[Trade Journal]
Publication: Verbatim Record of the Proceedings of the Temporary National Economic Committee
Washington , DC, United States
vol. 1, no. 11, p. 297-320, col. 1-3
VERBATIM RECORD
of the
Proceedings of the
TEMPORARY NATIONAL
ECONOMIC COMMITTEE
VOLUME 1
December 1, 1938 to January 20, 1939
CONTAINING
Economic Prologue
Automobile Patent Hearings
Glass Container Patent Hearings
Presentation on Patents by Department of Commerce
Published 1939 by
THE BUREAU OF NATIONAL AFFAIRS, INC.
WASHINGTON, D. C.
·
·
Tenth Day's Session
_____________________
VERBATIM RECORD
of the Proceedings of the
Temporary National Economic Committee
Vol. 1, No. 11 WASHINGTON, D. C. Dec. 16, 1938
FRIDAY, DECEMBER 16, 1938.
THE TEMPORARY NATIONAL ECONOMIC COMMITTEE MET AT 10:15 A. M. PURSUANT TO ADJOURNMENT ON THURSDAY, DECEMBER 15, 1938, IN THE OLD CAUCUS ROOM, SENATE OFFICE BUILDING, SENATOR JOSEPH C. O'MAHONEY PRESIDING.
PRESENT: SENATOR O'MAHONEY OF WYOMING, CHAIRMAN; SENATOR WILLIAM H. KING OF UTAH.
REPRESENTATIVE HATTON W. SUMNERS OF TEXAS, VICE CHAIRMAN. REPRESENTATIVE B. CARROLL REECE OF TENNESSEE.
MR. THURMAN W. ARNOLD, ASSISTANT ATTORNEY GENERAL, REPRESENTING THE DEPARTMENT OF JUSTICE; WENDELL BERGE, SPECIAL ASSISTANT TO THE ATTORNEY GENERAL.
MR. HERMAN OLIPHANT, GENERAL COUNSEL: ADMIRAL CHRISTIANJOY PEOPLES, DIRECTOR OF PROCUREMENT, REPRESENTING THEDEPARTMENT OF THE TREASURY.
DR. ISADOR LUBIN, COMMISSIONER OF LABOR STATISTICS, REPRESENTING THE DEPARTMENT OF LABOR.
MR. RICHARD C. PATTERSON, JR., ASSISTANT SECRETARY OF COMMERCE, REPRESENTING THE DEPARTMENT OF COMMERCE.
MR. EWIN L. DAVIS, REPRESENTING THE FEDERAL TRADE COMMISSION.
MR. LEON HENDERSON, EXECUTIVE SECRETARY OF THE COMMITTEE.
COUNSEL: H. B. COX (CHIEF COUNSEL); ERNEST MEYERS, JOSEPH BORKIN, FOWLER HAMILTON, BENEDICT COTTONE, CHARLES L.TERREL, GEORGE B. O'CONNEL, AND GEORGE W. WILLIAMS.
ALSO PRESENT: CONWAY P. COE, COMMISSIONER, PATENT OFFICE .
The CHAIRMAN. The Committee will please come to order. We have convened this morning a little bit earlier than our usual hour, and I regret to say, Senator King, Mr. Peoples, and other members of the Committee, the attendance is a little bit light this morning. Three of the members are suffering from colds and asked me to send word to proceed without waiting for them.
Have you your witness?
Mr. COX. Mr. Safford. Mr. Pease. Mr. Pease is another official of Hartford. Mr. Pease has not been sworn.
The CHAIRMAN. Mr. Pease, 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. PEASE. I do, sir.
The CHAIRMAN. You may be seated.
TESTIMONY OF A. T. SAFFORD,
SECRETARY AND COUNSEL,
HARTFORD - EMPIRE COMPANY,
HARTFORD, CONN. —
(Resumed) and
A. M. PEASE, ASSISTANT
TREASURER, HARTFORD-
EMPIRE COMPANY,
HARTFORD, CONN.
Mr. COX. Mr. Safford, I am going to hand you a document and ask you if itis a document that you are prepared to accept as a true and correct photostatic copy of an agreement between the Hartford-Empire Company and the Lynch Corporation, dated August 23, 1933.
Mr. SAFFORD. The agreement is not complete.
Mr. COX. You are referring to a later amendment of the agreement?
Mr. SAFFORD. A latter amendment, yes.
Mr. COX. But this, prior to the amendment which was made of a date this year, and I will take that up in a moment, is a true and correct copy of the agreement?
Mr. SAFFORD. Yes, as executed.
Mr. COX. I should like, before I offer this document for the record, to read one provision which is found in Section 2 of the agreement, which reads as follows:
NON-EXCLUSIVE LICENSE GRANTS
"Lynch grants to Hartford a non-exclusive license to make for itself or have made for it, to sell and lease forming machines of designs made or acquired by Hartford and embodying Lynch Forming Machine Inventions, and to license others to use, but not to make and/or sell, any forming machines embodying Lynch licensed forming machine inventions.
"Provided , that neither the grant herein to Hartford of the right to license others to use said inventions, nor any sub-license granted by Hartford thereunder, shall be extended by implication under any circumstances to include a right in Hartford's sub-licensee to make any forming machine embodying Lynch licensed forming machine inventions.
"The license granted in this Section 2 shall be non-assignable except to the successor of the entire business of Hartford."
I should like to have this contract marked as an exhibit though it need not be printed in full in the record.
The CHAIRMAN. The document maybe marked as an exhibit.
(The photostatic copy of Agreement between Hartford-Empire Company and Lynch Corporation, dated August 23, 1933, was received in evidence and marked "Exhibit No. 150.")
LYNCH CORPORATION
Mr. COX. Mr. Safford, will you tell us briefly what the Lynch Corporation is?
Mr. SAFFORD . The Lynch Corporation is engaged in the manufacture of forming machines and at the present time it is the largest manufacturer of forming machines, I believe, in the world.
Mr. COX. Was it the largest in 1933when the contract was made?
Mr. SAFFORD. So far as I know, yes.
Mr. COX. Now, Mr. Safford, will you tell us who Mr. Werbe is?
Mr. SAFFORD. Mr. Werbe is president of Lynch Corporation.
Mr. COX. I am now going to read to you a part of a letter which you addressed to Mr. Werbe under the date of September 20, 1933, and afterwards I will hand you this document and ask you if it is the letter which in fact you did send to Mr. Werbe.
The CHAIRMAN. Mr. Cox, may I inquire? You stated that the contract which you just had identified was amended.
Mr. COX. That is correct.
The CHAIRMAN. I was wondering if that amendment in any way modified the contract.
LICENSES ON "FORMING MACHINES"
Mr. COX. It does, and I am coming to that. The reason I am taking the letter up first is because the letter ante-dates the amendment Mr. Safford spoke of.
"Dear Mr. Werbe: This is in answer to your letter of September 13 regarding Universal and the procedure to be followed generally in granting forming machine licenses to those persons who wish to obtain forming machines from you. If Universal advised you that they had a forming machine license they are evidently laboring under some misconception as to the extent of their present license. This license is merely to cover six feeders in the production of principally milk bottles. We shall, however, send them a forming machine license sometime this week, along with our form letter, and such other information in regard to their particular situation as seems necessary."
I am going to omit the next two paragraphs, which are not germane.
"As our general procedure for dealing with each person who wishes one of your forming machines, we suggest the following. We shall send you a list of our feeder licenses and keep it revised for you. When you get an order for a forming machine you will advise us if it is free from the feeder licensee. We shall then forward the licensee our standard forming license agreement adapted to the licensee's particular field of work. This licensee is to sign and return to us. If he is not a licensee, then you will decline to furnish the machine in such language as appears proper to you under the circumstances. If it is to a feeder licensee to whom we are sending a forming machine license, you will send your usual sales contract for execution. When we have advised you that our forming machine license is signed and you have a signed copy of your own contract, you can then make delivery of the machine."
Is this the letter which in fact you did send to Mr. Werbe?
Mr. SAFFORD. Yes. I recognize that letter, Mr. Cox, and that letter may be capable of misconstruction. Under the Lynch forming machine agreement, as I recollect it, there was a covenant on our part to extend the licenses of all our feeder licensees automatically, so that they without further payment would be entitled to use Lynch forming machines with a license from us. That appears from the agreement as written. Subsequently some misconception arose as to the meaning of the agreement. As a matter of fact, the Department of Justice itself raised the question of the construction of that contract and subsequently we wrote another letter clearing up that matter.
I might explain, Senator, that in 1935 some question came up by which the Department of Justice became interested in us. I have forgotten the exact details. At that time we voluntarily went to the Department, offered to let them have access to all our contracts, and we stated at that time we welcomed any suggestions which they might have with reference to our contracts. They sent an investigator to Hartford who did make such an investigation and raised various points which he felt made those contracts susceptible to misinterpretation.
In those two or three instances, so far as I know, we modified the contracts accordingly, and after his visit we wrote again to the Department stating the original purpose of the visit of the investigator, and stating also that we welcomed any suggestions which they might make with reference to our contractual system.
Mr. ARNOLD. What year was this?
Mr. SAFFORD. I think that was 1935, Mr. Arnold. It was when Mr. Dickinson was Assistant Attorney General.
Mr. COX. Have you finished, Mr. Safford? I point out to the Committee that the answer was not responsive to the question, but I am prepared to let it stand and let the contract speak for itself, and let the letter speak for itself, too, which I should like to offer now.
The CHAIRMAN. The letter may be received .
(The letter referred to was received in evidence and marked "Exhibit No. 151.")
Mr. COX. So far as this particular letter is concerned, and so far as Section 2 is concerned, whenever the investigator of the Department may have visited you ,you didn't modify that until November of this year, did you?
Mr. SAFFORD. I think your investigators took at least one letter from our files in which we wrote to the Lynch Corporation stating that there was a misconception of the meaning of that term, and we were stating what we felt was our meaning of the term, and also stating the fact that the other parties to the contract were unwilling to modify it at that time.
Mr. COX. But you did modify the contract by a formal document in this year, did you not?
Mr. SAFFORD. We did.
Mr. COX. I hand you a document entitled "Amended Agreement between Hartford-Empire Company and Lynch Corporation," dated November 12, 1938, and I ask you if that is a copy of the modification of that contract.
Mr. SAFFORD. Yes, it is.
Mr. COX. Mr. Safford, was this contract in fact made on November 12, or is it merely dated November 12?
Mr. SAFFORD. I don't know, sir.
Mr. COX. You are not prepared to answer that question?
Mr. GOODRICH. We are trying to get the date.
Mr. SAFFORD. I think that was the date it was signed.
Mr. COX. You are quite sure about that?
Mr. SAFFORD. No, I am not. It can stand at that.
Mr. COX. Very well, I offer this.
The CHAIRMAN. Is this for the record?
Mr. COX. I prefer not to have that one printed unless the other is printed, but I would like to have both go in as exhibits.
The CHAIRMAN. It may be so received.
(The amended agreement dated November 12, 1938, was received in evidence and marked "Exhibit No. 152.")
Senator KING. Mr. Cox, would it interfere with your program if I should ask him very briefly the difference between the first contract and the modification contract, not all the terms, but the point as to which you said there was a misconception? I am not clear as to just what that misconception was.
Mr. COX. I am content to have the witness do that, but before he does I should like to say this: I have no doubt that the Department will not agree with his explanation of either contract. Since we are attempting under some difficulty to finish today, we are not going to go into that matter with the witness, but I would not wish the committee to think that we accept any statement he may make on that matter without qualification, merely because I do not examine him on it. With that qualification, I have no objection to Mr. Safford's making a statement.
Senator KING. If he is to be permitted to make a statement, he ought todo so.
Mr. COX. All I want you to understand is that by my failure to ask the witness, I am not acquiescing.
Senator KING. I am not asking you to be bound by anything he states unless you want to be. Proceed.
Mr. SAFFORD. To be perfectly frank, Senator, I don't think the amending agreement does affect the question which Mr. Cox raised the first time. The misconception which might have arisen with reference to that contract, I think I am correct in stating, was cleared up by a letter in 1936, and it is not embodied in the amending agreement, and if Mr. Cox wants to produce the letter, I am willing to identify it.
Mr. COX. I am not aware what the letter is, but I am perfectly willing to have it go in the record, if you have a copy of it.
Mr. SAFFORD. Perhaps Mr. Kramer can find the letter.
Mr. COX. We will find the letter. I would rather not stop now. If you can give me a copy, I can put it in the record.
Mr. SAFFORD. We understand, then, it will go in the record?
Mr. COX. I beg your pardon.
Mr. SAFFORD. I say, we understand from you it will go in the record.
Mr. COX. Will the reporter read to Mr. Safford the remark I made two statements before the last?
The REPORTER. "I am not aware what the letter is, but I am perfectly willing to have it go in the record, if you have a copy of it."
Mr. COX. Is that quite clear, Mr. Safford?
Mr. SAFFORD. Yes, that is fine.
Mr. COX. I may add for the Committee's benefit, though, that we propose to demonstrate by another witness later this morning how this provision actually worked. Mr. Safford, I am going to hand you a mimeographed copy of document entitled "Hartford-Empire Company Analysis of Financial Statements," and ask you if that is a document which you have seen before, and which you have agreed to be substantially accurate.
Mr. SAFFORD. Yes, that is correct.
Mr. COX. I should like to have this document marked.
The CHAIRMAN. How do you identify this document? What do you call it?
HARTFORD-EMPIRE FINANCIAL
ANALYSIS
Mr. COX. I read from the title at the top, "Hartford-Empire Company Analysis of Financial Statements."
The CHAIRMAN. You asked that it may be marked and printed in the record?
Mr. COX. Yes.
The CHAIRMAN. It may be so received.
(The document referred to was received in evidence and marked "Exhibit No. 153.")
Mr. COX. Mr. Safford, I am going to hand you another document entitled "Hartford-Empire Company," again "Analysis of Financial Statements," a one-page document, and I ask you if you have seen that and are satisfied as to its accuracy.
Mr. SAFFORD. That is correct.
Senator KING. Mr. Cox, that first offer embraced all these pages, did it not?
Mr. COX. Yes. I should like to offer this one page. We don't have to mark that, Mr. Chairman, because it is included in the document which I have already offered.
(The document referred to is the last page of Exhibit No. 153)
I call the Committee's attention to the fact that the last page of the document which Mr. Safford identified contains two complications with respect to the rate of return received by the Hartford-Empire Company. The fourth column from the left contains a percentage figure which is entitled "Return on Total Investment." The figure in the last column toward the right is a percentage figure entitled "Return on Invesment [sic] Investment Employed in Operation."
The CHAIRMAN. By whom was this analysis prepared?
Mr. COX. This was prepared in the first instance by the Department of Justice, and it has been substantially accepted, so far as its arithmetical accuracy is concerned, by the Hartford-Empire Company. Is that correct?
Mr. SAFFORD. Yes, we accept in principle the method used in determining these figures.
Mr. COX. I point out that the two rates of return are figured on a different base. The first one, "Return on Total Investment," is figured on the basis of the second column from the left which is entitled "Total Capital and Surplus." The last figure on the right, "Return on Investment Employed in Operations," is figured on a base which is shown in the fifth column from the left, headed "Net Capital Employed in Operations."
There are several differences between the composition of the figure entitled "Total Capital and Surplus" and the figure entitled "Net Capital Employed in Operations," but I think there will be no disagreement if I state that the most substantial difference, and the thing that accounts for the greatest difference in the two figures, is the fact that total capital and surplus includes the amount of certain marketable securities held by the Hartford-Empire Company as of recent years, 1937, and amounts to upwards of $2,000,000, whereas the figure "Net Capital Employed in Operations" does not include the amount of those marketable securities. That would be an accurate statement?
Mr. SAFFORD. That is correct.
Mr. COX. I also call the Committee's attention to the fact that in making this analysis, the Department has not attemped as is done in utility rate proceedings to make any evaluation of the assets of this company. We have accepted the valuation which has been given to us.
RATE OF RETURN, 1912 TO 1922
The rate of return for the period from1912 to 1922 figured on the baisis [sic] basis of the net operating income or loss amounts to9.99 per cent. I point out for the Committee what we regard as a significant fact that beginning in 1932, which was the date which the Hazel-Atlas Company gave up the struggle and took a license and at the same time that the contract was made with the Lynch Corporation, put in evidence this morning, the next year, 1933,in the same year 1933, the Ball Brothers took a license and there has been testimony in the record that after the Hazel-Atlas case a large number of small manufacturers took licenses, and beginning with that period of time the rate of return on the investment employed in operation rose from 16 per cent in 1933 to 67.77 percent in 1937.
Representative SUMNERS. Mr. Cox, have you any explanation as to how it came about that in 1931 (I believe I have the correct column) the net income was 4.25, and the next year 10.37?
Mr. COX. In 1932?
Representative SUMNERS. What happened between 1931 and 1932?
Mr. COX. We have had testimony here that Hazel-Atlas, which was the second largest manufacturer in the field, took a license in 1932 and a large number of other manufacturers also took a license.
Mr. OLIPHANT. Have you available figures on the trend of corporate profits generally from '31 to '32? Is that up or down?
Senator KING. Do you mean with respect to this corporation?
Mr. OLIPHANT. No, corporations generally.
Mr. COX. I am afraid we have nothing of the sort.
Mr. OLIPHANT. The trend of corporate profits in general.
Mr. COX. I am afraid we have nothing of that sort available this morning. I am about to abandon the subject of these financial statements, so perhaps if the Committee have any questions they would like to ask they may do it now.
EFFECT OF REPEAL
Senator KING. Following the inquiry of Congressman Sumners, and perhapsthis is a duplication of his inquiry, mayI inquire again , because I didn't under-stand your answer, how it is that in 1932 ,with a total capital surplus of $5,243,000plus, the return on investment employedin operations was 10.37, whereas in 1937 ,with capital and surplus substantially thesame, the return on investment employedin operation as reported by this docu-ment is 67.77 per cent?
Mr. SAFFORD. I think the explanation, Senator, which Mr. Cox gave is substantially correct, with perhaps this one additional statement, that the amount of glassware produced in this country has been steadily increasing over the last ten years, and particularly after the repeal of prohibition. It jumped to the extent of, I should say, some 16,000,000 gross at the present time, due to liquors and beers.
Senator KING. Would that make that increase, that difference between 10.37 percent and 67.77 per cent, with substantially the same surplus?
Mr. COX. Mr. Safford, just for my own information, did the upswing in production because of the change in the prohibition law —
Mr. OLIPHANT (interposing). May I interrupt to suggest that the Senator's question has not been answered?
As I understand it, the percentages in the last column are percentages of the figures shown in the third column from the end, and that the apparent discrepancy to which the Senator points is ac-counted for by the decrease in the amount of net capital employed in operation.
The CHAIRMAN. I think possibly the Senator would like to have the witness answer the question.
Senator KING. My able confederate on my right has projected himself very properly into the witness box.
Mr. OLIPHANT. I wanted the Senator's question answered .
Senator KING. Do you agree with the answer to the statement just made by Mr. Oliphant?
Mr. SAFFORD. The total capital and surplus stayed the same, approximately, in the period of 1932-1937. In other words, the company issued no additional stock and the surplus remained substantially the same, as I remember, but the net capital employed in operations in the period between 1931 and 1937 shows a decrease. I should say the difference was due to our investments. In other words, more of the surplus was placed in investments, so that in 1937, while the total capital and surplus remained $5,400,000, the net capital employed in operations, upon which the percentage is based, was $2,500,000.
Senator KING. May I inquire whether or not any part of that 67.77 return on investment employed in operations was distributed to any of the associates of the Hartford, to those companies that had taken licenses? Did they get any part of that 67 per cent?
Mr. SAFFORD. No, sir, they did not. This is the net figure, sir.
Senator KING. That was received and enjoyed exclusively by Hartford?
Mr. SAFFORD. That's right, sir.
Senator KING. That is all.
The CHAIRMAN. The only division was with the other two corporations, was it not, the Owens-Illinois and the Hazel-Atlas?
Mr. SAFFORD. Yes, there was a division of the gross returns, and of course Owens was out by that time.
The CHAIRMAN. The Senator was asking whether or not there was any division of profits with your licensees. There was no such division?
Mr. SAFFORD. None.
Senator KING. That is all, Mr. Cox.
AVERAGE CORPORATION RETURNS
Mr. COX. In response to the question which Mr. Oliphant asked a moment ago I might state that we have here a copy of the financial letter of National City Bank of New York for April 1938, which contains a computation showing the rate of return for the years between 1926 and 1935, for all active corporations in the United States, compiled from annual statistics of income received by the Treasury Department, and that shows that the average return for all active corporations for that period of time was 1.50 percent. That is the closest we have to the figure you asked for, and does not cover the entire period involved here.
