build it up again; after going through the last depression it has been rather hard on savings and then, as I say, a four and a half million dollar new plant besides.

Representative WILLIAMS. Is the stock in your corporation widely

held?

Mr. BAEKELAND. No, it is not; there are not very many stockholders.

Representative WILLIAMS. Rather closely held?

Mr. BAEKELAND. You see, my father started with some friends, invited some friends to come in with him, and there has not been any large increase in stockholding.

The CHAIRMAN. You have testified, I think, at the beginning that it was not necessary to borrow any money?

Mr. BAEKELAND. No.

The CHAIRMAN. Either by way of bank loans or by way of bond issue?

Mr. BAEKELAND. Or stock issues except the original 250,000. I think that was the figure. I am not sure, but I believe that was the figure.

Dr. LUBIN. Mr. Baekeland, if I understand you correctly, you do not make any of these products; you only make the raw materials out of which these products are made?

Mr. BAEKELAND. That is correct, Dr. Lubin. Our customers make those products.

Dr. LUBIN. Now you have competitors like Catalin and others; do you not?

Mr. BAEKELAND. Yes.

Dr. LUBIN. Do they have patents?

Mr. BAEKELAND. They have.

Dr. LUBIN. Is their business built up?

Mr. BAEKELAND. They have some patents. This plastics business, though, except in certain branches of it, is not very much restricted with patents today. Our basic patents expired in 1926.

Dr. LUBIN. In other words, then, the use of these plastics in new forms and developing new arts, as it were, grows out of the possibility of using new material to do something that was formerly made out of something else, irrespective of patents; is that so?

Mr. BAEKELAND. It might have been made out of something else, and it might not have been made at all before, because these materials make it possible to make things which before had not been made, and in other cases it might have been made out of something else. Now for example, here is a switch plate. If that switch plate has been made out of brass, what happens? It looked quite nice when you bought it, and then the dirty thing got all tarnished, black and nasty, and in cold weather you walk across the rug and get a nice shock from the brass. Well, this thing here is cheaper than the brass and it is better than the brass, and never tarnishes. If you want a white color you have got it. Now, in that way it replaces brass, but in other respects it gives you what brass never gave you before.

Dr. LUBIN. And in addition you can buy it at Woolworth's where you could not buy the brass ones before. Here is a raw material that you have developed. Now, the use of that raw material, its entry into the arts, is entirely independent of any patent system of any sort? I mean if I conceived the idea of building something and

I find that I can build it more cheaply with your raw materials than I can out of steel or wood, or something else, or that through this raw material I can make something that otherwise could not be made

Mr. BAEKELAND (interposing). Or better; often it is because it is better.

Dr. LUBIN. ——I am in a position to take advantage of that and the public gets that advantage?

Mr. BAEKELAND. Yes.

Dr. LUBIN. What I am trying to get at is the whole question as to how far this development might have taken place. Somebody discovers a plastic. I find that I can use that plastic in making something and I would do it irrespective of the existence of a patent, would I not?

Mr. BAEKELAND. I think I lost the trend of your question. would have what?

You

Dr. LUBIN. I would have used your plastic, irrespective of the existence of a patent system. If I know of the existence of a raw material that I might use, I would use it if I could produce my product more cheaply with your raw material than I can with somebody else's? Mr. BAEKELAND. Yes.

Dr. LUBIN. Consequently, even though there had been no patent system and somebody conceived the idea of a plastic, plastics would have entered into the arts, would they not?

Mr. BAEKELAND. But you would not have had all these things without a patent system to protect them.

Dr. LUBIN. There is no patent system protecting this device or this device?

Mr. BAEKELAND. Not today, but it took a lot of work and a lot of expense and a lot of risk to introduce those things. You would be amazed how much trouble we had to get that thing into use in the telephone company, or that for a radio cabinet. It is not as easy as all that. Now there have been years of development work and sales effort and introductory effort.

The CHAIRMAN. If you told Dr. Lubin what the original patent was, that would answer the question that he has in mind, and how the industry was built up in relation to the patents which were received. Mr. BAEKELAND. Yes; the industry was built up.

