D. Accessories and parts thereof:
1. Car heaters and parts thereof, including the connecting and attaching
parts.
a. Water heaters.
b. Steam heaters.
c. Hot air heaters.
d. Electric heaters.
2. Bumpers and bumper stops and connecting and attaching parts.
3. Trunks and luggage carriers and parts thereof including connecting
and attaching parts.
4. Rear view mirrors and parts thereof.
5. Tire chains.
6. Miscellaneous Accessories:
a. Antishimmy equipment.
b. Antirattle equipment.
c. Accelerator pedals.
d. Radiator ornaments.
e. Running board plates.
f. Running board moulding.
g. Windsliield and air vent screens,
h. Sparc tire locks.
i. Splash guards.
j. Traffic signal finders,
k. Windshield wings.
1. License plate frame.
K. Body fittings and attachments:
1. Wind lace or weather strip
2. Robe rails.
3. Channel lace.
4. Curtain cords.
5. Assist cords.
6. Cowl boards.
7. Sun visors and the parts thereof.
8. Body hardware.
9. Body upholstery springs.
10. Floor boards.
11. Foot rail.
12. Auxiliary seats.
13. Ash receivers.
SUPPLEMENTAL DATA
BRIEF BIBLIOGRAPHY ON SHORT-TERM, MINOR, OR PETTY PATENTS [gEBRAUCHS-
mcster]
Oscar Zeller, Das Gebrauchsmusterrecht. Berlin, 1936, 562 pages.
German legal text on minor or petty patents.
Emerson Stringham, Patents and Gebrauchsmuster in International Law. Wash-
ington, 1935,' 538 pages.
Two chapters of this book discuss the German law on petty patents.
Great Britain, Board of Trade. Report of the Departmental Committee on the
Patents and Designs Acts and Practice of the Patent Office. Presented by the
President of the Board of Trade to Parhament by command of His Majesty,
March 1931, 104 pages.
Report of the Committee which revised the British patent law. Page^ 81
to 86 contain tlie consideration of the proposal to introduce minor or
petty patents, as a second class of patents. The proposal was rejected.
1 158 CONCENTRATION OF ECONOMIC POWER
W. S. Bleistein, The German Law on "Gebrauchsmuster." Journal of the Patent
Office Society, February 1937, Volume 19, Pages 126 to 135.
Description of the German law on the subject; includes changes introduced
by the statute of May 5, 1936.
G. Benjamin, Double Protection by Gebrauchsmuster. Journal of the Patent
Office Society, December 1936, Volume 18, Pages 884 to 886.
Note on a scheme practiced to prolong the monopoly of a petty patent
under the German law.
H. Schmidt, "40 Years D. R. G. M." Journal of the Patent Office Society,
January 1932, Volume 14, Pages 22 to 24.
Descriptive note of the German "petty patent" law.
E. Stringham, Gebrauchsmuster are Patents. Journal of the Patent Office Society,
January 1931, Volume 13, Pages 20 to 30.
Note on the legal position of German "petty patents" as patents.
F. Herzfeld and F. Hoffmann, German Patent and German D. R. G. M. Journal
of the Patent Office Society, March 1928, Volume 10, Pages 199 to 205.
Comparison of German petty patents with German major patents.
The following letter was entered in the record on February 8,
1939 and is printed herewith in connection with Dr Jewett's testi-
mony. See text pp. 963, 968, 969, 971 and 976.
Exhibit No. 244
F. B. JEWETT, Vice President
Americax Telephone and Telegraph Companv
195 broadway, new york
Exchange 3-6000
January 24, 1939.
Hon. Joseph C. O'Mahoney,
Chairman, Temporary National Economic Committee,
United States Senate, Washington, D. C.
My Dear Senator: The purpose of this letter is to answer the two inquiries
which were left with me the other day when I testified before your Committee;
and also to submit for the record a few additional paragraphs discussing the
long-life vacuum tube.
