our relationship, indicating quite definitely that Shell and Universal should operate on a definite basis of written agreements. We inherently have a problem which compels us to establish and maintain certain policies. A large group of refiners have immunities under all of our patents, which group, together with their subsidiaries, represents approximately 65 percent of the refining capacity of the country, from whom we cannot collect royalties. Moreover, every refiner in this group is in position to use the different catalytic processes and all of the technique. The group of refiners outside of the immunity holders, representing approximately 35 percent of the industry, is our only source of licensing revenue. It must be recognized that this field in itself is highly limited for various reasons. Based on our experience to date, our licensing income potential is actually only 15 percent to 20 percent of the refining capacity of the country. As a result of our well-knit policy of adhering strictly to research, development, commercializing processes and licensing, we have accumulated through intensive research and development work vast knowledge, experience and technique, especially in the catalytic art. This valuable asset resides in the men of our organization who have been with us a long time. Our licensees, who represent such a small percentage of the industry, are really the group who, through their royalty payments, largely support and maintain the organization and make it possible to continue with our intensive efforts of research and development which result in two basic assets; the technique and the patents. The patent rights automatically inure to the benefit of the immunity holders without payment. The technique, however, belongs to the organization. Our licensees render an important service to the industry. They do little or no research and development of their own, but pay royalties in lieu thereof to have a company like ours do it for them. Whenever a process is developed which they are in position to use, they acquire a license, pay royalties, and, in addition, agree that any inventions which they may make relating to such process inure, royalty free, to the benefit of Universal and its licensing structure which includes immunity holders. Inasmuch as the immunity holders are protected against suit for patent infringement by licensees on such processes licensed by us, the immunity holders should reciprocate and cooperate to maintain such structure by giving Universal licensing rights for the protection of our licensees. This is done in the pyrolytic field and in a limited way in the catalytic field through C. R. A. and other separate exchange agreements. From the foregoing, it will be obvious that we are compelled to protect both our revenue producing licensees and the organization. The organization is entitled to the preservation of its asset of knowledge, experience and technique for its future security and welfare. The licensees whose revenue make this whole structure possible must be protected so that immunity holders to whom our technique is made available cannot sue such licensees for patent infringement. The small field of revenue producers, with but few exceptions, cannot avail itself of many of the important special catalytic processes because of lack of charging stock and facilities. From this it will be apparent that whatever patent rights we receive from an immunity holder are for a highly limited field of operation. It is unfortunate that more of the immunity holders do not avail themselves of our storehouse of technique, especially as it is applicable in its entirety to the large refiners. We are anxious that immunity holders convert this technique into dollars for their own operations and we can only make it available by protecting from litigation the structure which makes it possible. The patent rights which we require from an immunity holder in return for technique are indeed very nominal in comparison to the value and benefits accruing to an immunity holder. Our efforts the past few years have met with considerable success as evidenced by the wholehearted cooperation of certain immunity holders who appreciate our situation and the fairness of our policy. We fully recognize and appreciate Shell's nosition and status, as a result of their research and development work, which not only is applicable in the petroleum-refining art, but also in the important chemical field. We know that just as we must protect our structure, it is necessary for Shell to do likewise. It has never been our desire to enter into any exchange of technique with Shell whereby such exchange would create a situation which would have an adverse effect on Shell. In the same manner, however, we could not consider any exchange of technique which could have an adverse effect upon us. Because of Shell's conclusion at the important San Francisco meeting early this year, our cooperation with Shell since that time has been on a limited basis in accordance with their wishes; namely, that