paid the factory workers today in this industry I am very safe in saying are 20 percent higher today than they were in 1936.

That means that wage rates today are higher than ever before in the history of this industry, and still our product is being sold at lower prices than ever before in the history of this industry.

Representative REECE. May I ask, Mr. Chairman, what percentage of the business of your industry is with the motor manufacturers? Mr. CARLTON. I have that figure in the very beginning; as I remember, it is 83 and a fraction percent of the business of this association that is directly with the manufacturer.

Representative REECE. And one other thing. Are all of the more important parts patented devices?

Mr. CARLTON. All of the parts are patented. I wouldn't say that there are fundamental patents covering all of them, but there are improvement patents, hundreds of them, covering every part, and it is upon those improvement patents and many fundamental patents that this industry relies.

Mr. DIENNER. Right at that point, Mr. Carlton, is there any patent, fundamental patent, on any part which is supplied on an automobile which would prevent somebody from supplying that part either in one form or another, to your knowledge?

Mr. CARLTON. That is a very interesting question. I have looked into that very thoroughly, Mr. Dienner, and I find that there is no one part of an automobile all forms of which are covered by a single patent or by a group of patents so that any one company has a monopoly on that one article. Now that means, saying it the other way, that a purchasing agent of an automobile company has competition today offered him on every single part that he wants to buy. He may want to buy a Carter carburetor, and that is protected, but he can buy a half dozen other kinds of carburetors. That is the way it goes down the line. He doesn't have to buy that one kind of a carburetor, so that there is competition for every one of these various items, and that is really a very healthy situation all down the line.

The CHAIRMAN. Would it be proper in your opinion to draw as a conclusion that the effect of the patent system when it is not diverted by means of closed patent pools is to maintain competition? Mr. CARLTON. Yes, sir; very decidedly so.

EFFECT OF ABOLITION OF PATENT SYSTEM ON COMPETITION

The CHAIRMAN. And would it be proper in your opinion to say that if the patent system were abandoned or were abolished, the effect upon competition would likely be bad?

Mr. CARLTON. Very bad, and result in a lessening of incentive; it might result in some stagnation.

I would like also just to mention one other phase that has come up so many times in this association. Patents are valued so much more by the small manufacturer than they are by the large manufacturer. The large manufacturer has built himself a terrific volume and by that volume possibly he is able to buy materials cheaper, he is able to set up one continuous line and he can run that one item without end, he may be able to set up a machine that will run it a year without ever changing his dies. Die changes are very, very expensive on these complicated dies. And he has that great advantage over the

small fellow, who has a very small amount of business here and there. Now the advantage that the small fellow has is a trick method of manufacture that the big fellow doesn't know about or that he can't afford to put in, or he has a patent on some little device that he can make a fine little living on. I have been surprised at the small manufacturers of this industry who employ 10, 20, 30, 40 men, and how well they do and how at the end of the year their percentage of profit is better, way higher, than the fellow who does business in millions, and so I thank that if anything happened to this patent system the fellow who would be hurt more than anyone else would be the smaller manufacturer. The bigger man gets his volume, and the more volume that he has accumulated and the more volume he is assured of the less he values the whole patent system, in my experience. At least I am sure that is true of this industry; I wouldn't want to translate that into any other industry except this one with which I am so familiar.

Mr. DIENNER. Mr. Carlton, one more important point I think you ought to cover. Do you know of any instance in your industry where a patent improvement has been deliberately withheld from the public or shelved in order to prevent its use?

Mr. CARLTON. No; I have never heard of anything of the kind. At a recent meeting of a large number of the members of this industry somebody brought that question up and they were all on their feet at once and everyone said, "Well, we have got over-capacity, we are looking for new things to make. If any of you have got a patent, and you are trying to hold it back, will you give us an opportunity to buy it or take a license under it and tell us what it is?" I don't believe there is anything like that in our industry. I am sure that there isn't.

PATENTS NOT USED TO ESTABLISH MONOPOLY

Mr. CARLTON. I would also like again to bring out that no one in this industry tries to establish a monopoly because of a patent. That works about this way: We realize that no one parts manufacturer can get all the business in the world. Therefore, we must recognize our competitors in the business. We realize also that all of the large manufacturers of automobiles are not going to confine themselves to one source of supply. They won't do that because of strikes and fires and all the other things that go into that, and therefore if we had a patented article that they wanted to buy and we wouldn't give anyone a license, that article would never go on the market in a big way. We realize that. We have found that out by experience. So common practice with us and it is common practice with a lot of other people making other things than we make-is to try to get ourselves some business from these large manufacturers and then say, "We know that you won't give us all this business and we don't want it all. Give us a part of your business and we will give you a license to make or have made." So all we want is protection to get ourselves some business and get our development expense and so forth out of the thing.