Senator KING. Does that paper show the losses, the deficits of the more than 230- or 240,000 corporations?
Mr. COX. It does show certain losses, yes, Senator. It shows nothing about the trend from year to year.
Senator KING. Of the corporate period from 1931 to 1933?
Mr. COX. Yes. It shows here that in 1931 — well, beginning 1930, for example, where the rate of return was .86, it dropped to a deficit or red figure of minus 1.95. In 1932 it was minus 3.75; 1933 it was minus 1.68. The figure minus 3.75 I should have read for 1932. 1934 it rose to point 13; 1935, 1.18 percent.
Mr. OLIPHANT. Thank you.
Mr. COX. I think I should like to put on another witness at this point, and I think shall probably want to have Mr. Pease and Mr. Stafford back for a short time afterwards, but there is one witness here it would be convenient if we could go through with now.
The CHAIRMAN. Very well.
Mr. COX. Mr. Coleman.
The CHAIRMAN. Do you solemnly swear the testimony you are about to give during this proceeding shall be the truth and nothing but the truth, so help you God?
Mr. COLEMAN. I do.
The CHAIRMAN. You may be seated.
TESTIMONY OF S. A. COLEMAN,
JR., PORT ISABEL, TEXAS.
Mr. COX. Mr. Coleman, you were atone time connected with the Knape-Coleman Glass Company, were you not?
Mr. COLEMAN. Yes, sir, I was president of the Knape-Coleman Glass Company.
The CHAIRMAN. Will you spell that?
Mr. COLEMAN. K-n-a-p-e.
Mr. COX. Where was that glass company located?
Mr. COLEMAN. At Santa Ana, Texas.
Mr. COX. Will you tell us how you first got into the glass business, Mr. Coleman.
Mr. COLEMAN. My original start in the glass business was in 1927, after finishing Texas A. and M. College with an engineering degree. I went to work for the Three Rivers Glass Company at Three Rivers, Texas. Was with that company until I believe perhaps in '31 or '32 when they went into receivership and Mr. Knape, it so happened, was an engineer for that company, too, and shortly after that time we became interested in this plant at Santa Ana, Texas, that was not in operation, and shortly after that, I believe it was in 1933, we acquired the assets of the company and put the plant into operation in 1934, in the early part of 1934.
KNAPE-COLEMAN GLASS CO.
Mr. COX. What kind of equipment were you using in that plant, Mr. Coleman?
Mr. COLEMAN. We had — I will say first, the equipment that we had; we had two Lynch "LA" machines, one Miller milk bottle machine, and two Miller feeders. However, we did not attempt to operate the Lynch machines on packers ware, or similar items, as I think it has been brought out here before the committee that there is very little or no profit for a small manufacturer in such type of ware. However, there was no plant in Texas making milk bottles, so we decided to make milk bottles.
Mr. COX. You did make milk bottles, did you, Mr. Coleman?
Mr. COLEMAN. Yes, sir, that is true.
Mr. COX. Before we go on with the company, will you tell us what the capitalization of your company was?
Mr. COLEMAN. We were capitalized at $72,000.
Mr. COX. And the stock was all held in Texas, I suppose?
Mr. COLEMAN. That is true, yes, sir.
Mr. COX. Held locally. Very well, now you said a moment ago you began to make and sell milk bottles. I suppose your market was largely in Texas, is that correct?
Mr. COLEMAN. Primarily the Texas market, yes, sir.
Mr. COX. Was there anyone else competing with you for that market?
COMPETITION IN MILK BOTTLES
Mr. COLEMAN. Very strenuously. I should say the Liberty Glass Company of Sapulpa, Oklahoma.
Mr. COX. Can you tell us what the relationship was between the prices at which you sold your milk bottles and the prices at which the Liberty Glass Company sold its milk bottles?
Mr. COLEMAN. Well, I might add this information at this time, that in my opinion the price of milk bottles in Texas had not up to that time been based so much on cost as on the fact that it was a very fertile territory and the only good milk bottle territory, as far as profits are concerned, between St. Louis and the Pacific Coast.
The Liberty Glass Company sales and other manufacturing sales in the St. Louis area were at a very low price, and the profit I believe is doubtful in many cases. However, in Texas, where you find milk bottles in the St. Louis area being delivered at, I would say offhand, around six and a half a gross, you would find in many instances the same type of ware being sold at $10, and I don't believe that freight rates on the distance were materially different; that is, the cost to lay the ware down, but the other milk bottle companies in the East, outside of instances like the Port of Houston, could not compete due to rail deliveries.
That left the Liberty Glass Company with the Texas territory, which I believe they would admit themselves was the most profitable sales territory that they had.
Mr. COX. Were their prices higher than the prices at which you sold?
Mr. COLEMAN. They were substantially higher, yes, sir.
Representative SUMNERS. These milk bottles were sold at one price in one territory. Was Texas the $8 territory? I so understood, but wasn't sure.
Mr. COX. The $6 territory was what I was called the St. Louis.
The CHAIRMAN. Sold by the same persons?
Mr. COLEMAN. Sold by the Liberty Glass Company, and I believe a factory in Owens, Illinois, were competing in those territories. I don't believe Obear Nester was in the milk bottle business.
Mr. OLIPHANT. Does that mean milk bottles were selling at about $6 in one territory and the same bottles were selling at about $8 in another?
Mr. COLEMAN. I will say that is a very conservative estimate. The average Texas price , if anything, was higher than that.
The CHAIRMAN. The point is that the same bottles from the same manufacturer were sold at different prices in different areas?
Mr. COLEMAN. That is true, yes, sir.
Mr. COX. Will you tell us again the date when you started to sell milk bottles in Texas?
Mr. COLEMAN. We started in the spring of 1934, we sold our first milk bottles in Texas.
CHARGE OF INFRINGEMENT
Mr. COX. What happened after you opened your plant and began operations?
Mr. COLEMAN. Well, we naturally began to have visitors and correspondence. Our first visitors were from Ball Brothers, but when they found out we weren't going to make fruit jars they wished-us all manner of success. (Laughter). And then about that time, some three months, two to three months after starting operations, we received a letter from the Hartford-Empire Company notifying us that we were infringing upon certain of their patents.
The CHAIRMAN. Did you get an invitation?
Mr. COLEMAN. I think we delayed that some six or seven months, but we did receive one, yes, sir.
Mr. COX. Now, tell us, rapidly as you can, what happened between the time you got this notice of infringement andsix or seven months later when you got your invitation from Hartford?
Mr. COLEMAN. Well, a curious situation had arisen in Texas. The Liberty Glass Company had just shortly before we began operation, paid Three Rivers Glass Company $50,000 for their milk bottle rights, even though they had no license to make milk bottles, but they had seen fit for a number of years to make milk bottles anyway. So this $50,000 had just been spent, and here another company jumps up out of the brush somewhere making better milk bottles, in my estimation, than Three Rivers had made, and much better located from a sales standpoint. We were in the exact center of Texas.
The CHAIRMAN. You mean up out of the sage-brush.
Mr. COLEMAN. That's true. So Liberty felt very unkind toward us because we were taking over this territory that they had just paid $50,000 for, and they promptly — I think they wasted very little time complaining to the Hartford-Empire Company of the fact that we were operating in this territory without a license, and they had I believe exclusive license in that territory; I don't believe it has ever been demonstrated that Liberty Glass Company did not have exclusive milk bottle rights in that section.
Mr. OLIPHANT. You mean in all of Texas?
Mr. COLEMAN. In all of Texas. The fact remains that there has never a plant operated there with a milk bottle license, and I dare say they won't.
Mr. COX. Go ahead and tell us what happened in the intervening time.
Mr. COLEMAN. We continued to make milk bottles and our sales increased naturally. We were selling practically the output of the plant. We had only one machine , and our output I would say was not over half of the demand in the state at the most. And we had three to five visits from various representatives of the Hartford-Empire Company. They sent us copies of their patents to explain just where we were infringing upon their patents. This went on for some time. In fact, we did not have the money to engage in any extended litigation with them, and frankly we tried every means possible to delay the thing and carry it along, to keep them away from us and out of court as long as possible, for I realized that we couldn't pay $100 or $150 a day to stay in the Federal Court. Of course they realized that too.
I believe it was in November or December of '34 I came to St. Louis to discuss with the Obear Nester Glass Company the possibility of buying a Stuckey feeder. After quite a bit of difficulty they did discuss it with us. I think later on Mr. Knape discussed it with Mr. Stuckey, and he was willing to sell us a feeder. However, they could give us no guarantee as to what Hartford-Empire Company might do to us.
I came on to Washington to discuss it with the attorneys of the Florida Glass Company whom Hartford was suing at that time for making milk bottles. These attorneys were patent attorneys attempting to work out some sort of feeding device that would not infringe upon the Hartford patents. However, I think that is im-possible to do and I don't believe they ever got the feeder. While here I was invited, as I mentioned a while ago, to go to Hartford.
TEXAS MILK BOTTLE LICENSE
Mr. COX. What happened at Hartford?
Mr. COLEMAN. Well, it was a discussion — in fact I will say this: in all the talk that we had at Hartford, that I had at Hartford, they consistently refused to discuss even the remote possibility of a milk bottle license in Texas. They could offer no explanation and denied at that time that the Liberty Glass Company did have exclusive right, but they could not grant us one.
Mr. COX. They wouldn't even discuss that?
Mr. COLEMAN. No, sir.
Mr. COX. What did you say to them?
Mr. COLEMAN. Well, I think perhaps Hartford's experience in Texas had been more or less of a sad one. I think as a rule some Texans are resourceful people and I tried to impress upon them the fact —
The CHAIRMAN. The members of this committee have discovered that.
Representative SUMNERS. It takes along time.
Mr. COLEMAN. I endeavored to impress upon them that we would fight with any weapons that we had at our disposal and that I thought that they were taking on more than they could handle, and I believe that after a fashion the fact that we did stay out of court for approximately a year after suit was filed made them hesitate suing us, they did not know what our resources were. It is an offhand opinion of mine that the Hartford-Empire Company had no desire perhaps to sue us, but the Liberty Glass Company kept so much pressure upon them in the fact that they were taking this valuable sales territory, that they were forced finally in April of the next year to take this into the Federal Court.
The CHAIRMAN. What year was that?
Mr. COLEMAN. In 1935.
Mr. COX. You talked to Mr. Goodwin Smith there?
Mr. COLEMAN. Yes, sir. I discussed this with Mr. Goodwin Smith, and I guess with five or six others. They had a generous supply of attorneys. I will say this, that I tried to alter the scheme. My partner, Mr. Knape, had been up there a few months before, and it is a sort of variation of my understanding of the third degree to spend one hour in this room and one hour in the next room, and when he got back he was a nervous wreck, so I insisted I talk to all of them at one time and I have my health.
Mr. COX. Was anything said specifically to Mr. Smith about the situation in Texas?
Mr. COLEMAN. I did tell Mr. Smith (from his reaction perhaps he believed it) that in Texas within my lifetime I had seen men hanging in trees for doing less than what the Hartford-Empire was trying to do to my small company, and I was serious about it.
INFRINGEMENT LITIGATION
Mr. COX. Now what happened after that, after you went back to Texas?
Mr. COLEMAN. I returned to Texas and we continued to make milk bottles and to sell more milk bottles.
Mr. COX. Were you sued for infringement?
Mr. COLEMAN. We were sued for infringement of some nine or ten claims. I don't recall at the present time.
Mr. COX. Tell us about the outcome of that litigation.
Mr. COLEMAN. We naturally were finally forced to hire a patent attorney. We had to acquire the services of a Texas attorney, and I think there are some two or three patent attorneys in the State. They brought us into court in April of 1935, as I recall.
Well, when I arrived in San Angelo and met them there in the hotel, I can conservatively say there was a half trainload of attorneys and equipment. There were motion picture projectors and attorneys all over the place. I don't know anyone of the Hartford legal staff thatwas not there . They were prepared to give us a nice battle. Well, I had only one attorney and he was considerably lost in that crowd. I wish you might haveseen his face that morning. So I promptly asked for a recess until the afternoon, in order to see if we couldn't settle the case out of court.
TERMS OF SETTLEMENT
Mr. COX. Did you settle the case out of court?
Mr. COLEMAN. We were able to settle the case out of court, yes, sir.
Mr. COX. What were the terms of the settlement?
Mr. COLEMAN. We received $10,000 in cash and were allowed a six months' license on the milk bottles which we paid royalty on at that time for that six months' period. At the end of that period we were to ship these two feeders back to the Hartford-Empire Company.
Now, as I recall, we were granted the right, at the end of that time, if we wanted to make some of that packers' ware, they would let us use one of the feeders for that — a sort of slow death arrangement.
Mr. COX. At the end of the six months you discontinued the use of the machine?
Mr. COLEMAN. Yes.
Mr. COX. Were any milk bottles made after that?
Mr. COLEMAN. Yes, sir. The company at that time hired what is known as hand gatherers; where this glass flows by machinery to the flowing machine, these men dip into the furnace and get a quantity of glass and drop it into the mold. It is cut off with shears. It is a very ancient method, and expensive, as you can readily see. I think it requires about three men there constantly to do that work.
Mr. COX. Is that Knape-Coleman Company operating today?
Mr. COLEMAN. No, sir; it is not. The company operated approximately a year, perhaps. I wasn't with the company at that time. At approximately the time our agreement expired with the Hartford-Empire Company on this license I left the company. However, they did continue to make milk bottles, and I will say a very good milk bottle. The element of cost was excessive. Negotiations were started. I don't remember whether the Knape-Coleman Company initiated them, or the Liberty Glass Company, but they were ready to buy the Knape-Coleman Glass Company and its assets because they had accomplished through their feeder arrangement the end they desired. They wanted to put the plant out of business and the fact that we continued to make milk bottles still made us a competitive sore spot.
Mr. COX. What are you doing now?
Mr. COLEMAN. I am assistant superintendent of the Coast Refining at Port Isabel.
Mr. COX. Would it be accurate to say that throughout your negotiations with Hartford-Empire you were prepared to take a license and pay royalties to them if they would permit you to make milk bottles and sell them in Texas?
Mr. COLEMAN. I would say we were always ready.
Mr. COX. I am finished, I think.
LIBERTY GLASS COMPANY
The CHAIRMAN. The Liberty Glass Company is represented on the chart, Exhibit No. 113, as one of the licensees of the Hartford-Empire?
Mr. COX. That is correct. It is one of the licensees of the Hartford-Empire which has, I believe, an unlimited right to make milk bottles.
Senator KING. Did you say "Liberty" or "Libby"?
Mr. COLEMAN. Liberty.
The CHAIRMAN. Do any of the members of the committee desire to ask questions?
Senator KING. Who were the principal factors in the Liberty Company? Do you recall the names?
Mr. COLEMAN. The president of the Liberty Glass Company is Mr. Collins, Mr. George Collins, I believe.
Senator KING. Is that the Collins who was here?
Mr. COX. No. Just a moment. How many men did you employ in the factory?
Mr. COLEMAN. We employed about twenty-five men, as I recall it.
Mr. OLIPHANT. What size town was it in?
Mr. COLEMAN. The population was 2,500, as I recall.
The CHAIRMAN. Mr. Arnold, do you care to ask the witness any questions?
Mr. ARNOLD. No.
MILK-BOTTLE FACTORY COSTS
Representative SUMNERS. What would it cost to equip a milk bottle manufacturing plant, a small unit, but one that would be commercially adequate?
Mr. COLEMAN. I would say, offhand, between $200,000 and $250,000; that is, to build an entirely new plant.
Senator KING. May I ask another question: What kind of machine was it that you were operating?
Mr. COLEMAN. It was a Miller machine, which is a standard machine in milk bottle manufacture.
Senator KING. It was not one manufactured by the Hartford Company?
Mr. COLEMAN. No.
Mr. OLIPHANT. What would it cost to take some of the plants not in operation, and assuming no difficulty about patents or licenses, to equip it so as to employ a few of the people in a town of 2,500?
Mr. COLEMAN. Well, take for instance that plant there. If the forming equipment had not been moved to Sapulpa I would say fifty to seventy-five thousand dollars' worth of operating capital would keep the plant in operation until it was self-sustaining. I base those figures on the fact that we had no highly paid officers in our company. Whereas my salary was $50 a week, I think Mr. Collins received three or four hundred. We had bought no plants ourselves. The sales of the Liberty Glass Company have to include the $100,000 paid for these two milk bottle plants. That has to come back some way.
Representative REECE. How much did it cost you to go into business and get into a place where you were able to compete in the market?
Mr. COLEMAN. I would say $50,000.
Senator KING. Could you buy the machines for that?
Mr. COLEMAN. That was in the nature of operating capital. I didn't mean by that the purchase of the plant.
Representative REECE. I intended my question to include the cost of putting the plant into operation.
Mr. COLEMAN. You mean a plant that is closed down. Is that the question — or to build a new plant?
Representative REECE. I was taking as a basis for my question your own plant. You did acquire the assets of another company and go into operation and get into a competitive field where it appeared you were operating successfully. How much did it cost you?
Mr. COLEMAN. I would say we had involved some $100,000 to $125,000. However, at that figure I wouldn't say that we had too much capital. However, our chief difficulty in selling our merchandise was not the quality of our merchandise, but the fact that it was advertised by the Hartford-Empire Company, through the Liberty Glass Company, that we were just going to be in business long enough for them to get us in the Federal Court. Naturally it is hard to get jobbers to take your merchandise when you are going to be with them for just a short time.
Representative REECE. How did your prices compare with the prices which had obtained before you went into the field?
Mr. COLEMAN. I say our prices were from $1 to $2 a gross, depending on the location, less than their prices, and that was not a cut-rate proposition. Most of our difference and savings within the state were based on freight differentials within the state. Sapulpa is some considerable distance from such points as Houston and El Paso, and even Fort Worth and Dallas, compared with where we were, 125 miles from Dallas, and they were 300 miles away and outside the state.
Mr. ARNOLD. The net result of this whole story is to compel people in Texas to buy glass from places outside of Texas and pay the freight.
Mr. COLEMAN. That is true.
LICENSES ON MACHINES
Senator KING. Did you buy the machines, or have a license on the Miller machine? You said you took over the assets of the corporation.
Mr. COLEMAN. They belonged to the company. They had been bought out-right. Here is the question involved on Miller feeders, as I understand: Miller, Hartford-Empire Company claims, was infringing on their patents at the time he manufactured and sold the feeder, and in that manner gave a defective title when he sold them.
Senator KING. At any rate, the plant which you operated —
Mr. COLEMAN (interposing).We bought and paid for the feeders and thought they were ours.
Mr. DAVIS. Mr. Coleman, do you know whether there has been any court adjudication of the claims of the Hartford-Empire Company with respect to infringement by the Miller machine?
Mr. COLEMAN. I don't have any knowledge of that. Most of those things stopped, as I recall, before the litigation could go on, by taking a license of some sort. Whether it has ever been settled I don't know.
The CHAIRMAN. Dr. Lubin?
Dr. LUBIN. No.
A TEXAS ENTERPRISE
The CHAIRMAN. Mr. Coleman, who contributed this capital to your enterprise?
Mr. COLEMAN. They were Austin people — Mrs. Harrell of Austin, Texas; all residents of Texas. Mr. Knape and myself were the managers.
The CHAIRMAN. What was the state of their residence?
Mr. COLEMAN. We were both Texans and educated in Texas.
Mr. COX. Where did the employees come from?
Mr. COLEMAN. With the exception of perhaps two or three men, they were all Texas people, local people. There were one or two experts necessary in the plant, like the plant superintendent; that was an out-of-the-state man. However, he had worked in Texas for several years prior to that time.
The CHAIRMAN. With the exception of the machines themselves, where did the material come from which you were using in the manufacture of glassware?
Mr. COLEMAN. That was one of the chief reasons for the plant location. At Santa Ana they have a fine deposit of glass sand; they call it a mountain there. It is about a hundred-foot pile, actually, across the street from our plant.
The CHAIRMAN. You do magnify things in Texas anyway.
Mr. COLEMAN. Locally there was an unlimited deposit, almost, of natural gas that we were able to buy for five or six cents a thousand cubic feet, and we were on the main line of the Santa Fe Railroad there.
The CHAIRMAN. Is that deposit being worked now for the manufacture of glass?
Mr. COLEMAN. I don't know whether it is or not. While we were there there was some sand shipped, I believe; a plate glass plant operating at Wichita Falls bought sand from there.
