all of that piece that he uses of the parts manufacturer, and he will continue to do that as long as he thinks that parts manufacturer is alive, that he has an engineering force that is bringing him constantly new ideas, that he is improving his product, that his prices. are never going up, that they are going down, and that he is really his research and development and engineering department for that one specific part.

Now when you can get yourself to the point where they look upon you as being smart as engineers, and where they will say, "Well, we won't try to design this wheel, we will just leave that to you, this is the kind of body we are going to have this year, now come on in and help us design a wheel," when you get a design they look at it and help you, and when you get all through they say, "All right, build some samples," and we build the samples and we change and we change and we change, and we work and get the weights, and so forth, we know how much the car is going to weigh, we test in our laboratory for strength, and so forth.

The CHAIRMAN. Is that done before or after you have made the contract for delivery?

Mr. CARLTON. That is before the model is ever brought out.

The CHAIRMAN. So this experimental expense is borne by the manufacturer of the part?

Mr. CARLTON. Yes; and when you get that done you may have spent $25,000 in just this one little job, to do that job, and when you get through they call your competitors in and say, "Boys, here is what we are going to do this year and here is the blueprint of it," and the other fellows come in and bid on your work and you may lose the business.

I never saw an industry, I don't believe there is an industry which believes in free and unrestricted competition to the point of coming nigh to assassination the way this industry does. They seem to enjoy it and thrive on it.

The CHAIRMAN. No effort is made then among the members of the association to prevent one another from underbidding on a case such as you have just now described?

Mr. CARLTON. Oh, I should say not, and the large manufacturer wouldn't give us all of his business. He will have another competitor in there. On one model he will have our part and the other fellow's part on another one, and get the wheels as close together as he can, and there you are.

The CHAIRMAN. Maybe that is the reason there are, as you call it, in the industry, bugs in one car and not in another.

Mr. CARLTON (laughing). I wouldn't answer that. You see, we are trained in the sales school where we were taught years ago that the customer is always right, and therefore we never criticize anything that he does, we just try to make a living.

I would like to close with just this statement

EFFECT OF PATENT SYSTEM IN INCREASING EMPLOYMENT1

The CHAIRMAN (interposing). I was going to ask you just another question before you get into your philosophy-I think that was the word you used. What in your opinion is the effect of the patent system as you have experienced it, upon unemployment?

For additional testimony on the relation of patents to employment, see supra, p. 857 et seq., p. 897 et seq., p. 904 et seq. and p. 932 et seq.

Mr. CARLTON. The patent system has certainly increased employment. New devices have made automobiles, the sale of automobiles, possible. The original equipment manufacturer can't create any business himself. We sign a contract for the year's requirements of a given model, an automobile, and then we have to sit and hope that that car sells. We are pround of the part we have had in designing that one part, and if all of the parts fellows together, plus the efforts, the very great efforts, of the automobile manufacturer, have made that car a success, then that car has the call that year.

I think the patent system, which I like to call a part of the American incentive system, has been the greatest factor in creating this great automobile that we have today which is being sold at the lowest price ever known before in the history of this country.

Does that answer your question, sir?

The CHAIRMAN. Do you have any suggestion to the committee as to any change that might be made in the patent system that would have the effect of increasing the opportunities for employment even

more?

Mr. CARLTON. I think I have no specific recommendations. Of course, I am not a patent lawyer. I think I should receive some sort of degree, probably an "employer of patent lawyers." I have spent fortunes for companies employing patent lawyers, and so I check them up, I know what they do and I follow them up and I know what they spend and what happens, and I do know that over the 25 years that I have watched this Office-it is about 27 years that I have been intimately familiar with what the lawyers that I have been employing have been doing-there has been a constant improvement in things generally in the industry with which I have been connected, and it has always been this one industry, some branch of it.

What we want of course is better patents, with more assurance of their validity. What we want is faster action, and still the assurance that those patents are valid. I rather think I favor the 20-year limitation, although I can see some cases where that might work a hardship upon an inventor. We purchased a patent not long ago that had been in this Office a long time. I don't know why it was here so long but the inventor swore he didn't hold it here. It had been here 7 years, I think, when we purchased it. But it got into a very bad interference, and those things get very costly. It went clear through the Court of Customs and Patent Appeals, and so forth.

