Judge ARNOLD. Of course, we would assume that the Government administrator did not have any interest in creating a monopoly. I notice that my former colleague, Mr. Borkin, thinks it is better to leave it out. I saw no objection when I read it over. Mr. COLLINS. Do you know what the situation is with the patents. now held by the Alien Property Custodian? Have they acquired a great block of them? Judge ARNOLD. Of course they have, but with respect to that, comity with other Government departments would indicate that I would rather have them testify. Dr. SCHIMMEL. This bill would require that those foreign patents that have been seized would become the permanent property of the United States. What would your opinion be as to this feature of the legislation? Judge ARNOLD. I think that is a valuable feature. Senator KILGORE. That would prevent any future change of administration of that office from permitting that big pool of patents to become a monopoly. Judge ARNOLD. You remember what happened in the last war-the patents all got back into German hands almost immediately following the war. And there are very many agreements in the Department of Justice where they can show you instance after instance where the American firm-I would not care to testify extemporaneously on this but I will speak generally-where the American firm has a secret understanding with the Germans that although it has taken the patents as an American firm, nevertheless it is protecting their interests and they will get their equitable interests back after the war. We find that repeated, and you can get that for the record by subpenaing the Department of Justice, I am sure. Dr. SCHIMMEL. Do you think there is still time to use a bill of this kind to spread techniques in order to prosecute the war more favorably? We have run into so many situations already. Judge ARNOLD. I was talking to Mr. David Podell, the head of our Small Business Unit, and he gave me half a dozen instances which he wanted me to suggest to the committee, but I thought that I had better confine myself to what had happened before I was on the bench; and so I would suggest that you subpena Mr. Podell, and you will just find instance after instance. Of course, there never was a time when this thing was more necessary, and he can show you case after case after case. There are cases coming from the Department of Justice and from the Treasury, which has the power to suspend royalties in a monopolistic situation. There are complaints coming from there, and the thing piles up into a very formidable body of materialall instances of this kind. Mr. COLLINS. Section 7 (c) provides that the Administrator is authorized to grant nonexclusive licenses under certain terms and conditions and that no such license shall be granted unless the Administrator shall first be satisfied and shall find no monopoly, monopolistic practice, or unfair competitive advantage will be promoted thereby. I would like to get your opinion on the desirability of that proviso. Is it true in your experience that the granting of a nonexclusive license to all comers might in itself result in monopoly by existing monopolies in securing a license, and then in some way restricting monopoly through that acquisition? Judge ARNOLD. I don't think that I have ever seen an actual instance where a nonexclusive license would promote monopoly. Nevertheless you can imagine a small, struggling concern getting hold of some new patent, and being unable to maintain itself if it is compelled to license a company that dominates the field. Rather than argue with people about that hypothetical situation, I would not advocate compulsory licensing on a hard and fast rule. One theory of patents is that they are intended to protect small, struggling concerns. Senator KILGORE. It was like the tariff that was supposed to protect infant industries. Judge ARNOLD. I mean that you should not tie your Administrator down too tight. I would just assume that if this bill is passed, you will have an administrator that will use good judgment. Of course, he would have to use good judgment-remember the infant industries which the tariff protected. The Administrator could conceivably protect some infant patent industries and abuse this provision. Mr. COLLINS. On a nonexclusive licensing basis it would be possible to license corporations that might secure the license for other than the national interest. There might be alien corporations operating, or alien-controlled corporations operating in order to get a license. Do you think it would be necessary to have any language protecting the national interest in that respect? Senator KILGORE. As long as the license were nonexclusive, I don't see how it could, even if it were granted. Judge ARNOLD. I don't believe in giving this patent administrator a lot of general powers to protect defense, and to protect this, or that, or the other thing. Most of the patent rackets protect, you know. Senator