The CHAIRMAN. What was the market in Texas for glass container ware?
Mr. COLEMAN. Well, I would say something like 200 cars a year, perhaps, of milk bottles there in the State. That is not a great amount of business considering the size of the State. However, the business is concentrated in about, roughly, three cities — Fort Worth and Dallas and Houston, and I might say San Antonio.
LICENSE RESTRICTIONS
The CHAIRMAN. In the negotiations which you conducted with the representatives of the Hartford-Empire after you received the invitation to go to Connecticut, was there any discussion of the issuance of a license to you to use the Hartford-Empire machine?
Mr. COLEMAN. That is for manufacturing milk bottles?
The CHAIRMAN. Yes, or any glassware.
Mr. COLEMAN. We attempted to discuss that with them any number of times, but they would not discuss milk bottle licenses.
The CHAIRMAN. They would not under any circumstances?
Mr. COLEMAN. They offered no encouragement whatsoever as to milk bottle license.
The CHAIRMAN. Were you offered a license on any other ware?
Mr. COLEMAN. Not at that time, no.
The CHAIRMAN. Were you later?
Mr. COLEMAN. Later, at the time of settlement — I mentioned the terms of settlement a moment ago — they told us we might if we saw fit use one of those feeders for packers' ware.
Mr. COX. That is what you call the slow death process.
Mr. COLEMAN. Yes, sir.
The CHAIRMAN. So what it amounted to in the final analysis was that you couldn't receive a certificate of convenience and necessity from the Hartford-Empire Company to operate a Texas plant with Texas capital to develop a Texas production.
Mr. COLEMAN. That is true.
Senator KING. Did Liberty have an exclusive license?
Mr. COLEMAN. As I recall, Mr. Smith said that no such agreement existed. Whether or not it is a written agreement, it is a matter of fact that the agreement does exist, because no one has ever been allowed to operate down there except Liberty Glass Company.
Senator KING. I asked that question because you stated that Liberty seemed to be the organization that was pressing the suit.
Mr. COLEMAN. Yes, sir.
The CHAIRMAN. If there are no other questions, Mr. Coleman. You are excused.
(Mr. Coleman was excused.)
Mr. COX. The next witness is Mr. Day.
The CHAIRMAN. Do you solemnly swear, Mr. Day, 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. DAY. I do.
TESTIMONY OF GEORGE DAY,
ATTORNEY AT LAW,
DETROIT, MICHIGAN.
Mr. COX. Mr. Day, will you give the reporter your name and address and occupation?
Mr. DAY. George Day, Detroit, Michigan, Attorney-at-law.
Mr. COX. Mr. Day, at one time were you and certain other persons in Detroit, Michigan, interested in establishing a glass factory there?
Mr. DAY. That is true, in the year 1935.
Mr. COX. Can you tell us very briefly the circumstances which created your interest in that enterprise?
Mr. DAY. A client of mine had referred me to a man by the name of Howard who had been in the glass business all of his life, I presume as a plant superintendent. At the same time another gentleman in Detroit by the name of Charles F. Clippert, in the brick business and vice-president of one of our largest breweries, was interested in the formation of a glass plant, primarily to make beer bottles.
DETROIT BEER BOTTLE PROJECT
Mr. COX. Why was M. Clippert interested in a glass plant?
Mr. DAY. At that particular time they were having difficulty in securing an ample supply of beer bottles from the regular manufacturers, and we found that was true not only with that particular brewery but with four or five others located in the city.
Mr. COX. Do you know where the beer bottles come from, the geographical location of the factory they come from, that were being sold in Detroit?
Mr. DAY. I understand Obear Nester of St. Louis and Owens-Illinois. I don't know the location of the plant that furnishes bottles there.
Mr. COX. What steps did you take then in connection with this enterprise?
Mr. DAY. At that particular time the NRA was in effect and we were notified that we would have to get permission from the NRA before we could establish a glass factory.
Mr. COX. Did you get that permission?
Mr. DAY. We did.
Mr. COX. I want to ask you this before we go on with the story, Mr. Day. Were there any particular circumstances aside from the interest of these men you have mentioned a moment ago which made Detroit a good site for the operation of a glass factory?
Mr. DAY. I think I should qualify my statement. The glass factory was to be located in the village of Trenton, which is located twenty miles south of Detroit. It is ideally located because of the presence of the ingredients which go into the making of glass bottles. Silica sand was within two miles of our proposed location; soda ash; paper boxes for containers were all located within an area of five miles.
Mr. COX. Did you have fuel there?
Mr. DAY. Fuel was to be supplied by the Socony Vacuum Company who had what was known as a waste gas which could have been supplied to us at a very low cost and which did contain a higher B. T. U. value than natural gas.
Mr. COX. Were you successful in raising capital for this venture?
Mr. DAY. We were successful in raising capital.
Mr. COX. Can you tell us approximately how much capital you had available for the enterprise?
Mr. DAY. We had the land turned into the proposed corporation — we did not incorporate, we didn't get that far — and in addition we had approximately $120,000 in cash.
Mr. COX. What steps did you take to carry on this enterprise after you had gotten approval from the NRA?
Mr. DAY. We then met a gentleman by the name of William Schwenzfier who was brought to my office. At that time he was an employee of Hartford-Empire Company. He was brought into my office by a former salesman of Obear Nester Company.
Mr. COX. And you discussed this project with Mr. Schwenzfier?
Mr. DAY. We did. Prior to this time, of course, we had considerable work in getting our plans laid, what would be the cost of materials, and so forth. Mr. Schwenzfier proved to be a very valuable man to us as far as advice was concerned.
Mr. COX. You were [sic] atempting;attempting at that time, I take it, to obtain glass making machinery.
Mr. DAY. That is right.
Mr. COX. And as a result of your conversations with Mr. Schwenzfier, did you talk to any other representatives of Hartford-Empire?
Mr. DAY. Not prior to that time, no. Mr. Schwenzfier advised us it would be necessary for us to obtain a license agreement to operate glass-forming machinery anywhere.
Mr. COX. Did you attempt to get glass machinery from any other source except Hartford-Empire?
Mr. DAY. We had some glass machinery prior to the time we talked to Mr. Schwenzfier. We obtained that through this man Howard, who at that time was on our pay roll.
Mr. COX. What was that machinery?
Mr. DAY. We had two Lynch machines and one O'Neill machine.
Mr. COX . Did you have enough equipment to start the plant in operation?
Mr. DAY. We did, with the exception of a couple of lehrs which could have been obtained very easily.
Mr. COX. You could have obtained the lehrs?
Mr. DAY. That is right.
Mr. COX. So you had the machinery and your only problem was to obtain the right to use that.
Mr. DAY. That is right.
Mr. COX. After you talked to Mr. Schwenzfier, did you talk to other representatives of Hartford-Empire at any other time or place?
Mr. DAY. No, Mr. Schwenzfier related our problem and story to Hartford-Empire direct, and after his conversation, I presume by correspondence, I received a wire from the sales manager of Hartford-Empire stating he would give us a further report.
Mr. COX. Were you at any time invited to Hartford?
Mr. DAY. I was invited to Hartford, yes.
Mr. COX. Now tell us what happened when you were invited to Hartford. Just tell us generally what happened.
Mr. DAY. I wanted to give the date. I was in Hartford, Connecticut, I think on February 9, 1936. At that meeting was Mr. Smith, Mr. Brown, Mr. Eldred and Mr. Pease. The discussion, of course, was as to the advisability of going into the glass business, and the conversation throughout was very discouraging.
Mr. COX. What did they tell you?
Mr. DAY. They told us, to begin with, that there was an overcapacity, and that there were no beautiful profits as we had anticipated, although we didn't anticipate "beautiful" profits.
Mr. COX. What did you say in reply to this discouraging comment?
Mr. DAY. I had reports there of the past profits of various glass concerns, and I told them that because of our location and the market, no freight rates to contend with, we could operate at a reasonable profit.
Mr. COX. And you asked them at that time for a license?
Mr. DAY. I did.
Mr. COX. And what did they say in reply to that request?
Mr. DAY. They indicated that they would not refuse us a license, but that they would rather not extend a license to us, pointing out that Owens-Illinois was very close to us, that if we did start a factory they no doubt would put in a warehouse and the competition would be too strong and we of course would be wiped out.
Mr. COX. How long would you say in point of time this conference lasted?
Mr. DAY. I would say a couple of hours. They were very cordial.
LICENSE NOT GRANTED
Mr. COX. And did you ask them more than once for a license?
Mr. DAY. I asked them directly just prior to the breaking up of that meeting and then later on directly in the form of a letter.
Mr. COX. And they said they wouldn't refuse you a license, but when you left the meeting you didn't have a license.
Mr. DAY. That is true. However, they made a suggestion that they would not care to grant us a license direct but we could go out and buy up a couple of broken down glass factories who had a license and we could obtain it that way.
Mr. COX. What did you say in reply to that?
Mr. DAY. Of course, that is expensive. We didn't have the money to buy a plant and move it to Detroit.
Mr. COX. Those were glass factories outside the State of Michigan?
Mr. DAY. That is right. I have some notes on a letter, taken at the meeting, and they were the Hart Glass Company, Dunkirk, Indiana, and another one at Patton City, West Virginia.
Mr. ARNOLD. You didn't need the equipment of these plants.
Mr. DAY. We needed a license agreement only.
Mr. ARNOLD. They knew you didn't need the machinery or equipment.
Mr. DAY. That is right.
Mr. ARNOLD. They were in effect suggesting you buy their license?
Mr. DAY. That is true.
Mr. COX. Now I am going to hand you a photostatic copy of a letter and ask you if this is a latter which you in fact received from Mr. Pease of the Hartford-Empire Company in 1936.
Mr. DAY. Yes, sir, that is a copy.
Mr. COX. This letter was received after-the conference which you have just described?
Mr. DAY. No, that was just prior to the conference.
Mr. COX. This letter read as follows:
"Dear Mr. Day: Since first receiving a report from Mr. Schwenzfeier relative to your proposition for a glass plant in Detroit, we here at Hart-ford have been giving the matter. some serious thought.
"Possibly we do not have the full story but from what we know of the glass industry in general being greatly overcapacitated, it does not seem to us feasible nor advisable to increase the tonnage that already exists.
"If you and your associates care to come to Hartford, we will be more than pleased to get your story first-hand but doubt whether our ideas will be altered."
I should like to offer this letter as an exhibit and call the Chairman's attention to the fact that the handwriting on the side of the photostatic copy is a note the witness made.
Mr. DAY. That is true.
Mr. COX. It was not made by the department.
The CHAIRMAN. The witness testifies that this note on the side of this photo-static copy is one that he made in his handwriting upon the original copy?
Mr. COX. That is right.
The CHAIRMAN. The letter may be received.
(The letter of February 1, 1936, addressed to Mr. George E. Day, was received in evidence and marked "Exhibit No. 154.")
Mr. COX. Now after this conference, did you have any more negotiations with Hartford-Empire Company?
Mr. DAY. At the time that meeting broke up, Mr. Pease suggested that we give the matter further consideration. I returned to Detroit and my associates got together and we decided once more to ask them directly for a license for feeding devices. Then in reply to that letter, of course — that is my letter of February 28, where they want all of the available information which they already had in their hands, but it was a repetition of information that they had —
Mr. COX (interposing) . I think that is not quite clear on the record, Mr. Day. You wrote them a letter asking directly for a license and they replied in a letter asking you for information which you had already given, is that correct?
Mr. DAY. That is true.
Mr. COX. Then thereafter did you obtain license?
Mr. DAY. We did not.
Mr. COX. Why didn't you go ahead and operate the machinery which you had, anyway?
Mr. DAY. Well, the men going into the formation of that corporation didn't desire to continue with the proposal when we could not receive a license agreement. That would be inviting, so we considered, a law suit.
Mr. COX. You didn't want to buy into a law suit.
Mr. DAY. That is true.
Mr. COX. And you have never at anytime received a license from Hartford-Empire?
Mr. DAY. Never.
Mr. COX. Is this group in Detroit still interested in starting a glass factory?
Mr. DAY. They are still interested.
Mr. COX. Is the capital still available?
Mr. DAY. It is still available. I had a visit to my office yesterday of the same group of men who are interested in forming that company.
Mr. COX. These men are all Michigan men?
Mr. DAY. All Detroit men.
Mr. COX. And the capital is Michigan capital?
Mr. DAY. That is right.
Senator KING. Did they assign as a reason for refusing to give you a license that they had given exclusive licenses to other persons, and therefore they could not give you one?
Mr. DAY. No, that matter was not discussed. There was some discussion of the location of Owens-Illinois, that it was so close. However, there is not a warehouse or storage in the city of Detroit, or Michigan, that I know of, for glassware.
Senator KING. I had in mind whether or not they considered that as a valid excuse, namely, that they had given exclusive licenses to others and therefore were prohibited from giving you licenses.
Mr. DAY. No, that matter was not discussed.
Representative SUMNERS. What explanation was made as to why they wanted you to buy up a plant that was not operating as distinguished from giving you the right to operate under their license?
Mr. DAY. That then would give us a license agreement without interfering with their relationship between memselves [sic] themselves and Owens-Illinois, or any other licensee.
Representative SUMNERS. Let's get that clear. Here are two plants you mentioned that are not operating. It was suggested that you buy one of the two non-operating plants in order to have the privilege of operating their machinery in your plant at a different place.
Mr. DAY. What we would do is this: we would have to buy up that broken down plant and move it to Detroit.
Representative SUMNERS. I know it, but what interest did Hartford have in requiring you to buy up a plant that wasn't producing competition for anybody?
Mr. DAY. That would allow them to let us operate under that license agreement.
Representative SUMNERS. I am trying to find out why, how. Did they have an exclusive contract with one of these concerns that was not operating?
Mr. DAY. I couldn't say.
Representative SUMNERS. Did you go into that?
Mr. DAY. I did not. Their whole conversation was that they did not want to conflict with Owens-Illinois who was their licensee.
AVOIDANCE OF NEW LICENSE
Representative SUMNERS. But how would you avoid conflicting with Owens-Illinois if you bought up the licenses of plants not operating and moved the license privilege to your own territory?
Mr. DAY. I don't know, unless that license agreement gives us the privilege of moving to Detroit, and I suppose it would.
Representative SUMNERS. That would conflict with the other glass people, wouldn't it?
The CHAIRMAN. If you had purchased the plant as was suggested to you, then the Hartford-Empire would have been in a position to say to Owens-Illinois and to Hazel-Atlas, and to the Ball Brothers, that it had not issued a new license.
Mr. DAY. That is right.
The CHAIRMAN. But had merely consented to the transfer of an old license.
Mr. DAY. That is right.
Mr. OLIPHANT. There would be no increase in outstanding licenses.
Mr. DAY. No.
Mr. ARNOLD. In mentioning the difficulties you might have in competing with Owens-Illinois, did they inform you one of the difficulties was that Owens-Illinois might share your royalties?
Mr. DAY. They did not.
The CHAIRMAN. Are there any other questions?
Mr. COE. I would like to ask the witness this question. Did you explore the possibilities of any other equipment at that time?
Mr. DAY. Yes, we did.
Mr. COE. What conclusions did you reach as to that?
Mr. DAY. The only possibility of securing any other machinery would of course be used machinery; no other new machinery.
Mr. COE. Did you explore the possibility of using the Owens suction feeder?
Mr. DAY. No, we did not.
The CHAIRMAN. The witness may be excused. Call the next witness please.
(Mr. Day was excused.)
Mr. COX. Mr. Kingsland. I am going to ask Mr. Cottone of my staff to examine him.
The CHAIRMAN. That will be quite acceptable.
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. KINGSLAND. I do.
TESTIMONY OF LAWRENCE C.
KINGSLAND, PATENT
ATTORNEY, OBEAR NESTER
GLASS COMPANY, ST. LOUIS,
MO.
Mr. COTTONE. Will you give your name and address?
Mr. KINGSLAND. Lawrence C. Kingsland, St. Louis, Mo.
Mr. COTTONE. What is your occupation, Mr. Kingsland?
Mr. KINGSLAND. I am a lawyer, specializing in patent practice.
Mr. COTTONE. What has been your connection with the glass industry, Mr. Kingsland?
Mr. KINGSLAND. I have represented the Obear Nester Glass Company since approximately 1928. I have been consultant in some other litigations, including the Shawkey litigation, and in connection with the so-called Swindell litigation on the lehrs.
OBEAR NESTER GLASS CO.
Mr. COTTONE. The Obear Nester Company is in the business of manufacturing glass containers, is it not?
Mr. KINGSLAND. That is correct.
Mr. COTTONE. Can you tell us where the company operates?
Mr. KINGSLAND. They have a plant at East St. Louis, Illinois.
Mr. COTTONE. And down what territory, in what territory do they do business?
Mr. KINGSLAND. Widespread from that point, but of course mainly within that general area of the Middle West.
Mr. COTTONE. Can you tell us what position the Obear Nester Company occupies in the industry in terms of production?
Mr. KINGSLAND. My understanding is that they have approximately 2 per cent of the container production.
Mr. COTTONE. Do you know how many people they employ?
Mr. KINGSLAND. I wouldn't know that.
Mr. COTTONE. Would about 450 be somewhere near the figure?
Mr. KINGSLAND. I would say roughly that would be correct.
Mr. COTTONE. Does the Obear Nester Company own any patents relating to glass machinery?
Mr. KINGSLAND. They have a number of patents. They have the so-called Stuckey patent of an air feeder; they have a construction that they are now using under that patent. They have some few additional improvements in shears, other apparatus, relating to glass feeding.
Mr. COTTONE. The company is not a licensee of Hartford-Empire?
Mr. KINGSLAND. They are not.
Mr. COTTONE. They are shown on that chart, Exhibit 113, over on the right-hand side.
Mr. KINGSLAND. That is correct. They never have been under a license under the present system of licenses.
Mr. COTTONE. Can you tell us what type of feeders the company uses?
Mr. KINGSLAND. At the present time they are using the so-called air feeder.
Mr. COTTONE. That is the so-called Stuckey air feeder?
Mr. KINGSLAND. It is represented by the Stuckey patent generally.
Mr. COTTONE. You own this machinery outright, do you not? You are not under any license arrangements with respect to it?
Mr. KINGSLAND. No, the machinery, the title, is owned by the company; it was constructed by the company under contract.
PATENT LITIGATION
Mr. COTTONE. Over the past, twelve years, the Obear Nester Company has been involved in certain litigation with the Hartford-Empire Company, has it not?
Mr. KINGSLAND. That is true.
Mr. COTTONE. And you have represented the company in all these suits?
Mr. KINGSLAND. I represented the company in all of the litigation except the initial stages of the first suit. That was in 1926.
Mr. COTTONE. Can you tell us about that first suit, Mr. Kingsland? Tell us when it was started.
Mr. KINGSLAND. The date of that first suit, the bill of complaint, as I recall it, was filed April 1926. That involved the so-called plunger feeder.
Mr. COTTONE. That feeder was in use by your company at that time?
PLUNGER FEEDER PATENT
Mr. KINGSLAND. The plunger feeder was in use and had been since 1922. The feeder had been installed early in 1922 and the suit was filed in '26. There were two patents involved. There was a so-called phase change patent, and the Steimer patent which was mentioned. The phase change patent had to do with the timing of the shearing with relation to the extrusion of the gob. The Steimer patent related to the adjustment.
Mr. COTTONE. Now before that suit I came to trial, did you do anything with respect to changing your equipment and machinery?
Mr. KINGSLAND. The equipment was changed about the time the suit was filed. As a matter of fact it was in the process of change before there was any notice of the patent, and by the summer of 1926 the Obear Nester Glass Company had adopted the air feeder.
Mr. COTTONE. Did the Hartford Company know of the installation of the air feeder?
Mr. KINGSLAND. They had a number of physical inspections of the air feeder. The fact of the matter is that in the original suit that was tried in 1928 the defendant at the time sought to involve the air feeder.
Senator KING. Did what?
Mr. KINGSLAND. Sought to involve the air feeder as it was then used, and bring that in so that the whole litigation would relate to what they were then presently using.
Mr. COTTONE. What was the purpose in involving the air feeders then?
Mr. KINGSLAND. It was an effort to get this issue cleared in one litigation.
Mr. COTTONE. To prevent any further or subsequent litigation on that?
Mr. KINGSLAND. That is right.
Senator KING. You contended that the air feeder was not in conflict with any legitimate patent that the Hartford Company had?
Mr. KINGSLAND. That was the position.
AIR FEEDER PATENT
Senator KING. Was that one of the Stuckey patents?
