Mr. ARNOLD Yes. The CHAIRMAN. Can you name them? Mr. ARNOLD. I will give you my indictments, and I can, off the record, tell you of our present investigations, and I can give you some very startling instances off the record. The CHAIRMAN. Are those indictments predicated solely because of lack of cooperation in national defense? Mr. ARNOLD. What do you mean by "lack of cooperation?" I would' say that any industry that was restricting production and causing dangerous shortages was not cooperating with national defense. If you mean they have just refused to enter into contracts and somebody called them down, I do not know of one instance. Mr. HARRIS. May I ask this question: Has this restriction started since the so-called emergency of a year or more ago started. Mr. ARNOLD. No; these restrictions have been going on since 1917. Mr. CONNERY When you get a favorable decision in these cases that you are prosecuting, do you find that you actually stop the abuses? I have in mind recently in my connection with the Committee on Printing of the House-I ran across a case when I was delving into some stuff there, where the Department of Justice prosecuted a case against I believe it was the International Bookkeeping Machine Co. in 1936, and I think Remington Rand was connected with it, tooyou might have handled it. Mr. ARNOLD. We indicted Remington Rand. Mr. CONNERY. It was on a tabulating-card proposition. Mr. ARNOLD. We indicted them on the sale of typewriters. Mr. CONNERY. This particular case was the charging of a 15-percent premium additional rental, and I understand that they are back at the same old stand doing the same old business in their dealings with the Government Printing Office on this tabulating-card proposition. Mr. ARNOLD. You have got to look at the antitrust laws. Mr. CONNERY. In this instance, your winning the case did not stop the abuse. Mr. ARNOLD. You have got to look at the antitrust laws pretty much like a traffic law. If we have enough force to stop it, we stop the abuses instantly. For instance, I gave you that drop in price in Tungsten-Carbide. You can take other things. The mere indictment of the bread companies in Philadelphia dropped the price of bread 1 cent, and I can show you what has happened following the indietments in lumber, which was certainly a defense industry. The CHAIRMAN. Was not the price of lumber inflated particularly on account of the strikes that have existed? Mr. ARNOLD. No; not in the case of lumber. The CHAIRMAN. There was nothing in the patent situation, was there? Mr. ARNOLD. No; but he was asking about the effect. Mr. CONNERY. But it seems that you do not stop the abuses by merely winning the case. What position have you got Bausch & Lomb in right now? Mr. ARNOLD. We know what Bausch & Lomb are doing. You can look at the letters that were read here. Mr. CONNERY. Was that after the indictment? The CHAIRMAN. That was after the indictment. Mr. SCOTT. Following the payment of the fine by Bausch & Lomb, was there a decrease or increase in the cost of military optical supplies to the Army and Navy? Mr. ARNOLD. I could not tell you that; I do not think there was any change. Mr. HARRIS. From your discussion here, I take it that you think this should not be only during the emergency referred to here, in section 1? Mr. ARNOLD. That is right. Mr. HARRIS. But you think it should be during the emergency? Mr. ARNOLD. My whole argument has been based on making this bill a continuing safeguard. Mr. HARRIS. Your recommendation would be to eliminate section 2 of this bill. Mr. ARNOLD. I do not have a technical amendment drawn up; I did not feel that it was my position to draw one up. The CHAIRMAN. I presume that Mr. Shea has an amendment. Mr. SHEA. I have prepared amendments which deal with technical problems in the drafting. The CHAIRMAN. I think that we will have to recess in a few moments, and it might be possible for us to come back this afternoon and have Mr. Arnold complete his statement. Mr. ARNOLD. I have completed my statement, so far as my recommendations are concerned, and I would like to introduce into the record what it would take me many hours to go through, the details of all of the various patent abuses that we have had. Mr. LANHAM. We could have them in the record from the standpoint of the use of the committee, but it would make the record of the hearing very voluminous. Mr. ARNOLD. Do not print them, but I will leave them with the committee. (See appendix for list of indictments.) I would be very glad if you are interested in our present investigations, to tell you all about them, but obviously on an off-the-record discussion. The CHAIRMAN. There will be an executive session, I think, Mr. Arnold. Now, Mr. Arnold, I know that there are some people here that would probably like