KILGORE. If there is nothing further, we certainly appreciate your coming here and giving us the benefit of your experience. We will now recess subject to the call of the chairman. (Whereupon at 4:20 p. m., the hearing was recessed subject to the call of the chairman.) EXHIBIT NO. 2 STATEMENT OF JOHN W. WALKER BEFORE THE SENATE COMMITTEE ON PATENTS REGARDING THE ACTIVITIES OF GENERAL ELECTRIC CO. AND WESTINGHOUSE ELECTRIC & MANUFACTURING CO. WITH RESPECT TO THE DEVELOPMENT OF THE FLUORESCENT LIGHTING INDUSTRY INTRODUCTION I appear here in obedience to subpena duces tecum served upon me and upon my superior, Mr. Thurman Arnold, Assistant Attorney General. Pursuant to these subpenas, I have produced here this morning 68 exhibits relating to the development of the fluorescent lighting industry and the control exerted upon such development by General Electric, Westinghouse, and the public utilities. These exhibits are for the most part copies of communications and other documents furnished principally from the files of the General Electric Co., Westinghouse Electric & Manufacturing Co,. the Electrical Testing Laboratories, the Association of Edison Illuminating Companies, Edison Electric Institute, Buffalo, Niagara & Eastern Power Co., and Consolidated Edison Co. of New York. These documents and the facts they disclose were revealed to the Government as a result of a general investigation, commenced by the Department of Justice in 1939, of the electric lamp and lighting industries. A part of the documents were obtained by inspection of the files of certain of the above-named companies undertaken with their consent, and the remainder of the documents were obtained pursuant to subpenas issued in November and December 1940 by a grand jury sitting in the southern district of New York. Due to a shortage of manpower in the Department of Justice, the investigation was not continued after December 1940, and the documents and facts disclosed therein, which I have produced here, go up only to the end of 1940. It may be mentioned that as a result of the geenral investigation of the electric lamp and lighting industries a civil suit was filed January 27, 1941, by the Government against General Electric and Westinghouse Electric & Manufacturing Co. and other companies, with respect to incandescent lamps, charging them with monopolizing, attempting to monopolize, conspiring to monopolize, and conspiring to restrain trade and foreign commerce all in violation of the Sherman Antirust Act and conspiring to restrain foreign commerce in violation of the Wilson Tariff Act. Although the docluments which I produce here go up only to December 1940, or a year and half after the commercial introduction of the fluorescent lamp, the activities revealed by these documents are considered by me to disclose an attempt by General Electric Co. and Westinghouse Electric & Manufacturing Co. and the public utilities to obtain control of the fluorescent lighting industry during the period of its development and to regulate the industry in conformity with their respective interests. THE FACTS SUMMARY At the time the fluorescent lamp was commercially introduced by General Electric and Westinhouse in the summer of 1938, the utilities were filled with grave concern, principally because of the belief that the new illuminants would consume far less electricity than incandescent lamps which theretofore had been in general use. The utilities desired to have development of the fluorescent lighting industry retarded to the greatest possible extent. General Electric and Westinghouse, for their part, wished to enlist the support of the utilities in the efforts and plans of General Electric and Westinghouse to establish and maintain control over the manufacture and sale of fluorescent lamps and equipment for their operation. General Electric and Westinghouse and the utilities have sought to prevent the new fluorescent lamp from being used by the public on any basis that would reduce the consumption of electricity. At about the time the fluorescent lamp was first put on the market, they jointly formulated a plan whereby fluorescent lamps would be used only for special "plus" lighting purposes, such as illumination of showcases and for lighting supplementary to that of incandescent lamps. This policy for a time was successfully followed. However, the so-called independent manufacturers commenced to sell fluorescent lamps and to inform the public that they could save on their electric-light bills by using such lamps. As. a result, General Electric, Westinghouse, and the utilities had to formulate a new program, and they developed the policy of advocating fluorescent lamps for "high intensity" lighting, which would consume as much electricity as would ordinarily be consumed by incandescent lamps. It became apparent that in order to control the fluorescent lighting industry so as to safeguard their respective interests, the manufacturers of