we no longer could expect any support from Shell, nor could we expect cooperation from them other than what is called for under written agreements. It was obvious that this decision was the result of a strain in our relationship, but unfortunately it did not alleviate the situation. As I mentioned at that time, and reiterate again, Universal is always willing to cooperate with Shell, but on a basis whereby our rights are recognized and our structure protected. It is odd that our respective organizations find themselves in the most peculiar and unusual situation of cooperating in certain fields because of being compelled to do so under written agreements, while at the same time there is a basic underlying strained relationship; a most unwholesome situation. Such a combination is worse than if there were no cooperation whatever. If it is Shell's desire to continue on the present basis, there is nothing that we can do about it other than to try again to find a solution to a situation which never should have been permitted to arise between two companies which are so closely related. It seems to me that if Universal's position were carefully analyzed, the propriety of our policies would not be questioned. The matter really crystallizes itself into three basic and important factors: 1. Protection of our licensing structure which represents a very small part of the industry; 2. Protection of the security and future welfare of our organization which possesses the important asset of knowledge, experience, and technique. 3. Recognition of the rights of Universal's security and immunity holders. The immunity or security holder protects himself with respect to patents in that Universal does not acquire licensing rights under such patent rights for the benefit of any other immunity holder. The patent rights are only for the benefit of our revenue producing structure, i. e., non-immunity holders. As to exchange of technique, the best that could be done up to now was an understanding or agreement that it would be kept confidential and for use only in connection with our revenue producing licensees, exercising great care that the technique would not flow to another immunity holder. Immunity holders under our arrangement are free to deal among themselves with their own patent rights as well as technique. There does not seem to be a problem with respect to the patent rights. We feel certain that Shell recognizes that our structure must be protected as this makes possible the research and development which automatically gives the immunity holders valuable patent protection; and that Shell would not have serious objection to giving Universal the licensing rights in the motor fuel field as we doubt very much that Shell would sue one of our licensees as it might have serious repercussions. Inasmuch as the patent protection is so important for us, and inasmuch as I do not believe a security holder would sue a royalty paying licensee of Universal, it then gets down to the principle that Shell has everything to gain by passing their rights in the motor-fuel field to Universal for the protection of the revenue producers which automatically opens the door for entering into a full exchange of technique. The only logical solution to protect technique, and to remove the obstacles that have prevented a broad exchange agreement, would be a commitment by Shell to treat our technique confidentially and for use only in its own refining operations. Inasmuch as Shell does not have licensing rights under our natents, it should not use such technique when licensing in competition with us. We have always recognized that Shell should protect its technique, which is very difficult to do in an exchange agreement with us inasmuch as we are a licensing company and not an oil operating company. There is good reason for Shell not entering into an unlimited broad exchange agreement with us if the technique could jeopardize or have an adverse effect on Shell's structure. It is therefore obvious that on technique Universal can be very liberal with Shell, but Shell would have to be careful in what technique it gave to Universal. Such being the case, the following conclusion presents itself: That Shell give Universal licensing rights under Shell's patents, limited to the motor-fuel field, and also limited to the nonimmunity holder group. That Shell and Universal agree to exchange technique, with the understanding that either side has the right to withhold technique if it is deemed advisable so to do. This proviso should protect Shell with respect to the chemical end in that we would not want them to give us their technique which is applicable to the chemical field and which is a field that we know Shell is very mindiul to protect. The foregoing seems to give both sides the protection they desire. Universal is primarily interested in not having its licenses sued by any security or immunity holder and it desires to protect the security and future welfare of its organization. Shell is protected by giving us patent rights