time with respect to traffic problems. Our chief interest in this association at this time is the fact that the association is the medium by which a cross-licensing agreement has been carried on in the motorcar industries since 1914. I propose to go into that cross-licensing agreement, its history, the reasons for its adoption and what its effect has been in the industry, with another witness.

I am attempting now merely to develop the attitude of the Ford Co. with respect to the association and the cross-licensing agreement. The CHAIRMAN. Thank you, Mr. Cox. You may proceed.

Mr. Cox. Will you tell us, Mr. Ford, why your company has never belonged to the Association of Automobile Manufacturers?

Mr. FORD. Mr. Cox, the original association was formed around a patent known as the Selden patent, and the association was known as the Association of Licensed Automobile Manufacturers. We fought that patent.

Mr. Cox. Will you tell us about what time this was?

Mr. FORD. We were sued under the Selden patent in 1903.1 The Ford Motor Co. was organized in June 1903, and the company was sued in October 1903, and it carried through litigation until 1911. Mr. Cox. That patent was a broad patent, was it not?

Mr. FORD. It was a very broad combination patent, supposedly covering the automobile as a unit.

Mr. Cox. Covered any and all kinds of gasoline automobiles?
Mr. FORD. That was the claim.

Mr. ARNOLD. It was in effect a patent on the idea of having an automobile, running it, wasn't it?

Mr. FORD. I think so.

Mr. Cox. Do you remember whether the Ford Co. ever applied for a license under that patent?

Mr. FORD. I understand that it did.

Mr. Cox. Your father?

Mr. FORD. My father; yes.

Mr. Cox. Can you tell us what happened in that connection, Mr. Ford?

Mr. FORD. I can't recall exactly the date this took place, but it was at one time during the course of the early days of the Ford Motor Co., when we were a small manufacturer and getting started. The association had been started and had acquired numerous motor companies as members. These members paid a license fee to the association under the Selden patent. My father inquired of one of the officers of the association if it were possible to join this association and become a member as the other motor-car companies were. He was told, I understand, he had best go out and manufacture some motor cars and gain a reputation and prove that he wasn't a fly-by-night producer before he should ask for a membership in this association.

Mr. Cox. They weren't sure your father was the proper kind of person to make motor cars?

Mr. FORD. So I understand. [Laughter.]

Mr. Cox. Of course it would be rather difficult, assuming that that patent was valid, for your father to make a reputation manufacturing motor cars without a license.

1 See corrected statement of Mr. Ford, infra, p. 271.

Mr. FORD. If the patent had been sustained, I think the Ford Motor Co. would have been put out of business or would have become a member of the association, one or the other.

Mr. Cox. The association sued your father's company immediately after this refusal of a license, is that a fact?

Mr. FORD. In 1903, in October, the company was sued by the

association.

Mr. Cox. Perhaps Mr. Farley can tell us the steps in that litigation.

The CHAIRMAN. May I interrupt before that question is answered? Mr. Ford, did this association of which you speak charge a royalty for the use of this patent?

Mr. FORD. Yes, sir.

Mr. Cox. What was that royalty, Mr. Ford?

Mr. FARLEY. It was originally $15 a car and then later changed to a percentage of 14 percent of the sale price of the car.

Mr. Cox. It might be interesting, Mr. Farley, if you could tell us whether the association, that association, adopted a very aggressive litigation policy.

Mr. FARLEY. I would say it had adopted a most aggressive not only litigation policy but publicity campaign in connection with the Selden patent. There are some very interesting phases of the matter. The association apparently was organized or instigated by the then Pope-Hartford Co. which had contemplated putting a machine on the market, and they had a patent attorney in their employ who had run across the Selden patent and advised his company that they couldn't manufacture without infringing, and then steps were taken to organize the Association of Licensed Manufacturers. The first part of the litigation was conducted by suit against the Winton Co. and against various dealers and users of automobiles. Consent decrees were obtained against some people and particularly the suit against the Winton Co. was settled about a day or two before the consent decree was issued and there were provisions to the extent that the Winton Co. would have a rebate of $50,000 given to it on its future license payments. They had worked up quite a defense, but included in the settlement agreement was a payment to the attorneys of the then Winton Co. and all of the defense material was turned over to the attorneys for the association, so that when the Ford case came to trial a great deal of the defense material which had been procured earlier was no longer to be found, and the Ford Co. then was compelled to begin its actual trial work in which a great many items of defense, so I understand, were no longer available to it.