I think I am about through. I had a little philosophy of my theory of this thing.

Mr. PEOPLES. Mr. Chairman, before Mr. Carlton gets down to his summary, I would appreciate very much, by reason of his intimacy with the trade in general, if when you come to the marketing practices

of your corporation, you would say, Do you establish list prices for the guidance of the different dealers and the sale of spares to the public? Mr. CARLTON. I am glad you asked that.

Mr. PEOPLES. And also what effect that list may have on the list prices of your competitots.

Mr. CARLTON. First of all, practically all of my discussion so far has been directed to the original equipment business, that is, stuff sold to the manufacturer of automobiles. In my company our automotive sales are 90-odd, 96 or 97 percent of all of our volume. We sell nothing to the consumer, nothing to dealers, except service parts. Your question is directed to those people who sell replacement parts and accessories. The practice of those people selling replacement parts and accessories is almost universally to sell an accessory at a net price to the distributor. They don't sell to dealers some of them do, some sell to dealers-the great majority is sold to the distributor; the majority of them, not all of them but the majority, sell to that distributor at a net price. They may have a recommended list price, resale price, but that varies all around the United States. I know of no attempt in this industry to try to maintain the resale price, if that is what you mean, a list price or a resale price. There are companies that follow the other practice of a list with a discount from list.

Now they do that- we do that in some instances on a wheel; where a service station wants to handle a wheel out of New York City we go to our customer and find out what his prices are on wheels in order that we may sell to the Packard dealer in New York Citywe don't sell the consumer at all. We want to be able to have our distributor in New York City sell to that Packard dealer at the same identical price that Packard can sell to the Packard dealer. We prefer in the beginning that Packard sell that dealer all of his service parts, but Packard says to us, possibly not Packard, but I am using that only as an example, "Over a period of 10 or 20 years we have changed wheels and sizes and types until any one dealer just can't have all these wheels so that if you break a wheel, have an accident, and you come in and pick one of those out of stock, you just can't do it." So there has grown up in this country wheel service stations who specialize in carrying wheels back 20 years, where that dealer can pull that wheel out of stock if it is 20 years old. That dealer wants to buy that wheel at the same price he would if he would wait 4 or 5 days and get it from the factory, so there is a list price, not a list price but a net price to our dealer so that he can sell the car dealer at the same price as though he got it from his own factory. Mr. PEOPLES. And your competitors follow the same practice? Mr. CARLTON. Yes; in the wheel business.

Mr. PEOPLES. Then the prices, when it comes to the ultimate purchaser, may be essentially the same.

Mr. CARLTON. Probably about the same.

Mr. PEOPLES. The same over a period of time, 2 months, 3 months, 6 months?

Mr. CARLTON. Yes; and those prices, for example on a wheel on a car that you want this year, are lower than on a car 10 years old. Mr. PEOPLES. Exactly so.

Mr. CARLTON. Because it costs a lot of money to carry that thing around for 10 years, but that fellow may be glad to get rid of it, he might sell it at any old price. We don't try to maintain those prices.

Senator KING. The prices would differ, I imagine, based upon your freight rates. You would sell to some person in Omaha or San Francisco

Mr. CARLTON (interposing). That is right, very materially.

Senator KING (continuing). Where the freight rate would be much greater than if you sold in New York City at a price entirely different. Mr. CARLTON. Yes; and again I want you to understand that we don't sell the retailer, the car owner, anything under any conditions. Mr. PEOPLES. I was trying to arrive at the practice.

Mr. CARLTON. Neither do we maintain any retail prices.

The CHAIRMAN. You don't maintain a standard price throughout the country?

Mr. CARLTON. No, sir.

Representative WILLIAMS. Do the dealers?

Mr. CARLTON. Not throughout the country.

Mr. PEOPLES. They do it by regions?

Mr. CARLTON. Oh, they set their own price. The man on the Pacific coast figures what he can get out there and adds whatever the freight is and sets any kind of price he wants to set.

