The CHAIRMAN. What would you say is the opportunity for the unattached inventor to dispose of a useful patent in this industry? Mr. CARLTON. I think it is very, very great. I know that in every branch of this industry there is a constant procession of purchases of patents going on all of the time.

The CHAIRMAN. You said earlier in your testimony that your industry has reached that degree of stabilization in which the members have abandoned litigation among themselves with respect to patents. Mr. CARLTON. That isn't true of the whole industry. There is litigation going on among members of this association, not in the wheel industry there isn't, but among other people.

The CHAIRMAN. You mean among members of the association? Mr. CARLTON. Oh, yes.

The CHAIRMAN. So that that has not been completely eliminated? Mr. CARLTON. Oh, no.

The CHAIRMAN. How about litigation between members of the industry, manufacturers, and these unattached inventors? Is there much of that?

Mr. CARLTON. There is plenty of that going on all the time, sir. The CHAIRMAN. Your associates or companies have been defendants in infringement suits, have they?

Mr. CARLTON. Many times.

The CHAIRMAN. The reason I am asking the question is the complaint is frequently made to Members of Congress, I know it has been made to me many times, on the part of inventors that their devices have been pirated by manufacturers who just put them to their remedy in the courts and when they are unable to finance a lawsuit they are unable to protect themselves. A case was described to me only yesterday after the conclusion of the testimony here, by a woman who was seated in the audience who came to my office later on, to say that her husband had invented a certain device and a patent had been issued, that this device was being used by a large business concern, that she went to a lawyer, the lawyer originally said it was a good case and he would take it, but that he afterward withdrew from the case; she had no money, her husband had no money, there was no possibility of her paying the lawyer's fee.

I wonder what out of your experience you would care to say to this committee with respect to the chances of an independent, unattached inventor to protect himself under the present patent system from the use of his device by a well-established concern, fortified with money and lawyers, and so forth.

Mr. CARLTON. First of all, I think, in fact I know, that the people in this entire industry are basically very honest.

The CHAIRMAN. I believe that is true of most industries, too.

Mr. CARLTON. They have found that it pays to be very honest. They have gotten in more trouble by trying the other thing, and it is just financially good business, and therefore every improvement or so-called invention

The CHAIRMAN (interposing). Are we to infer that the other thing has been tried?

Mr. CARLTON. I think it has; yes. Every improvement or socalled invention is put into this patent office in order that we may protect ourselves. Secondly, we have never put anything into production without the most careful and thorough search to be sure that

we are not infringing something else. It is easier to do it that way than to have the fellow jump on you after you get into production. When we find there is something that we might infringe, we contact that patentee and we try to get a license. In practically every case we are satisfied with a nonexclusive license, or if he wants to sell the patent for a reasonable amount we might buy the patent. Now where the manufacturer gets in difficulty, my experience has been in 25 years that practically every time we have gotten in trouble is where we have unknowingly and unwittingly infringed a patent, or where we have gotten into production and then after we have gotten into production and gone along for a number of years, a patent has popped out of the Office that we didn't know was here. Then we are in difficulty.

In those cases sometimes we settle, sometimes we take a license and pay royalties, sometimes our attorneys advise us that we don't infringe and it goes to suit, and we lose, and we pay what we have to

pay.

I know of no cases of an inventor who has been unable to finance a lawsuit. There seems to be about the same degree of overproduction of patent lawyers as there is of wheel production, and there seem to be plenty of them that are willing to take these cases and take their chance on what comes out of the case. I know that we have been prosecuted, and maybe persecuted, in cases by lawyers who took the thing on a contingent basis, and I think your friend was unfortunate that she didn't contact the right man.

The CHAIRMAN. Your judgment, out of your experience, is that the unattached inventor has an opportunity to exploit his device under the present system.

Mr. CARLTON. I certainly think so; yes.

The CHAIRMAN. And do you want us to understand that out of your experience you believe that manufacturers as a practice do not attempt to pirate devices without proper compensation?

Mr. CARLTON. No, sir; they do not in this industry.

The CHAIRMAN. I was interested in your discussion at the outset of your testimony of the relationship between the members of your industry and the automobile manufacturer. You spoke of sort of a competitor-customer relationship. Can you go into that a little further? Tell us something about the effect, if any, which the automobile manufacturer exercises or exerts upon members of your association.

Mr. CARLTON. That effect is probably a very excellent incentive. That effect keeps the parts manufacturer on his toes because the automobile manufacturer is going to buy the best product that he can buy and he is going to buy that product at a price which he thinks is very fair. There are all sorts of variations of this thing, but we might take this example. A manufacturer might make a part of a given automobile device himself in his own factory. Making that device, he keeps very careful check of his cost, and therefore he determines about what he is going to pay for that device, and he has a club over the parts manufacturer's head.

I think he has been fair about it. He knows if he doesn't allow the parts manufacturer a profit, he won't be in business and he will lose his source of supply. But he isn't going to allow him an exorbitant profit. On the other hand, another manufacturer may buy

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 mechanicand 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?