Lapas attēli
PDF
ePub

assets of those two companies and also buying some other patents directly, but we didn't acquire anything when we acquired the companies. I know one company, the net liquidated amount we got out of it was $72,000. That is what we had in physical what-have-you that we got, but we did get the patents, and we bought ourselves out of a lawsuit and out of trouble.

From the other company we got some patents, oh, several hundred, and I would hate to pick one patent out of them and say it was very good, but there were so many of them that they scared you to death.

Now, to answer the rest of your question, another company purchased at least one-at least one other company was purchased by one of our competitors, and the rest of them went out of business because of financial difficulties.

A large number of those, Judge, went out of business when the wood wheel went out of business. When the wood wheel vanished they were tooled to make nothing but wood wheels, and when they no longer could convince the public to wear that kind of bonnet-and that is about what it is, the public is changeable about the way wheels look about the way women are with their hats-they couldn't afford to tool up to go into wire wheels.

Incidentally, there was a serious patent on wire wheels, and we took a license under that and paid very high royalties for some length of time.

Some of them just folded up and liquidated and went out of business. More of them did that than failed. They quit. Some of them died of old age; some of them died of stagnation, because they couldn't keep up with the parade.

That is about what happened to the rest of these fellows, until it got down to three who are in pretty good shape today to stand the battle.

The CHAIRMAN. That was before the stabilization of which you spoke a little bit earlier?

Mr. CARLTON. Yes.

The CHAIRMAN. Now, under the present understanding, what is the position of future patents?

Mr. CARLTON. There are a large number of these licenses. There is no agreement among these three companies that says we will give you a license under everything we have. It started back in woodwheel days, when we got into an awful jam about rims, and we got sued by an outsider, as we call him, and then we bought his patents.

You would be surprised; we paid $750,000 for some patents just on a rim that goes on wheels. Then we licensed everybody that wanted to be licensed, everybody who wanted a license on rims, and we gave him a paid-up license without any royalty.

Then it went into wire wheels, and then it went into brake drums, and then it went into the processes of manufacturing. I don't know how many of these licenses there are, but they have accumulated, but each one of them is an individual license from me to you in return for a license on the same thing from you to me, without any restrictions whatsoever or any conditions or any royalties.

The CHAIRMAN. In other words, you don't have a general crosslicensing agreement.

Mr. CARLTON. No.

The CHAIRMAN. It is merely an understanding.

Mr. CARLTON. Then in some of these licenses there is this provision about new patents, which says that "The license gives you everything that I now have and all that I shall in the future invent for 15 years, but if at any time I make what I consider an outstanding invention, that I feel is revolutionary, and I don't want to give it to you, I shall then notify you of that invention and it is then my privilege to withdraw it from the cross-licensing agreement."

Mr. DIENNER. Mr. Carlton, at this point you might well tell us the effect upon the quoting of prices by a competitor. Assume that he had a license which he got through compulsion or otherwise, not intending actually to use it. What would be the effect of that?

Mr. CARLTON. Well, Mr. Dienner, that has been a wicked practice in this industry. I have known people within this industry who were so anxious to be free and easy with their patents that competitors have come to them and said, "I sort of like that thing you make; I would like a license under it." They agree upon one and agree upon a royalty, and this has actually happened: The competitor who got the license didn't want to manufacture it. It costs a lot to tool up to make it. He had a device which he was selling. What he wanted to do was to quote on the other fellow's product. Having got the license, be quoted a low price, a lower price than the article should be sold at, and he made a monkey of the other fellow's product and boosted his own product.

In one case he got some business and he couldn't manufacture it and he couldn't deliver. Then he asked for time to tool up. At the end of the year the original fellow got the business back.

There is great danger in a free idea of just handing the other fellow a license unless you know he is going to use it. Of course that could be stopped by a very high minimum royalty which would be so high that he couldn't afford to pay it unless he was serious and was going into the manufacturing business, but in this industry, wherever there are licenses granted, the rate of royalty has been very low, because if you are going to stay in business in this industry your profit area is very small. The profit area in this original equipment business you can easily determine by looking at those companies that are listed upon the national exchanges. In 1937 you will find they ran as low as 2 percent, and, I think, none of them higher than 10 percent. Does that answer your question, Mr. Dienner?

Mr. DIENNER. One more point. Assume that there were a system of compulsory licenses, how would that operate on this quoting practice?

Mr. CARLTON. What is that?

Mr. DIENNER. Assume that there were a system of compulsory licenses, namely, that another competitor could come to you and demand a license, what would be the effect of such compulsory license law or provision on this practice of quoting?

Mr. CARLTON. Well, it would be just the effect that I now mention. It would be ruin to the fellow's business if it got in the hands of a vicious competitor.

Senator KING. Mr. Dienner, I haven't heard the suggestion made, and perhaps it is because of my lack of information or inquiry, that there should be compulsory license for patents which are being used. The suggestions which I have heard made were that if a patent was not used, within a reasonable length of time, and there was no evidence

that the patentee intended to use it, then application might be made to the court under proper restrictions, to license the patent.

The CHAIRMAN. Senator King, I merely wanted to bring out practically the full picture of where the compulsory license certainly should not extend.

Senator KING. May I ask one question, hardly pertinent to what has been stated. I assume from what you have said, however, that with all of these changes, this mortality that has occurred, there has been a general improvement in the products which have been manufactured by your association as well as by organizations not within your sssociation.

Mr. CARLTON. Yes, sir; Senator, and to my very best knowledge and belief, there is not one part of an automobile manufactured and sold today by a parts company which is not better from every standpoint than ever before, and which is not being sold to the manufacturer of automobiles and trucks at a lower price today than it has ever before sold in the history of the industry. A wheel, for example, today, is being sold for 20 percent less than a wheel for the same car was sold 5 years ago.

Senator KING. In view of the small profit you have indicated, from 2 to 10 percent, and the great mortality, I marvel that there should be capital available for the automotive industry, especially the parts. People must have a good deal of the gambling spirit, it would seem to me, to invest in an enterprise, in an industry, where the mortality was so great.

Mr. CARLTON. That is true, Senator, and it is true that very few new companies are coming up in the parts industry today. It is very rare that a new company starts. On the other hand, we deal in terrific volume of business, and once a company is started and acquires that volume, a percentage of net return at the end of the year of 5 percent will net the investor a very fair return, and parts companies have made a fair return on their money over a period of years. Senator KING. That is, some companies.

Mr. CARLTON. Yes.

The CHAIRMAN. The survivors.

Dr. DIENNER. Mr. Carlton, you have mentioned the fact that parts now sold are generally of better character and lower price than they have ever been. How is that possible? How are you able to do that?

Mr. CARLTON. You are able to do that by better manufacturing methods, and particularly by constantly improving your product so that it is more easy to manufacture. For instance, a wheel today is manufactured on machines that produce greater quantities of wheels in an hour, and that wheel can be produced of material which can be purchased at lower cost than formerly. The wheel is just a type of wheel which can be made lighter than every before.

Mr. DIENNER. Do you think that patents had anything to do with this situation?

Mr. CARLTON. They had a very great deal to do with the situation. The development has been constant and everlasting, and the improvement patents are the protection that we have, and without those continuing improvement patents, our customers and those people that look upon our industry and see us make money in 1 year might step in and take our business away from us.

Labor rates have increased constantly in this industry until we have a situation today that seems very unusual, in that the wage rates

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 manufacThe 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.

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

« iepriekšējāTurpināt »