only for our small group of present and future revenue producing licensees and its technique is limited to the motor fuel field, and in addition retaining the right to withhold technique which might be considered applicable in the chemical field. Universal would rarely, if ever, withhold technique, unless such technique were used by Shell to license in competition with us without satisfactory arrangements first having been made. As the foregoing suggestions are very good for Shell, we assume that Shell would not hesitate to agree to give Universal a preferential position or first call as a licensing agent on a fixed percentage basis to cover commission, selling and service expenses, if, as, and when Shell had any processes of their own to license. We understand that Shell plans to license directly themselves, but they may find, in addition thereto, that it is to their advantage in certain cases to have a licensing agent. The suggestions herein could lead to a formula to effectively promote and realize a friendly and wholesome cooperation between our respective organizations. If the suggestions and reasoning herein are of sufficient merit to consider a draft of agreement, we are willing to follow through; or Shell may have something of its own to suggest which will accomplish the purpose. Regards, Yours very truly, UNIVERSAL OIL PRODUCTS COMPANY, EXHIBIT No. 459 [Copy of letter from Bruce K. Brown, Standard Oil Company (Indiana), to Joseph G. Alther, Vice President, Universal Oil Products Company, dated April 27, 1936] STANDARD OIL COMPANY (INDIANA), Mr. J. G. ALTHER, Universal Oil Products Co., 910 SOUTH MICHIGAN AVENUE, Chicago, Ill., April 27, 1936. 310 S. Michigan Ave., Chicago, Ill. DEAR JOE: As you know, it was my conclusion around the first of the year that I should make every effort to see that our technical people are kept in close touch with the research activities of Universal, and to this end I arranged to have quite a delegation visit Riverside for several days. At that time Mr. Arveson, who is employed in the Development and Patent Department, made a number of notes as to reports which our people would be interested in having. Of course, no consideration was given by him to the propriety of making the request, because he is not familiar with the ramifications of the cracking situation and the relations between the various companies. However, after thinking the matter over I decided to be very naive and send you herewith a copy of fifteen items of technical information in which our people expressed interest. I leave it to you to tell me "No" on the entire list or to supply such portions of it as you think are suitable for our consumption. Along this line, we are planning to make further visits to Riverside so long as your invitations continue, and the suggestion has been made by Mr. Arveson that if he could attend the weekly meetings of the Ipatieff and VonGrosse research groups, we could probably obtain much more information with much less annoyance to your staff. This, again, is an unusual suggestion, but after thinking it over I decided to submit it to you without comment, because it is at least possible that it would bet suit your convenience. Sincerely yours, BRUCE K. BROWN. LIST OF REPORTS, DRAWINGS AND DATA DESIRED FROM THE UNIVERSAL OIL PRODUCTS COMPANY 1. Copy of U. O. P. Data Book, or such parts as can be secured. 2. List of Formal Reports on subjects discussed if available. 3. Run Summaries including data and discussion of runs made on vis breaking unit at East Chicago (Recycling runs using M. C. Reduced Crude). 4. Drawings of vis breaking unit at East Chicago. 5. Drawings of rotating autoclave equipment used for hydrogenation. 6. Report by Watson on exothermic heat of reaction during selective polymerization. 7. Report by Pines on alkylation of paraffins. Report of 8/1/35 to 9/15/35 including sketch dated 9/10/35. 8. Report by Pines on isomerization of n-butane. 9. Report by Corson (July 1934) on vapor phase refining. 10. Report by Movity (11/27/35) on catalytic cracking of gas oil. 11. Report by Skowronski entitled "Selective Polymerization of Iso and Normal Butylenes in Liquid and Vapor Phases." 12. Report by Skowronski (now being written) on the results of selective polymerization at 550 lbs. 13. Complete drawings of the pilot plant used for the selective polymerization work. 14. Von Grosse group progress report of 1. Report No. 1. 2. Progress Report of 8/1/35 to 9/15/35. 