to reply to some of the statements that have been made, and probably you will want to come back tomorrow morning. Mr. ARNOLD. May I say this, that I would be very glad to listen to anybody, and to answer his argument, but I may say that I did not draw this bill, and I do not consider it the business of the Antitrust Division. I am here under the invitation of this committee, and I do not think that I should be put in the position of sponsoring the bill and answering objections. It seems to me that that is probably the function of Mr. Shea. If someone desires to answer them, and answers them to the satisfaction of the committee, you can call me back and ask me further questions. The CHAIRMAN. We will recess at this time and come back tomorrow morning at 10 o'clock. (Whereupon, at 12 o'clock noon, a recess was taken, to reconvene the following morning, March 12, 1941, at 10 a. m.) PREVENTING PUBLICATION OF INVENTIONS AND WEDNESDAY, MARCH 12, 1941 HOUSE OF REPRESENTATIVES, Washington, D. C. The hearing convened at 10 a. m., pursuant to adjournment, the Honorable Charles Kramer (chairman) presiding. The CHAIRMAN. Some of our colleagues will be in here a little later— the morning is still young for them. STATEMENT OF HON. FRANCIS M. SHEA, ASSISTANT ATTORNEY GENERAL The CHAIRMAN. Will you go ahead and take the stand, Mr. Shea? You might go right ahead, Mr. Shea. Mr. SHEA. I have been asked here to testify in respect of H. R. 3360, which has been introduced by the chairman of your committee. As has already been stated, the bill was not drafted in the Department of Justice. However, there is certain independent experience of the Department of Justice that is relevant to the need for such a measure. I want to talk first to the broad objectives of the bill, and I want then to direct myself to the specific drafting problems, the machinery which has been set up to accomplish these objectives. I have various suggestions on the latter point, as well as materials which I think indicate the need and explain the objectives of the bill. As I understand the objectives of the bill, they are these: We want machinery which will guarantee that the patent monopoly may not be used to curtail production essential to the national defense. There has been some suggestion here that section 68 of title 35 of the United States Code takes care of the problem. It seems to me quite apparent that that is not the case. The 1910 act, as amended in 1918, provides only that production by or on order of the Government of the United States shall not be enjoined on account of any patent infringement. It leaves the patent holder to an action against the Government in the Court of Claims for the reasonable value of a nonexclusive license. It is evident to all of us that Government orders alone are never adequate to build up the plant capacity which the Government needs for its purposes at a critical juncture. The case of airplanes is a compelling instance in point. We have critical need today for plant capacity to manufacture airplanes for defense purposes. In an economy such as ours it is unthinkable that that plant capacity should have been built up over the past years by Government orders alone. In a free economy such as ours the Government directs so little of production that its own orders can never be depended on to provide the capacity for its critical needs in a crisis such as that we now face. Consequently, devices which result in strangling or sharply curtailthe normal commercial development of a product undermine the strength of the Government itself when it is ultimately confronted with a situation where life or death of the Nation may depend upon its productive capacity. The totalitarian governments, of course, face no such problems. They dictate production in times of peace just as they dictate it in times of war. The German decrees, for instance, permit the Nazi leaders to assert absolute control over what will be produced, the quantity of production, and the uses of production. We stand on our faith that we can live as free men and meet the threats of any such regimented economy. But certainly we cannot afford to permit regimented economies to use patent monopolies in this country, and to use our courts for enforcing such patent monopolies, to the end of holding down our production to a point where they can completely outstrip us in essential materials for defense. I shall give you some examples where that has been done. Naturally I do not charge that our own business connived at the end result. On the contrary, it would appear in some instances at least that they were bludgeoned into such limitations of commercial development by threats of having patent suits on their hands for the rest of their lives if they did not agree to arrangements dictated