SCIENTIFIC AND TECHNICAL MOBILIZATION

FRIDAY, SEPTEMBER 8, 1944

UNITED STATES SENATE,

COMMITTEE ON MILITARY AFFAIRS,

SUBCOMMITTEE ON WAR MOBILIZATION,

Washington, D. C.

The subcommittee met at 10:30 a. m., pursuant to adjournment on Thursday, September 7, in room 224, Senate Office Building, Senator Harley M. Kilgore, West Virginia (chairman), presiding. Present: Senator Harley M. Kilgore, West Virginia. Also present: Dr. Herbert Schimmel, chief investigator. The CHAIRMAN. The hearing will come to order.

This morning we will hear Mr. James S. Martin, Chief of the Economic Warfare Section, War Division, Department of Justice. Mr. Martin will discuss Japanese commercial arrangements.

TESTIMONY OF JAMES S. MARTIN, CHIEF, ECONOMIC WARFARE SECTION, WAR DIVISION, DEPARTMENT OF JUSTICE

The CHAIRMAN. For the benefit of the record, Mr. Martin, your section of the Department of Justice has been investigating questions of economic warfare and enemy activities?

Mr. MARTIN. That is right.

The CHAIRMAN. And you appear here at the request of the committee to disclose the information on these activities which you have secured through the seizure of records in your investigations?

Mr. MARTIN. That is correct. In addition to that, some of the records have not been seized but have been made available to us by the companies involved.

The CHAIRMAN. In the case of Universal Oil Products, I believe you were authorized by Universal Oil Products, after I had called them up, to make such records as were in your office available to the committee for the purpose of testimony, is that not right?

Mr. MARTIN. That is right.

The CHAIRMAN. Please go ahead, and I will ask questions as you go along.

Mr. MARTIN. My comments this morning relate to certain Japanese commercial arrangements in this country. In the decade before Pearl Harbor, a constant stream of information flowed to Japan as a result of Japanese commercial transactions with American firms-technical information and economic data of the utmost importance to Japan's armed forces. The branches of industry especially involved were the oil, aircraft and aircraft parts, machinery and tools, and some specialized branches of the electrical and electronics industries.

The CHAIRMAN. That information was flowing to Japan, was it not Mr. Martin, at the very time that American citizens were not even permitted to land on certain mandated islands to ascertain whether they were being fortified in violation of mandates?

Mr. MARTIN. That is correct.

My present statement will touch principally on transactions in oil and in aircraft parts.

International business arrangements made by the Japanese before the war sometimes took the form of cartel agreements of the types that have already been described to this committee: Patent licensing or market-sharing arrangements, agreements for the exchange of technical know-how, and the like.

The CHAIRMAN. Cartels, then, involved not only European firms but extended also to Japan?

Mr. MARTIN. That is true.

In addition, however, Japanese firms used the most ordinary commercial arrangements to get valuable information for their Government, either through the outright purchase of technical information, or through incidental expert observations or detailed inquiries in the course of business visits.

The CHAIRMAN. Have you run into any arrangements which required American companies to give them information as part of their agreement?

Mr. MARTIN. I believe the Antitrust Division of the Department of Justice has found exchange of information agreements, but we have not included that in our present material.

The CHAIRMAN. You have not gone into the antitrust or restraintof-trade aspects, but only the question of the Japanese gathering strategic information through American commercial arrangements?

Mr. MARTIN. That is right. We have concentrated on the ordinary commercial transactions which produced either information or material for them.

Dr. SCHIMMEL. In the case of Universal Oil Products, as I understand it, the furnishing of technical information was one of the principal features of the agreement. Didn't they actually sue because they didn't get all the technical information they wanted?

Mr. MARTIN. Yes; I will come to that. I merely distinguish that from what have been called cartel arrangements since this was a simple contract for the furnishing of information as a matter of fact.

Dr. SCHIMMEL. But it is analagous to the Bausch & Lomb situation? Mr. MARTIN. Closely analagous, yes. Even ordinary purchase and sale arrangements, especially after the "moral embargo" and the Presidential proclamation, were important in filling major gaps in the Japanese Government's war preparations. For example, in petroleum, including especially the components of aviation gasoline, and in aircraft, the Japanese needed not only technical know-how but also additional supplies of the materials or of critical component parts.

The Universal Oil Products Co. has made available to us for study the files of its commercial arrangements with Japanese firms. This American firm is not presently involved in a Department of Justice prosecution. We have likewise examined the files seized at the outbreak of war from former Japanese trading companies in this country. These studies indicate that the Japanese were able to get tech

nical know-how on some processes for production of 100-octane aviation gasoline before they were generally available to American firms, and in at least one case as late as June 1941, to find out through commercial channels the amount of our oil and gasoline shipments to Pearl Harbor.

The CHAIRMAN. That is particularly interesting because it reverses the pattern of the dealings of I. G. Farben and Standard of New Jersey. I. G. Farben withheld the know-how from the American company and retained it for Germany, although they gave them a license to operate under their patents. But in the Japanese case the American company gave the Japanese the know-how before they released it to American manufacturing firms. Isn't that correct?