Mr. KINGSLAND. That was the air feeder, generally represented by the construction shown by the disclosure of the Stuckey patent.
Mr. COTTONE. Can you tell us now what the result of this suit was in the District Court, the first suit?
Mr. KINGSLAND. The first suit resulted in a decree in favor of the plaintiff, that is, in favor of Hartford-Empire.
Mr. COTTONE. In other words, Obear Nester was held to infringe the "phase change" patent and the Steimer patent of Hartford-Empire.
Mr. KINGSLAND. That is correct.
Mr. COTTONE. And your company was enjoined?
Mr. KINGSLAND. Injunction was issued as against that construction, although at that time we were not using it.
Mr. COTTONE. Now, while this appeal was pending, a second suit was filed?
Mr. KINGSLAND. That is correct. A second suit was filed involving four patents. All of the patents were predicated upon an air feeder disclosure.
Mr. COTTONE. There were three Peiler patents, so-called Peiler patents?
Mr. KINGSLAND. Three Peiler patents and the Ferngren patent.
Mr. COTTONE. Can you tell us the date of that suit?
Mr. KINGSLAND. That suit as I recall was filed in 1929.
Mr. COTTONE. About February 25, would you say?
Mr. KINGSLAND. That date is correct.
Mr. COTTONE. And none of these patents had been involved in that first suit?
Mr. KINGSLAND. None of the air feeder patents had been involved in the first suit.
Mr. COTTONE. And the suit was directed against the air feeder?
Mr. KINGSLAND. That is correct.
Mr. ARNOLD. Did you say you had tried to get the air feeder patents inserted in the first suit?
Mr. KINGSLAND. We did.
Mr. ARNOLD. And were unsuccessful?
Mr. KINGSLAND. Yes, sir.
Mr. ARNOLD. Over the objection of the plaintiff?
Mr. KINGSLAND. Yes, sir, and that is shown in the subsequent litigation.
Mr. COTTONE. This Peiler phase change patent that has been included in the first suit was included in the second suit?
Mr. KINGSLAND. It was not included in the second suit.
Mr. COTTONE. Was there any attempt to include it?
Mr. KINGSLAND. Not on our part. They had selected, as we thought, the four air feeder patents that were directed to what we were then currently using.
Mr. COTTONE. Did you feel that it should have been included in that suit?
Mr. KINGSLAND. I felt all along there was no justification of directing it as against the air feeder.
Mr. COTTONE. What was the result of this suit?
Mr. KINGSLAND. The second suit resulted in favor of the defendant. Patents were held invalid in that that was the District Court procedure. That case was appealed and on appeal was affirmed.
Mr. COTTONE. Have you got the citations of that?
Mr. KINGSLAND. I recall it, I believe, as 71 Fed. 2-D. I can check it.
Representative SUMNERS. Was there any attempt to bring that case to the Supreme Court?
Mr. KINGSLAND. In the second case the attempt to get to the Supreme Court on a petition for certiorari, and that was denied.
Senator KING. Those four last patents, the validity has been affirmed?
Mr. KINGSLAND. I think perhaps you have the wrong impression of my testimony. We were defending and the four glass patents were held invalid. In other words, it was in favor of the Obear Nester Glass Company, and the air feeder was thereby cleared from infringement of those patents.
Senator KING. I thought you said it was held valid, your patents.
Mr. KINGSLAND. Invalid.
Representative SUMNERS. When Mr. King interrupted-the first suit was directed against the use of machines which you were not at that time using, is that true?
Mr. KINGSLAND. At the time thesuit was filed there were some of thosemachines in operation but change overto the air feeder, which we found to bemore efficient, had been completed beforethe first suit was tried.
THE STUCKEY PATENT
Representative SUMNERS. By the terms of the injunction you issued?
Mr. KINGSLAND. We were not using the plunger feeder.
The CHAIRMAN. And what was the air feeder?
Mr. KINGSLAND. The air feeder was a feeder that is generally represented by the Stuckey patent, the Stuckey patent being a patent owned by the Obear Nester Glass Company.
The CHAIRMAN. Issued when?
Mr. KINGSLAND. That patent was issued in 1928, but the application had been filed early in 1926, so that they were installed under the application before the patent issued.
The CHAIRMAN. That patent doesn't expire until '45?
Mr. KINGSLAND. That is correct.
Representative SUMNERS. But the Stuckey patent issued to you — or did you have to acquire it?
Mr. KINGSLAND. We had the rights under the invention from the beginning and are now owners of the Stuckey patent. Stuckey was an engineer who installed or supervised the installation of the air feeder that we installed in 1926.
Representative SUMNERS. And that installation meant the right to use the machine, of course?
Mr. KINGSLAND. In a sense.
Representative SUMNERS. What I mean to say is, you were not in any conflict with Stuckey?
Mr. KINGSLAND. Oh, no; we were not in conflict with Stuckey. We were under the Stuckey patent.
Senator KING. He was the inventor and you acquired his rights?
Mr. KINGSLAND. That is correct.
The CHAIRMAN. You were not under any license from Stuckey?
Mr. KINGSLAND. We had at the beginning a right to install the feeders and later acquire title to them. He was at that time an employee of the company.
The CHAIRMAN. So there was no limitation imposed upon the exercise or the use of this machine?
Mr. KINGSLAND. Not at all.
Representative SUMNERS. Now have you ever licensed anybody else to use the Stuckey machine?
Mr. KINGSLAND. We have not, no.
Representative SUMNERS. Have you had any suits with reference to infringement?
Mr. KINGSLAND. As to the Stuckey patent?
Representative SUMNERS. Yes.
Mr. KINGSLAND. None.
Representative SUMNERS. Are they being used generally by anybody else?
Mr. KINGSLAND. I think that that specific form is probably only used, as far as we know, by the Obear Nester Glass Company.
INFRINGEMENT CLAIMS
The CHAIRMAN. Is it now free of any threat of infringement suit?
Mr. KINGSLAND. No, that resulted in litigation that has recently been filed. I might explain that in this way, that after the air feeder suit had been won by the Obear Nester Glass Company there was an effort made, after the accounting began, to throw the air feeder back into the original suit. That was denied by the District Court, and was also denied by the Court of Appeals.
Following the final decision in the air feeder suit, which was the second suit, there was a motion filed in the first suit to extend the injunction to include the air feeder upon the contention that the air feeder had carried over certain apparatus that had been in the plunger, and that was denied and that was taken to the Court of Appeals and again denied.
Following that a new suit has now been filed against us in August of this year, making the same contentions, although the air feeder suit had been determined a number of years ago; but we are still under suit, and have been with respect to that structure since 1926.
Mr. ARNOLD. You have been continuously sued since 1926?
Mr. KINGSLAND. Under continuous suits since 1926, with a brand new suit now confronting us, still in its initial stages.
Mr. ARNOLD. And one which on the average of the other suits, will last several years, you think?
Mr. KINGSLAND. Beg pardon.
Mr. ARNOLD. Your guess is this new suit will last several years more?
Mr. KINGSLAND. Judging the future by the past, there will be a matter of a number of years before that suit may be determined.
Mr. COTTONE. The first suit is still pending, isn't it?
Mr. KINGSLAND. The first suit, I may say, is still pending on accounting and is in its initial stage on accounting on our re-reference.
Mr. COTTONE. In connection with that accounting, Mr. Kingsland, did you make any attempt to procure or bring into the proceedings the contract, the license contract of the Hartford-Empire Company?
Mr. KINGSLAND. That accounting — I made an effort to bring the license contracts. I obtained an order from the Master upon the theory they would be relevant because at the time there was a contention being made that a reasonable royalty would apply as an average measure. The order was entered by the Master and the plaintiff at that time entirely withdrew their claim for damage recovery. As a result of that the Master held it to be irrelevant and we did not follow it.
Mr. COTTONE. In other words, as a result of their abandoning that attempt, the contract was not brought into the proceedings?
Mr. KINGSLAND. On the matter of damages, but the case proceeded to one report and that report was set aside, and is back now for a re-reference, and has been in that stage for the last two years.
Representative SUMNERS. May I ask this question? It is not clear to me yet. This accounting, is it with reference to the use of these patents prior to the time of the changes to which you refer?
Mr. KINGSLAND. That is correct. That goes back to the use since 1933.
Representative SUMNERS. Your answer was complete. Now then, what is the chief ground upon which this last suit is based?
Mr. KINGSLAND. Well, it is an allegation that the air feeder as now presently used is an infringement of the first Peiler patent, the so-called phase change patent. The contention is that we have carried over the phase change, although I might say that the Court of Appeals for theSixth Circuit and my interpretation of the Court of Appeals of the Eighth Circuit is that that phase change is limited to a change while the machine is inoperation , and is a physical change. This last construction does not have that.
Representative SUMNERS. I didn't want to take too much time. Thank you.
"PHASE CHANGE" PATENT
Mr. COTTONE. Congressman Sumners brought up that question of the patents involved in the third suit; that "phase change" patent was — could that patent have been brought into the second suit? In other words, did the procedure or rules of the court permit the Hartfod [sic] Hartford Company to have declared on that patent in that second suit?
Mr. KINGSLAND. Undoubtedly it could have been involved in that case because the same situation existed then with respect to their allegation of infringement.
Mr. COTTONE. But the defendant would not be in a position to compel the inclusion in a situation like that?
Mr. KINGSLAND. As the law stood at that time, that is true.
Mr. COTTONE. There could have been an adjudication, in your opinion, of that patent in that second suit?
Mr. KINGSLAND. Had the plaintiff brought it in we could have not forced into it at that time.
Senator KING. As a matter of right, were you entitled to have that brought into the suit, or was it a matter of discretion for the court?
Mr. KINGSLAND. It was a matter of discretion whether the plaintiff should .include it because they had the patent with the same situation with respect to the alleged infringement at that time as they have at the present day.
Senator KING. Was any abuse of the discretion involved, do you think? I don't want to lead you into criticism of the court.
Mr. KINGSLAND. I, of course, couldn't say what the policy was. My assumption is that they had four air feeder patents and since the device that we were then using at that time was an air feeder, I assume they felt they had sufficient in the air feeder patents to support their allegation of infringement, but that issue was fought out and as I have indicated, was determined in the favor of the defendant. It was only since that time that the allegation with respect to the first patent has been revised.
The CHAIRMAN. You may proceed.
Mr. COTTONE. Mr. Kingsland, have any attempts been made to settle these suits?
Mr. KINGSLAND. There have been no attempts as far as I know in any serious way to settle the suits. There have been conversations from time to time, but nothing you could really characterize as negotiations.
Mr. COTTONE. You have never been invited to go to Hartford?
Mr. KINGSLAND. No.
TWELVE-YEAR LITIGATION
Mr. COTTONE. Now do you have any opinion as to why these suits have been dragged out over a period of 12 years, Mr. Kingsland? Can you account for it in any way?
Mr. KINGSLAND. Well, I, of course, do not know what the reason is, except that we are outside of the poles of licensees; it is a fair assumption that to keep the licensee satisfied there have to be suits pending against those that do not happen to be within the poles. That is pure surmise.
Mr. COTTONE. I was thinking in terms of the length of time. Do you consider that the different strategic moves that have been made are designed as an harassing device?
Mr. KINGSLAND. It has resulted, certainly, in that because we have been under constant litigation since 1926, substantially against the same construction we were using since that date.
Senator KING. Was there any delay by the plaintiff or by the defendants in that suit?
Mr. KINGSLAND. I would not say that there was any extraordinary delay in that suit. I think it was tried about on the schedule of the ordinary patent suit — that particular suit.
Senator KING. As defendant you wouldn't be interested in dragging it out — or would you?
Mr. KINGSLAND. We have been, Senator, from the very beginning, anxious to clear this issue of infringement.
Senator KING. I assumed that you were.
COST OF LITIGATION
Mr. COTTONE. Has this litigation affected in any way the operations of the Obear-Nester Company?
Mr. KINGSLAND. I have no way of judging that, other than the difficulty of defense, of litigation of this magnitude. They have gone right ahead with their business.
Mr. COTTONE. It does take the time of many employees, does it not, in the preparation of cases and trial of cases?
Mr. KINGSLAND. There is no question about that.
The CHAIRMAN. About how many employees are required to defend these suits?
Mr. KINGSLAND. Oh, engaged in the defense — that is, taking the employees — I should say that during the preparation of the case eight or ten major employees would be consulted.
The CHAIRMAN. It is continuous work, is it?
Mr. KINGSLAND. I would say not that. No. They continue to perform their ordinary functions.
The CHAIRMAN. Some witnesses who have appeared here have given an estimate as to the annual cost of litigation. Could you undertake to give that?
Mr. KINGSLAND . I could give the Committee the general idea as to what this litigation over a period of twelve years has cost. It has cost in the neighborhood of $200,000 exclusive of the time of the corporate employees, for experts, lawyers' fees, and matters of that kind.
EFFECT ON LICENSES
Mr. ARNOLD. Is the fact that no one has asked you for licenses on your machine, do you think, due to this continued litigation?
Mr. KINGSLAND. I should say that would be a deterrent, certainly to anyone who would attempt to go into the business.
Mr. ARNOLD. It is a pretty clear inference that, if they took one of your machines they would also be subject to continued suit?
Mr. KINGSLAND. Because we are sued with respect to that construction.
Senator KING. Are you sufficiently advised to determine whether your patents and the products of your patents are as good as the products of the patents held by the Hartford Company?
Mr. KINGSLAND. I am absolutely satisfied that they are, and our statistics show approximately a 5% increase in production.
Senator KING. So that your vendees, in buying your products, would be getting as good, if not better, products than those from the Hartford licensees?
Mr. KINGSLAND. I would not say a better product. The product is comparable, but the speed of production is somewhat increased by our air feeder process, in my judgment, and as we have established in our own statistics and to our own satisfaction.
Mr. COE. Have all of these suits been confined to the Sixth Circuit?
Mr. KINGSLAND. They were all in the Eighth Circuit. The Obear-Nester Glass Company is a Missouri corporation and the suits have all been filed in Missouri.
Mr. COTTONE. The Obear-Nester Company has been in a financial position to withstand this litigation over this twelve-year period?
Mr. KINGSLAND. They are a strong company, financially.
Mr. COTTONE. Did you know that the Owens Company was contributing to the expense of prosecution of these suits against Obear-Nester?
Mr. KINGSLAND. No, that was never known.
Mr. COTTONE. Do you now know it?
Mr. KINGSLAND. I know it from reading the transcript of the testimony here.
The CHAIRMAN. May I interrupt The Chairman has been called away and I shall ask the Vice-Chairman to preside in my absence. It is my understanding that you hope to be able to conclude with this witness in about ten or fifteen minutes.
CHARGES OF INFRINGEMENT
Mr. COTTONE. Mr. Kingsland, in addition to the patents on which you have been sued, you have also been notified by the Hartford Company that you have been infringing a number of other patents, have you not?
Mr. KINGSLAND. That is true. Subsequent to the time that the Obear-Nester Glass Company succeeded in the second litigation, there was an additional notice sent to that company, including some fourteen or fifteen patents, part of them on the feeder section of the glass fabricating units and part of them on the so-called forming machine section of the units.
Mr. COTTONE. Do you recall the date of that notice?
Mr. KINGSLAND. I can check it. My recollection is —
Mr. COTTONE. (interposing). Is it August 2, 1934?
Mr. KINGSLAND. That is correct.
Mr. COTTONE. Has any suit ever been filed on these patents that were included in these various notices? Oh, by the way, do you know how many patents in addition to those on which you have been sued were included in those notices?
Mr. KINGSLAND. I think there were some fourteen or fifteen. I haven't checked them because there were two notices. There was a 1928 notice and this last notice, but I think altogether about fourteen or fifteen patents that we have been notified about on which there has been no suit filed.
Mr. COTTONE. In that 1928 letter of infringement was there included in that letter a patent, a "phase change" patent, which was made the subject of the third suit?
Mr. KINGSLAND. The "phase change" patent was included.
Mr. COTTONE. And that letter was dated prior to the second suit?
Mr. KINGSLAND. That is correct. I am saying that without checking those numbers, but that is my memory of it.
Mr. COTTONE. I have here the notices of infringment [sic] infringement. These are documents that were supplied to us by the Obear-Nester Company, which consist of two notices of infringement dated February 14, 1928, and August 2, 1934. I am referring to that first letter, dated 1928.
Mr. KINGSLAND. In the 1928 letter was included the so-called "phase change" patent.
Mr. COTTONE. That was prior to the institution of the second suit?
Mr. KINGSLAND. Yes. I do not recall whether that was repeated in the 1934notice. I think it was not.
"FORMING" MACHINE PATENT
Mr. COTTONE. You said there were certain forming machine patents that were included in that second notice. Is that so?
Mr. KINGSLAND. That is correct.
Mr. COTTONE. What kind of forming machines had the Obear-Nester Company been using?
Mr. KINGSLAND. They are using a Lynch machine.
Mr. COTTONE. Where had it obtained these machines?
Mr. KINGSLAND. The Lynch machine had been obtained as early as 1922 on the market.
Mr. COTTONE. Purchased outright, not under any license?
Mr. KINGSLAND. Under no license.
Mr. COTTONE . Did you hear the testimony this morning with respect to this Lynch-Hartford-Empire contract relating to forming-machine patents?
Mr. KINGSLAND. I did.
Mr. COTTONE. Were you familiar with the arrangements under that contract?
Mr. KINGSLAND. I did not know the details. I knew that the Lynch Company would not furnish machines.
Mr. COTTONE. Before you come to that, Mr. Kingsland, did you attempt to obtain any additional forming machines from the Lynch Corporation at any time?
Mr. KINGSLAND. We did, I think, in 1935-36.
Mr. COTTONE. Can you tell us the results of those efforts?
Mr. KINGSLAND. We were unable to obtain them. There was some correspondence covering the details of those negotiations.
Mr. COTTONE. I show you the correspondence to which you have referred, Mr. Kingsland, and ask you, without reading it into the record, to identify those documents and to indicate what they state.
Mr. KINGSLAND. The letter of June 29, 1935, to the Lynch Corporation, from the Obear-Nester Glass Company, asks that the Lynch Company quote them on Lynch machines, three additional machines. The reply to that was a quotation. The reply is dated July 1, 1935, and is a quotation with respect to the units inquired about, and the statement that a license would be required, not stating to whom application for the license should be made.
Then, on July 6, 1935, the Obear-Nester Glass Company — I should say on July 3, 1935 — the Obear Nester Glass Company wrote again to the Lynch Corporation asking whether or not it was a pre requisite to the obtaining of the machines that a license be obtained, and the reply on July 8 was that it would be necessary to obtain a license before we could purchase the machines.
Senator KING. Was there any indication to whom you should apply for the license?
Mr. KINGSLAND. We applied to the Lynch Corporation, because they were the manufacturers of this machine at that date.
Mr. COTTONE. There was no indication in these replies of the Lynch Corporation as to the party to whom you were to apply for a license, was there?
Mr. KINGSLAND. No, but we knew generally what the situation in the trade was. We assumed it was Hartford.
Mr. COTTONE. You know the arrangements that existed between the Lynch Corporation and the Hartford Corporation?
Mr. KINGSLAND. We didn't know the details, but we knew there was some arrangement whereby a Hartford license would be required.
Mr. COTTONE. Did you attempt to obtain a license from the Hartford Company?
Mr. KINGSLAND. We did not.
Mr. COTTONE. Will you tell us why?
Mr. KINGSLAND. Because we had been in controversy with them with respect to the feeders. We knew the licenses were coupled together and we were unwilling at that time, and still are, to come under that license system. We went out to the open market and bought second-hand machines to supply our needs at the time, and we are using those machines today.
Mr. COTTONE. You stated that there was no suit started on these forming machine patents.
Mr. KINGSLAND. There were no suits filed on the forming machine patents.
Mr. COTTONE. Have you received any information or indication that suits might be filed by virtue of your use of these old Lynch machines?
Mr. KINGSLAND. Nothing further than the notice, and that was dated — I believe you gave the date — August 2, 1934.
Mr. COTTONE. That is all, Mr. Chairman.
May I offer these four letters, which Mr. Kingsland has identified?
The VICE-CHAIRMAN (Representative Sumners). For the record?
Mr. COTTONE. They need not be printed.
Senator KING. Is there any controversy there? Should they be set out in the extension of the record?
Mr. COTTONE. I am perfectly willing that they should be just identified and kept in the files.
(The letters of June 29, 1935, July 1, 1935, July 3, 1935, and July 8, 1935, referred to, were received in evidence and marked "Exhibits Nos. 155 to 158" and filed.)