The CHAIRMAN. Can you just illustrate that to us briefly?

Mr. BAEKELAND. Well, of course having patents, having protection, the industry

The CHAIRMAN. The point is this, how much of this industry that you have been describing to us this afternoon is based upon the patent system and how much of it could have been developed without the use of a patent at all?

Mr. BAEKELAND. Every bit of it under patent system, every one of these materials. Their modifications have all been patented. The CHAIRMAN. But some of those patents have now expired? Mr. BAEKELAND. Oh, that is true.

The CHAIRMAN. The basic patents are expired. So you are telling the committee the industry is a direct result of patented devices? Mr. BAEKELAND. Precisely.

Senator KING. And the public now are getting the benefit of those patent devices because of the expiration of the patent? Mr. BAEKELAND. Certainly.

Senator KING. But you built up the industry under the patent system?

Mr. BAEKELAND. We did.

Dr. LUBIN. What I am trying to get at is whether you might not have built up the industry without the patent system. I am not convinced.

Mr. BAEKELAND. I certainly am.

Mr. DIENNER. Dr. Lubin, it may be you fail to appreciate the point that those materials or those devices that you have there require certain raw materials to be prepared and that you cannot walk out into the open market and in a drug store buy raw materials. The raw material which you must mold is the subject matter of the patents that Dr. Baekeland took out.

Mr. DIENNER. Now it would not have been possible for you to get the materials unless someone had supplies the materials and that is where Dr. Baekeland's patents and his industry come in.

Dr. LUBIN. My contention is that Mr. Baekeland's father had developed this new material and it became known to industry that such a material was available; they should use it and he produce it, whether or not there were patents if he could make it and industry wanted it?

LACK OF INCENTIVE TO INVENT WITHOUT PATENT PROTECTION

Mr. BAEKELAND. Well, now, Dr. Lubin, when he invented this it was the basis of this industry. It required a great deal of work to bring it to a point where it could be commercially utilized. He spent his own money on it in the early days, before the company was formed, and then with his own money and that of others he conducted research work; profits came in; they were put back into the business; more research work, development, more introductory work. He would not have gone ahead with that if he had not been protected because anybody could have come along and copied him. Who would have had to amortize the expense that he went to, the money he spent on research, in equipment that did not work and had to be junked, and other materials tried? And all that sort of thing. People don't go ahead without an incentive.

The CHAIRMAN. There would have been no motive for the development of the industry if there had not been a patent system? Your father would have found himself in precisely the position of the gentleman who left the stand just before you took the seat, who has been unable to find any person who is willing to manufacture an apparently useful device which he exhibited to the members of the committee because he cannot offer any patent protection?

Mr. BAEKELAND. Exactly, and there would not have been the continuing development. Now what this did for him, this patent system enabled him to build up a glass wall around himself, behind which he could work in security without being rushed and through which the public on the outside could peer in and see what he was doing, and wait until 17 years when they knocked the walls down and everybody could then come in. Now that is all that it did. It gave him a chance to work and develop, to improve and to do the things that a research worker does.

Dr. LUBIN. Perhaps I can clarify what I have in mind better by adding this question. In your research laboratories do you work only on the development of new materials or the improvement of existing materials, or do you also work on the possible uses of existing materials?

Mr. BAEKELAND. Yes; we work on those, and then we run into an anomaly when is a patent not a patent, or when is a patent monopoly not a patent monopoly? I will tell you how that is.

Suppose we developed, suppose we had taken out a patent on this adhesive tape. On this adhesive tape, incidentally, a patent was applied for. It is coated with one of our materials and what it produces is an adhesive tape that you can keep on for weeks, and go in swimming twice a day, and it doesn't come off or come loose. You can wash it right off; dirt doesn't stick to it. It has certain advantages.

We developed the material. We did not develop the adhesive tape. We turned it over to an adhesive tape manufacturer who came to us wanting this kind of coating. He applied for the patent.

Suppose we had applied for that patent, or taken out a patent on adhesive tape. The law doesn't permit us to issue a license to an adhesive tape manufacturer under the patent with the proviso that he must buy his material from us. That is against the antitrust laws. So what we have to do in those cases is to give the dear old customer the right to use the patent and hope that we can get our share of the business with our competitors.

