ling. And the benefit has been to the entire people instead of to a small privileged group.

The reason the Nation got that benefit from agricultural research is that we were not dealing with a cartelized industry in the first place. There were no special-privilege groups to claim that governmental research in agriculture was regimentation.

Senator KILGORE. Agricultural research was stimulated by the Government's activities, rather than put in a straitjacket?

Judge ARNOLD. It was. Not only was it stimulated, but private patents-mind you, this bill in no way interferes with private research-private patents on corn and seed and everything else multiplied. The private inventor could go to the Department of Agriculture and get all the information that was available from all of their research, and stand on their shoulders and get his own patents. So the Government research did not interfere with private research at all-rather it encouraged the private inventor. They are not called inventors in agriculture, but they really are. It did not restrict private initiative or stop the private inventor from getting patents.

Dr. SCHIMMEL. Would the development of hybrid corn be an example of what you are speaking of now?

Judge ARNOLD. Yes. There are a number of patents on hybrid corn. I believe orchids are patented. Roses are patented.

Senator KILGORE. Judge, I have here a clipping from the Washington Times-Herald, I think it is, under date of March 14, in which one Dr. Gustav Egloff, of Chicago, attacks the bill as totalitarian. Do you know who he is?

Judge ARNOLD. He is the research director of the Universal Oil Products Co., controlled by Shell and Texas. It is part of the C. R. A., which is the Catalytic Research Association. Among the members of the C. R. A. are Standard Oil of Indiana, Standard Oil of New Jersey, Shell, Texas, Kellogg, and, up until the war, I. G. Farben Industries of Germany.

Senator KILGORE. He is listed here as president of the American Institute of Chemists and spoke as such. That organization, of course, is the owner of a lot of exclusive patents?

Judge ARNOLD. That organization is a patent licensing organization. If I am not mistaken, they manufacture nothing. Of course I do not wish to impugn Dr. Egloff's sincerity-if I were the head of an organization which was dependent for its monopoly position upon keeping research from the public, I would think that anybody who interfered with that was a totalitarian. You see, these fellows get the idea, and perhaps I would myself if I had a patent pool-I don't happen to have any—that a patent pool is property. Now when the Government starts disseminating information it destroys the value of the exclusive information controlled by the pool. And therefore it takes away property. And the totalitarian states take away property. And therefore the bill is totalitarian. They are very sincere about it. They work themselves up into a high state of rage. They pound the table. But back of the whole thing is this: The bill will interfere with their special privileges.

In other words, if Dr. Egloff-if the Universal Oil Products Co.should come and testify for this bill, I would look through the bill for a joker. And I say that without impugning their sincerity at

all. No doubt they would consider that they were acting in all sincerity.

Senator KILGORE. Judge, in reading this bill, have you found anything that interferes in the least with the patent rights of an individual or of a corporation to go ahead and develop an idea of their own-except that in time of national emergency the Government may require them to relinquish the "know-how" and pay them for it for use to protect the Government?

Judge ARNOLD. No, sir. There is not the slightest

Senator KILGORE (interposing). These companies can go ahead operating under this bill on the patents they actually own without any trouble? It simply puts competitors into the field?

Judge ARNOLD. It allows thousands of individuals and small corporations to get into the picture. The large corporations will really have to put their research laboratories on their toes. And if these research laboratories are as good as I think they are, they will utilize the information which the Government experiments give them and go ahead at an increased pace. That is the only effect that it is going to have.

The only "property" it is going to take away is the corners on research which these people have.

The interesting thing is that these corners on research have happened only in industry, where they started out with a cartelized structure. Nobody has even suggested that the agricultural experimentation is totalitarian-that it takes away property.

Dr. SCHIMMEL. I gather from your statements that one of the most important purposes of industrial research now is to corner developments and to maintain them to create a monopolistic position?

Judge ARNOLD. I would put it more charitably than that. A great corporation builds up a research laboratory. This is not a question of ill will, but they have to make profits they have dividends that have to be paid. I suppose if you were the head of that corporation, and spent that money, and then turned the information loose to the public or to your competitors, you would not be president or a director very long. It is inherent in the situation that they must attempt to maintain a corner. And I have no objection to their doing it, if at the same time there is some public agency which is investigating for the benefit of the smaller businessman.

