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World's Fair. I must confess that although I have been in your exhibit twice I did not see this particular display.

It appears that 20 watts of fluorescent lighting are compared with 20 watts of incandescent lighting, the sign purporting to read something to the effect "See the difference between equal wattages of fluorescent and mazda lighting." Of course, the readings on the foot candle meters show dramatic differences.

If this demonstration is as explained to us, I think it does violate the spirit of the understanding that our group had in Cleveland. As a matter of fact, I would think it violated the fundamental concept of the lamp department that advances in the lighting are should not be at the expense of wattage, but should give the customer more for the same money. I hope you can find a way to change this exhibit, so that it does not give misleading impressions to the crowd who will see it.

And here is the answer:

When Miss Winters showed me the attached letter from Howard Sharp I immediately got in touch with Al Reas with regard to the demonstration at the fair. Apparently this particular demonstration was temporarily loaned for use at the fair and is now being returned to the exhibit shop. Therefore, by removing this particular exhibit, Sharp and the other utility men need have nothing to worry about.

Now there, Mr. Chairman, is a thing which runs through American business. Wherever you see patent control developing new techniques which will create financial dislocations if they are put on the market and impair the value of old techniques, you see the new technique stopped.

Senator KILGORE. The purpose of that was to keep the public from seeing that the average cost of lighting by fluorescent methods is cheaper than lighting by mazda methods?

Judge ARNOLD. That is right. The Antitrust Division has brought a suit against General Electric and others charging a conspiracy tocontrol fluorescent lighting. That suit has been postponed until after the war, at the direction of the Secretaries of War and Navy.

The reasons I attribute for this conspiracy are first that fluorescent lighting burns less electricity, and therefore the utilities did not like it, and, secondly, that it makes obsolete the mazda lamp, and therefore the General Electric Co. did not like it.

Had your bill been passed at that time, we would not be so short of industrial lighting today. It is obvious that a Government bureau or a Government authority investigating fluorescent lighting would have discovered this thing at once.

I do not expect industry to act against its own interests. Therefore this is the kind of situation which makes competing Government research essential to progress.

Senator KILGORE. The saving of wattage would have been a saving to the public, but not only that, it would have given us more electricity to use during the war by reducing the load for domestic and lighting purposes?

Judge ARNOLD. That is right. We are so short of fluorescent lighting today that civilian supplies have been cut off, and there is nothing more important in the war effort than electrical equipment.

The point is that while the Antitrust Division can investigate and prosecute cases of this kind such prosecutions are after the suppression has occurred. Had your bill been law, I do not think that this suppression of fluorescent lighting could have occurred, because electricity would certainly have been one of the things the research agency set up by the bill would be investigating.

Now I offer for the record a condensed statement of the whole fluorescent suppression, which was introduced before the Bone committee. If you want to reprint it, all right; if not, it can be used just for reference.

(The material referred to was marked "Exhibit No. 2" and appears on p. 28.)

Judge ARNOLD. The Standard Oil rubber is another and very familiar example. Standard Oil entered into a patent cartel with the German Dye Trust. Standard Oil was afraid of competition from synthetic gasoline, so they wanted to get control through the use of patents of synthetic gasoline, and the German Dye Trust wanted to control synthetic rubber, and so they split that control with Germany, and I think that the result is known to everyone.

Here is how the thing worked. The Dow Chemical and the Goodyear Rubber Co. wanted to develop synthetic rubber in 1938. Had they been allowed to do so, no one can estimate the progress that would have been made, because there was no shortage of critical materials. at that time. Standard Oil refused to give them patent licenses except on terms which prevented development.

The secret reason was given in a letter by Mr. Frank A. Howard, vice president of Standard Oil, which was that Germany did not want development in the United States.

I quote from this letter:

The thing that is really holding us up, however, is not the lack of a plan either from Goodyear or ourselves, but the inability of our partners to obtain permission. of their Government to proceed with the development in the United States.

Standard Oil was sorry about this

Senator KILGORE (interposing). Their partners were the I. G. Farben industries of Germany?

Judge ARNOLD. That is right.