15. Reports on catalytic reforming-It is understood that three reports have been issued one of which presumably includes the runs on the larger scale unit at East Chicago. Reports covering both the laboratory work and the work at East Chicago are desired. a. Drawing of laboratory apparatus-14310-B and 14317-D. b. Drawing of unit at East Chicago (detailed). EXHIBIT No. 460 [Copy of letter from Joseph G. Alther, Vice President, Universal Oil Products Company, to Bruce K. Brown, Standard Oil Company (Indiana), dated April 28, 1936] Mr. BRUCE K. BROWN, APRIL 28, 1936. Manager, Development and Patent Dept., 910 S. Michigan Avenue, Chicago, Ill. DEAR MR. BROWN: The lack of a definite workable arrangement between Universal and the different interests covering our research and development work precludes our giving you the technical information requested in your letter of April 27th. Being mindful of the importance thereof, your request is being passed to Mr. Halle for his knowledge and attention. Perhaps your letter will be the means of again discussing this subject in a Directors' Meeting, at which it is to be hoped that some satisfactory policy will be adopted of either free dissemination of information and observation of our work at Riverside, or the maintenance of secrecy with respect thereto. The half-way method under which we are operating is very unsatisfactory; it is extremely awkward, at times most embarrassing, and somewhat unfair. It seems to me that our institution should function on some mutual basis whereby all interests would obtain the maximum benefits for their respective commercial refining operations. If every one takes what we have, especially that which is in the process of development, gives us nothing, does its own development work as pioneered and taught by us, and consequently obtains its own patent coverage, Universal would be seriously jeopardized. Likewise, if any one of the interests obtains all the benefits from Universal, it would be detrimental to the others who would be placed at a disadvantage for which the management of Universal could be seriously criticized. Your company's ownership in the Gasoline Products Company, our competitor, and also in the Polymerization Process Company, naturally prompts us to use special precautionary measures in the protection of our own interests which involves many revenue producing licenses. Yours very truly, UNIVERSAL OIL PRODUCTS COMPANY, EXHIBIT NO. 461 [Copy of minutes of meeting, Board of Directors, Universal Oil Products Company, May 7, 1936] MINUTES OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS OF UNIVERSAL OIL PRODUCTS COMPANY, A DELAWARE CORPORATION HELD AT 50 WEST 50TH STREET, CITY AND STATE OF NEW YORK, ON MAY 7, 1936, AT 1:00 O'CLOCK IN THE AFTERNOON Mr. Halle, the President of the Corporation, acted as Chairman and Mr. Behrens, the Secretary of the Corporation, acted as Secretary. All of the Directors of the Corporation were present as follows: Messrs. H. J. Halle, R. E. Dwight, Hugh W. Reid, J. C. van Eck, and R. G. A. van der Woude, each of whom consented to the holding of the meeting and waived all notice thereof. Mr. W. D. Whitney, of counsel for the Corporation and. Mr. J. G. Alther, Vice President, were also present. The reading of the minutes of the previous meeting was dispensed with by unanimous consent. The Chairman called upon Mr. Alther to submit his views to the meeting regarding the request recently made by Standard Oil Company (Indiana) for information, particularly in regard to research and development in the fields of gas polymerization, catalysis and pyrolysis and the answer made thereto by him. A lengthy discussion ensued. Thereupon, on motion, duly made and seconded, the following resolutions were unanimously adopted: "Resolved, that the letter of April 28, 1936, written by Mr. J. G. Alther, Vice President, to Standard Oil Company (Indiana) in reply to its letter of April 27, 1936, be, and it hereby is, approved and that copies of said letters be annexed to the minutes of this meeting; "Resolved, that the President be, and he hereby is, authorized and directed to take up with the various corporations, which have rights under the patents of the Corporation in fields other than pyrolytic oil cracking, the terms upon which the Corporation may grant licenses under the patents of such other corporations in such other fields (or any of them) and in connection therewith the terms upon which the Corporation may exchange information with such other corporations in such fields; and "Resolved, that pending agreement upon such terms, the officers of the Corporation be, and they hereby are, authorized and directed to refuse information to such other corporations in such fields, except in such unusual cases which the President or Mr. J. G. Alther, Vice President, shall in the absolute discretion of either of them deem appropriate for the giving or exchange of such information." The Chairman reported to the meeting that the Corporation had signed a contract on April 3, 1936, with Compania Espanola de Petroleos, S. A., a Spanish Corporation for the erection of a Dubbs unit with a capacity of 4.100 barrels cracking and reforming per stream day at Santa Cruz, Teneriffe, Canary Islands, and that the Corporation had signed a contract on April 21, 1936, with Barnsdall Refineries, Inc., for a Dubbs unit at Wichita, Kansas, with a cracking capacity of 2,500 barrels per calendar day; also that the Corporation has signed a License contract on April 27, 1936, with Shamrock Oil and Gas Corporation, a Delaware corporation, for a polymerization unit at Moore County. |