We are not manufacturers of adhesive tape We are not in the patent licensing business, and although in theory we could license him and collect a royalty and sell him material, it doesn't work that way. When a man pays you a royalty he thinks he has given you enough, and if he is going to buy materials, he is going to do that from your competitor. He says, "Those fellows get enough from us on a royalty, and I'll be darned if I'll buy material from them too."

Dr. LUBIN. Here you have these laboratories, people working, finding new uses for existing materials upon which patents have expired. Despite the fact that you have no patent protection you go ahead and develop new uses for your materials.

Mr. BAEKELAND. Because they are added outlets for our materials. But if we didn't have the materials to fill the needs and use, we wouldn't be bothered with developing a use patent.

Dr. LUBIN. What I am getting at is, you can develop a new use for a certain product you have on which there is no patent, and your competitor can make exactly the same thing tomorrow once they have discovered it, yet you continue to produce these new things, despite the fact that your competitor can produce them immediately thereafter.

Mr. BAEKELAND. You mean in the case of a use patent?

Dr. LUBIN. You use your product in making these. Assuming now that the product out of which this is made-your research laboratory develops this, but you don't make them, other people make them. Mr. BAEKELAND. We didn't develop the switch plate.

Dr. LUBIN. I mean you do, in your laboratory, seek new uses for materials upon which patents have expired.

Mr. BAEKELAND. That is true.

Dr. LUBIN. Despite the fact that you have no patent protection and despite the fact that tomorrow, once you have found a new use

for your product, anybody can go out and make that product, just as you do.

Mr. BAEKELAND. Yes. If we run across it accidentally, yes; but we don't put our men to work on something like that. We would rather put them to work on something that is protected.

The CHAIRMAN. To what extent are the materials which your father and your company have developed, and upon which the patents have expired, being used now by competitors?

Mr. BAEKELAND. Widely.

The CHAIRMAN. That is the point, I think, the doctor was trying to develop.

Mr. BAEKELAND. These materials on which patents expiredThe CHAIRMAN (interposing). Your counsel is making applications for patents which are really improvements upon the basic patents? Mr. BAEKELAND. Yes; that is true too, but we hold our own in the field where the patents are expired through service to our customers. The CHAIRMAN. Then it comes down to what in the trade is called the "know how" and the reputation and the goodwill.

Mr. BAEKELAND. It is more than that. We give almost a professional service. Our customers are in constant touch with our sales engineers. They are not salesmen who go out and take orders.

Let us assume you are ready to go into business to make hardware. You are a hardware manufacturer and you want to make this kind of hardware. You don't know anything about the technic or anything of the sort. Our people will lay out a plant for you, specify optional equipment, recommend certain equipment for you to put in there. We will go so far as to try to get you personnel for a skeleton organization of that kind and get you started.

The CHAIRMAN. Yes; you endeavor to render an efficient service. Mr. BAEKELAND. An engineering service.

The CHAIRMAN. But there is nothing in the patent system or in any other system which prevents competitors of yours from using the materials upon which your patents have expired?

Mr. BAEKELAND. None whatever.

The CHAIRMAN. I think that is what Dr. Lubin had in mind.

Senator KING. In your research work do you discover new elements, if I may use that expression, and get a patent upon that new discovery? Perhaps the new element or the new product would be the result of a rearrangement of the molecules or the atoms of the various compounds out of which the product is made.

Now, do you find, in your investigations and in your researches, that you discover new processes which would permit you to obtain inventions for plastics?

Mr. BAEKELAND. We do; yes.

Senator KING. And upon those new inventions and new discoveries out of the same elements you get patents?

Mr. BAEKELAND. Yes; and frequently our older materials are in competition with the new, or some other material might be in competition with it.

The CHAIRMAN. You find yourself putting yourself out of business as you go along.

Mr. BAEKELAND. Sometines we do, and then there are substitute materials that can be used, too, where it is a matter of choice, and we 124491--39-pt. 3-18