At the outset, I should like to point out that in speaking from memory I inad-
vertently misstated the number of patents and inventions which the Bell System
owns. The number (15,000) which I gave is the total number which we were
free to use as of 1934. The number owned as of that date was about 9,500— and
naturally this is a number which varies from month to month because of new and
expiring patents. As to the others, we held licenses to make and use.
The first inquiry (by the Chairman) was:
Do your cross-licensing agreements prevent you from making the 50,000-
hour tube for the radio field?
The answer is that they do not. Our cross-liCcnse agreements do not prevent
us from using any of our own inventions for anj' pupose whatever. Moreover,
by those agreements we also gave to the General Electric Company, the Westing-
house Company and the Radio Corporation \he right to use our inventions for the
manufacture and sale of tubes for radio receiving sets as well as many other
purposes. Those agreements, while leaving us free ourselves to license others
for the purpose, also gave to those companies the right to license others under
our inventions for receiving .set tubes. Under the cross-license agreements, we
ourselves are free to use the inventions of the three companies named in the
manufacture of radio receiving set tubes — royalty-froe for the first $1,000,000
worth, and on a royalty basis thereafter up to the amount of $2,000,000 worth.
Actually we have not gone into the home receiving set or receiving tube business
and onlv in other receiver business to a most limited extent. The Radio Cor-
CONCENTRATION OF ECONOMIC POWER 1159
poration has, I understand, licensed some dozen or fifteen other manufacturers
to make radio tubes, under both its own and our inventions.
The second inquiry (by Judge Davis) was:
Does the Western Electric Company make available to independent
telephone companies the long-life tubes used in your plant?
The answer is that it does. For many years repeaters and one and three-channel
carrier equipment utilizing such tubes have been available to independent con-
necting companies by lease from the Bell Associated Companies and, more
recently, these equipments have been available by sale from the Western Electric
Company. The quality of the tubes involved is the same as the tubes in our
own plant. The actual release to the Western Electric Company under American
Telephone and Telegraph Company patents is to sell to connecting telephone
companies, railroads, power, oil and pipe line companies. We have never, so
far as I know, declined a request for any such equipment from a-uy independent
telephone company.
The foregoing gives the information which I promised the Committee I would
supply to it. In addition, I should like to offer for the Committee's record the
following few supplemental comments regarding the long-life vacuum tube. I
suggest this because I believe that the record in its present form can be construed
as a criticism of the radio industry — in fact, certain newspaper reports based
upon my testimony have already implied as much.
I should like to point out that the problem of designing vacuum tubes for use
in telephone repeaters differs in important fundamental respects from the problem
of designing tubes for radio-receiving sets. My regret, of course, is that I did not
take time while testifying to make this perfectly clear, particularly as a very few
words would have been sufficient to establish the fact. Although the radio tubes
of the present day may be of considerably shorter life than our telephone repeater
tubes, it does not follow that the radio tubes would be better suited to their work
if they partook more of the character of telephone tubes. In the first place, the
average radio set is it.self a thing of relatively short life, perhaps four to six years,
so that little or nothing would be gained by using in this set tubes whose normal
life is eight to ten times the life of their associated equipment. Particularly
would this be true if the longer-life tube represented any material increase in
tube cost. In the present dtate of our knowledge, such longer life would definitely
entail a greater cost.
In the case of the telephone repeater the more expensive type of tube is amply
justified, but for reasons which do not operate in the case of radio-receiving sets.
In the first place, the telephone repeater foFms part of a relatively expensive
circuit connecting distant points. Because of this and within wide limits, the
first cost of the telephone tubes is a very small quantity comi^ared to the cost of
the circuit of which they are a part. The cost of tube operation, however, is a
most important consideration in the design of the telephone tube. Repeater
tubes must operate uniformly and reliably twenty-four hours a day every day in
the year and they have to be fed from storage batteries, a form of electrical energy
costing several tim^s as much per unit as lighting current. Hence, low current
consumption in the telephone tube is essential; and it luippens that we have been,
able to make long tube life a concomitant of low energy consumption.