fixtures and auxiliary equipment required for operation of fluorescent lamps would have to be organized and controlled by General Electric, Westinghouse, and the utilities. They formulated a program to effect this purpose. The principal factor that made it impossible for General Electric and the utilities to completely retard and control the development of the fluorescent lighting industry was the aggressive promotion of fluorescent lighting by an "independent" manufacturer, namely the Hygrade Sylvania Corporation, and the activities of this "independent" are the only barrier existing today to General Electric, Westinghouse, and the utilities getting absolute control of the new industry and operating it solely in conformity with their own mutual interests. BACKGROUND 1. Position of General Electric and Westinghouse in the Lamp Industry and the Electrical Industry For many years General Electric has possessed a firm and practically absolute domination and control over the incandescent lamp industry. Westinghouse, which manufactures both incandescent and fluorescent lamps, shares with General Electric in its domination and control of the industry. 84949-43-pt. 1- -3 In addition to maintaining a patent cross-licensing arrangement with Westinghouse, General Electric has given Westinghouse the right to use its lamp trademark "Mazda." General Electric and Westinghouse are the only two manufacturers having the right to use this trade-mark, and they are frequently and commonly referred to as the "Mazda" manufacturers. In addition to electric lamps, General Electric manufactures and distributes a complete line of electrical apparatus, ranging from the smallest items to giant turbines and generators. Westinghouse also makes a substantially complete line of electrical apparatus. Other lamp manufacturers depend mostly on revenues from their lamp sales to remain in business. 2. Organization in the Utilities Industry The utilities, although ordinarily independent of each other, except where grouped together in holding companies and organizations such as Electric Bond & Share Co., can and do act in concert in matters affecting their common interest. For instance, over 100 utilities belong to the Edison Electric Institute (sometimes hereinafter referred to as the E. E. I.), the operating area of which utilities collectively extends to substantially every part of the country. The E. E. I. is made up of committees and groups, composed of representatives of the member utilities, who among other things handle policies for the industry on matters coming within the purview of the committees and seek to effect these policies. The policies are determined at meetings of the E. E. I. as a whole, or they may be formulated by the particular committees themselves, on the basis of their knowledge of the desires of the industry, which frequently is derived from questionnaires sent out to each utility. One of the most important of the committees of the E. E. I. is the lighting sales committee. This committee has over many years worked very closely with representatives of General Electric and Westinghouse in determining policies to be pursued with respect to the manufacturer, distribution, and use of lamps manufactured by the two Mazda companies and with respect to the promotion of such lamps by the utilities. In 1940 the lighting sales committee of the E. E. I. had as its members the following: J. E. Mueller, chairman, West Penn Power Co., Pittsburgh, Pa. C. T. Bremicker, Northern States Power Co., Minneapolis, Minn. I. L. Illing, Wisconsin Electric Power Co., Milwaukee, Wis. Paul Manchester, Blackstone Valley Gas & Electric Co., Pawtucket, R. I. Howard M. Sharp, Buffalo, Niagara & Eastern Power Co., Buffalo, N. Y. W. A. Stannard, Consumers Power Co., Grand Rapids, Mich. M. N. Waterman, Central Hudson Gas & Electric Corporation, Poughkeepsie, N. Y. Another large organization of utilities is the Association of Edison Illuminating Companies (sometimes hereinafter referred to as A. E. I. C.), which is composed of a large number of utility companies, the collective operating area of which extends over the United States. Like the E. E. I., the A. E. I. C. has various committees which handle particular phases of the electrical industry of importance to the member companies. The committee to which lamp matters are delegated is the lamp committee of the Association of Edison Illuminuating Companies. This committee, like the lighting sales committee of the E. E. I., has worked very closely with representatives of General Electric and Westinghouse. In 1940 the members of the lamp committee were as follows: Alex Dow, chairman, E. J. Doyle, C. E. Groesbeck, H. P. Liversidge, John C. Parkern, R. H. Tapscoll, and Preston S. Millar, executive secretary of lamp committee and chairman of the lamp subcommittee. Subcommittee: H. B. Gear, Clarence L. Law, Charles C. Munroe, and C. Bertram Regar. The Electrical Testing Laboratories (sometimes