Mr. PEOPLES. Does any leading dealer in the industry, say, fix the price through a list price which is followed by his competitors in a given region or zone or geographical area?

Mr. CARLTON. Not in our industry. Not in my business. I am not talking of the industry because I am not familiar with all that retail thing.

Mr. DAVIS. Mr. Carlton, I didn't catch the exact name of the association of which you are president, the large association.

Mr. CARLTON. It is Automotive Parts & Equipment Manufacturers, Inc. Now it is commonly called the Automotive Parts & Equipment Manufacturers Association.

Mr. DAVIS. That is an incorporated association?

Mr. CARLTON. Yes, sir.

Mr. DAVIS. Is stock owned in it, issued and owned by the different members thereof?

Mr. CARLTON. No. It is a nonprofit corporation.

Mr. DAVIS. How many members has your association?

Mr. CARLTON. 375 at the present time.

Mr. DAVIS. As I understand, that is made up of the manufacturers of most of the parts, some of which are not related to or in competition with other parts. For instance, there is no relation or competition between a car wheel and a speedometer.

Mr. CARLTON. That is right.

Mr. DAVIS. Just what function generally is performed by this association of people manufacturing different parts which do not have any relation to each other except that they are parts of an automobile? Mr. CARLTON. First of all, every 4 weeks every member of this association reports the number of men on his pay roll, the number of women, his pay roll, his actual wage rates, his productive and nonproductive labor, the number of salaried people, his total salaried pay roll. Once a year he reports his sales volume broken down into all of the various classifications of our industry. Our industry (I haven't gone into detail) is broken down into a lot of classifications. Then there is available for any member of the industry-if a labor union comes and says, "You are not paying the right wages," they can call

upon us at any time and we can furnish them not any individual rates, we don't furnish the individual wage of any competitor, that is secret information, but we can furnish them the average wage being paid by all of his competitors, or we classify those by cities and by all of the various classifications of jobs in cities; we have big job sheets by which we classify wages by jobs in a city. We have one for Toledo, one for Chicago, and Detroit, every city in which we operate, so that a man has that sheet and he can look at that at any time and find out whether or not he is in line with the other fellow, whether he is up to the other fellow, whether he is liable to get in trouble because he isn't up to the other fellow. It isn't any attempt to hold wages down, it is an attempt to be sure that he keeps out of trouble. Those sheets are even made available to some of these customers of ours. He has a source of supply and he hears of trouble and he calls us up and says, "How does that fellow check up in his home town?"

We say, "Well, he is a little bit low." He calls him in and says, "Hey! What are you paying in your home town? What wages are you paying?" If he is too low he tells him so. That is a healthy situation in an industry.

In addition to that-pardon me.

Mr. DAVIS. Are the wages uniform, we will say, in the same city or same area whether they are working on car wheels or speedometers or shield wipers or any other parts? Are they all uniform?

Mr. CARLTON. Oh, no; they do vary somewhat, Judge, by industry. In other words, a man doing a very heavy type of work may get a little different rate, but in a given group if a man is making leaf springs in the city of Detroit, the chances are that the wages for leaf springs are all about the same. The union takes care of that pretty well. It is a pretty thoroughly unionized industry, especially in cities, not in the smaller towns, and if the union came to you and said, "We want an increase and you are not paying as much as your competitors," you wouldn't know, you wouldn't have to call your competitor, you could call the association and it would tell you exactly where you stand with the other people in town, Mr. A, B, C, D; you wouldn't know who they were, but you would have them all.

In addition to that we have a labor-relations department that is advising them on all matters of labor difficulties in order to keep peace in the industry. It is very active in that matter. It is a very necessary thing. If one of these parts plants closes it is a very serious situation; it stops the automobile plant immediately. They carry very, very small inventories. The inventory is in the parts plant, in the plant of the parts company, and in transit to a large extent; there is some on hand there; and it can't be closed without closing the automobile company and causing a terrific lay-off in all other industries. So they are working very carefully with a considerable cooperation with the union at the present time.

The CHAIRMAN. Where do most of your patents come from? I mean where do the ideas come from? From within your organization or from outsiders?

Mr. CARLTON. Speaking first of all of my own company, the majority of our patents have come from within our own organization, from our own development, although we have bought a large number of patents from the outside. We are buying from time to time patents that come to us from the outside.