These exacting,' operating and service considerations do not obtani, apparently,
in the design and manufacture of receiving set tubes. In the latter case the manu-
facturer is concerned with tubes of high quality, low initial cost, and life charac-
teristics compatil)le with the life of the sets they serve. I believe that these
requirements have been well met by the industry.
In conclusion* let me point out again that to the extent that the long-life tele-
phone tube is covered by patents, these' are available to radio manufacturers
through license. The engineering problem of the radio designer, however, has
diverged from that of the telephone designer, with the result that each has devel-
oped a tube construction best suited to his industry.
Trusting that it will be possible-to incorporate this brief statement as a part
of the Committee's record, I am.
Yours very truly, F. B. JewT;tt, Vice President.
INDEX
Page
AC Spark Plug Company 94Q
Academic institutions, research by 871-873-874
Acheson electric-furnace patent 1120
Aeronautics, National Advisory Committee 871
Airplane industry, production and wages, 1937 1122
Airplanes, composition wings 1092-1094
Alien Property Custodian 911
Allen Dumont Laboratories 1003
American Chemical Society 1 103
American Telephone & Telegraph Company 948-949, 995-996, 952, 970
Patent licensing policy. 960, 970, 972
Antitrust laws 1039-1040
Antitrust laws compatible with patents 1039
Atlantic & Pacific Tea Co 845-846
Attorneys, patent, criticism of 997-999
Automotive Parts & Equipment Manufacturers Association 1045-1049, 1060
Directorship 1046
Purpose 1060-1061
Automobiles, number in use 889
Automobile Parts Industry:
Brake drums 1052
Competition . 1047-1051
Gears, composition 1095
Marketing practices 1058-1059
Patents, effect on 1068-1070
Products, schedule of 1078-1079
Research cost 1064-1 066
Sales 1047
Wheels . 1053-1054
Baekeland, George E., Vice President, Bakelite Corporation 1077-1 104
Baird Company 987, 995
Bakelite Corporation 1077-1104
Financial pohcy :. _ 1095-1097
Patent htigation _ 1083-1084
Patents, number owned 1082
Products, number of 1081-1082
Bank loans 934r-936
Barbed wire industry, production, 1937 1113
Bausch Company 987
Bell Technical Journal 978
Bell telegraphy patent 842-843
Bell Telephone Laboratories, Inc 948-978, 984, 1003
Patent licensing policy 960
Research costs 974-975
Bell Telephone Svstem, patents, number of 963
Blodgett, Dr. Katherine..: . , 919, 921
British Chartered Institute of Patent Agents . 1007
British Columbia Telephone Company 1071
British Marconi Company 1028-1030
British patent system 1007-1028
British Postal Office 956
British regulation of imports 1025-1026
Brownie Company 1028-1030
Bush, Vannevar, President Carnegie Institution 864, 869-911, 969
California Institute of Tftchnology 982
Canadian patent system'. 1021
I
II INDEX
Page
Capital, long-term loans 934
Capital, risks 937
Carborundum 1120
Carlton, Clarence C, Vice-President, Motor Wheel Corporation 1045-1070
Carnegie Institute 864
Carnegie Institution 869, 875
Celluloid industry, value of products, 1935 1112
Celluloid 1102
Cellulose, etc 1082
Chemical Foundation 911
Chicago Patent Law Association ^ 869
Chinese patent system 1009
Chrysler Corporation 940
Clark, Colonel 1102
Coe, Conway P., Commissioner of Patents 838
Cole Patent 942-943
Columbia Broadcasting System, Inc. 1003
Columbia Gramophone Company 1027
Commerce, Department of, function regarding patents 836-837
Competition, effect of patents on 1047-1048
Composition gears 1095
Coolidge, William D., Director of Research Laboratories, General
Electric Company 911-924
Copyrights 864
Corporations:
Disadvantage of small, in patent litigation 945
Foreign, patents owned by 847
Large, ratio of patents to total assets 1 126
Patents owned by 874-875
Patents, percentage of total issued to, 1921-1938. - - - - - 1 125