Mr. MARTIN. That seems to be correct. Some of the oil transactions may be illustrative. High-octane gasoline is the key to air power. The processes for producing it had been developed originally in the United States and Europe, but Japan had to have them if it was to wage war. She acquired the necessary knowledge partly from ordinary commercial transactions with the Universal Oil Products Co.

In 1938 Universal Oil Products described itself to the trade as― * * * an organization of nearly 600, composed largely of scientists, technologists, engineers, and specialists in the petroleum refining art. It maintains research laboratories at Riverside, Ill., covering an area of 28 acres. Its research and development work is not limited to its laboratories but is also carried forward in commercial installations under its direction in refineries throughout the world.

The CHAIRMAN. As I understand it, Universal Oil Products do not manufacture and sell a product; they design plants, furnish engineering skill, research facilities, and license their patents and allow commercial companies to exploit the results of their laboratory research. They are not a manufacturing company at all; they are a patentholding company and an engineering company. Is that correct? Mr. MARTIN. That is right (continuing the quotation):

Many of its outstanding inventions and discoveries are covered by patents and patent applications in all the important countries. Universal has more than 1,100 United States patents and hundreds of pending applications. * ** I have as an exhibit quotations from the foreword to a Universal Oil Products booklet, entitled "Universal Inventions, United States Patents owned by Universal Oil Products Co. as of September 1,

1938."

(The material referred to was marked "Exhibit No. 442" and appears on p. 2167.)

Mr. MARTIN. In 1928 the Japan Gasoline Co., Osaka, Japan, was incorporated by Osaka financiers for the express purpose of acquiring Universal's patents and know-how in Japan for the Dubbs process, which is a process for cracking petroleum into gasoline by means of heat and pressure. On July 19, 1928, Universal entered into a formal contract with a Japanese representative, who on November 7, 1928, assigned his rights to the Japan Gasoline Co. I have as an exhibit the contract between Universal Oil Products and Sekiguchi.

(The material referred to was marked "Exhibit No. 443-A" and appears on p. 2168.)

Mr. MARTIN. Under the contract the Japan Gasoline Co. paid Universal Oil Products $1,000,000 for the patents and know-how of this

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Dubbs process for noncatalytic cracking of petroleum. Today the gasoline produced by this method would be considered a low-octane product.

In the entire decade from 1928 to 1938 the Japan Gasoline Co. licensed only one Dubbs plant in Japan and built none itself. It was an unprofitable venture. In 1937 the company commenced negotiations with Universal for all of its rights in the entire petroleum field. This new interest was stimulated by American technical developments in the manufacture of iso-octane, a blending agent that is used with a high octane base stock to produce high-test aviation gasoline. Iso-octane is a gasoline hydrocarbon which will not knock in an internal-combustion engine. It is used as the "100 octane" standard for assigning octane ratings. In other words, any gasoline performing as iso-octane is 100-octane gasoline.

The CHAIRMAN. Did Universal have patents?

Mr. MARTIN. Universal had patents for iso-octane but as I believe my testimony will make clear, there were other processes in use in Europe which also could produce iso-octane.

The CHAIRMAN. They were the sole American holders of a patent? Mr. MARTIN. There was another process, the Houdry process, which is more properly described as a catalytic cracking process, and which the Sun Oil Co. was beginning to work with I believe as early as 1938.

The CHAIRMAN. But at the time about which you are speaking, in 1937, Universal had the only process; Sun was working on the Houdry process but had not yet perfected it?

Mr. MARTIN. I am not absolutely certain, but I believe that is so. Dr. SCHIMMEL. There was research going on at that time by almost all of the major companies along those lines.

The CHAIRMAN. This is especially important because General Arnold made a statement that the limiting factor in air defense was not the ability to build planes or to train pilots, but the capacity to produce fuel for planes.

Mr. MARTIN. I think I should mention that there really are two important points about production of aviation gasoline as we now make it; one is the production of the iso-octane, which is used as the blending agent; the other is the production of the base stock, the gasoline to which the iso-octane is added in approximately a 50-50 ratio, and to which tetraethyl lead is added to produce our aviation gasoline; so some of the things we are talking about are processes for production of iso-octane, and some for production of base stock, which is different. The blending produces the 100-octane gasoline we now

use.

Iso-octane could hardly itself be used in its pure form in a conventional engine because it does not vaporize well. However, blending it with a high octane base stock and tetraethyl lead produces the 100-octane gasoline which is so important for modern aviation. Naturally, the Japanese were interested in manufacturing this isooctane which Universal produced by what is known as catalytic polymerization and low-pressure hydrogenation.

The Japanese were also eager to obtain the know-how on certain other of Universal's methods of manufacturing aviation fuel-methods as yet only in the laboratory stage, unlike the iso-octane process. One of these was catalytic cracking, with which Universal was still experienting in those years of 1937 and 1938.