Supreme Court held that that was an illegal device and in violation of the antitrust law, but the point is that Government research and Government licensing would have made that cartel impossible from the beginning. It would not be a question of the Antitrust Division spending hundreds of thousands of dollars and going through these very difficult dissolution suits and years of investigation. The thing could not even start if Government research existed.

Senator KILGORE. Is that monopoly the basic reason for the fixation of prices by localities? I know that in one city you could get a pair of glasses for $15, but if you went to another the identical pair would be $20. Some place else they would be $25.

Judge ARNOLD. In Washington you can get them as low as $7.50. This is how they do it. The Ideal Optical Co. in 1938 announced spectacles for $7.50, just half of the prevailing Washington price. The spectacles were all right—I am wearing a pair of them now-because, of course, these are not expensive articles. And immediately their supply was cut off.

Senator KILGORE. But you might have a compound lens in one, you may have a more expensive lens.

Judge ARNOLD. The same is true of the compound lens. The Ful-Vue was a compound lens and the Univis was a compound lens.

Senator KILGORE. When you mention spectacles you mean the lenses themselves?

Judge ARNOLD. No; the whole thing is controlled. There are patents on the frame, and there are patents on the lenses, there are patentswell, let me read you a document from M. J. Root, of Shur-On, which is a member of the spectacle cartel. Here is the statement of patent policy. He wrote to a Shur-On employee as follows:

Frankly, the Ful-Vue patents are so weak that they are a tremendous task to uphold, because the American Optical Co. cannot be too severe in its tactics in keeping the licensees in line, because if they were forced to bring suit, the patents might be knocked out and the whole Ful-Vue license system would topple, and Ful-Vue and Hi Bo products could then be made by anybody at any price, and the nice margin of profit in this business would be lost.

That gives you the idea.

In other words, the Ideal Optical Co. is told that they cannot get supplies. And how much money can the Ideal Optical Co. spend in forcing those people to give them supplies, by suits for damages and all that sort of thing? And that is the picture.

I will give you one more example for the record. This is from the T. N. E. C. hearings, and concerns the Hartford Empire patent pool [reading]:

The Amsler Morton Co. has been manufacturing glass machinery ever since 1915. In 1934 it was told to stop or to sell out for what it considered an adequate price. Litigation commenced. Its customers were circularized advising them of the dangers of buying from the company. An infringement suit was begun against a customer named Swindell. I quote from the testimony of the treasurer of Amsler Morton:

"Q. Can you tell me how much the Swindell litigation cost your company? "A. Well, it was tremendous for a small concern.

"Q. How much was it?

"A. It amounted to close to $50,000, and that doesn't take into consideration the expense of our organization.

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"Q. I would like to ask you this: You told us, I believe, that you have sold only one lehr so far this year?

"A. That is correct.

"Q. That you sold no lehrs last year. What would you say the value of the glass-manufacturing machinery business is now? That is, your business.

"A. I will give you a comparison. In '28 we were doing $800,000 worth of business and last year we had $18,000 worth of business in the glass industryquite a drop."

Their business dropped from $800,000 to $18,000 while the litigation was going on.

Just take that with the air-filter case. And take another example which I think might be useful, the Masonite case, which we won in the Supreme Court. There there was a number of hard-board manufacturers. The two leading ones got together. One of the favorite devices is a settlement of litigation. Here is the settlement of litigation device: A patent pool is of doubtful validity, so we do not form a patent pool, but I will sue you and then we settle the litigation and now we are together. In the Masonite case, at the end of the operations of that pool, there was only one Masonite hard-board manufacturer in the United States.

And there is a patent, curiously enough, on the use of anything in making hard board. One of the Justices of the Supreme Court in the argument of that case said, "Do you mean to say that under your patent you could prevent them from using sugarcane in making hard board?"

And they said, "Yes; it is a patent on any form, an idea patent." The record shows that they did not believe in it very strongly, but that is not necessary in conducting the patent blitzkrieg.

Now, let us take that Masonite case. I think that it is an idea patent, and I don't believe it will be sustained on all materials. If the Government, operating under this bill, develops competing methods of making hard board, and will defend its licensees, you will keep that Masonite monopoly from dominating this new technique.