Cotton industry, output, 1937-1938. 1107
Cottrell invention 878-879
Court of Customs and Patent Appeals 862
Crocker Research Laboratories 983
De Forest Patents 960, 967-972
Delco lighting system . --.-- 1020
Dienner, John A., Special Counsel for the Committee 869
Dies and tools, sales of 1047
Du Porit Company 961, 1086
East India Company 840
Eastman Kodak Company 1078
Electric induction motor industry, production and wages, 1937 1116
Electric-welding Industry, wages and production, 1937 1115
Electrons 985
Employment, effect of industrial expansion 933-934
Employment, paint and varnish industry 1087
Ernst & Ernst 1047
Expert witnesses in patent litigation 892
Export of machine tools 933
Export trade, effect on, of patents ^ 1019-1020
Farnsworth, Philo T., Vice-President, Farnsworth Television, Inc 980-1006
Farnsworth Television, Inc 980-1006
Patents, number 989
Federal Deposit Insurance Corporation 937
Federal Reserve Board - — 859
Fellows Gear Shaper Company 930
Fernseh (Actien Gesellschaft) 987,995
France, current industrial condition 932
French patent system ^- 1007
Flanders, Ralph E., President, Jones & Lamson Machine Company 924-936
Ford Motor Company ^^^n
Gear Shaper Company 930
Gears, composition ...^.. 1095
Genealogy of the Robbins & Lawrence Shop 1149
General Bakelite Company • 1080
General Electric Company 91 1, 913.
915-916, 923, 931, 951, 961-975, 1003, 1017, 1073, 1075
Research and laboratory policy.. 911-913
INDEX III
Page
General Mills Company 1076
General Motors Corporation. 940
German patent system _. 1009, 1019
German research methods 876
Glass container industry, production and wages, 1937 1121
Glidden barbed wire patent 1113
Goodyear rubber processing patent 842-843
Governmental control of industry 900
Graham, John A., President, Motor Improvements, Inc 938
Graham, Maurice H., Inventor 1071-1077
Graybar Electric Company 963
Hall aluminum processing patent " 1117
Hartford-Empire Company 1029
Haskelite Company 1102
Hubbard, Asahel, Letters Patent 1148
Hyatt celluloid patent 1112
Irnportation, British regulations 1025
Industry:
Automobile patent pools 889-890
Automobiles, number used 889
Capital, risks :. 936
Competition . 930
Competition, unfair 945
Cost to develop an article 891
Effect of lack of centralized research on railwaj's 906
Expansion, effect on employment 932-934
Financing 933-934
France, current conditions J 933
Governmental control 900
Machine tools, exports 933
Oil filters 939-940,946
Patent pools 888-889
Patents, beneficial eflfect of 883, 894
Patents, value of 928
Radio broadcasting- .>. 962, 970
Research 871-872
Research, cost of 915
Research laboratories, number 922-923
Savings to consumer because of progress 917-918
Small concerns, disadvantage of in patent litigation 945-946
Taxation, effect on 898-899
Telephone, manual and machine switching 957
TNEC, methods of study 869-870
Tungsten filament tubes 960
Turret lathe 930
International Association for the Protection of Industrial Property 869
International Convention, a patent regulatory body 1007-1008
Inventions:
Incentive . 1017-1018
Sources 87 1
Stimulated by patent protection 1005
Invisible glass • 919
Ives photogravure patent 1119
Jefferson, Thomas, attitude toward patents. . 840
Jenkins, C. Francis 984
Jewett, Frank B., President, Bell Telephone Laboratories, Inc 948-979
Jones & Lamson Machine Company 925-937
Exports, percentage of production 933
Production and size -. 930
Kellogg Company, The 973
Knapp-Monarch Company 1076
Knox, Henry .' 840
Labor saving devices 901-902
Langner, Lavo-ence, Member of Langner, Perry, Card & Langner 1006-1040
Langner, Perry, Card & Langner 1006-1040
Library of Congress, function regarding copyrights 864
IV INDEX
Page
Lincoln, Abraham, patent, manner of buoying vessels 1138
Litigation of patents. See Patents.