CONFLICT IN COURT DECISIONS
Mr. COE. Mr. Chairman, there is one point I would like to have the witness clear up in my own mind. I understand the litigation against you has been con-fined to the Eighth Circuit. These patents forming the basis of the suits against you — have they been litigated in any other circuit?
Mr. KINGSLAND. The "phase change" patent has been litigated and the Steimer patent has been litigated. They were litigated in the Sixth Circuit in the Nevison-Weiskopf litigation, and also in the Third Circuit.
Mr. COE. Is there any conflict as to the validity of those patents?
Mr. KINGSLAND. There is a conflict, I understand. Even as between the Eighth and Sixth, the construction of the claims and the claims held valid do not agree. There is a contrariety of opinion between the two circuits with respect to the scope of the claims involved.
Senator KING. In those suits to which reference has just been made, was there an adjudication in favor of the validity of certain patents, and the invalidity of certain other patents?
Mr. KINGSLAND. Claims of patents were held valid and certain claims were held invalid.
Senator KING. Were the Steimer patents held invalid?
Mr. KINGSLAND. It was held invalid in the Sixth Circuit and valid in the Eighth Circuit.
Senator KING. This isn't germane, but it seems to me it is very important to aid the Committee in determining what sort of legislation, if any, is required. Don't you think that it is a very unfortunate thing that we have a system under the terms of which there may be different opinions with respect to the same patents in different federal courts?
Mr. KINGSLAND. I think it would be a happy solution of the matter if it could be final, but as to the means of obtaining that I have no opinion at the present time.
PATENT LEGAL PROCEDURE
Senator KING. Have you any objection to stating whether this plan would have merit, to provide that suits may be filed in the District Courts, the Federal District Courts, in any jurisdiction, and an appeal taken from that court directly to a court of patent appeals whose decision would be final unless by writ of certiorari or some constitutional question is raised, when the case might be carried to the Supreme Court?
Mr. KINGSLAND. That, of course, is quite a controversial subject at the patent bar, and I have no definite opinion on it. I see considerable advantage in it. I see some detriment. Taking and balancing the favorable outcome that would result from that and that that would not be favorable, I would say that it would probably be the best way to get this litigation terminated more quickly.
I do feel, however, that if a plaintiff has a group of patents, that the simplest solution is to require him to put all of his patents into one suit against the single accused structure, which is a very simple way to handle it. That is my judgment about it.
Senator KING. Disassociating yourself — there is some facetiousness in this; it isn't meant by way of criticism —from the lawyers ' cult, and considering only the interest of the inventor and the public, do you not think some plan should be devised under the terms of which these patent cases might be more expeditiously and cheaply determined?
Mr. KINGSLAND. I most heartily approve of that idea.
Senator KING. Would you have any objection to sending to the committee a memorandum making such suggestions in the light of your long practice, and of course your desire to serve the public, your views as to what changes should be made in the present patent laws?
Mr. KINGSLAND. I should be very glad to give it real consideration and do what the Senator asks.
Senator KING. I would be very happy, and I think I can speak for all my brethren, for you to do that.
The VICE CHAIRMAN. It is a rather interesting thing, but that is exactly the thing I was going to ask you to do for the Committee on Judiciary and for this committee, and I would like for the gentlemen here, the lawyers who have views and have been trained, to give us the benefit of their views in a fairly comprehensive memorandum, especially on the point that you suggested first, and that is, compelling the plaintiff to incorporate in his first suit all claims of known infringement — I mean, infringement that he knows as much about then as later on.
Mr. KINGSLAND. I feel very strongly that that would be a solution.
The VICE-CHAIRMAN. That would be safeguarded, I suppose, but I think with proper safeguards you could do that, and I would like for the gentlemen who have other views to do that. I speak as the Chairman of the Committee on Judiciary in doing that. We get the picture of what this is all about, but the next thing, what are we going to do about it?
Senator KING. Mr. Chairman, may I say that the two bar association committees, the national and the other, (and they have committees on patents) have been asked by the chairman of the Committee and myself to submit to this Committee their views in regard to changes in the substantive law and particularly in regard to procedural matters, so that the Committee may have the advantage of their views in the consideration of the testimony which will be adduced.
ANTI-TRUST PROCEDURE
Mr. ARNOLD. And may I add to that a suggestion which the Antitrust Division is peculiarly interested in, and that is the question of whether, under any patent law which provides for an equitable distribution between the inventor and the employer, there should not be the power to bring in the antitrust proceeding such uses of patents which actually restrain trade and competition to a serious and substantial degree, and I wish you would consider that, and I wish you would con-sider in that the fact that under the antitrust proceeding (and I think it is the only proceeding that I know about) each case of restraint on competition can betaken up on its own facts, and one at a time, which is, of course, not true under the more general matters of patents.
Mr. KINGSLAND. If there is anything I can add, I shall be very happy to do it.
The VICE-CHAIRMAN. There is another thing that we haven't had time to go into, and won't take the time, and that is whether or not there ought to be compulsory issuance of a license. That is a pretty big question in this picture.
Mr. KINGSLAND. That is quite controversial at the present time.
Senator KING. There is a bill pending in Congress to that effect now.
The VICE-CHAIRMAN. Are there any other questions? Has anybody any questions to ask? If not, we will stand in recess until 2 o'clock.
(Whereupon, at 12:22 p.m., a recess was taken until 2 p. m. of the same day.)
Afternoon
Session
The Committee resumed at 2:10 p. m. on the expiration of the recess. Representative Sumners, vice-chairman, presiding.
The VICE-CHAIRMAN. Are you ready, Mr. Cox?
Mr. COX. Mr. Ernest Meyers is going to do the questioning this afternoon.
Mr. MEYERS. I would like to call at this time the following representatives of the Corning Glass Works Company: Mr. Houghton, Mr. Falck, and Mr. Curtiss, and I would like for them to be sworn in at this time.
TESTIMONY OF AMORY
HOUGHTON, PRESIDENT,
CORNING GLASS WORKS,
CORNING, NEW YORK.
TESTIMONY OF ALEXANDER
D. FALCK, CHAIRMAN OF
THE BOARD, CORNING GLASS
WORKS , CORNING, NEW
YORK.
AND
TESTIMONY OF WILLIAM H.
CURTISS, VICE-PRESIDENT,
CORNING GLASS WORKS,
CORNING, NEW YORK.
Mr. Houghton, will you please give your name and address to the recorder?
Mr. HOUGHTON. Amory Houghton, Corning, New York, President, Corning Glass Works.
Mr. MEYERS. And Mr. Falck, will you do likewise?
Mr. FALCK. Alexander D. Falck, Elmira, New York, Chairman of the Board, Corning Glass Works.
Mr. MEYERS. Mr. Curtiss.
Mr. CURTISS. William H. Curtiss, Corning, New York, Vice-President and Secretary, Corning Glass Works.
Mr. MEYERS. Mr. Houghton, you have been president of the Corning Glass Works since 1930?
Mr. HOUGHTON. Since February, 1930.
Mr. MEYERS. You are also general manager of that company?
Mr. HOUGHTON. That is correct.
Mr. MEYERS. You are a director of the Empire Machine Company?
Mr. HOUGHTON. Yes, sir.
Mr. MEYERS. The American Blank Company?
Mr. HOUGHTON. Yes, sir.
Mr. MEYERS. And the Hartford-Empire Company?
Mr. HOUGHTON. Yes, sir.
Mr. MEYERS. Mr. Falck, you are at present chairman of the board of directors of the Corning Glass Works?
Mr. FALCK. That is correct.
Mr. MEYERS. You were president of that company during the period 1920 to 1928?
Mr. FALCK. Yes.
Mr. MEYERS. You are president and director of the Empire Machine Company?
Mr. FALCK. Yes.
Mr. MEYERS. The American Blank Company?
Mr. FALCK. Yes.
Mr. MEYERS. You are director of the Hartford-Empire Company?
Mr. FALCK. Yes.
Mr. MEYERS. Have you held any other position with the Hartford-Empire Company?
Mr. FALCK. I am a vice-president; have been since the Hartford-Empire Company was organized.
Mr. MEYERS. Mr. Curtiss, you are vice-president and secretary and a director of the Corning Glass Works?
Mr. CURTISS. That is correct.
Mr. MEYERS. And in addition to your duties as secretary you have general executive responsibilities including supervision of the legal and patent departments?
Mr. CURTISS. Correct.
Mr. MEYERS. Contracts, licenses, and relations with all subsidiaries and affiliated companies, domestic and foreign?
Mr. CURTISS. Correct.
Mr. MEYERS. You are also a director of the American Blank Company?
Mr. CURTISS. Yes.
Mr. MEYERS. Do you hold any position with the Hartford-Empire Company?
Mr. CURTISS. I do not.
Mr. MEYERS. Mr. Houghton, what is the relationship between the Corning Company and the American Blank and the Empire Machine Company?
Mr. HOUGHTON. Do you wish me to give the American Blank first?
Mr. MEYERS. Please.
CORNING GLASS WORKS
Mr. HOUGHTON. Corning Glass Works is an 80 per cent holder of the common stock of the American Blank Company.
Mr. MEYERS. Who holds the remaining 20 per cent?
Mr. HOUGHTON. The Empire Machine Company.
Mr. MEYERS. Does the Corning Company own any stock in the Empire Machine Company?
Mr. HOUGHTON. None.
Mr. MEYERS. Who owns that company, do you know?
Mr. HOUGHTON. There are seven stockholders; the control is in the hands of the Houghton family. Ninety per cent of the common stock, including the stock I have just mentioned, is in the hands of stockholders of the Corning Glass Works, and 10 per cent is held outside.
Mr. MEYERS. Who are the stockholders, generally speaking, of the Corning Glass Works? Would that be the Houghton family?
Mr. HOUGHTON. There are 403 stockholders of the Corning Glass Works.
Mr. MEYERS. Well, in terms of the ownership, how much does the Houghton family own of the Corning Glass Works?
Mr. HOUGHTON. As you will see on your chart, they own 40 per cent. That added to the other stock coming from the estate of my grandfather adds up to a total of 52.2 per cent. I believe, of the common stock of the Corning Company.
HOUGHTON ASSOCIATES
Mr. MEYERS. Now, who owns stock in the Houghton Associates?
Senator KING. Who do you call the Houghton Associates?
Mr. MEYERS. That is on the chart.
Mr. HOUGHTON. Houghton Associates is really an association of the stock in the Corning Glass Works from my grandfather's estate, entirely owned by my family.
Mr. MEYERS. Do you personally own any stock in the Hartford-Empire Company?
Mr. HOUGHTON. Yes, sir, 500 shares, to be exact, I think.
Mr. MEYERS. Does the Empire Company own any stock in the Hartford-Empire Company?
Mr. HOUGHTON. Yes, sir.
Mr. MEYERS. What percentage of the total outstanding stock is owned by the Empire Machine Company?
Mr. HOUGHTON. Forty-three per cent.
Mr. MEYERS. Can you tell me how many directors on the board of Corning are also on the board of Hartford-Empire Company?
Mr. HOUGHTON. Four of the Corning directors are on the board of Hartford-Empire.
Mr. MEYERS. And how many directors are there on the board of Hartford-Empire Company?
Mr. HOUGHTON. There have been as a rule nine. I believe that due to a recent resignation, today there are only eight.
PATENT POOLING AGREEMENT
Mr. MEYERS. Mr. Falck, the Hartford-Empire Company and the Corning Glass Works Company entered into a licensing contract in 1922, did they not?
Mr. FALCK. They did.
Mr. MEYERS. Other parties to this agreement were the Empire Machine Company and the Hartford Fairmont Company?
Mr. FALCK. Yes.
Mr. MEYERS. The Hartford Fairmont Company was the predecessor Company of the Hartford-Empire Company?
Mr. FALCK. Yes.
Mr. MEYERS. And the Empire Machine Company is the company that we have just been discussing.
Mr. FALCK. Yes.
Mr. MEYERS. Now this 1922 agreement made a provision between Hartford and Corning of certain pool rights and glass formulas, machine patents and patent applications, then and thereafter to be acquired by the parties to the agreement.
Mr. FALCK. Yes, sir.
Mr. MEYERS. Article 4 of that agreement sets forth the apportionment of the glassware division between Corning and Hartford, does it not?
Mr. FALCK. It is set forth in, I presume, Article 4.
Mr. MEYERS. I believe you will find that on page 69 of the contract.
Mr. FALCK. Yes, Article 4 contains the statement of apportionment of fields. It is called apportionment of fields, meaning the division of assignment to one company or the other of rights in a certain field of production of glassware.
Mr. MEYERS. Will you please explain, Mr. Falck, in layman language the nature of the ware fields in which Corning received exclusive and royalty-free rights?
EXCLUSIVE PRODUCTION FIELDS
Mr. FALCK. I can give you the nature of the fields in which Corning received exclusive rights, but I can't couple with that the statement that they were royalty free, because that is not correct.
Mr. MEYERS. Will you please give us the exclusive fields, first?
Mr. FALCK. The exclusive fields, to paraphrase the lengthy description of them contained in the contract, were these: The first ware division was bulbs for electric lamps and other similar electrical uses. The second field related chiefly to the railway business, called the field of signal and optical glassware.
Senator KING. That wouldn't come under the category of the ware we have been discussing heretofore.
Mr. FALCK. Not at all. The third field in which Corning has under the contract exclusive rights is what may be called the field of special resistance glasses-heat resistance, chemical resistance and other special properties.
PYREX TRADE MARK
Mr. MEYERS. You have a trade name on that product, have you not?
Mr. FALCK. We have a trade-mark relating to resisting glass, Pyrex.
Senator KING. Pyrex?
Mr. FALCK. Pyrex is the trade name generally applied to heat resisting glasses.
Senator KING. From whom did you get the excluive [sic] exclusive right?
Mr. FALCK. That is dealing with the exclusive rights under the contract between Corning Glass Works and Hartford-Empire Company.
Senator KING. Did the Hartford-Empire Company as patentee or assignee of patents have the rights under which you might obtain rights; under which the Corning Company might obtain rights?
Mr. FALCK. We obtained exclusive rights under whatever Hartford's rights were in machines.
Senator KING. You conceded its superior rights to yours and became then an assignee or licensee of a company which you regarded as paramount to yours in that field.
The VICE-CHAIRMAN. What you did, isn't it, was to pool your patents and then divide the right to use.
Mr. FALCK. There was no issue. We granted exclusive rights under our patents for certain fields and took from them exclusive rights under their patents. It was a cross-license.
Mr. MEYERS. Will you proceed, Mr. Falck?
Mr. FALCK. The third field, as I have said, was the resistance glasses, and the fourth was specifically glassware intended for use as cooking vessels, for cooking food.
SPECIALTY GLASSWARE
There were several other subdivisions where some of the rights were exclusive and some were non-exclusive. One of the exclusives was for a field of our operations, that is, laboratory and chemical glassware, and the rest were minor, except for the field of drawn tubing and cane.
Mr. MEYERS. And drawn tubing and cane is that small glass container which houses the filament in a large electric bulb?
Mr. FALK. That is small tubing or caning. It isn't limited to that; we don't speak of it in the glass industry as a container but it is a tube or rod of glass, a stick of glass. It is not hollow, for the hollow tubing.
Mr. MEYERS. These fields cover so-called specialty glassware as differentiated from glass container ware?
Mr. FALCK. Yes.
PATENT POOLING
Mr. MEYERS. Will you please explain the nature of the fields in which Hartford-Empire received exclusive rights?
Mr. FALCK . It received under Corning's inventions the exclusive right to use them for the production of pressed ware and blown ware, and ware that is both pressed and blown, and the field was discussed between us as the container field. Generally speaking, that was the intention, to give Hartford Corning's right to use its inventions in the container fields.
Mr. MEYERS. And they got these exclusive rights from Corning to use certain patents that Corning had pooled in that agreement.
Mr. FALCK. They got the right to use whatever inventions Corning then owned or might make during the period specified in the contract for the containers.
Mr. MEYERS. And that contract is still in force today?
Mr. FALCK. Yes.
Mr. MEYERS. And it has been amended from time to time.
Mr. FALCK. There have been minor amendments. Basically there has been very little change.
MILK AND BEER BOTTLES
The VICE CHAIRMAN. Does that right to exclusive use include the right to grant license to others to use?
Mr. FALCK. Yes.
Senator KING. Did the Corning have a patent which would authorize them to manufacture milk bottles and beer bottles?
Mr. FALCK. The Corning Company at the time this contract was made had no machine on which bottles could be manufactured. We had inventions that might by ingenuity be applied in the construction of some sort of machine. We had no machine working on the production of bottles or jars.
Senator KING. If you produced bottles or jars you would have to resort to the machines of the Hartford-Empire Company?
Mr. FALCK. I should qualify what I have already said when I said that Corning gave to Hartford exclusive rights under its inventions for the container business; Corning retaining a shop right to use its own inventions in its own shop, but gave to Hartford the rights beyond that and the right to sub-license others.
SHOP RIGHTS
Mr. MEYERS. In other words, Hartford agreed to refrain from licensing others to manufacture on Hartford equipment those products which fell within Corning's exclusive field, such as electric bulbs and heat-resisting ware.
Mr. FALCK. Generally speaking, the line of special glassware that we were then producing.
Mr. MEYERS. And likewise Corning disabled itself to manufacture or license others to manufacture under the patents contributed to the pool, products which fell within Hartford's exclusive fields, namely, any glass container products.
Mr. FALCK. No, Corning did not part with any right of manufacture in its own plants. It gave to Hartford-Empire the entire right except for that retained by Corning to use its own inventions in its own plant for any purpose, the container field or otherwise.
Mr. MEYERS. That is the shop right you have just mentioned.
Mr. FALCK. The shop right.
Mr. MEYERS. But Corning could not license others under its patents to manufacture, let us say.
Mr. FALCK. Not in the container field.
THE 1922 AGREEMENT
Mr. MEYERS. Mr. Falck, I wonder if you could explain briefly the factors which influenced the execution of this agreement in 1922.
Mr. FALCK. I shall try to be brief. It was a growth of acquaintance with the development work being conducted and accomplished by Hartford which began in 1916. In 1915 interferences were declared in the Patent Office between Chamberlain, who was an inventor employed by the Empire Machine Company, which was a Corning Company, and Peiler, who was making inventions for the Hartford Fairmont Company.
The two groups then first learned of each other's existence through the interference in the Patent Office and found after sufficient contact that our two inventors, widely separated geographically, were also interested in two quite different branches of the glass industry, Hartford being interested in developing apparatus for that part of the glass industry making containers which had no mechanical feeding devices, and Corning and the Empire Company with its inventors particularly interested at the time in trying to develop automatic machinery for the production of bulbs which had all been hand production to that time.
We found, therefore, that the ideas of these two men working for two different objectives had been declared by the Patent Office to conflict.
The two groups of executives and patent counsel in their meetings thereafter found that apparently Hartford-Fairmont Company, it then was, could be given our rights in so far as they conflicted with theirs in the Patent Office for use in the container field without depriving us of anything in which we were interested, and that likewise Corning would take from Hartford rights for bulbs and laboratory glass and signaling glass, etc., without taking anything in which Hartford was interested.
We therefore made a cross-license in 1916 which covered only the subject matter of those patent interferences, inventions then in existence and in the office.
From that time on we had contacts and began talking about this sort of contract as early as 1919, at which time Hartford had a better feeder and Corning very badly needed a feeding device for a fully automatic — and which was the earliest fully automatic blowing machine for the production of bulbs, but which in Corning's hands had no feeding system, and needed one to supply the glass from the tank to the machine. As a result we made this contract which was again a division of rates along the lines of the field of production in which Corning was interested on the one side, and the licensee, the Hartford Container Industry, on the other.
Mr. MEYERS. Would you agree with what the writer of this memorandum said about that combination, that agreement? This memorandum certified to by the Hartford-Empire Company, bearing the initials of FGS, dated January 30,1919. Paragraph 4 reads:
"Hartford or Empire, working alone as individual units will to some degree block each other on the question of patent rights. Whereas, working together on a basis of exchange of patent rights, the position of each singly or together would be greatly strengthened."
Mr. FALCK. That is not my statement of the situation, no, but substantially there is a great deal of truth in that. As I have already said, we made our first agreement because were in interference in the Patent Office. We made our second agreement because there were other interferences in the Patent Office in sight. We thought that it would be wise to combine our small development organization with Hartford's larger organization, and have one organization whose efforts would be directed toward general glass machine development, and that we could safely contract to give Hartford container rights, Corning special glass rights, and it would strengthen both companies in that way.