I have no very definite recommendations; only just those recommendations that patent lawyers and this Patent Department know will improve the Department generally. Certainly I don't want any fundamental changes in this patent system that I believe has been the greatest incentive that has made America what it is today in many respects.

The CHAIRMAN. Thank you, sir.

PATENT SYSTEM RESPONSIBLE FOR DEVELOPMENT OF AUTOMOTIVE

INDUSTRY

Senator KING. As I understand you, the automobile industry by and large, including trucks and all, has largely been developed through the patent system. At any rate, the patent system has encouraged this great development in the automotive industry that we witness in the United States.

Mr. CARLTON. It has in the parts industry. I am sticking to my story in the parts industry, Senator.

Senator KING. And would you say that the patent system by reason of the security which it affords has encouraged a larger expenditure of capital in the development of industries?

Mr. CARLTON. It certainly has in the parts industry, very decidedly so.

Senator KING. And has that development increased the amount of employment, the number of employees?

Mr. CARLTON. It has, because it has increased the sale of the items. Senator KING. In your association are more persons employed now than there were 2 years ago, 3 years ago, 5 years ago, 10 years ago—at any prior period?

Mr. CARLTON. Of course now is a bad time to measure that. We are picking up very rapidly. We have been through a year in which we were off 40 percent in the last year, but taking 1937, I believe it is a true statement-and Dr. Lubin can check me on this; he and I have had some correspondence about the employment in this country to say that in the automotive parts manufacturing industry that we employed as many men as were ever employed at the peak of the industry, which was probably 1928 and '29, and the number of automobiles built was very much smaller, of course.

Senator KING. Are you paying a higher wage now than you paid in 1927, '28, and '29?

Mr. CARLTON. Oh, very much higher. If you said 40 percent higher, you would be very low.

The CHAIRMAN. Do you require a high degree of skill among your workers?

Mr. CARLTON. I wouldn't say a high degree of skill. In the business with which I am connected you can take a good farm mechanic— and I mention a farm mechanic because a good farmer is a swell laboring man in a shop-and in 60 days you can teach him practically any operation there is in our factory and he becomes an expert working man, with the exception of the tool and die industry, which of course requires an apprenticeship and a good many years of training. I am talking about the production lines.

The CHAIRMAN. But you do employ these tool and die workers also?

Mr. CARLTON. Oh, yes.

The CHAIRMAN. What stability of employment do you give the latter type of worker, generally speaking, in the industry?

Mr. CARLTON. The tool and die man? A very high degree of stability. We work very hard on that job because in the small town where we live we can't lose those men. Once having trained them to do our particular job-and they are very high paid men, they earn better than $2,400 in a year-we can't lose those men, we can't let them get away from us.

The CHAIRMAN. What do you do to keep them?

Mr. CARLTON. We do everything we can to keep them, by spreading our dies any way we can, and when we can't do that we transfer them to any other kind of job we have in the plant to hold them.

The CHAIRMAN. When your work falls off and there is actually not enough work in the plant to go around, do you attempt to keep these people on the pay roll?

Mr. CARLTON. Yes, we haven't lost them. We have about 100 of them that we have kept for many, many years, and as I say, those men will average better than $2,400 a year.

The CHAIRMAN. And what about the less skilled employee, what stability of employment do you offer him?

Mr. CARLTON. Well, it is not as good as it ought to be. It is getting better.

The CHAIRMAN. In what way is it getting better?

Mr. CARLTON. We are the victims of circumstances, as are the manufacturers of automobiles. You can't convince people to buy automobiles in Northern Michigan when the snow is right now, as I understand it, over 3 feet deep just north of us. Consequently, the dealers can't afford the inventory and nobody has a place to put them, and therefore production slumps off in that time of the year.