Dr. SCHIMMEL. But isn't there a danger there that the big companies will stop encouraging any research if its monopolistic value is curtailed?

Judge ARNOLD. Quite the contrary. Not only will they not do that, but they will be compelled to move faster. A company gets big because it moves ahead of its competitors. Now, let us make the race fast enough so that these fellows will really run.

Edsel Ford, testifying in the T. N. E. C. hearings, said the reason that the Ford Motor Co. grew was that, "We kept ahead." The declining company is the one which gets itself into the position where it does not have to get ahead of its competitors. And then what does it do? It suppresses fluorescent lighting in order to pay off on obsolete equipment. Research turns around and goes the other way, because you have a situation where the financial reward lies in that direction. I don't think that we should blame these companies for trying to

make money. I believe we should blame the Government for creating a situation where more money can be made by dominating a field and suppressing research than by keeping ahead of the other people.

Senator KILGORE. Last night I was told by the head of one of our biggest corporations that if by an act of God every plant they had and every piece of equipment and every record were all destroyed, but if they kept their research, their technical, supervisory, and administrative personnel as a unit, that it was his firm belief that he could raise enough money to rebuild the plant; but if they lost their personnel, regardless of the organization, he did not believe that they could operate the plant; the "know-how" in that outfit is worth more than all the equipment.

Judge ARNOLD. Of course, there is a school of what I call the security economists, with banker psychology, which says that unless feather beds are put under all of our industrial concerns so that they cannot lose money-so that they are not threatened by more efficient people coming up-they will disappear from business. Well, if I thought that of American business I would be very discouraged. But actually, as the war has shown, there is bubbling up all over America the most tremendous outburst of energy and ability. It is not true that American business needs a feather bed.

Senator KILGORE. Have you ever found that there is any feather bed under what we call small business?

Judge ARNOLD. Oh, no; that is supposed to be a "way of life" and not business-like farming.

Now, you suggested that I might criticize the bill, and I do have one objection to it. That is, while it may be implicit in the bill, it is not expressly set out that the Government should protect its licensees against what I call the patent blitzkrieg. I am going to introduce into the record one of our cases where we collected fines-a short case history to show what happens to small business when you permit them to be subjected to the expensive litigation which a large business can put on them, even though, as I will show a little later, of these patents that are taken out by American industry, probably only about 1 in 10 is valid. The only thing that keeps them good is the fact that they are able to throw the small businessman into years of litigation. Here is this case history from the building industry, which is one of our most backward industries. It concerns the manufacture of air filters, which, incidentally, are today very much needed in national defense.

In 1924, the manufacture of air filters was in its infancy. In December of that year, an American patent was issued to a German citizen. It was a shaky patent, and it is a curious fact that the same device was declared invalid in Germany because of lack of invention. Company A got hold of this patent. Incidentally, I would like to put the indictment in the record. I am using letters of the alphabet to designate the different companies, rather than their real names.

As I said, company A got hold of this patent. It got together with company B who had another patent on air filters, and out of this came company C, a patent-holding company. Company C acquired two of its competitors, D and E. It was then big enough to begin the infringement-suit racket. The result was that under duress it absorbed companies F, G, H, I, J, and K.

Of course it did not take over all the outsiders. Company L was a little fellow not strong enough to defend an infringement suit and it was, therefore, ruthlessly destroyed.

These astounding results, based on an all-out patent offensive, were brought about despite the fact that the officials of company A were strongly of the opinion that the principal patent was invalid all the time. All in all, this patent pool acquired 105 patents. The only suit ever tried ended in a declaration that the particular patent was worthless. Most of the patents were never tested. The very purpose of such schemes is to avoid court tests. Finally, out of 16 competing manufacturers in 1925, all of them except 2 were either crushed or brought into the ring.

Recently these air-filter companies were indicted. They paid $88,000 fines, but they still have their patents which are today susceptible of being used again in the same way.

Now, let us assume that the Government is interested in air filters. Assume that the Government will license and protect these little companies against these patent schemes-this bill will have the effect of cleaning out these tens of thousands of patent combinations which now handicap industry because the validity of the patents never comes before a court.