I would earnestly suggest that that sort of an amendment be made, and it will be very simple-just that the Government is directed to protect its licensees.

Now, I think we can take a leaf to some extent out of Germany's development of drugs. I was told by the head of Imperial Chemicals that the German ascendancy of drugs arose from the fact that they could not get any private industry in England interested in drugs. The fundamental invention that made I. G. Farben great was the product of an Englishman's brain. He could do nothing with it in England, and so he went over to Germany. The thing we need not take out of Germany's book is that Germany entered into a cartel between the company and the Government.

Senator KILGORE. In other words, they use cartels frequently in lieu of diplomacy?

Judge ARNOLD. Well, that is the essence of fascism-a complete partnership between Government and monopolies. But the point is that they subsidized research, and that is what made them strong. And, in turn, failure to conduct sufficient research was what handicapped the democracies.

Now, as to the international aspects of this, and I think this bill does have international aspects: I don't know what is going to happen after the war, but I would like to read from a pamphlet entitled, "A National Policy for Industry."

(The pamphlet referred to was marked "Exhibit No. 5" and appears on p. 80.)

Judge ARNOLD. The signatories are about 120 of the leading British businessmen. They include Lord McGowan and Lord Melchett of the Imperial Chemical cartel, and these people quite sincerely say as follows:

Where similar products are manufactured in different countries, these inter. national agreements (which necessarily imply that the parties to them are able to speak for the major share of the industry concerned) are essential to keep production equitably allocated between countries and companies, in tune with the maximum world demand attainable. They exercise a stabilizing influence against violent fluctuations and dislocating shifts of the currents of trade and thus have an essential part to play in post-war reconstruction, when international economic cooperation for the general benefit will be of the highest importance.

In other words, here is a substantial group which sees no salvation for the world outside of the operation of international cartels. I do not think we need concern ourselves with British policy. If they choose to form international cartels, that is all right, but the point is that now more than ever do we need to encourage our own research so that this development of products and this exchange of information between countries is not exclusively cornered by these international cartels. Let us hope they do a lot of research, but there is no good reason why we should delegate the entire power over research to these international groups.

Senator WALLGREN. I wonder if you have any further recommendations on this bill?

Judge ARNOLD. I read it, and it seems to me that that is the only recommendation I would make with respect to substance. I did not read it with the idea of evaluating technical details, because I think my testimony is of value only with respect to the monopoly aspects.

Senator WALLGREN. You are so thoroughly acquainted with all of these unfair practices, I wonder if you could inject something here which would help to straighten out this matter.

Judge ARNOLD. The whole problem is simple; it is just the problem of public education in industrial progress. The bill can be very simple, and I think this bill is.

Senator KILGORE. And the stimulation of competition?

Judge ARNOLD. That will necessarily follow.

Senator KILGORE. In other words, furnishing to the American businessman the same service that the Department of Agriculture furnishes to the American farmer?

Judge ARNOLD. That is right.

Senator WALLGREN. You do think this provision to protect licensees is very important?

Judge ARNOLD. Very important, because I can show you hundreds of instances of the patent blitzkrieg. I gave you only two, but there are hundreds. Of course, if the Government licenses somebody and then tells him to protect himself, he cannot stand the litigation

expense.

Senator KILGORE. The theory there would be that we protect him somewhat like we do in wartime when we infringe on patents by the Government defending the suit?

Judge ARNOLD. That is right. Simply an addition to the provision in the bill licensing these patents to anyone. The Government, I think, should defend its position. For instance, the Govern

ment might distribute the results of some of its research without trying to take out a patent because in its opinion it was not something on which a patent should be taken. And in that case the Government should protect the user from an infringement suit. If, on the other hand, they thought it was a patentable article they should protect the patent.

Senator WALLGREN. Let us say that we are setting up today a new research laboratory; for instance, I had an appropriation in the appropriation bill to create a metallurgical laboratory out west. If a Government employee patents a process, how would you handle that situation?

Judge ARNOLD. I presume you could make your own contract with the Government employees.

Senator KILGORE. The bill provides for that, and in general the directors shall pay him a bonus for his services commensurate with the value of the patent, and it shall not be patented by anybody then, and the Government reserves the right to license anybody to make it on the same basis.