The automobile manufacturer has done everything within his power, I am positive, to assist this situation. He formerly used to give us very sudden orders to do this and that and he doesn't do that any more. He gives us a contract for a year's business, and that isn't anything that you can do anything with, and then he gives you an order to purchase raw material for a portion of that contract, possibly 100,000 sets of our material. Then you have gotten a start. You can go out and buy some raw material. Then he will give you an order to fabricate maybe half of that, 50,000 sets, and then you really are getting some place. Then it is your own expense. You can go out and fabricate that and you don't know when you are going to ship it, but you can keep your men working during the month of February, for example, when his shipments may fall down, you can keep that production running pretty level, because you fabricate at your own expense. Maybe you semifinish a lot of that material and that helps materially. Then of course I haven't mentioned the diversification that automotive parts plants are trying so hard to do, to get into something entirely outside of this industry. I haven't seen our figures for this year, but I am sure that considerably more, or at least 30 percent of our sales volume in the year 1938 was entirely outside the automotive industry, and we tried to get that into something that doesn't have the same peaks we are in in the automotive industry, and that helps to transfer those men from one job to another. You run into all sorts of difficulty with the union when you do that because they don't want to be transferred.

The CHAIRMAN. This is just developing, then, is it, this effort to stabilize employment?

Mr. CARLTON. It has been worked out for a number of years, and I would say that the very serious effort has been going on about 7 years, until these people are carrying much bigger inventories than they used to carry. It wasn't very many years ago they carried 24hour inventory in some of our customers' plants and today the majority of them are carrying 30 days. That helped us.

The CHAIRMAN. Could you reduce your experience to a rule or a standard that might be helpful to those engaged in other industries who are confronted by similar problems of unstable labor supply? Mr. CARLTON. Senator, there has been so much thought given to this whole business of stabilization of labor that I know of not one more thing to do. We spend a great deal of time among ourselves as parts makers and with our customers, and I will say that we haven't

the

one customer that isn't giving us every bit of cooperation that he knows how to give, and if you get an idea and go to him with it he will try it out for you to try to help you cut out these terrible peaks and valleys. But until the public can change its buying habits I don't know what more can be done than we are doing now in this particular industry.

Dr. LUBIN. Mr. Carlton, prior to 1935, new automobile models were shown at the January shows, which meant that your automobile season was limited to about seven or eight months. In 1935 the industry changed its policy and put its new models out earlier and had the November show, thereby in a sense lengthening the automobile season. Has that had any effect upon your ability to keep your people more regularly employed?

Mr. CARLTON. I think it has, Dr. Lubin. There is a very great difference of opinion about that at the moment. You will remember last fall the automobile dealers' association was divided about that thing. Some of the dealers thought it was very bad and some thought it was very good. It possibly is a questionable thing right now, but from the standpoint of the parts manufacturer I think it is a very good practice. I think it tends to stabilize employment in the manufacturing end of the business.

Dr. LUBIN. It makes it possible, does it not, for you to keep your people employed over more months in the year and not have to build up your labor supply to meet a relatively shorter market?

Mr. CARLTON. I think it tends to do that.

Dr. LUBIN. I was interested in what you said about the place of patents in your industry, in reply to a question asked you by Senator King. You said that as far as your own industry was concerned you felt that patents had been a very effective factor.

Now after all, your industry is dependent entirely upon the sale of automobiles, and irrespective of the patent situation in your own industry, if automobiles weren't sold in large numbers, patents or no patents, you people would be in a difficult position. Do you believe that patents have had anything to do with the development of the automobile industry as such, I mean has it been a really significant factor? Would we have had the development we have had of General Motors, of Ford, Chrysler, and so forth, without patents, or without our present patent system?

Mr. CARLTON. I made the statement, which I will try to repeat exactly as I made it. In my opinion our patent system, which I like to call a part of the American incentive system, has been the greatest single factor in the development of the great automobile which we have today, which is being sold at the lowest price that it was ever sold. Now, I make that statement after consulting this parts industry very carefully. I realize that so far as an original parts manufacturer is concerned, his business depends entirely upon the sale of automobiles. Once having signed a contract for a year, then we have to sit down and wait to see how much business comes in and we can't do anything about that, but we can do a lot about that before that year starts. If we can do something in the way of a part that makes that automobile more attractive to you, then we will make you want to buy a new car, and without any fear of our customers resenting it, I can say that I think that the parts fellow has contributed a very great deal to make this automobile what it is today, and when I say that