hereinafter referred to as E. T. L.) is an organization owned almost entirely by public utility companies which is engaged in commercial testing work on electric lamps and other electrical apparatus. The largest users of E. T. L. services are General Electric, Westinghouse, and various utility companies and associations of such companies. For General Electric and Westinghouse, Electric Testing Laboratories test their lamps which are to be given the Mazda trade-mark to determine that such lamps meet the so-called Mazda standards. For certain utility companies and associations of utility companies the E. T. L. tests lamps, principally the lamps of the Mazda manufacturers, and on the basis of these tests submit reports to the utility companies and associations thereof as to the characteristics, quality, and uses which may be made of the lamps tested. The principal customer of the E. T. L. in the utility field is the A. E. I. C. The president of E. T. L. is Mr. Preston S. Millar, who is also executive secretary of the lamp committee and chairman of the lamp subcommittee of the A. E. I. C. 3. General Relations Existing Between General Electric and Westinghouse, on the One Hand, and the Public Utilities on the Other Hand For many years there have been very close and intimate connections between General Electric and Westinghouse, on the one hand, and the utilities, as a group, on the other. The basis of the relations seems to be an understanding that each side will work in the interests of the other. The utilities undertake to sell and promote Mazda lamps-and the appliances and other electrical apparatus of the Mazda manufacturers as well-and on their side the Mazda manufacturers undertake to promote their products in such a way as to add to the amount of electricity consumption. The Mazda companies also support and participate in campaigns and programs conducted by the utilities to increase use of electricity supplied by them. For example, several years ago a large number of utilities gave to their customers free renewals of lamps, the purposes being to cause the customers to use lamps of higher wattage and to keep their sockets filled, and the lamps used in these campaigns were Mazda. General Electric and Westinghouse have supplied the lamps at reduced prices to the utilities giving free renewals. The following Westinghouse interoffice correspondence dramatically illustrates the situation confronting the American consumer in the lighting industry : Mr. H. A. CROASDALE, Manager, Philadelphia Office: SEPTEMBER 18, 1936. You will recall that when Mr. Beggs was over here several months ago because of subject's account, he suggested to Mr. Lowther that Westinghouse conduct a survey of some of their restaurants in order to save Horn & Hardart money on their consumption of electricity. This survey has been postponed from time to time due to vacations and sickness of the men who must assist us in making it and it has now been scheduled for around the 1st of October. It has come to my attention that the Philadelphia Electric Co. have been working on this account for years to get them to increase their lighting. They have been preaching good lighting to them for so long a time that they are gradually changing the lighting in some of their restaurants and Westinghouse are getting some orders for lighting equipment. I am afraid that we will become involved in a very embarrassing situation if we tell Horn & Hardart in our survey how they can save money by cutting down their light. Do you have any suggestions to make as to how to handle this? (Exhibit 1.) W. O. JAMES. The problem presented to the Westinghouse's Philadelphia office, with respect to the Horn & Hardart survey, was brought to the attention of Mr. E. W. Beggs, assistant manager of the commercial engineering department of Westinghouse, by the following letter: SEPTEMBER 22, 1936. With further reference to the subject's survey, it has now come to my attention that the Philadelphia Electric Co. has been working on this account for a number of years in an endeavor to have them increase their lighting load. As a result of the Philadelphia Electric Co. preaching good lighting to them for such a long period, the subject are gradually changing their lighting equipment in some of their restaurants, and the Westinghouse Co. is securing some nice orders for lighting equipment. In view of this, I am sure we will become unfavorably involved with our good customer, the Philadelphia Electric Co., should we suggest in our survey to the subject that they can save money by cutting down their light. "Mr. Cunningham is the individual with whom the Philadelphia Electric Company has been dealing, and he also is the individual with whom we would make our suggestions of lower cost in lighting. Therefore, I recommend that we go no further nor make any reference in our survey regarding suggestions of lower cost. However, we would appreciate any other suggestions you might |