by foreign interests. I do not necessarily suggest either that the foreign interests had in mind maneuvering to leave us in a wartime situation with markedly inferior capacity for production of our defense needs. However, in this regard I shall point out to you German decrees which clearly show that every commercial agreement which a German company makes is made at the dictation of the German Government. What answer is to be made to the suggestion that if patent monopolies have been used to restrain the development of our capacity to produce that is an old wrong and not a present problem? The CHAIRMAN. You mean now the patent monopoly here or there? Mr. SHEA. The patent monopoly here, of course. The CHAIRMAN. Is there a patent monopoly here? Mr. SHEA. Well, the patent, the granting of a patent, is a monopoly. The CHAIRMAN. But, Mr. Shea, if you as an inventor design some device, and then under the Constitution, which gives the right to ask the Government to protect you in that invention, you would not say that that was a monopoly because if you had a right to own that patent for 17 years under the law; that is not a monopoly, is it? Mr. SHEA. Of course it is a monopoly, sir. The CHAIRMAN. Then, would you say Mr. SHEA. That is what a patent is. The CHAIRMAN. I would not say it was monopoly; it was a right that you would have just the same as you would buy that suit of clothes; it would not be a monopoly, but it would be your suit of clothes until it is worn out, until you want to discard it; and the patent has its limitation of time in which Mr. SHEA. If the patent did not give monopoly rights, none of these problems which we are discussing would exist. I wonder, Mr. Chairman, if it would not be desirable to let me—if it seems so to you-to let me get through this statement, and then I will be glad to meet you on any issues; I will be glad to deal with any questions which you have to pose? The CHAIRMAN. The trouble is that sometimes we might pass beyond that period. Mr. SHEA. Obviously; whatever is your pleasure. The CHAIRMAN. I do not care to interrupt you too much. Mr. SHEA. Whatever is your pleasure. What answer is to be made to the suggestion that if patent monopolies have been used to restrain the development of our capacity to produce that is an old wrong and not a present problem? I think the answer is clear that it is a persistent problem. Even today we are not developing the plant capacity for our defense needs exclusively by orders of the Government alone. We have recognized that production for England is an essential item in our own defense. We are aware also that the development of plant capacity on orders from England is giving us the essential equipment to fulfill our own defense needs. And it is not only England. Production for all of the countries that are struggling to defend democracy is equally important to our ultimate security. It is consequently necessary that we be in a position to eliminate restrictions on production which is not exclusively on order of this Government. Finally, it must be recognized that in these days declarations of war are not the rule. We may have enemies driving hard at our security who may never declare war upon us. In these circumstances we cannot resort for our defense to the normal machinery which operates in time of war. We cannot without more ado seize property which we consider to be used in ways inimical to our security. But if it is clear that a patent is being used by a foreign power in ways which are to the disadvantage of our defense and safety, there should be some way of taking over that patent upon payment of reasonable compensation. Now, let me turn to a body of data which I think brings out sharply the problems which we face and the objectives that should be realized by this bill. The following are some outstanding illustrations of situations in which control of patents and licenses have hampered Mr. HEIDINGER. Is that bill 3360, that you are referring to? Mr. SHEA. Yes. The following are some outstanding illustrations of situations in which control of patents and licenses have hampered and even completely obstructed the production of essential materials for the national defense. Some of the instances which I shall cite are necessarily highly confidential, and I shall withhold the names of the persons and the companies involved. However, I shall be glad to divulge further information privately to the members of this committee upon request. These instances are by no means exhaustive. A full discussion of every case in which patents and licenses and agreements made thereunder have cut down or stifled the production of vital articles would take too much time, but I have tried to select the most representative. The CHAIRMAN. Pardon me right there. 315217-41-10 |