Senator KILGORE. And I. G. Farben could not act without authority from the German Government?

Judge ARNOLD. That is right. And the German Government did not want I. G. Farben to develop this.

As I said, Standard Oil was sorry. I will read a memorandum of 1938 written by their executive committee:

Mr. Howard deplored the fact that the German Government's restrictions on I. G.'s [The German Dye Trust] freedom of action have prevented our [Standard] making material progress in the American field, particularly as there is some indication that the American rubber companies are making independent progress.

Nevertheless, they sympathized with Germany and decided to abide with the restrictions which Germany imposed. I quote again from another letter from Howard in 1938:

Until we have this permission, [from Germany] however, there is absolutely nothing we can do and we must be especially careful not to make any move whatever, even on a purely informal, personal, or friendly basis, without the consent of our friends. We know some of the difficulties they have, both from business complications and interrelation with the rubber and chemical trades in the United States and from a national standpoint in Germany, but we do not know the whole situation, and since under the agreement they have full control over the exploitation of this process, the only thing we can do is to continue to press for authority to act, but in the meantime loyally preserve the restrictions. they have put on us.

84949-43-pt. 1- -2

That was their foreign policy with Germany. Their domestic policy was, of course, to maintain control.

For instance, on February 1, 1940, even after the defense emergency was actually realized, the Standard Oil document with reference to buna rubber reads as follows:

A high royalty rate (7.5 cents lb.) is fixed so as to make the operation practical for the rubber company only so long as the product is used as a relatively high cost specialty.

The only point in rehearsing this-which is familiar to everyone-is, I think, that if we are really going to clean up that situation, it is easier to do it by spreading the information and research about synthetic rubber than a great series of prosecutions afterwards. This thing could have been prevented.

Now, what happened when the rubber crisis was on us? You all know. There was not anybody in the Government who had the research, who could tell which experts were sound and which experts were unsound. The Government did the best they could. They formed one group to handle the thing, and then they had to form another group-they did not have the background to tackle that problem, and it was a long time even after the whole thing was discovered before it was straightened out.

The absurdity of the Government not having that information and having to go to the very people who are interested on the one side or the other for information on the patents is demonstrated by our rubber experience. When government reaches out into industry for expert advice, without a technically trained group of its own it receives nothing but contradictory claims and it does not have the research and the experimentation to determine which is sound and which is unsound.

I offer a short statement of the Standard Oil story.

(The material referred to was marked "Exhibit No. 3" and appears on p. 47.)

Judge ARNOLD. The whole story is already before the Truman committee.

Senator KILGORE. Yes.

Judge ARNOLD. Plastics are another example of the necessity of the research and experimentation by the Government which your bill provides. For your use if you need it, I introduce the testimony given by the Antitrust Division before the Senate Patents Committee. (The material referred to was marked "Exhibit No. 4" and appears on p. 49.)

Judge ARNOLD. In plastics, even after the patent situation was cleared up, the question of the "know-how" came up. One of the companies whom we were investigating and were about to indict came in and offered to turn loose all of its patents and we said, "Well, why are you so generous?" And the head of the company said, "It won't do you any good; nobody can find out how to use them unless they come to see us.' "Which was true.

We then demanded that the information, the "know-how" be made free to the public in order to remedy what we claimed was a violation of the antitrust law. This was in connection with a suit against Roehm & Haas which is still pending.

I won't discuss the abstract question of whether an industrial concern should be compelled to furnish the "know-how" to other people. I only point out this, that if they are compelled to do so reluctantly, it is going to be very difficult to get it, and the short and easy answer is Government experimentation and Government education to bring the results of this tremendous scientific progress to industry as a whole.

I think I will introduce here a quotation from "Industrial Research and Changing Technology." It is on pages 45 and 46 of the report of the National Research Project on Reemployment Opportunities and Recent Changes in Industrial Techniques.

That report says:

According to the evidence presented, 13 companies employed one-third of the industrial-research personnel reported for 1938: 140 companies, representing less than 10 percent of the number reporting, employed two-thirds of the workers. The remaining third was employed by 1,582 concerns. About 150,000 industrial corporations were without research laboratories. In 9 leading industries onefourth of those companies which operated laboratories employed between 55 and 90 percent of the research workers in the respective industries:

Now, that situation puts the domination of technical improvement in a very narrow bottleneck indeed.