Judge ARNOLD. You must also protect licensees who use discoveries made by the Government. If you protect them, most of these infringement suits would never be brought-not if the Department of Justice with adequate personnel were on the other side. If the Government lost, all right; at least we would have turned it over to a court of competent jurisdiction.

Senator KILGORE. If you remember, Judge, in the Nye committee investigation in regard to munitions, the fact was brought out that after the last war all of the research developed at the expense of the United States, or a large part of it was submitted to foreign manufacturing companies that were in cartels.

The same was true with armament equipment-torpedoes designed for the Navy were submitted to manufacturers in Germany under agreements for mutual exchange of information.

Judge ARNOLD. I think the remedy is not to expect a businessman to act other than as a businessman, but for the Government itself to turn loose this corner which has been developed.

I would like to see this bill referred to as the magna carta of science, because I think if it is passed it will be one of the greatest single events in the scientific development of this country. I feel that strongly about it. I believe it will not only open new vistas to Government, university, and industrial research but it will greatly stimulate all scientists and technologists. It will provide a focal point for all of them and weld all branches of science together with real and lasting benefit. I believe every man who recognizes the importance of our science, and that should include about everybody, should do all they can to support this bill.

I recognize the difficulties of the thousands of technicians that are tied up with special interests. You cannot expect them to come out and act in opposition to the interests of the companies they represent. I think the only reason that there won't be almost a unified support of the bill among scientists, as there is in agriculture, is the fact that so many of them have become tied up with large concerns whose interests are against the bill.

Senator WALLGREN. In other words, that statement of Dr. Egloff was really an endorsement of the bill?

Judge ARNOLD. I don't know Dr. Egloff personally, and I do not mean to be critical, but what other position could he take?

Senator KILGORE. He must protect his personal interest.

Judge ARNOLD. And I think he is quite sincere in identifying the public interest with private interest. It is very difficult to avoid that. Mr. COLLINS. I understood you to say, Judge Arnold, earlier in the hearing, that statistics showed that 150,000 of the 180,000 small businesses had no research facilities at all?

Judge ARNOLD. I took that from a report which I identified.

Mr. COLLINS. I gathered from your discussion of small business there, that the relative decline of small business might be attributed in part to this technological and scientific bottleneck that they are getting into.

Judge ARNOLD. There is no question in my mind that wherever you turn in industrial development you will find that the scientific bottleneck has prevented them, with all of their energy and initiative, from getting to the top.

Senator KILGORE. I am informed that it has been a custom with a lot of these licensing monopolies or licensing outfits that even where they represent themselves as licensing freely to anyone they have a sliding scale so that the small manufacturer has to pay a commensurately larger royalty than does the big manufacturer, thereby eliminating the small manufacturers from any competition.

Judge ARNOLD. That is right. I testified on that in the Bone committee hearings as one of the patent devices.

For your information, I would like to introduce here my statement before the Bone committee-testimony on a different bill-describing the various methods by which patent control was accomplished.

(The material referred to was marked "Exhibit No. 6" and appears on p. 91.)

Judge ARNOLD. As illustrations, there are what I call the umbrella patent, the accordion patent, the patent pool, licenses to restrict use, licenses to restrict production-I think I have most of them in there if not all of them. I do not, however, describe the sliding scale device in that testimony. If you care to subpena the members of the Department of Justice, I think they have a good deal of information on the sliding scale, Senator.

Senator KILGORE. Then there is one phase of this bill that you might feel is dangerous, the proviso that, on page 17, line 4:

No such license shall be granted unless the Administrator shall first be satisfied and shall find that no monopoly, monopolistic practice, or unfair competitive advantage will be promoted thereby ;

and

(2) that the charge for user prescribed by the Administrator, shall either be a uniform nominal fee or a charge graduated to the volume of production resulting from user.

Judge ARNOLD. I don't think so. There is nothing per se wrong about a sliding scale. It is true that you can use a sliding scale in the manner which you suggest, of course. I see no objection to encouraging production by charging a man less royalties the more he produces.

Mr. COLLINS. Could it be used otherwise?