Lloyd George Act 1024
Lloyd George, David, views on patents 1023
Loewe Company 1028
Marconi Company 1028
Marine varnishes 1087
Massachusetts Institute of Technology research methods 877-878,
880, 899, 912, 976
McCormick reaper patent 1 108
McFarlane Hearings, Congressional 909
McGraw Electric Company 1071-1077
Medical research and patents 877
Mergenthaler linotype patent 1118
Monopolies, historical survey 840
Morse telegraph patent 1109
Motor Improvements, Inc 938-939
Motor Wheel Corporation 1045-1069
Nash Motor Company 939
National Advisory Committee for Aeronautics 871
National Association of Manufacturers 841
National Broadcasting Company 970, 1003
National Pressure Cooker Company 1072
National Research Council 875
Oldfield Hearings, Congressional 909
Oliphant, Herman, Past General Counsel, Treasury Department; Com-
mittee Resolution deploring his untimely death 835-836
O'Mahoney-Chandler Act 903
Owens glass-shaping machine patent 1121
Paints industry, employment, number 1087
Patent Laws:
Appeal, suggested change 860
Case history on one patent 1136
Historical survey 838
Life of patent, suggested change 858
Scope of present TNEC inquiry 836-837
Twenty-seven-year prosecution of patent 854
Patent Office:
Advising committee - 863, 869
Appeals, patent proposed single court of 892, 906-907, 969, 1104
Change in procedure suggested 880-881
Interference delays 861
Interference proceedings decided, 1924-1933 855
Organization chart 1129
Patentability requisites.. _ 843-844
Practice and procedure . - 848-849, 853-854, 880-88 1
Practice regarding renewal of applications 862
Practice regarding "Special Status" - 858
Procedural change suggested 860
Procedure - - 848-849
Patent Systems:
Appeals, foreign - - 1015
Attorneys at law, admission of 998-999
Benefits derived from 841-842
British 1008, 1015, 1022
British, compulsory licensing . 1027-1029
Canadian 1021
Chinese 1009
Claims, British and United States, practice ; 1018
Classification 1019
Dates, effective- .-:: 1011
Deficiencies. : 898
Examination - 1008
Foreign and domestic 1008-1009
French... 1008
INDBX V
Patent Systems;^Continued. Page
German 1009, 1014-1015, 1019
History and value 950-951
Interference proceedings 1011
Interference proceeding, effect in Germany 1012
Interference, statute of limitations abroad 1015-1016
International Convention 1007-1008
Monopolistic and otherwise, compared 1016
Purpose 836-837
Registration _.. 1008-1009
Russian 1007, 1021
Swiss, initiated, 1888 841-842
Totalitarian States 1021
United States 839
United States, attraction to foreign inventors 1017
United States, compared with foreign 859
United States, unique features . . 1008
Versailles Treaty 1006
Patents:
Acheson, Electric furnace 1120
Aeroplane 11 22
Air brake 1111
Aliens, acquisition of 902
Aluminum, processing 1117
Antitrust laws compatibility 840
Applications, amendment of 849
Applications, period of prosecution. 849
Applications, possible life of 853
Attorneys, criticism of 997
Automobile brake drum :^ 1052
Automobile, pools 889
Automobile wheels, 1 053
Barbed wire 1113
Basic 991
Basic, issued before 1877 842
Bell, telegraphy 1114
Bell telephone 842
Beneficial effect on industry 883
Brakes, automobile 1 052
Celluloid .- 1112
Classification of 894
Competition 1025, 1050
Control, concentration 931
Corporations 874
Cost 939
Cost, foreign 1012