Mr. Cox. Is it true, Mr. Farley, that that association threatened to sue not only the manufacturers who were asserted to be infringing the patent, but also any ultimate consumer who bought a motor car and operated it?

Mr. FARLEY. The record of the Selden case shows and contains many of the advertisements that were appearing in the papers at that time in which users were notified that they would be equally liable as infringers or as much liable as infringers as the manufacturer, which, of course, is true under the provisions of the patent law.

Mr. Cox. That suit was first heard in the district court in the usual manner, wasn't it, Mr. Farley? Just tell us what happened in the steps of the suit.

Mr. FARLEY. In the trial in the district court, of course, a great many witnesses were called, the plaintiffs had a most imposing array of counsel and had imported for the purpose of the case one of the best known and earliest writers on the internal combustion engine from England, Sir Dugald Clerk. He was the principal expert for the plaintiff, and I don't know how long the trial lasted, but finally the district court decided the case against the Ford Co. The history of the case and the facts involved seem to me are brought out better by some of the excerpts from the decisions of the court. I have made some extracts and I can either introduce those in the record and save time, or whatever you prefer.

Mr. Cox. We might deal with them that way. I am primarily interested in the steps in the litigation sense of the decisions which were made. The case then was appealed to the circuit court of appeals?

Mr. FARLEY. Yes; the case was then appealed to the circuit court of appeals and the decision was rendered September 19, 1909, and the decision in the upper court was in 1911, in January, in which the upper court reversed the decision of Judge Hough and held that the patent though valid should be restricted to the particular type of engine shown in the Selden patent and that the Ford construction did not infringe.

The CHAIRMAN. What is the citation of those cases?

Mr. FARLEY. The lower case is cited in 172 Federal Reporter, page 923, and the upper case is in Second Circuit Court of Appeals reported at 184 Federal Reporter, page 895. They limited the Selden patent and restricted it to certain phases but not to combustion engines with modifications which other corporations adopted.

Briefly, the situation there was that Selden had a combination claim in which he included in his claim the type of an engine which he defined as "a liquid hydrocarbon gas engine of the compression type." He had selected a type of internal-combustion engine known as the Brayton engine which was designed to simulate as nearly as possible the pressure cycles of the steam engine, and it was a two-cycle engine with a pump on the outside in which the gas was compressed and the gas sent into the combustion chamber and ignited by a flame. He had no carburetor, no electric ignition, and Mr. Ford, of the Ford Co.-in fact, all of the developers of practical automobiles of that day had all used what was known as the Otto 4-cycle engine with electric ignition and carburetor and all that sort of thing.

The CHAIRMAN. Mr. Cox, if it is not inconvenient for you now, and if no member of the committee desires to ask a question

Dr. LUBIN (interposing). Mr. Farley, do you know whether the association under the Selden patents ever sued a consumer for violation of the patent?

Mr. FARLEY. You mean a user? It is my understanding that is true. A survey in the examination of the Selden case was made a short time ago, in 1931, in fact, not at all having anything to do with this case, and there was one case that was brought against

a user.

Mr. Cox. I think it is just a letter threatening suit. I think it was a matter of threat.

Mr. FARLEY. There were threats, but we have in this notation a case of a man by the name of Moore who bought a car known as the Martini. It seems that he left New York; he was quite a sportsman, or something, a wealthy man and left New York and went to Texas and never appeared, and as I understand it, a consent decree was obtained against him and injunction issued. I take that, however, from this article, something that I prefer to check with the records in the New York office.

Mr. ARNOLD. In any event, no one there had the resources to fight this hampering on the manufacturing of motor cars to a successful conclusion. That is a fact, isn't it?

Mr. FARLEY. I think that is probably quite true.

The CHAIRMAN. At least nobody else did.