Mr. MEYERS. I shall not ask you whether you agree with this statement. This is also from a memorandum certified to by the Hartford-Empire Company, bearing the name of F. G. Smith, dated March 16 , 1920; it is entitled "Hartford-Empire Agreement." Paragraph 8 reads:
"Any concern which can offer the use of automatic machinery and special formulae ought to eventually control the key to the glass industry in this country and foreign countries. Non-control of the formulae might permit formulas to be licensed to manufacturers not using our machines. Such manufacturers then might capture a large part of the trade of our licensees because of the superior quality of glass, and thus work untold injury to us."
Mr. FALCK. Well, if that is a fair question I can't answer it. It is a complicated statement containing several have not thoughts. I have not seen it; looked at it. If you want me to answer it in detail I will try to do so.
Mr. MEYERS. What this statement means, does it not, is that if one company —
Mr. FALCK (interposing). I couldn't tell you what it means without its being read again, or my reading it carefully.
Mr. MEYERS. I show you that document.
Mr. FALCK. Do you want me to take these eight items, one by one, and say whether they represent my views?
Mr. MEYERS. You might read that document and tell me whether you have ever seen that before.
Mr. FALCK. Not to my knowledge; no. It may be quite all right, but I off-hand can't say that I agree with what you have read rapidly and so far as I know I have never heard before.
Mr. MEYERS. That is perfectly all right, Mr. Falck.
Mr. FALCK. I don't know whether you read the first paragraph, marked "1". Mr. Smith has written this, apparently, and it says:
"1. Will strengthen our patent situation and preclude future differences of opinion regarding Empire and Corning rights under Empire agreement as well as under ownership of Steiner application."
I think that is all quite true, and desirable. We had no wish to have patent litigation with Hartford so long as we could obtain, under their inventions as well as our own, rights to go ahead with our glass business, and we were quite willing, as we were not in the container business or interested in it in any way, to give them rights under our inventions for the container business.
Mr. MEYERS. I don't want to be argumentative about that document. It represents the thought of one of the responsible officers of a company which was a party to that agreement. You may disagree with it, and if you do, say so.
Mr. FALCK. I don't know, until I read what the sentences say.
The VICE-CHAIRMAN. I think the witness has a right to make an examination of each of the statements and indicate his attitude on each of the statements.
Mr. FALCK. I have no objection to answering any of your questions, but this document was written in 1920 by Mr. Smith, two years before we made the contract, and is apparently directed to William H. Honiss, his patent counsel. I don't know whether I ever saw it or heard it read before — probably not; but I think I am entitled to know what it says before I agree to it. Do you wish me to go on with it?
Mr. MEYERS. Yes.
Mr. FALCK. "Second. If we proceed alone, is our present patent situation as strong as it should be and as we would like to have it?"
I can't answer that. I suppose that I was a question to their patent counsel in 1920.
"Third. Will not the combined ownership of the patent rights dominate the Federal situation so as to preclude the Federal feeder becoming a competitor here in the States as well as across the water?"
That also is a question to his patent counsel about which I know nothing. I am apparently reading parts that you didn't.
Mr. MEYERS. The other material is apparently extraneous to the point under issue, since your company had glass formulae, and the Hartford Company did not.
Mr. FALCK. "Any concern which can offer the use of automatic machinery and special formulae ought to eventually control the key to the glass industry in this country and foreign countries."
To the extent that that machinery and those glass formulae are all there were of machinery and formulae for use, I think it would control it.
SENATOR KING. Is that directed to your patent counsel?
Mr. FALCK. No, to the patent counsel of the Hartford-Fairmount Company, two years before we made the contract.
BULB AND TUBING SALES
Mr. MEYERS. The report to the Department of Justice shows that the bulb and tubing division accounted for sales in the amount of approximately $6,780,000.
Mr. HOUGHTON. That is correct for the year 1937.
Mr. MEYERS. And that accounts for what percentage of the total business putout here about 35 per cent, roughly?
Mr. FALCK. I think that is approximately correct.
Mr. MEYERS. Your company manufactures clear glass bulbs and inside frosted glass bulbs to be used for incandescent electric lamps?
Mr. HOUGHTON. Yes, sir.
Mr. MEYERS. Can you tell me, Mr. Houghton, approximately what percentage of the sales of the bulb and tubing division is represented by the sale of bulbs to be used for incandescent electric lamps? Your bulb and tubing division is indicated in the answer to our questionnaire as taking in manufacture of incandescent electric lamps, radio tubes and Neon signs, and I would like to know the volume of sales of electric bulbs for use in incandescent lamps.
Mr. HOUGHTON. I can not give you that from my figures here, Mr. Meyers, in dollars. I can give it to you in thousands of bulbs, which I should think would probably be satisfactory. I have that figure here. In 1937, bulbs for use in incandescent electric lamps, 233,435,000.
Senator KING . Is that the total production in the United States or just the production of your company?
Mr. HOUGHTON. That is just the production of Corning Glass Works.
The VICE-CHAIRMAN. What percentage of the domestic production consumption is that?
Mr. HOUGHTON. That is 39.2 per cent, sir, of the domestic production.
GENERAL ELECTRIC CO.
The VICE-CHAIRMAN. How many other manufacturers are there of incandescent lamp bulbs?
Mr. HOUGHTON. We are talking about bulbs, Congressman — only one substantial one, so far as I know.
The VICE-CHAIRMAN. Who is that?
Mr. HOUGHTON. That is the General Electric Company.
The VICE-CHAIRMAN. You and the General Electric manufacture the bulbs used in the United States?
Mr. HOUGHTON. Yes, sir.
Representative REECE. What percentage of bulbs used in the United States are manufactured in the States?
Mr. HOUGHTON. Practically all of them. I think the last figure I saw was imports of maybe a million bulbs out of a total of 600-odd million, or 760,000,000.
DECREASE IN BULB PRICES
Senator KING. Has the price of bulbs decreased from year to year?
Mr. HOUGHTON. Yes, sir; in 1913, for example — I just put these figures down thinking they might be asked-a bulb fora 40-watt lamp was $16 per thousand bulbs; in 1921 it was $30; in 1925 it was $18 and in 1938 it was $8.10, roughly just a little more than quarter of what it was in 1921.
Senator KING. As there has been a material decrease in the price has there been an improvement in the quality of the product?
Mr. HOUGHTON. Decidedly. In fact, the equipment that is being used today has to be designed for very accurate distribution of the glass as it is made so that that bulb in turn can be put on automatic lamp-making machinery.
Senator KING. Measured, if you may measure it, by the quantity of light which would be obtained by a bulb in 1913, how much would be obtained now by a bulb?
Mr. HOUGHTON. Senator, I would like to answer that, but I am not in the lamp business. We are only glass makers. The glass is substantially the same in transmission possibly somewhat better, but that would be a question of what the lamp manufacturer did.
Senator KING. The improvement is largely in the carbon used in the manufacture —
Mr. HOUGHTON (interposing). I would rather not answer because I would just be guessing.
JAPANESE COMPETITION
Dr. LUBIN. May I refresh myself on those figures you used? In 1913 it was $16 and in 1935 it was —
Mr. HOUGHTON (interposing). In 1921 it was $30. I haven't the 1935. In 1938 it was $8.10.
Dr. LUBIN. What is the preceding? When did the Japanese competition hit you people seriously?
Mr. HOUGHTON. I could answer that, Dr. Lubin. It was several years ago.
Dr. LUBIN. About the time the price fell markedly?
Mr. HOUGHTON. Oh, no, sir; no, sir. Our prices had almost a yearly coming down as we have been able to improve our efficiency.
Dr. LUBIN. Apparently sometime in '30 you were charging the same price you did in 1913, so the decline was from $16 in '13 —
Mr. HOUGHTON (interposing). The reason I showed the 1913 and the 1915 was that so often we talk of what things cost before the war and what they cost now. In the use of the modern machinery, your $21 figure I think is far more indicative, which shows a decline from $30 to $8.10 per thousand.
(Senator O'MAHONEY, the chairman, resumed the chair.)
TARIFF ON BULBS
Mr. ARNOLD. Are these bulbs protected by a fairly substantial tariff?
Mr. HOUGHTON. No, sir. There is a tariff; I don't know what it is, but it is very small on electric light bulbs. I want to be sure that I am talking the same language, because I am only talking about the glass that goes into the lamps. We are glass manufacturers and not lamp manufacturers.
Mr. ARNOLD. I may be going far afield here. I am simply interested in the point raised by Dr. Lubin about the Japanese competition. Was that competition in completed incandescent bulbs or in glass?
Mr. HOUGHTON. Practically entirely the completed lamp.
Mr. ARNOLD. And it was the completed lamp thereafter that was protected by a substantial tariff?
Mr. HOUGHTON. I can't answer that, Sir.
FROSTED BULBS
Mr. MEYERS. Does the manufacture of inside-frosted bulbs exceed the manufacture of the clear glass bulb today? Is the inside-frosted bulb today a more popular bulb than the clear glass bulb?
Mr. HOUGHTON. Yes, sir.
Mr. MEYERS. What is the percentage, would you say, in terms of sales?
Mr. HOUGHTON. I can give you our percentage, which I think is low, and that is, well it is 121,000,000 frosted as against 11,000,000 unfrosted or clear.
Mr. MEYERS. Who controls the patent, who owns the patent, for making the frosting device which attaches itself to the bulb?
Mr. HOUGHTON. You mean who controls — I think the question is who controls he inside frost process, the patent on that. The General Electric Company.
Mr. MEYERS. And you are a licensee of General Electric Company for that purpose?
Mr. HOUGHTON. Yes, sir. We have a limited license from them to manufacture.
Mr. MEYERS. Limited in what sense?
Mr. HOUGHTON. Limited in that we are — there is a specific list of lamp manufacturers whom we are licensed to sell. We are not prohibited from selling anyone, but we have not elected to take that chance.
Mr. MEYERS. That is, you are not prohibited if you want to encourage patent infringement action, or to fight patent infringement action?
Mr. HOUGHTON. I can answer that, yes.
PATENT ON FROSTED BULBS
Mr. ARNOLD. Let me get that perfectly clear. General Electric claims the right to the exclusive right to the process, do they?
Mr. HOUGHTON. They have a patent covering the inside frosted bulb.
Mr. ARNOLD. And if you with any of your devices which you now have, do frost the inside of the bulb you would run into one of their claims?
Mr. HOUGHTON. I think it is not a question of device as much as it is a question of the basic etching, the method of etching the inside surface of the bulb. It is a product patent.
LIMITATION ON SALES
Mr. ARNOLD. Then they have agreed to allow you, without any threat of patent infringement, to sell to certain people?
Mr. HOUGHTON. Correct.
Mr. ARNOLD. And only to certain people?
Mr. HOUGHTON. Yes, sir.
Mr. ARNOLD. What is the reason for the limitation? Did they give any —
Mr. HOUGHTON (interposing). I will give you my reason. I can't give the General Electric's, but I think it is correct. We are licensed to sell to the General Electric Company licensees in their lamp business.
Mr. ARNOLD. I think the reason is obvious, then, from that statement. I won't ask any further. And to no others except General Electric licensees?
Mr. HOUGHTON. Yes, to no others. But again I would like to point out that it is not a prohibition. It is purely a limited license to us to do certain things.
Mr. ARNOLD. I don't quite understand that. Why isn't it a prohibition? They claim that if you sell to other people you will be violating their patent, don't they?
Mr. HOUGHTON. They have not made that claim, but I think we would, sir.
Mr. ARNOLD. You think you would. Well, then isn't it in effect a prohibition?
Mr. HOUGHTON. I think not. I think it is an election of ours.
Mr. ARNOLD. You don't want to violate the patent, do you?
Mr. HOUGHTON. No, sir.
Mr. ARNOLD. And you have to make —
Mr. HOUGHTON (interposing). that is the reason we haven't — may I take a minute?
Mr. ARNOLD. I am not trying to argue with you. It just isn't clear.
Mr. HOUGHTON. It is a fairly interesting situation. We had this license under the patent granted in 1928 and we sold only to this group, to whom we were licensed to sell. The lower court in Ohio decided against the patent and we immediately sold to anyone who wanted to buy inside frosted bulbs. The Circuit Court of Appeals of that same district, which district I can look up if you are interested in it, sustained the patent at which time we decided to go back to our position of selling to only those to whom we were licensed to sell.
Mr. ARNOLD. I think I understand the situation. It is a choice between further litigation and accepting this limited license, isn't that it?
Mr. HOUGHTON. It is a choice, I suppose, made by us, that we do not want to infringe a patent.
Mr. ARNOLD. You are not convinced yet that the lower court was wrong and the Court of Appeals was right, are you?
Mr. HOUGHTON. I would rather express no opinion on that.
HOUSEWARE SALES
Mr. MEYERS. Mr. Houghton, your report for 1937 indicates the second highest sales division in your housewares — is your housewares division, which accounts for sales in the amount of approximately $2,269,000.
Mr. HOUGHTON. Our housewares division consists principally of ovenware, Pyrex. We market it under the trademark Pyrex. It is a glass cooking dish that can be used in the oven. There are other items in that line, number two being flame ware, which is a new development of ours for use over the top of the stove. That is really in its incipient stage; and then teapots and nursing bottles, and other miscellaneous items, but broadly speaking, the Pyrex baking ware is the bulk of that business.
Mr. MEYERS. Yes, and that accounts for, as I said, something like $2,269,000?
Mr. HOUGHTON. The total field which I described.
Senator KING. The gross sales, you mean?
Mr. MEYERS. Yes, sir.
Mr. HOUGHTON. That is the net sales to Corning, net return to Corning.
Mr. MEYERS. You mention the heat resisting glass sold under the trademark Pyrex. Is it true that the two important patents owned by Corning on this ware expired in 1936?
Mr. HOUGHTON. Yes, sir, in May of 1936.
Mr. MEYERS. Now that these patents have expired, can licensees of Hartford-Empire go into the business of manufacturing heat resisting ware on Hartford equipment?
Mr. HOUGHTON. No, sir, unless we license them, because we in the 1922 contract acquired exclusive rights in the heat resisting field.
HEAT-RESISTING WARE PATENTS
Mr. MEYERS. Do you recall the request made by the Indiana Glass Company in 1937 to manufacture heat-resisting ware on Hartford machinery?
Mr. HOUGHTON. I don't, but I would like to look at my papers, if I may.
Mr. MEYERS. Here are certified copies from your files.
Mr. HOUGHTON. Yes, sir.
Mr. ARNOLD. I don't think the record is entirely clear as to why the Hartford licensees cannot manufacture Pyrex, in view of your statement that the patent on heat-resisting wares had expired.
Mr. HOUGHTON. In answer to that question they can. In answer to Mr. Meyers' question, he added Hartford.
Mr. ARNOLD. Then to make the record clear, the reason is that Hartford equipment is limited in its use to other wares by the Hartford license.
Mr. HOUGHTON. Because we have the exclusive rights in that particular heat-resisting field to the Hartford equipment, sir.
Mr. ARNOLD. And therefore if they desire to manufacture heat-resisting wares on the expired patents, they would have to buy new machinery.
Mr. HOUGHTON. I don't quite understand your question.
Mr. ARNOLD. I don't either, quite; I mean I don't quite understand the situation. May I go back to clarify my own mind? The patents on the Pyrex — that is a trade name, the patents on heat-resisting ware have expired, have they not?
Mr. HOUGHTON. Yes, sir.
Mr. ARNOLD. Can machinery be purchased in the United States so that that process on which patents have expired may now be generally used?Mr. HOUGHTON. I think the best way that I can answer that, I do not know whether it could be gotten, but our principal competitor is making heat-resisting glassware on automatic machinery that is not, I understand, under any Hartford-Empire patents.
Mr. ARNOLD. But it would have to be made on some machinery not furnished by Hartford-Empire.
Mr. HOUGHTON. Unless we elected to license.
Mr. ARNOLD. Unless you elected to license.
PRODUCTION OF PYREX
Senator KING. Did you manufacture the machinery which you use for your Pyrex and if not where was it obtained?
Mr. HOUGHTON. That is a question that would cover quite a bit of ground, Senator King. If we are talking of the baking ware alone, I think most of our equipment has been purchased outside standard presses and we use the Hartford feeder, but it is an interesting side-light, while we are on this, that only 32 per cent of our total heat-resisting volume is made by Hartford equipment.
Senator KING. And the rest is made by —
Mr. HOUGHTON (interposing). The rest is made mainly by hand and some on our own equipment that we have developed.
The CHAIRMAN. And is that equipment of yours in use by any competitor?
Mr. HOUGHTON. I think not, sir.
Senator KING. But a competitor or some competitors do manufacture the same product.
Mr. HOUGHTON. Yes, sir.
The CHAIRMAN. And what devices do they use in addition?
Mr. HOUGHTON. I can't answer that.
Mr. MEYERS. In other words, Mr. Houghton, you did not grant Indiana Glass Company permission to manufacture heat-resisting ware on Hartford equipment.
Mr. HOUGHTON. No, sir.
Mr. MEYERS. Do you recall, Mr. Houghton, that the Anchor-Hocking Glass Company attempted to engage in the manufacture of heat-resisting ware?
Mr. HOUGHTON. I have heard that they were contemplating it.
Mr. MEYERS. I would like to read at this time a letter to your company, dated November 20, 1937, signed "Goodwin" and addressed to you. It reads:
"Dear Am: Eldred and Pease spent a day at Lancaster with Ike and Bill Fisher. Ike was in a pretty ugly mood about a number of things and, incidentally, he had samples of various kinds of baking ware and hard glassware which had a bluish tint such as your top-of-the-stove ware."
All these samples had been made up by hand, and he had named this line of ware Fryrock.
"Ike is going to defy us all in this kind of ware and use the same tactics that he is now using when he defies Hartford-Empire Company on forming machine patents."
Do you know who "Ike" is, referred to in this letter?
Mr. HOUGHTON. Mr. U. J. Collins.
Mr. MEYERS. I should like to offer that letter for the record.
The CHAIRMAN. It may be received.
(The letter, dated November 20, 1937, to Amory Houghton, was received in evidence and marked "Exhibit No. 159.")
Mr. MEYERS. Another letter certified as a true copy by your company, dated December 6, 1937, signed Brown, bearing the heading "Charles B. Belknap," addressed to "My dear Am." I suppose that is you, sir.
Mr. HOUGHTON. Correct.
Mr. MEYERS. "With reference to the Pyrex situation which you talked to me about in New York at our last meeting, have secured a promise from Ike that he would not start to market in that line without first discussing it with you and your associates."
Mr. Houghton, apparently Mr. I. J. Collins was interested in making heat-resisting ware.
Mr. HOUGHTON. Oh, Mr. Meyers, yes, you don't need to bring those letters. Mr. Collins and myself have talked it over together.
Mr. MEYERS. Apparently you spoke to Mr. Belknap and Mr. Goodwin Smith about I. J. Collins' interest in manufacturing heat-resisting ware.
Mr. HOUGHTON. I had talked with Mr. Goodwin Smith because Mr. Collins had come to him, and Mr. Goodwin Smith had told Mr. Collins that he had no right, that it was entirely up to Corning. In the case of Mr. Belknap, I can remember one day asking him if he saw Mr. Collins to tell him I would like to have a talk about it when we next got together.
Mr. MEYERS. Anchor Hocking did not manufacture heat-resisting ware?
Mr. HOUGHTON. So far as I know.
Mr. MEYERS. If Anchor Hocking decided to use Hartford equipment in manufacturing heat-resisting ware, would it have been open to patent infringement action by the Hartford Company?
Mr. HOUGHTON. By the Corning Company?
Mr. MEYERS. No, by the Hartford Company.
Mr. HOUGHTON. Corning has exclusive rights. I suppose both might have been parties to suit.
Mr. MEYERS. At least Hartford could have revoked the license for engaging in the manufacture of a product which was in its schedule of exclusions.
Mr. HOUGHTON. I can't answer what Hartford's powers were, I do not know.
Mr. MEYERS. I think that is substantially so. We introduced earlier this week a license agreement which indicated a schedule of exclusions, and one of the most frequent exclusions is the heat-resisting ware field. As a practical matter, then, Mr. Houghton, the patent forming agreement,, executed in 1922 between Hartford and Corning, permits Corning to maintain an exclusive position in the manufacture of heat-resisting ware, and all the ware forming patents have expired.
Mr. HOUGHTON. With the provision under Hartford patents, yes.
POOLING OF PATENTS
Mr. MEYERS. It [spell:sees'seems] that this kind of arrangement is the one that was discussed in a memorandum dated August 13, 1930, entitled "Glass Revision, Rough Summary, to August 8, 1930," certified as a true copy by your company, and I read from page 6.