Cost in U. S. compared with cost abroad 859
Cost, under "Special Status" , 858
Cotton gin 1 107
Date, effective 1011
De Forest 968
Delays, interference, causes 860-861
Delays, suggested remedy 943-944
Delays, undue 885
Dyes 911
Effect on employment 895
Electric-induction motors 1116
Electric furnace 11 20
Expert witnesses in litigations 892, 903
Exploitation, requisites ■ 882
Export trade, effect on 1020
Foreign interchanges 903
Forty-four-year life 885
Fraudulent practices 998
German, dyes 911
Glass bottle 1037-1038
Glass shaping machine 1121
124491— 3&—pt. 3 -22
VI INDEX
Patents— Continued. Pase
Glidden barbed wire 1113
Goodyear rubber processing 11 10
Hall aluminum processing 1117
Industry, efifect on 1068
Infringement 887
Infringement, costs 940
Interference 879-882, 942, 990-991
Interference proceedings, European system 1011
Interferences, number decided, 1924-1933 854
Inventions, stimulation of 1004
Issued, 1836-1937 1123
Issued, 1921-1938 1123
Issued, total 1 123
Ives photogravure 1119
Jefferson, Thomas, attitude toward patents 840
License 1004-1005
License, limited 996
License, nonexclusive : 1004-1005
License, nonrestrictive 1052
License, radio tube 964
Licensing, compulsory 927, 999, 1027-1029, 1054-1055
Life, comment 892
Life, suggested change 945
Lincoln, manner of buoying vessels 1138
Linotype 1118
Litigation 939-947
Litigation, case history 941
Litigation, cost 900,939-947
Litigation, disadvantage of small concerns 947
Litigation, expert witnesses 893, 903-904
Litigation, period of 941
Litigations, number in Federal Courts, 1935-1938 1 136
McCormick reaper 1 108
Medical 876
Mergenthaler linotype 1118
Monopoly 851-852
Monopoly, abuse of 1029-1033
Monopoly, limited 885
Morse telegraph 11 09
Origin 950
Owens, glass-shaping machine 1121
"Patent Applied For" 1010
Petty 1019
Photogravure 1119
Pools, closed 888
Price control, relationship 891
Pyroxyline 1112
Hadio tubes, licensing 964-967
Ratio to population, 1840-1930 1124
Ratio to technological workers .-.- 1124
Reaper 1108
Reissue 1010
Renewal of applications 861
Research, relationship 871-872, 922
Restraint of use 879
Rubber processing 1110
"Special Status" 858
Suppression of 885, 908-909, 999-1 000, 1058, 1 1 02-1 1 03
TaKes, eiTecton.. 894-8^^5
Thompson electric-welding patent 1115
Telegraph 1109
Telephone 1114
Tesla electric-induction motor 1116
Twenty-year life 852, 892, 944
Unemployment, effect on 897-898, 1063-1066
Unfair competition 946
INDEX VII
Patents — Continued. Pa»e
Validity, suggested change to make more certain 892-893
Value to industry 927, 951, 994
Value to society 838, 870,894, 922
Welding, electric 1115
Westinghouse air brake 1111
Wheels, automobile 1053
Wright flying machine ,. . 1122
"Patents Applied For" 1010
Patterson, Richard C, Jr., Assistant Secretary of Department of Com-
merce 835-836
Peerless Motor Car Corporation 939
Penny, Davis, Marvin & Edmonds ; 941
Phenolic resin - 1085-1086
Philadelphia Storage Battery Company 985
Philco Radio Corporation 985
Philco Radio & Television Corporation . 1003-1004
Photo-electric ceU 983-993
Photographic paper 1078
Photometry .-.. 991
Plastic industry 1079
Pupin patent . 972
Publishing business, income, production, and wages HIS
Postal Telegraph-Cable Company 969
Prices, control of use by patents - 891
Radio broadcasting 964, 970
Radio Corporation of America 964, 965, 971, 1002-1003