Mr. PATTERSON. I have a question I would like to have cleared up in my mind, Mr. Ford. When the Ford Co. was beginning in the industry, did it then have a free licensing policy, at the beginning, the start? 1

Mr. FORD. I would think so, but I am not positive. It was before my time, and I don't remember positively.

Mr. PATTERSON. When the Ford Co. assists patentees to develop and manufacture-we were on that topic a half hour ago-what does the Ford Co. ask in return for that assistance in manufacturing and developing patents?

Mr. FORD. Nothing, except the right to use the article which we purchase.

Mr. PATTERSON. That is my understanding. I merely wanted to clear it up.

The CHAIRMAN. This policy of free licensing was not adopted at the very beginning?

Mr. FORD. I don't recall.

The CHAIRMAN. Wasn't it your original testimony that you did have a license at the beginning?

Mr. FORD. We sued once, and we granted one license; but I don't think that would make a general policy.

Mr. Cox. To clear that one instance up, isn't it a fact that the one instance where you sued another manufacturer, that was done at the time that manufacturer was a member of the association, and you were engaged in a controversy with the association over the Selden patent? Mr. FORD. That is right. They were an aggressive member of the association and they were pursuing us and we felt that we had this basic patent that they were using and we thought we might retaliate. The CHAIRMAN. If there are no other questions at this time, the committee will stand in recess.

Mr. FORD. May I make a correction? I made the statement awhile ago that the Association of Licensed Automobile Manufacturers sued the Ford Motor Co. My information here is that it was brought in the lower court by the Electric Vehicle Co. and George B. Selden. (Whereupon at 12 noon a recess was taken until 2 p. m. of the same day.)

1 See, infra, p. 273, et seq., for additional testimony re early patent policy of Ford Co.

AFTERNOON SESSION

The committee resumed at 2:04 p. m., on the expiration of the

recess.

The CHAIRMAN. The committee will please come to order. Mr. Cox, are you ready to proceed?

Mr. Cox. Yes, sir.

TESTIMONY OF EDSEL FORD, PRESIDENT, AND I. JOSEPH FARLEY, PATENT COUNSEL, FORD MOTOR CO., DETROIT, MICH.-Resumed

Mr. Cox. Before the committee arose, Mr. Ford, we were discussing the Selden suit and the relations between your father and the Association of Automobile Manufacturers at that time. I understood you to testify, in effect, that from the day that your father was refused a license by that association it has been the policy of the Ford Co. not to belong to that association or any successors of it, and not to be a party to any cross-licensing agreement. Is that correct?

Mr. FORD. That is our general policy. We did belong as members of a nonlicense association at one time, during the early days of the industry, an association of members of motorcar manufacturers that were not operating under the so-called Selden patents.

Mr. Cox. How long ago was that?

Mr. FORD. That was in the same period, between 1903 and 1909, I think.

Mr. Cox. Do you recall when you ceased to be a member of that? Mr. FORD. No; I do not.

Mr. Cox. You are aware, of course, Mr. Ford, that the policy of the Association of Automobile Manufacturers has changed since 1911, so far as the granting of licenses is concerned, under the terms of their cross-licensing agreement?

Mr. FORD. I don't quite understand what you mean, Mr. Cox.

The CHAIRMAN. May I ask the interrogators and the witness to talk into the microphones? The questions and answers are not being heard.

Mr. Cox. I will put the question this way: Are you aware that it is now and has been for some time the policy of the Association of Automobile Manufacturers not to refuse membership in their crosslicensing agreement to anyone who wishes to become a member?

Mr. FORD. I understand that is the policy at the present time.

Mr. Cox. Do you also understand that that policy has been the policy for a number of years?

Mr. FORD. Yes, sir.

Mr. Cox. Despite that change in their policy from the policy that was pursued in 1911, your companies have nevertheless not seen fit to join the association?

Mr. FORD. That is right.

Mr. Cox. Not because there was any denial of your right to join but because you preferred not to?

Mr. FORD. As a matter of policy we preferred not to.

Mr. Cox. Do you have any opinion as to whether the cross-licensing agreement, which is administered by that association, has been or is a beneficial thing for the automotive industry?