"Now for practical reasons, I am, as I see it now, willing to support Corning's monopoly on bulbs, tube and cane, signal and optical and cooking ware, with the backing of our patents," —
and "our" refers to the Hartford-Empire patents, "regardless of whether those divisions are at a given time covered by a Corning patent or whether the patent has expired. Equally I think it proper that our field, namely, the container field, broadly defined so as to cover practically all hollow ware except bulbs, signal, optical and cooking ware, should likewise be supported by Corning's patents regardless of whether our feeder or other patents have expired or not."
Senator KING. Have you asked the witness whether he assents to that?
Mr. MEYERS. I am going into that. It seems that one of the most important advantages derived from a patent pooling arrangement is the protection afforded the parties when their patents which they have contributed initially have expired. For example, you had a patent on a formula covering heat-resisting ware. That patent has expired, yet no licensee of the Hartford-Empire Company can manufacture heat-resisting ware on Hartford equipment because Hartford originally disabled itself from licensing its equipment for that ware in the original pooling agreement. Is that not true?
Mr. HOUGHTON. That is a very long question. Will you repeat that?
Mr. MEYERS. What we have are some patents on machine equipment. Your patents on ware formulae expired before the patents on machine equipment.
Mr. HOUGHTON. Correct.
Mr. MEYERS. Ordinarily once a patent is expired, anybody can produce what was covered under that patent. Is that not true?
Mr. HOUGHTON. Anybody can produce what was covered under that patent.
Mr. MEYERS. Not Hartford licensees.
Mr. HOUGHTON. Hartford didn't invent the heat-resisting glass. That was an invention of Corning as a typical type of development. It was an entirely new business that was created by Corning, and Corning at a certain time in its development acquired exclusive rights for that field, for more modern methods of making it.
It made it possible for it over a period of years to widen that market very largely.
PERIOD OF PYREX PATENT
Mr. ARNOLD. This in effect extends the period of the heat-resisting ware patent, doesn't it?
Mr. HOUGHTON. No, sir.
Mr. ARNOLD. Well, if you are going to make heat-resisting ware you have got to duplicate your machinery if you happen to be a Hartford licensee. Isn't that right?
Mr. HOUGHTON. If you are going to use Hartford equipment, yes, sir.
Mr. ARNOLD. And most of these people are using Hartford equipment, aren't they?
Mr. HOUGHTON. Most of what people?
Mr. ARNOLD. The people on that chart.
Mr. HOUGHTON. But we are talking now of an entirely different field, Mr. Arnold. This is not the container field at all. It is a special glass field.
Mr. ARNOLD. But none of those people can enter into competition with you, although your patents expired, without going to enormous expense in duplicating machinery and getting machinery from some other source than Hartford.
Mr. HOUGHTON. I can't answer how enormous that expense is. Again I repeat that our largest competitor is adequately making it automatically, not under Hartford license.
Mr. ARNOLD. But at least these people are excluded without considerable expense. You will admit it must be considerable.
Mr. HOUGHTON. Unless we see fit to license them.
Mr. ARNOLD. Now I am not saying this is illegal, because that is not the purpose of this inquiry, but frankly, as a matter of fact, doesn't that in effect extend this expired patent so far as its practical effects are concerned?
Mr. HOUGHTON. It depends entirely on whether you are talking of the Hartford-Empire patent — yes, because we have exclusive rights. If they want to use other methods they can do so, or if we see fit to grant a license if there should be reason therefor, it would change that picture.
Mr. ARNOLD. And you do have a very substantial control in the Hartford-Empire Company?
Mr. HOUGHTON. Forty-three cent, I think I said.
Mr. ARNOLD. And four directors?
Mr. HOUGHTON. Correct, sir.
Mr. ARNOLD. Out of eight?
Mr. HOUGHTON. Nine as a rule, eight now, but nine generally.
Mr. ARNOLD. So admitting the question of legality, which I am not raising, this particular combination between the two companies has the effect of eliminating competition from a vast number of possible competitors who would come in if the combination did not exist.
DIVISION OF PRODUCTION
Mr. HOUGHTON. May I go back again, Mr. Arnold, to my statement originally, that 32 per cent of our dollar volume of sales in heat-resisting glass was made on Hartford equipment; the other 68 per cent is open to any of those people, or any other glass manufacturers.
Mr. ARNOLD. If they will buy more machines.
Mr. HOUGHTON. No, sir, I am not talking about machinery now. I am talking about 68 per cent of this heat-resisting business that is not open to anybody.
Mr. ARNOLD. I am not trying to argue, because I am honestly puzzled. You mean that there are other people not shown on that chart who have machines already which they can use to manufacture?
Mr. HOUGHTON. I am afraid I am clumsy in this.
Mr. ARNOLD. I may be clumsy. I am trying to get the facts.
Mr. HOUGHTON. What I am trying to say is that 32 per cent of our heat resisting business is made on the Hartford equipment.
Mr. ARNOLD. That is the Corning?
Mr. HOUGHTON. There is another twelve that is made on our own equipment, and the remaining 56 per cent is not made on any patented equipment of any kind. It can be made by anybody, at any time, if they have the "know how" and want to put the investment into the making of heat resistant glass which is entirely different from any other glass manufacturing.
Mr. ARNOLD. I think we are in agreement then, but to make it absolutely clear let me restate it. The only hazard which you put on these people to prevent them from manufacturing heat resisting equipment is the fact that you compel them to go outside and buy new machinery for it and prevent them from making it on their existing machinery.
Mr. HOUGHTON. Well, they don't make it on their existing machinery because the entire development of the heat resisting glass game has required very definite modifications of the existing machinery that you have been talking about most of the week.
Mr. ARNOLD. Then you would be willing to give up that provision limiting their licenses?
Mr. HOUGHTON. No, sir, I would not, because there is a patent right that we have. We have, however, Mr. Arnold, considered very seriously this question of licensing, and the last time that I talked with Mr. Collins, I decided at that time we did not want to do it because we had made a very large invesment [sic] investment in additional capacty [sic] capacity, we had lowered our prices drastically, we were adequately taking care of the market in the business we had, and I could see no reason why we should be asked to grant a license to a person, whether it be the Anchor Hocking or somebody else, just because they wanted it.
Mr. ARNOLD. I can quite understand that. I was thinking from the point of view not of Corning Glass Company but a person interested in establishing the maximum competition. There would be a good reason from that point of view, wouldn't there, for establishing a policy different from what you have expressed.
Mr. HOUGHTON. You see, Mr. Arnold, in a business of the type we are in, I feel we are on the fringe of glass development, we are spending a good deal of money in developments, and this baking ware is typical of the kind of thing that is being done.
Naturally, other people would like to have licenses under that and we have granted licenses in some cases, but we still hope we can reserve the right to decide whether we should license under our patents, but we try to look at it very broadly and make sure we are adequately covering the market and not holding it for the sake of holding it.
FOREIGN CARTEL SYSTEM
Mr. ARNOLD . Are you familiar with the cartel system in Europe?
Mr. HOUGHTON. In a very, very slight way.
Mr. ARNOLD. Those are substantially the reasons given for the existence of that system, allowing people to make agreements between each other to adequately cover the market, stabilize their business, etc.
Mr. HOUGHTON. I should hate to dispute that, Mr. Arnold, but I am talking now only of the rights under patents that we own. There is a distinction, I think.
Mr. ARNOLD. There is a distinction. In other words, the thing you are now doing is only possible under contract. I was only suggesting that you had something under patents which was very similar to the European cartel system under contracts. Do you think so?
Mr. HOUGHTON. I can't answer, although I am inclined to say no.
FROSTED GLASS
Senator KING. I am a little in doubt as to those who manufacture the other per cent of this frosted glass. As I understood it, you manufacture with your own machinery and that which you are utilizing which has been furnished by the Empire, about 40 or 50 per cent, and perhaps a little more, I don't recall. I was wondering where the machinery is obtained for your competitor who manufactures the same kind of glass.
Mr. HOUGHTON. Are you talking of bulbs again now?
Senator KING . Yes, the frosted bulb.
Mr. HOUGHTON. The frosting is a subsequent operation made on clear bulbs. The machinery on which we make clear bulbs was developed by Corning and is used by Corning and General Electric. That is not heat resisting glass.
Dr. LUBIN. Mr. Houghton, I am a bit fuddled and I wonder if you can clarify this subject. You just said a minute ago to Mr. Arnold that you have seriously considered licensing your competitors in the field of what you call Pyrex glass, heat resisting glass. You seriously considered licensing them to do what?
Mr. HOUGHTON. To manufacture and sell in that field.
Dr. LUBIN. But you say your patent has expired.
Mr. HOUGHTON. They can manufacture by any means except the Hartford equipment to which we have exclusive rights.
Dr. LUBIN. In other words, you seriously considered giving them a license to use machinery, patents on which are owned by somebody else?
Mr. HOUGHTON. That is correct, sir.
Mr. MEYERS. Mr. Chairman, I think that concludes the testimony of the Corning witnesses, if the Committee has no further questions.
The CHAIRMAN. Mr. Houghton, may I ask you, so as to clear a situation in my own mind, with respect to the heat resisting glass, assume a manufacturer which does not have a license under the Hartford-Empire machine, nor under your machine, is enabled to operate only under and by virtue of these other methods which you describe as being free to the industry, to what extent would such a manufacturer be able to compete with your organization?
Mr. HOUGHTON. I think I can best answer that, Mr. Senator, by saying that our largest competitor in this heat resisting field — I am speaking specifically of baking ware because that was the one that Mr. Meyers started with — is manufacturing that on equipment that is not under Hartford-Empire license, I am sure, and he seems to be able to meet our competition and sell below us in many instances, and I have seen no signs of distress or unhappiness.
The CHAIRMAN . If there are no other questions —
Dr. LUBIN (interposing). May I ask one other question. This competitor you just mentioned, does he use Hartford-Empire equipment on making other types of products?
Mr. HOUGHTON. No, sir.
RIGHTS OF LICENSEE
Dr. LUBIN. In other words, what if he were a licensee of Hartford, let's say, in making packers' ware and he wanted to produce heat resisting glass under a process that he developed, an independent process, or by hand, would he be infringing upon the patents of Hartford-Empire?
Mr. HOUGHTON. Using Hartford-Empire equipment?
Dr. LUBIN. He is using that equipment, not in making heat resisting glass but in making other products, then he goes into the development of heat resisting glass and makes it by hand, let's say, hand presses; would he have that right and still retain the use of Hartford-Empire equipment in making packers' goods?
Mr. HOUGHTON. If I understood you correctly, under heat resisting glass we have exclusive rights and he would not. The answer, I am told, is yes.
Mr. ARNOLD. Mr. Houghton, I want to ask you a question of policy which I only wish you to answer if you have thought it over because it is hypothetical. I am, however, interested in it if you can answer it. Suppose that your large competitor who is now happy should find his machinery has become obsolete because of a new invention which the Hartford-Empire controlled, in that situation you are in a position of very substantial power with the Hartford-Empire. You would then be in a situation of refusing him a license and bettering the condition of your own company by limiting that competition. Do you think you would refuse him a license?
Mr. HOUGHTON. Well —
Mr. ARNOLD (interposing). That is so hypothetical I am perfectly willing to excuse you from answering.
Mr. HOUGHTON. I will answer equally indirectly. You are talking now of our competitor?
Mr. ARNOLD. I am talking about a chance of eliminating him because of your —
Mr. HOUGHTON (interposing). We have offered him a license on baking ware which he has not seen fit to take.
Mr. ARNOLD. Now you would, however, discourage by your control over the Hartford Company any other competitors than that one; that is your present policy?
Mr. HOUGHTON. That is our present policy, for reasons which I think I have stated.
Mr. ARNOLD. And the reason you would discourage them is that you think that you are in a position to look over this industry, determine the proper demand, determine the proper supply, and fix that according to your own judgment?
Mr. HOUGHTON. I believe in the patent system, sir.
Mr. ARNOLD. But do you think it should be extended that far, so you as a private individual could have all that power?
FUTURE OF GLASS INDUSTRY
Mr. HOUGHTON. I do, sir. When you come into the position of development like the glass game is in, if you recall it is within the last 40 years that the entire complexion of this game has changed; it has become mechanized, prices have gone down, and there is — any stimulus you can give to development in it I think is very important. I do think the man in the industry is in the best position to judge.
Mr. ARNOLD. Therefore you think that the history of the glass industry is a closed book, so far as other new competitors springing up?
Mr. HOUGHTON. On the contrary, sir.
Mr. ARNOLD. Well, in so far as you can make it a closed book?
Mr. HOUGHTON. No, sir.
Mr. ARNOLD. I am sorry; I thought your policy was not to grant licenses to these new people who would spring up.
Mr. HOUGHTON. Mr. Arnold, you are generalizing and I have been trying to talk about a specific problem.
Mr. ARNOLD. I know; I am generalizing.
Mr. HOUGHTON. I can't answer a general question like that because I think each case must be specifically looked into.
Mr. ARNOLD. You would say, however, that as we go to press, in the present situation, it would be your policy to keep the people manufacturing heat resisting ware down to the two who are now making it?
Mr. HOUGHTON. Well, as we go to press, yes, but I am not at all sure whether it will be tomorrow or the day after tomorrow, or a month from now, when there may be some different situation.
Mr. ARNOLD. You see, I am making a distinction. I can quite understand that representing stockholders, and from that point of view, making all the money you can for them, the policy of keeping the competition out if it is a legal thing to do, is perfectly explainable. I was talking to you from the point of view of public policy, whether you should have that power, and you think you should, as we go to press?
Mr. HOUGHTON. Yes, sir.
MCKEE GLASS COMPANY
Mr. MEYERS. Mr. Houghton, in answering Dr. Lubin's question, whether you have a competitor, you said you have in the field of manufacturing heat resisting ware, what is the name of that company?
Mr. HOUGHTON. McKee Glass Company.
Mr. MEYERS. They do not use Hartford-Empire equipment?
Mr. HOUGHTON. I believe not.
Mr. MEYERS. Do they operate under the same formula covering a heat resisting ware that you operate under?
Mr. HOUGHTON. I can't answer that. They are free to. The basic patents expired in 1936.
Mr. MEYERS. But you have licensed them, have you not?
Mr. HOUGHTON. Those licenses expired in 1936.
Mr. MEYERS. Have you a trade secret agreement with them?
Mr. HOUGHTON. None, sir.
Mr. MEYERS. That is all.
The CHAIRMAN. The witnesses maybe excused.
(The witnesses were excused.)
Mr. COX. Mr. Belknap.
The CHAIRMAN. Mr. Belknap, 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. BELKNAP. I do.
TESTIMONY OF CHARLES B.
BELKNAP, EXECUTIVE VICE-
PRESIDENT, OWENS ILLINOIS
GLASS COMPANY,
TOLEDO, OHIO.
The CHAIRMAN. You may be seated, Mr. Belknap.
Mr. COX. Will you tell the reporter what your present occupation is, Mr. Belknap?
Mr. BELKNAP. Executive Vice-President, Owens-Illinois Glass Company.
Mr. COX. Mr. Belknap, are you a director of the Owens-Corning Fiberglas Corporation?
Mr. BELKNAP. I am.
Mr. COX. To satisfy my curiosity, Mr. Belknap, will you tell me why Fiberglas is spelled with one "s"?
Mr. BELKNAP. It was a coined name.
Mr. COX. Is this document which I hand you a true and correct copy of the contract between the Owens-Illinois Glass Company and Corning Glass Works for the formation of the Owens-Corning Fiberglas Corporation?
Mr. BELKNAP. It is.
Mr. COX. If you have no objection I should like to have this marked as an exhibit. I have no desire on my part to have it printed.
The CHAIRMAN. The contract may be marked as an exhibit and filed with the Committee.
(The contract referred to was received in evidence and marked "Exhibit No. 160" and filed).
FIBERGLAS PRODUCT
Mr. COX. Will you tell us, Mr. Belknap, what the business of the Owens-Illinois Fiberglas Company, or, rather, the Owens-Corning Fiberglas Company, is?
Mr. BELKNAP. The Owens-Corning Fiberglas Corporation was formed to carry on the development work with the hope of making a commercial operation which would support itself and develop a new industry in the United States in making fiber glass.
Mr. COX. Do you have some samples here that the Committee may see so that they can understand what fiber glass is?
Mr. BELKNAP. I have.
Senator KING. It is like silk, isn't it.
Mr. BELKNAP. It is, Senator.
Senator KING. Is that the product of this company?
Mr. BELKNAP. It is.
The CHAIRMAN. Are these the price marks?
Mr. BELKNAP. No, sir; I am not a salesman.
The CHAIRMAN. You may proceed.
Mr. COX. It is true, is it not, that the stock of the Owens-Corning Fiberglas Company is owned in equal shares by the Corning Glass Works and the Owens Illinois? Is that approximately correct?
Mr. BELKNAP. That is approximately correct. I think in the organization papers 15 per cent was set aside for the management.
Mr. COX. That is a Delaware corporation?
Mr. BELKNAP. It is.
Mr. COX. Prior to the organization of the corporation, Mr. Belknap, is it true that the Owens-Illinois Company had for some period of time been engaged in developing and doing experimental work in connection with the production and use of this material?
Mr. BELKNAP. We started in '30 or '31 to develop this.
USES OF FIBER
Mr. COX. What is the material designed to be used for? Can you tell us, Mr. Belknap?
Mr. BELKNAP. It is designed to be used for places where the dieletric qualities of glass are useful, where the chemical-resistant qualities of glass are useful, where the heat resistant qualities of glass are useful. It may eventually go into other uses, such as draperies, but because it is a higher-priced material than most of the material that it is competing with, we attempt to confine its use to those places where its qualities give it a chance to succeed against cheaper materials.
The CHAIRMAN. What are these small balls?
Mr. BELKNAP. They go into the forming machines and become 98 miles of fiber.
Mr. COX. That process which Chairman described is covered by certain patents, is it not?
Mr. BELKNAP. It is covered by certain patents and a great many applications which our employees have made, and some thirty issued patents.
Mr. COX. Would it be accurate to say that most of the patents prior to the organization of the Fiberglas Company were owned by Owens-Illinois Company?
Mr. BELKNAP. That is correct.
Mr. COX. Under the organization agreement would it also be accurate to say that the Owens-Illinois Glass Company and the Corning Glass Works transferred to the new company, the Fiberglas Company, all of their patent rights so far as they related to the production of this material, and all rights which they might have under contract relating to patent rights?
Mr. BELKNAP. That is correct.
FOREIGN FIBERGLAS PRODUCTION
Mr. COX. Prior to that time, it is true, isn't it, that the Owens-Illinois Glass Company had interests in certain contracts with foreign interests with respect to patents relating to the production of this material. Is that correct?
Mr. BELKNAP. We have entered into contracts with foreign people to use this particular process.
Mr. COX. And under those contracts, would it be accurate to say that you grant them a license under your patents and patent rights, and they in turn have granted you a license under their patents and patent rights?
Mr. BELKNAP. Yes, we considered that that type of license is necessary to protect not only our own investment but our own employees in this country.
RECIPROCITY IN PATENTS
Senator KING. What is the status of the law? I think there is a federal statute under the terms of which licenses between nationals, American nationals, may be made; that is, reciprocity between other companies and the United States in the matter of patents. Do you recall?
Mr. BELKNAP. I don't recall any law which makes it any different than a contract between citizens of the United States, excepting something that would relate to national defense, or something of that sort.
Mr. COX. Mr. Belknap, would it be accurate to say that under those con-tracts you obtained an exclusive license under the patents of the foreign interests which I shall hereafter refer to as the foreign patents, with your permission, and that you gave them an exclusive license under your patents for the particular material which is involved?
Mr. BELKNAP. That is correct. We not only give them an exclusive license but we also give them our technical knowledge and have, as a matter of fact, had our employees in Europe for months training operators.
Mr. COX. I want to be sure I am clear about this. Under those contracts you obtain exclusive right for certain territory under their foreign patents. Is that correct?
Mr. BELKNAP. That is correct, as to the people we license.
Mr. COX. One of those license agreements is with a Dutch Company, is it not, Mr. Belknap?
Mr. BELKNAP. It is.
Mr. COX. Mr. Belknap, I am now going to take an unfair advantage of you. I want you to tell me what the name of that Dutch company is. I have been waiting to hear somebody pronounce it.
Mr. BELKNAP. After about four years I am still unable to pronounce it.
Mr. COX. We will just call it the Dutch Company, then.