Senator KILGORE. May I ask you a question at this point? From your experience, what do you believe is the basis of industrial monopoly as it now exists in the world?

Judge ARNOLD. Unquestionably, the domination of research techniques with and without patents. If the Antitrust Act were being passed today, it would not be called the antitrust law, but it would be called the "antipatent law". The trusts were the thing which was uppermost in monopoly control then as patents are now.

However, I don't think we should forget that the patent itself is merely the spearhead of monopoly domination. If you are going to attack the root of the problem, you must get a dissemination of research to the public. I think it is more important today than any other form of education. It is an educational function which the state owes to its technicians.

The effect of turning this thing loose through Government subsidies and research is shown by the war. Look at rubber. I suppose there are literally 50 known ways of making rubber, all of which are, at least to some extent, practicable, and yet in 1938 nobody had any idea whether it could be made at all.

Senator KILGORE. Recently on a visit to one of our new rubber plants-I believe it was United States Rubber, it was a polymerization plant-the management informed a subcommittee of which I was a member that the company, once the "know-how" and the right to use it, had been able to increase the production of a built plant 30 percent in 2 weeks of experimentation on their polymerization process by being able to run the stuff through the tanks faster. They were practical rubber people and they were able to use the "know-how" which they obtained from the Standard laboratory to push up the production 30 percent.

Judge ARNOLD. We have been accustomed to think of the power to restrict production as wealth. For instance, you have a research laboratory and power to limit anybody else from using that knowl

edge. You sell stock in this power to restrict production, and then claim that anyone who wants to free the industry is taking away corporate property. The fundamental thing that was back of our 9,000,000 unemployed-idle capital and idle labor-was the fact that we have put money values on the power to restrict production, and have assumed that turning industry free was regimentation.

I made a little list, Senator, of the objections I have heard to this bill. And, incidentally, one of the first is that this bill regiments industry.

Senator KILGORE. I would like to get your reaction to that.

Judge ARNOLD. Well, I have heard that the regimentation of industry is supposed to come because your bill does not give the patents to the people who are employed by the Administrator. The charge is that the inventor's incentive is therefore taken away. I think I am safe in making the statement that the formal agreements in every single industrial corporation compel the inventor to sell his patent for $1 or some equally nominal amount.

Senator KILGORE. We were informed by representatives of the Army that in all of the research now being done at the expense of the United States Government in the various leased laboratories by the various corporations, the scientists are still operating under contracts with the laboratories which automatically give the laboratory or the corporation all patents by assignment. Is that correct?

Judge ARNOLD. Yes.

Senator KILGORE. That is, developments are being made at Government expense for an exclusive monopolistic patent after the war is over?

Judge ARNOLD., That is right. While we did not survey all the industries in the United States while I was in the Antitrust Division, I don't think we found a single contract in which the inventor got his patent.

Senator KILGORE. What would he get in lieu of it?

Judge ARNOLD. He would get $1 from the big corporations and $25 from the little ones. It was a nominal consideration, anyway.

Senator KILGORE. This bill provides that the inventor can be paid by the Director a reasonable value for the idea that he has developed. I think that is much better than the $1 or the $25 or the $45 which an inventor now gets, and would constitute more of an incentive.

Judge ARNOLD. I will say that thet large corporations did give bonuses for extra work. We did not find that. But the point is that the inventor's incentive was not the right to get a patent-the patents belonged to the corporation.

So much for the regimentation and the lack of incentive for the inventor-that argument against the bill is complete nonsense.

The next objection is that it puts science in a straitjacket-on the theory that if the Government starts any sort of research it will in some way impinge upon science.

I think probably the best answer to that is the magnificent work done by the Department of Agriculture. The reason that we have such magnificent Government research in agriculture and not in business is that the farmers never were organized, and so the big farmers did not attempt to get control of research development and research techniques. I think you should probably get a Department of Agriculture expert to testify on what they have done. It is simply start

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