If you can put into this bill a provision, very easily drawn, compelling the Department of Justice to defend the rights of licensees against infringement suits, I can assure you that not very many infringement suits will ever be brought. The small man needs that protection. I don't think you can call it the fault of the Patent Office, but, for instance, there are about 60,000 patents issued every year by the Patent Office. I had somewhere the figures of the tremendous number of patents which the individual Patent Office employee had to pass on. When application for patents flood the Patent Office they of course cannot keep up with them, and there is simply no way of preventing these patents from being issued.

Now, think of those 60,000 patents a year, and let us look for a moment at the patent policies which compel the applications to be made. I will take a patent policy which was brought out in the Hartford Empire suit. Here was the patent policy of Hartford Empire-I will quote it:

(a) To cover the actual machines which we are putting out, and prevent duplication of them.

* * *

(b) To block the development of machines which might be constructed by others for the same purpose as our machines, using alternative means.

(c) To secure patents on possible improvements of competing machines, so as to "fence in" those and prevent their reaching an improved state. * * Here was a patent policy aimed at blocking invention and preventing patents of others from reaching an improved state.

That is typical. Of course, that is not put on the application that goes to the Patent Office. And the Patent Office issues 60,000 patents

every year.

Such patents could not even be applied for, in my opinion, if the Government had facilities for research and offered protection to its licensees. And so I think that it would clean up the existing patent muddle.

Dr. SCHIMMEL. In your study of fluorescent lighting, did you find. that the whole development was held up a number of years?

Judge ARNOLD. Oh, yes.

Dr. SCHIMMEL. Even though they held up this development for years, didn't they at the same time do enough research so that if anybody else developed it, they would be able to come in with a patent infringement suit?

Judge ARNOLD. They now are. Even at the time that they were suggesting that their efforts in the war effort were so great that they could not indulge in any litigation at all, they were suing the Hygrade Sylvania in New York City to keep Hygrade Sylvania from making electrical equipment. So they were actually using this patent pool during the war to stop the development by others, while the antitrust suit was being continued.

Senator KILGORE. They said they did not have the time to defend, but they had plenty of time to attack.

Judge ARNOLD. That is right. They were expending all their energies on attacking and they did not have enough energy to defend. Of course, that is the policy. And the smaller fellow-Hygrade is a small company, but it is strong enough to defend that suit-the smaller fellow is usually put out of business.

If you care to subpena the Department of Justice records, or if you go through the Bone committee's file, you will find it make abundantly clear that not even the industry itself believes in these blocking and fencing patents.

For instance, we indicted Wayne Pump. The indictment was dismissed because of certain technical defects, but they were reindicted. They had patented the idea of a pump that computed the price of the gasoline sold. Of course, if you can get a patent on an idea you can control the industry.

I will read you a typical example of the many statements which the Department of Justice has on patent policy. In answer to a rather naive inquiry from one of the members of his staff, Mr. C. L. Bausch, of the Bausch & Lomb Optical Co., told why the company continued to pay royalties on worthless patents. He wrote:

A great many of the patents that we are operating under are very weak and if we wished to, we could break them outselves and not pay royalties, but good business judgment, I believe, justifies the idea of paying royalties even on weak patents in order to maintain a price control picture that is helpful.

Here is another memorandum from Mr. Bausch. This, of course, is the optical cartel which practically stifled the development of military optical goods in this country. He wrote in September 1938:

Of our sales in 1937 about half of the products sold were protected by patents, roughly $5,000,000 on which we paid an average of 5 percent royalty, $250,000 to outside sources for protection on our product and for buying the means of accomplishing price control. A great deal of money, but apparently justified by the figures in most cases.

Thirty-four million people in the United States need spectacles and cannot buy them because of the controlled price of spectacles. In the Univis case they had what I call an umbrella patent. The thing that they had invented was the position of the segment. It was very difficult for us to see any invention in that, but we were prosecuting them under the antitrust law, and the question did not arise. The thing that they had patented was the spectacles themselves. By getting a patent on the spectacles which contained this invention, they got control of the grinding, and the polishing, and all such unpatented arts. The