The CHAIRMAN. I am not sure I want to try that. One of those contracts was with an Italian company, was it not?
Mr. BELKNAP. It is.
Mr. COX. And one of them is with a French company, is it not?
Mr. BELKNAP. It is.
Mr. COX. And one of them is with a company which is located in Scotland, is that correct?
Mr. BELKNAP. It is. That is Chance Brothers.
Mr. COX. I spoke a moment ago of a Dutch Company. As a matter of fact ,there are two Dutch companies with whom you have such contracts.
Mr. BELKNAP. There are. One of them is a licensee for Holland alone, and the other is a general licensing company, located in The Hague.
Senator KING. You in return get licenses from foreign countries to utilize their patents in the United States?
Mr. BELKNAP. Yes, sir, we do, Senator.
Senator KING. And do other manufacturers in the United States obtain patents in foreign countries, so far as you know?
Mr. BELKNAP. I think that is quite customary.
Mr. COX. Mr. Belknap, just so the record may show now the exact standing and scope of these contracts, would it be true to say that with one of the Dutch companies you have a contract which gives them an exclusive license under patents for Germany and Holland and its colonies, in return for which you obtain an exclusive license from them under their patents?
Mr. BELKNAP. That is correct.
Mr. COX. And in the case of the Italian company, the exclusive license you grant to them is for Italy, its colonies and possessions?
Mr. BELKNAP. It is.
Mr. COX. And in return you get an exclusive license from them under their patents?
Mr. BELKNAP. Yes, sir.
Mr. COX. And in the case of the French company the exclusive license you grant is for France and its colonies and possessions, and in turn you receive an exclusive license from them?
Mr. BELKNAP. From those companies that hold our license, yes, sir.
FOREIGN LICENSE AGREEMENTS
Mr. COX. And in the case of Chance Bros. & Company, Ltd., you have granted an exclusive license for the British Empire and British mandate territory with certain named territory, is that correct?
Mr. BELKNAP. That is correct. Canada is the one I chiefly think of.
Mr. COX. And in the case of the other Dutch Company you have granted an exclusive license for the remainder of the world, is that correct?
Mr. BELKNAP. We have granted them the right as a licensing company to grant licenses in the remainder of the world.
Mr. COX. That is in all parts of the world, not covered by your other license agreements?
Mr. BELKNAP. That is correct.
Mr. COX. And that is an exclusive right on their part?
Mr. BELKNAP. It is.
Mr. COX. And in return in each of these cases the license which has been granted to you is an exclusive license for certain designated territory, is it not?
Mr. BELKNAP. Yes, to this extent, we provide in the license that anyone who gets the advantages of our machine and our technical knowledge, we must get their patents back for the United States and Canada, and I believe Mexico.
Mr. COX. South America included, or do you recall?
Mr. BELKNAP. No, South America is licensed by the Dutch Company, but we do share in the royalties.
Mr. COX. To your rights, exclusive under the foreign patents with Canada, United States and Mexico, but not for South America?
Mr. BELKNAP. That is correct.
Mr. COX. And in the case of South America the Dutch company may license there and you may divide the royalties, is that correct?
Mr. BELKNAP. That is correct.
ITALIAN CONTRACT
Mr. COX. Now, Mr. Belknap, I have here a document which we obtained from your files and which has been certified by your company, which purports to be a copy of your contract between your company and the Italian Company. I wish you would examine it and see if you are satisfied that it is a true and correct copy of that contract.
Mr. BELKNAP. It is.
Mr. COX. Mr. Belknap, I want to read to you a provision from this contract and then ask you a question about that provision in relation to the other contracts so I will try to read it as carefully as I can as contained in Section 13.
"Modigliani agrees that it will not export and will use its best endeavors to prevent the exportation from its territory of
"(a) Fibres as such made under rights covered by any part of this agreement.
"(b) Fabrics, the major part of which are fibres made under rights covered by any part of this agreement.
"(c) Articles, in which the value or mass of fabrics contained therein forming part thereof and under such agreement constitute more than twenty-five percent (25%) of the value or mass of the completed article.
"And further agrees that in granting licenses in the field of this agreement it will impose the above obligations.
"Fabrics or articles falling within the field of this agreement, the exportation of which are not to be prohibited by this article, may be imported into any country notwithstanding that either party hereto holds a patent on an invention within the field of this agreement covering such article or the fibre contained therein or processes of producing the same?"
You understand that article?
Mr. BELKNAP. I understand it, but I would like to make an explanation about it, if it is satisfactory.
Mr. COX. I would be glad to have you do that. May I ask one question before you do that, Mr. Belknap? Would it be accurate to say that the other contracts to which we have referred contain a provision, either identical with or similar to, that provision?
Mr. BELKNAP. That is correct.
Mr. COX. That is correct. Now, Mr. Belknap, if you wish to make a statement about the provision it is perfectly all right.
NON-EXPORT CLAUSES
Mr. BELKNAP. The inclusion of a non-export clause back into the United States is one of the things which is very difficult in trying to deal with the foreign licensees. The American patent system requires the full disclosure when you file your application. Therefore, if you do not file abroad the issuance of the United States patent throws all of your work open to people in Europe, who can in turn come back into the United States.
We select our licensees with the idea that we will give them our knowledge and that in return for that we get the benefit of the developments which they make, and we have included the non-export clause so as to prevent our being estopped from certain U. S. patents against them. It isa problem that has bothered me for several years, as to how to deal fairly on that particular subject.
Mr. COX. I should like to have this contract admitted in evidence and again I suggest that it not be printed, but merely be certified.
(The Owens-Illinois-Modigliani Contract, from which Mr. Cox read Section 13, was received in evidence and marked "Exhibit No.161," and filed.)
The CHAIRMAN. It may be so admitted. You have read into the record the material or a section of this contract.
Mr. COX. I want to be sure that I understand that to the effect of that provision. Mr. Belknap, would it be correct to say that under that provision the prohibition against imports from the territory covered by the license agreement extends to articles made not only under your patents in foreign countries, but under the patents of the company with which you have the agreement?
Mr. BELKNAP. That is correct in this particular art. The technical knowledge as to the glass and surface treatments of the glass is probably much more important than the patented part. We are trying to develop not a patenting system but a business, and I think that some provision is necessary to prevent the people who obtain your "know-how" from taking that and using it on some other process and thereby turning back into America the results of the Americans' work.
Mr. COX. Now one more question and I think I shall have finished, Mr. Belknap. Whatever the reasons may be for the inclusion of those provisions in the contract, if I should suggest to you that it seems to me that the effect of the provision is to establish a kind of private tariff system, would you object to that characterization?
Mr. BELKNAP. I think I would, for this reason, Mr. Cox. Glass fibers have been known in America, at least prior to the World's Fair in Chicago in 1893, and they have been manufactured both in America and abroad for probably — well in excess of fifty years, and we have taken during the depression years and invested about three or four million dollars in anew industry, and I think we have aright in licensing the people not to do what they will do with things other than our own licensees, but I think we not only have that right but that we have that duty.
Mr. COX. One more question, Mr. Belknap. You speak of glass fiber having been manufactured for a considerable number of years. The old process, in your opinion, is not as efficient or likely to be as commercially successful, is it, as the process which is covered by your patents?
Mr. BELKNAP. I would not think so.
Mr. COX. I think that is all I have to ask.
The CHAIRMAN. Mr. Belknap, I have been reading this section to which Mr. Cox called your attention. The first para-graph reads as follows:
"Modigliani agrees that it will not export and will use its best efforts to pre-vent the exportation from its territory of (a), (b) and (c)."
What did Owens expect the Italian company to do under that provision, by which it was bound to use its best efforts to prevent exploitation?
Mr. BELKNAP. We expected that if they licensed the Fiat Company, for ex-ample, which is engaged in making electric wire, among other things, in Italy, if they sold this fiber to them that they would not take that produce, that they would require the licensee to follow that in so far as the laws of their country will permit. I think their country will permit the question of control or resale. I do not think that is true in the United States.
The CHAIRMAN. Of course there is another provision in this section which reads, "and further agrees that in granting licensees in the field of this agreement it will impose the above obligations. So apparently there are two covenants made by the Italian Company; well, there are three. One, that it will not export these items itself; two, that it will use its best efforts to prevent the exportation of these items; and three, that in granting licenses in the field it will impose this obligation upon the licensees, so that apparently the covenant is much broader than licensees', is it not?
Mr. BELKNAP. I think that is correct, Senator. It is quite customary in Europe to form sales companies which handle the selling rather than the manufacturing company, even though they may be owned by the same people.
The CHAIRMAN: Was the Italian company expected by the terms of this contract and by your understanding of it, to go outside of its own licensees and try to prevent generally by competitors or others the exportation of these items?
Mr. BELKNAP. No, not by any competitors there. Solely by the people that they furnish the material to might use as an example, if this material becomes efficient for curtains, draperies, where fire-proofing is needed, as in hospitals, if the Italian company could take our material and sell it to a company which made drapes in that country without anything, I question if the American textile companies would have any business; if they can make fibers by any other process than those that we have in this country, we are perfectly willing.
The CHAIRMAN. Now in explaining the adoption of this contract you testified as I understood you, that when a United States patent is issued it becomes in effect open to all the world, unless the patentee files for a patent in the other country?
Mr. BELKNAP. I didn't intend to give that impression. I meant that it became open to everybody and the people in the other country could manufacture under it, and ship the product into the United States if we hadn't taken a patent where by we could control.
The CHAIRMAN. In other words the situation which you describe is this, that Congress, to which the Constitution of the United States has given the power to regulate foreign commerce, has not imposed any restriction upon foreign countries, and in this particular field you have undertaken by this contract to impose that regulation of foreign commerce which Congress has not imposed?
Mr. BELKNAP. We have attempted todo so and I hope rightly, but if it is nota proper provision then I think an American company has no alternative but to keep their processes secret and not deal with the foreign countries.
The CHAIRMAN. I think that inference is quite justified . I was just developing the situation. Thank you very much.
Mr. PATTERSON. Mr. Belknap, the evidence during the past few days revealed that the glass industries in this country are the lowest cost producers. What, in your judgment, is the main reason for this?
Mr. BELKNAP. Because they are willing to spend the money to hire technical graduates to develop their machinery to a higher extent than they are abroad. We have had license with the German people on bottle machines abroad for a great many years, and I do not recall receiving a single invention from them that we have incorporated in our machines. There may have been one or two minor things.
Mr. PATTERSON. In other words, it is a research work?
Mr. BELKNAP. It is research work.
Mr. KING. And you have more efficient employees, do you not, and utilize a larger amount of electric energy in your plants than they do in other countries?
Mr. BELKNAP. I think that is true, Senator, in this particular glass wool field; we probably have one hundred graduates of technical colleges working on this one problem.
Mr. KING. My recollection, since I looked into it, is that assumed that Germany or England utilizes one — I will give that as a unit to follow — in an activity, we utilize three or four.
Mr. BELKNAP. Probably greater than that. Certainly it is in the glass industry.
Mr. ARNOLD. Mr. Kettering of General Motors testified, as I remember, in regard to the patent law that a concern of any considerable size interested in manufacturing would have to do this research work anyway and would do it anyway. Would you agree with that statement?
Mr. BELKNAP. I would agree with him if he was referring to an established business, but we would have to go out of business; we couldn't afford to put three or four million dollars into a new business.
Senator KING. This corporation of which you have been speaking was organized only for the purpose of manufacturing this glassware that you have exhibited to us here?
Mr. BELKNAP. That is the sole purpose, to develop that product and manufacture it.
Senator KING. And the expenditure was made of several million dollars in order to bring about that result?
Mr. BELKNAP. That is correct.
Senator KING. Are you continuing your experiments?
Mr. BELKNAP. We are continuing our development work and experiments and making what commercial sales we can to help carry part of the cost.
Senator KING. Have you found sufficient sales yet to compensate you in part at least for the expenditures which you have made?
Mr. BELKNAP. I think that was true in 1937. We had enough volume so that we carried about $376,000 of the $750,000 experimental cost in that year.
Senator KING. Was there any purpose in your foreign patents to build up a system under the terms of which the tariff laws might be ineffective?
Mr. BELKNAP. I think not, Senator. I think our sole interest is to be freed from interference with patents and be able in the United States to manufacture and sell this product.
Senator KING. Did you fear any competition in this product from foreign corporations, assuming there was no tariff? In other words, did you consider that your production, your development, of the industry, of the art, had reached such a high degree of perfection that you had no fear of any foreign competition, even though you might give them your patents or permit them to utilize your patents?
Mr. BELKNAP. Unfortunately our contracts provide for the technical information and therefore their people have the right to it. If we didn't have that I wouldn't fear it at all.
Mr. COLE. Mr. Belknap, you have testified that this glass fabric — do I understand you to mean your patents include your methods of producing that old article?
Mr. BELKNAP. They cover not only the method but they cover the form. The peculiar surface treatments of the glass which enables it to be drawn into a much finer form than it was ever drawn, and we have some patents which cover the finest of the fiber itself.
Mr. COLE. As American patentee, have protection, one who has a patent on a process, only have protection against the fabrication of that article by that process abroad and importation from us?
Mr. BELKNAP. That is the question that I believe is unsettled. I think there have been one or two cases in which we have stopped in the tariff the admission of material made abroad on a process which would be covered in the United States, but I would question that that is an established law in this country, although it is in most foreign countries.
Representative REECE. If you were unable to restrain the production of a commodity under your patented process then the product could be produced by a foreign concern and imported into this country in competition with your plant here, and further American capital, American technicians, and American machinery, which as you say is more highly developed than machinery made for this purpose abroad, could be exported and produce this product which could be reimported in competition to yours.
Mr. BELKNAP. I think that is peculiarly true in a material of this type. A boatload of that would have an entirely different value from a boatload of bottles.
The CHAIRMAN. It amounts to saying that when the patent law was originally passed, Congress did not foresee the wonder of technic in development which has taken place in our time and made no provision to protect American genius and American inventions from such a condition, and you have undertaken to do it by a contract of this kind.
Representative REECE. And if you were unable to do so you might lose the enjoyment of the benefits of your patent.
Mr. BELKNAP. If we were unable todo so I think we would have to operate strictly on a secret process.
The CHAIRMAN. I think that inference is quite justified.
Mr. COX. Have you applied for any patents in foreign countries under your processes for producing this material?
Mr. BELKNAP. A great many of them.
Mr. COX. Of course, if you had a patent in a foreign country except for the engineering services which you offer the foreign interests that patent in the foreign country would afford you protection against the use in the foreign country of your process, would it not?
Mr. BELKNAP. Yes, it would.
The CHAIRMAN. Are there any further questions? We are very much indebted to you, Mr. Belknap. You maybe excused.
Mr. ARNOLD. Mr. Chairman, that concludes the presentation , that is the oral presentation by witnesses of the material which the Department of Justice desired to present under the resolution. I want to say in that connection that our idea was to select a typical example of an aggressive use of the patent privilege, and a non-aggressive use of the patent privilege. That we have selected the glass industry is not because we considered it outstanding or because we considered it the only example of this kind of practice, but because we considered it a typical example.
To fill out the entire picture within the limits possible in a Committee of this kind, we would like to have leave to submit memoranda concerning other industries which can be considered by the Committee, keeping the practices we have gone into detail here in mind, and we hope by that means to fill out the general picture of the patents used in restraint of trade.
I want finally to say that we appreciate the attitude of the glass people particularly, because of course there has been no secret about a very pronounced difference in point of view of the social utility of the restraint of trade indicated here be-tween the glass people and not the Committee but the Department of Justice in the courts, of the antitrust laws, and in spite of that they have given us every co-operation, they have let us into their files and they have come here at considerable trouble, and we are sorry of course that they had to be selected but some industry had to be picked and we can assure them that they were not picked because they were the worst.
Mr. COX. Before the Committee adjourns, the Chairman will recall that Mr. Safford of the Hartford-Empire Company and I had a colloquy this morning with respect to a letter which that corporation addressed to the Lynch Corporation in1936. I offered at that time, if I could find a copy of the letter, to introduce it in the record. I was successful at the noon interval in finding a copy of the letter, which I now offer. It is a letter dated March 11, 1936, to the Lynch Corporation, Anderson, Indiana, signed by the Hartford-Empire Company, and apparently prepared by R. D. Brown , their patent counsel. Mr. Goodrich has agreed with me —
Mr. GOODRICH (interposing). That is the one we saw right after the recess?
The CHAIRMAN. You better identify Mr. Goodrich. He has not been called as a witness.
Mr. COX. He did some little testifying yesterday afternoon.
The CHAIRMAN. For the benefit of the record let it be shown that Mr. Goodrich is an attorney for the Hartford-Empire Company.
Mr. GOODRICH. I'm sorry; I don't think that is the one.
Senator KING. While they are making that investigation I would like to make this comment upon the suggestion made by Mr. Arnold. It seems to me that isa very wise provision which he has suggested, but it seems to me that in all fairness, when the memoranda have been submitted and examined, I assume they will be made public, and if so, the companies or individuals to which the same relate should have the opportunity, if they desire, to appear before the Committee or submit such countervailing testimony as they may desire.
The CHAIRMAN. The resolution, Senator King, as I understand it, authorizes the various departments which are represented upon this Committee to present evidence to the Committee, either by way of public hearing or by way of memorandum or report. That in a proceeding authorized by Section 3(b), and of course the Committee in its executive session, when it was considering the method of procedure, seemed to be of the unanimous opinion that when the time came to determine what the future course of the Committee would be under Section 2, it would consider to what extent further public hearings would be necessary to present countervailing evidence, but I think it is quite agreed that all of these reports which may be submitted will be public and can be examined by all persons who are interested.
Senator KING. I did not want the idea to become prevalent that we were having testimony in camera and denying persons to whom the testimony referred opportunity presenting their views.
Mr. ARNOLD. I am glad you made that clear, Senator. It may make a further observation on my part useful for the record. Any memoranda which we submit to supplement the picture which we have now given will be fully documented. We will try to so arrange them that any parts of those memoranda about which the Committee may desire further testimony may be taken up in part. We are adopting that method only because it is obviously impossible to conduct on all industries as elaborate a hearing as we have on this.
Mr. COX. I think you should state, also, Mr. Arnold , that we have not at all exhausted the evidence which we have collected upon the glass industry; that we propose to file a report which will cover not only the material which has been presented orally here, but other material which we have collected, and the observation that Senator King made will, of course, apply to that material.
Senator KING. May I say that when the matter was first under consideration by the Committee I indicated that it seemed to me that very much of the matter that we were investigating might be brought to our attention by memoranda, by statements which the various departments might prepare and present, but at the same time I stated that if that were the case and we were not satisfied with the testimony, that it needed clarification or it related to industries which perhaps might desire to make reply, that the opportunity should be offered them; that we did not want the public to understand or any industry to understand that we were taking advantage of them in having secret hearings and denying them the opportunity to present to the Committee whatever information they desired to challenge any data or information that was presented to us outside of the open hearings.
Mr. COX. That is my understanding.
The CHAIRMAN. I think it may be definitely stated that the Committee and each member of the Committee is desirous of seeing this problem from every possible aspect, and will therefore welcome comment and suggestions and reports from any interested person.
Mr. COX. Mr. Goodrich and I have now agreed upon the letter. It is a letter dated March 31, 1936, addressed to Lynch Corporation, Anderson, Indiana, signed by the Hartford-Empire Company, R. D. Brown, Patent Lawyer.
The CHAIRMAN. This letter may be admitted. I suggest to the reporter, however, that it be printed in the record in connection with the testimony of Mr. Safford at that point in the record.
(The letter referred to, dated March 31, 1936, was received in evidence and marked "Exhibit No. 162.")
I am very glad that Mr. Arnold took occasion to express his satisfaction with the attitude of the witnesses who have been called before the Committee. I am sure he expressed the opinion of every member of the Committee. We feel very grateful to all of the witnesses for the very candid attitude which they have adopted. It is only by this candor that we can hope properly to study the very difficult problem that is before us. And I think it would not be proper to close this phase of the study without expressing, Mr. Arnold, the appreciation which the members of the Committee feel for the excellent work that has been done by Mr. Cox and the staff of the Department of Justice. We are all grateful to you.
Mr. GOODRICH. May I thank you, Mr. Chairman, on behalf of the gentlemen of our company, for the unfailing courtesy and kindness of this Committee, individually and collectively, throughout these hearings.
The CHAIRMAN. Mr. Goodrich, you have just capped a very pleasant afternoon.
The Committee stands in recess at the call of the chair.
(Whereupon, at 4:10 p. m., an adjournment was taken subject to the call of the chairman.)