Hadio Manufacturers Association 1001-1002
Radium, substitute for 989
Railwavs, effect of lack of centralized research 906
Handolph, Edmond D ^ 840
Raytheon Manufacturing Company 905
Reapers, production, 1937 1108
Refrigeration, improvement of 1018
^'Relation of the patent system to the stimulation of new business, The". 893, 924
ilesearch :
Atomic 913
By-products 963, 991
Control of patents 930-931
Cost 914,974-975
Effect of its absence 906
Electronic - 982
General Electric Company 912, 920, 948
Germany, methods 876
Glass, invisible 919
Group 874
Group and individual 987
Industrial .--- 872-873,898
Individual inventor 875, 906, 920
Industrial laboratories, number 923
Laboratory costs ^ 974-975
Magnetism and its utilization 918
Massachusetts Institute of Technology 877-878
Medical ---.. 877
Methods 928-930.
Paints 1086
Patents, effect on 915-916'
Photoelectric ceU 982, 991-994
Radium substitute 989
Refrigeration 1016-1017
Relationship to patents 871-872,921-923
Research Corporation of New York 877-878
Russia, methods 87d
Savings resulting from 953
Secrecy, lack of 914
Telephone 951-952
Television 982
Vni INDEX
Research — Continued. Page
Television, theory of _._ 989
Vacuum tubes, increased eflBciency of 954
Varnishes 1087-1 088
X-ray, substitute for radium 989
Research Corporation of New York 877-880
Resin, glyptal 1085-1086
Resin, phenolic 1084-1085
Rubber industry, production, 1937 1110
Russian patent system 1008, 1020
Russian research methods 875
Sales of dies and tools 1047
Science Advisory Board 891, 892, 899, 924, 969
Scott- Atwater Company 1074
Securities Exchange Commission 903, 934-935
Sirovich, Congressman 843
Stromberg-Carlson Telephone Manufacturing Company 973
Studebaker Corporation, The . 938
Submarine Signal Company 962
Sullivan Machine Company 926
Sweetland patent, litigation 941-943
Tariff, cross-hcense a substitute for 1036-1037
Taxation :
Investments, eflfect on 898-899
Patents, effect on 894-895, 1012
Undistributed profits tax 934
Technological inventions 843
Telephone, historical 957
Telephonic communications, a natural monopoly 973-974
Telephonic enterprise, earnings, investment and wages paid, 1937 1114
Television :
Historical 981-99 1
Present development 1000-1001
Theory of 989
Temporary National Economic Committee:
Method of study of industrial production 869-870
Resolution passed deploring the untimely death of Herman Oliphant,
Past General Counsel, Treasury Department 834-835
Tesla electric induction-motor patent 1116
Thermostatic device, cost of development, etc 890-891, 905
Thomson electric welding patent 1115
Thorp, Dr. Willard . 857
Tungsten, ductile . 913
Turret lathe 930
Unemployment, effect on, of patents 895-896, 1063-1064
Unemployment, labor-saving devices, effect on --- 901-902
Unemployment, patents relationship 1063-1064
United Motor Service 940
Vacuum tube, how invented 875
Vacuum tubes 953-954
Varnish industry, employment, number 1088
Velox photographic paper 1078
War, its effect on patents 843
Waters Company 1071
Western Electric Company 949, 952-956,.961-964, 967-971, 973, 996
Western Union Telegraph Company 956, 969
Westinghouse air brake patent 1111
Westinghouse Electric Manufacturing Company 967, 971, 974
Wright, Carroll T 843
Wright flying machine patent 1122
X-ray 989-991
Zeiss-Ikon 987
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